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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934, For the year ended February 28, 1996
Commission File Number 0-22382
AURTEX, INC.
(Name of small business issuer in its charter)
Nevada 56-1051491
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7601 Lewinsville Road, Suite 200, McLean, Va. 22102
Address of principal executive office
Issuer's Telephone Number: (703) 761-1500
Securities Registered Pursuant of Section 12(b) of the Act: None
Securities Registered Pursuant of Section 12(g) of the Act:
Common Stock, $0.001 Par Value
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B in this form, and no disclosure will be contained, to the best of
registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment of
this Form 10-KSB. [_]
The issuer had no operating revenue during the year ended February 28, 1996.
Total Pages 92, Exhibit Index at Page 40
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As of April 30, 1996, there were 23,638,540 shares of the issuer's common stock
outstanding. The aggregate market value of the 15,172,290 shares of the issuer's
voting stock held by non-affiliates was $7,586,145 based on the last price on
that date as reported by the Nasdaq Stock Market. The sum excludes the shares
held by officers, directors, and stockholders whose ownership exceeded 5% of the
outstanding shares at April 30, 1996, in that such persons may be deemed
affiliates of the Company. This determination of affiliate status is not
necessarily a conclusive determination for other purposes.
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AURTEX, INC.
FORM 10-KSB
February 29, 1996
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Item
Number Description Page
- ------ ----------- ----
<S> <C> <C>
PART I
1 - Description of Business ....................................................................................... 4
2 - Description of Property........................................................................................ 11
3 - Legal Proceedings.............................................................................................. 11
4 - Submission of Matters to a Vote of Security Holders........................................................... 11
PART II
5 - Market for Common Equity and Related Stockholder Matters ....................................................... 13
6 - Management's Plan of Operations ................................................................................ 14
7 - Financial Statements ........................................................................................... 18
8 - Changes In And Disagreements with Accountants on Accounting and
Financial Disclosure ......................................................................................... 35
PART III
9 - Directors and Executive Officers of the Registrant; Compliance with
Section 16(a) of the Exchange Act ............................................................................ 35
10 - Executive Compensation ......................................................................................... 36
11 - Security Ownership of Certain Beneficial Owners and Management ................................................. 37
12 - Certain Relationships and Related Transactions ................................................................. 37
PART IV
13 - Exhibits and Reports on Form 8-K................................................................................ 37
</TABLE>
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PART I
ITEM 1. Business
Overview
Aurtex, Inc. ("the Company") has been a gold exploration and development company
operating primarily in the western United States and currently has interests in
two gold exploration projects in Idaho. The Company was incorporated in the
state of Nevada on March 19, 1990, and since inception, the Company has had no
operating revenues, and has accumulated a deficit of $9,586,585 through February
29, 1996.
During 1996, the Company changed its corporate strategy and focus and
concentrate its energies and efforts on building the Company into an
international telecommunications and software company through the acquisition of
already existing companies and products, and begin its transition from that of
being a gold exploration company.
As a first step in this process the Company has entered into a Definitive
Agreement for the acquisition of 100% of Global Communications Group, Inc.
("Global"). Included as part of this Agreement, the Company acquired an option
to purchase the assets and liabilities of Global Communications Technologies,
Inc. for $1.00. The Company has also entered into letters of intent with HIS
Technologies AG ("Histech") and dbe Software, Inc. ("DBE"). The Company, as more
fully described below, plans to effectuate a reverse stock split, declare a
stock dividend, change its name and close the Global transaction on June 17,
1996. The Company has not yet have entered into definitive agreements with
either Histech or DBE, but has invested $500,000 and $50,000, respectively into
these companies as outlined in the respective letters of intent. The initial
investments are represented by promissory notes which will be converted into an
equity investment based on the terms and conditions of each of the Definitive
Agreements when executed.
Reverse Stock Split and Stock Dividend
- ---------------------------------------
On May 15, 1996, the Board of Directors of the Company adopted a resolution
authorizing amendments to the Company's Amended and Restated Articles of
Incorporation approving a reverse split of the Company's outstanding Common
Stock, par value $0.001 per share on the basis of one new share of common stock
of the Company for each 5.909635 shares of presently outstanding Common Stock
and to change the name of the Company to "Sector Communications, Inc." The
Amendment was approved by written consent, dated May 15, 1996, of the holders of
approximately 52% of the outstanding shares of the Company's common stock.
Also on May 15, 1996, the Board of Directors of the Company adopted a resolution
approving a stock dividend of the Company's common stock on the basis of one
share of common stock of the Company for 4.727708 shares of presently
outstanding common stock immediately prior to the reverse stock split described
above (1.25 shares for every share of outstanding common stock immediately after
the reverse stock split).
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Global Communications Group, Inc.
- ---------------------------------
On April 19, 1996, the Company entered into a Stock Purchase and Exchange
Agreement with Global. The Agreement calls for, among other things, the
issuance of approximately 17,000,000 post-reverse split shares of common stock
in exchange for 100% of the issued and outstanding capital stock of Global.
As a part of this Agreement, the Company will also receive the option to
purchase the assets and liabilities of Global Communications Technologies, Inc.
for $1.00.
Global was incorporated in the state of Texas in 1993, and was subsequently
registered as a branch in the Republic of Bulgaria. Global currently provides
automatic international dialing to hotels in the Republic of Bulgaria by a
closed overlay network (the Network") as a first step in a series of related
telecommunications development projects. Global has executed a Joint Activity
Agreement ("JAA") with the Bulgarian Telecommunications Company, Ltd. ("BTC")
under which Global can provide such services for a period of five years. To
facilitate the development of the Network, Global has elected, under a separate
BTC annex of its JAA to install and operate optical fiber cables as a
substantial upgrade of the local loop to its individual customers. Global is in
the process of renegotiating their JAA with the Bulgarian Government.
Global currently operates solely in the Republic of Bulgaria, a country with a
population of approximately 8,775,000 and a total land area of 110,910 square
kilometers (slightly larger than the state of Tennessee). Bulgaria's domestic
and international telecommunications infrastructure is technologically-outdated
and falls substantially short of providing adequate capacity and level of voice,
data and facsimile services.
Global is currently providing services to twelve hotels in the Bulgarian capital
of Sofia and the second largest city and traditional fair and exhibition center
- - Plovdiv. Global has constructed five optical fiber cable routes in the city
of Sofia with a total length of 18 kilometers (6 fibers), creating an
infrastructure for future cost effective connection of additional customers and
further expansion.
Global offers to its customers the following basic services:
. Upgrading of the local loop to optical and direct connection to the
international gateway switch through the Global operated private network.
. World wide dialing access.
. Complete telecommunication equipment upgrade in the customer's premises,
installation of new state of the art PBX(s), a call accounting system, new
telephone sets, and other services.
Global's strategy is to provide its private switched voice international long
distance direct dialing network to additional hotels and resorts, western
businesses, banks and embassies in the city of Sofia and Plovdiv, and to expand
these services to the major Black Sea resort areas clustered around the cities
of Varna, Plovdiv and Bourgas, as well as the well known Bulgarian mountain
resorts of Borovetz and Pamporovo. Global provides a private switched voice
international long distance direct dialing network to what it believes is the
most lucrative market segments, the hotel
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and resort industry and individual business customers, for such services in
Bulgaria. Global bills its customers for such services in US dollars and
collects the payments in local currency at the conversion rate on the day
payment is due in order to minimize currency-translation and devaluation risk.
HIS Technologies AG
- -------------------
On April 18, 1996 the Company entered into a Letter of Intent for the
acquisition of up to 80% of the capital interest in Histech, and on May 27, 1996
entered into a Memorandum of Understanding with Histech in order to clarify
certain matters to be contained in a Definitive Agreement. The Company and
Histech are in the process of preparing a definitive agreement, but have not yet
executed one.
Histech is a Swiss corporation that is focusing on the development and sales of
Open VMS operating system management software with its suite of X-Series system
tools. Histech is also developing multi-platform system management tools for
extension of its system management tools to the Windows NT and UNIX client
server configurations.
The Letter of Intent and Memorandum of Understanding provide for, among other
things, the acquisition of up to 80% of the outstanding capital stock of
Histech in two stages. The first stage provides that the Company purchase
previously unissued capital stock of Histech representing a 30% capital stock
interest for $1,500,000. In May 1996, the Company provided $500,000 as the
first installment of this investment and plans to provide the remaining
$1,000,000 to Histech in July 1996, as required by the Memorandum of
Understanding.
Upon closing the first stage, the Company has the option to acquire a further
50% of the outstanding capital stock directly from the Histech shareholders
beginning upon the completion of the first stage investment and ending eighteen
months thereafter. The purchase price for this further 50% interest will be
payable in Company common stock based on a purchase price of $10,500,000, with
the minimum number of shares Company's common stock to be issued for the
purchase of this interest set at 4,700,000. The Company has the option to
increase the number of common shares to be paid for this further interest,
should the average price of the Company's common stock be lower than $2.25 per
share for the twenty business days preceding the closing date of the second
stage, to bring the valuation of the second stage purchase to $10,500,000, or
pay the entire $10,500,000 in cash.
dbe Software, Inc.
- ------------------
On April 18, 1996, the Company entered into a Letter of Intent for the
acquisition of up to 100% of DBE. The Company and DBE are in the process of
preparing a Definitive Agreement, but have not yet executed one.
The Letter of Intent provides for, among other things, the Company to acquire up
to 100% of the outstanding capital stock of DBE in two stages. The first stage
provides that the Company purchase previously unissued capital stock of DBE
representing a 20% capital stock interest for $1,500,000. In June 1996, the
Company invested $50,000 as the first installment of this investment and plans
to provide the remaining $1,450,000 to DBE as follows: $150,000 in June
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1996, $300,000 in July 1996 and $1,000,000 in August 1996 as required by the
Letter of Intent.
Upon closing the first stage, the Company has the option to acquire, by merger,
the remaining 80% of the outstanding capital stock directly from the DBE
shareholders beginning upon the completion of the first stage investment and
ending on May 1, 1997. The consideration paid in the merger of the remaining
80% interest will be an aggregate of $10,600,000. Each of the individual DBE
shareholders, subject to certain conditions, shall have the right to receive in
lieu of a cash payment, their portion of the purchase price in Company common
stock.
The Letter of Intent also provides for a contingent payment of unregistered
Company common stock to be made to the DBE shareholders based on certain
percentages and achieved levels of sales for a one year period, beginning on the
first day of the second quarter following the date of closing of the second
stage.
Change of the Name of the Company
- ---------------------------------
The Board of Directors of the Company adopted a resolution authorizing an
amendment to the Company's Amended and Restated Articles of Incorporation to
change the name from "Aurtex. Inc." to "Sector Communications, Inc." Approval
of the Amendment by the stockholders was obtained by written consents in lieu of
a meeting, dated May 15, 1996, of the holders of a majority of the voting power
of the outstanding shares of the Company's Common Stock.
Effective May 31, 1996, the Company has transferred certain assets, liabilities
and obligations of its gold business to Krissos Resources, Inc., a newly formed,
wholly owned subsidiary of the Company. Krissos will continue exploring the
Company's Ketchum and Vienna Properties "See Managements Plan of Operations".
The Company adopted the name Aurtex, Inc. when it was engaged in the business of
mineral exploration and developing its Gold Assay System. The Company will no
longer be primarily involved in that business and the Board of Directors feels
that it would be more appropriate for the Company to adopt a corporate name
which relates to its future business.
MINING CLAIM PROPERTIES
Historically, the Company's principal activities have been conducting surface
and exploration drilling on its two gold exploration projects located in Idaho.
Vienna Project - On October 18, 1994, The Company entered into an Exploration
License and Option Agreement to acquire a 100% interest in 43 patented and 13
unpatented mining claims encompassing approximately 850 acres of the historic
Vienna district in central Idaho. This district has produced an estimated two
million ounces of silver and an undefined amount of gold since 1880.
During 1994 and 1995, the Company began investigation of the Vienna Project in
central Idaho with the objective of taking what was a historic silver-producing
district and evaluating the gold potential. The Company's geologists identified
seven highly-altered zones, identified as Webfoot A&B, Vienna A&C, and Solace
A, B and C.
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The Company's preliminary evaluation program during the 1995 exploration season
was relatively short due to an exceptionally heavy winter. As a result no
exploration drilling was conducted. The 1995 exploration program consisted of
analysis and assay of core that was drilled by previous operators from
underground in the Webfoot Mine (one of three main historic mines in the
district), surface trenching and geological mapping through the district, and
preliminary petrographic and metallurgical studies. The Company's geologist
feels, that despite the limited nature of the results to date (the
interpretations are considered preliminary because of the lack of surface
drilling information), that the property appears to hold considerable promise
for hosting a moderate-sized (100,000 to 200,000 ounce) gold ore body. Channel
sampling and the previous underground drilling in the 600-foot level of the
Webfoot Mine confirm an approximate 100 to 150 foot width of ore averaging 0.04
oz/ton gold. Surface trenching at Webfoot showed that material of similar grade
continued upward for 100 to 700 feet to the surface. The width of the ore-grade
material at the surface is slightly narrower, averaging about 10 to 29 feet.
Two other mineralized zones have been identified by the Company's geologist at
Solace and Vienna. Although these zones were the focus of considerable
underground mining in the past, most of the workings on these zones are
presently inaccessible. Therefore only limited underground information from
Solace and Vienna exists. Surface trenching returned encouraging results,
including 35 feet averaging 0.04 oz/ton gold at Vienna and 60 feet averaging
0.05 oz/ton at Solace.
The Webfoot zone appears to be the largest of the mineralized zones on the
property and has a fairly well understood geometry and orientation. On that
basis, the services of the Lodestone Group of Englewood, Colorado have been
engaged to direct a gold exploration surface drilling program to test the
Webfoot vein system. Based on the results of this drilling program, the Company
will decide whether to make a payment of $250,000 by August 31, 1996 to extend
the Exploration License and Option Agreement for an additional three year
feasibility period. The Company has the right at the end of the feasibility
period to purchase the property for a payment of $3,500,000 on or before April
15, 1999.
The Company does not have a proven or probable reserve at its Vienna project.
Furthermore, there can be no assurances that the these claims may actually host
an economically minable gold deposit, or that the necessary funding to begin
production could be obtained.
Ketchum Project - Seven years of geological investigation, sampling and
exploratory drilling have led to what the Company believes is the discovery of
an extensive low-grade epithermal gold system on the Waldemar-Lindgren-Watterson
claims (the "Ketchum Project") in central Idaho.
Grassroots exploration began in central Idaho in 1988 and eventually lead to
staking 576 unpatented claims. Encouragement was initially obtained from gold
assays of 1 to 2 ppm from in and around the historic lead-silver workings in the
area. Subsequent soil surveying delineated several promising targets not
related to the historic workings.
During the 1991 to 1994 field exploration seasons, 40 reverse circulation holes
were drilled, totaling 29,080 feet. Of the samples recovered from these holes,
55% have a gold concentration in excess of 10 ppb. The drill hole results
suggest that a large volume of mineralized rock continues to significant depth
beneath the surface soil anomalies. So far however, the high-grade
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zones appear to be somewhat discontinuous and a minable volume of economic grade
has not yet been discovered.
Both surface work and drilling have led to a detailed understanding of the
geology of the claim block. Most of the area is underlain by Wood River
sandstone; along the western edge of the claim block, the sedimentary section is
intruded by a tertiary stock. This rock package is locally overlain in
uncomfortable contact by tertiary volcanic rocks. Although it is difficult to
find definitive cross-cutting relationships to indicate the relative ages of
base-metals and gold-arsenic mineralization, geologic relationships suggest that
the base-metal mineralization is Cretaceous in age, and may relate in a broad
sense to emplacement of the Idaho batholith, which gold-arsenic mineralization
is tertiary in age, probably coinciding in age with Challis volcanism.
Company geologists decided to focus on areas where the sandstone is in contact
with volcanic rocks. Targets of this sort stem from the notion that gold-
bearing hydrothermal solutions may have risen and ponded beneath the volcanic
section due to a drop in permeability. Although geologic relationships suggest
that the uncomfortable contact between sandstone and the overlying volcanics are
throughout the property, these geologists have singled out two localities in the
current claim block as the most promising in this regard, and hence are a more
favorable host rock for gold.
For the 1996 exploration season, the Company has engaged the services of
Agricola Metals Company, a principal of which is a shareholder of the Company,
to direct a gold exploration drilling program in one of these two areas. The
Company also plans to continue to perform the necessary tasks to ensure that
future exploration permits are granted and that good title to the unpatented
mining claims is maintained.
In August 1995, after careful consideration and review of the Ketchum claim
block, the number of unpatented claims held at the Ketchum Property were reduced
by 397 from 656 to 259. Claims on which it was believed little potential of
containing a minable gold deposit was held and/or which were located in an
environmentally sensitive area where it would be difficult to obtain the
necessary permits for exploration and development of the property were dropped.
The reduction in the number of unpatented claims is also consistent with the
objective to reduce costs since there is an annual rental payment requirement of
$100 per claim on unpatented claims.
The Company does not have a proven or probable reserve at its Ketchum Project.
Furthermore, there can be no assurances that these claims may actually host an
economically minable gold deposit, or that the necessary funding to begin
production could be obtained.
TITLE TO MINING CLAIM PROPERTIES
The Company's Idaho properties consist, to a large extent, of unpatented mining
claims upon unappropriated federal land pursuant to procedures established by
the federal and state laws.
Interests in the perfected unpatented mining claims on public land are subject
to the fee title of the United States of America. The Company believes that it
has taken all actions necessary to perfect its interests in the mining claims
under Federal statutes and regulations and intends to continue to perform the
necessary work and filings as required. There can be no assurance however that
the interest of the Company in its mining claims will not be subject to contest.
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The Company does not have title options on its unpatented mining claims or
leased properties and, therefore, has not identified potential adverse claimants
nor has it quantified the risk that any adverse claimant may successfully
contest all or a portion of its title to the claims. Furthermore, the validity
of all unpatented mining claims is dependent upon inherent uncertainties such as
the sufficiency of the discovery of minerals, proper posting and marking of
boundaries, and possible conflicts with other claims not determinable from
descriptions of record.
AVAILABILITY OF MINERAL DEPOSITS; COMPETITION AND MARKETS
The Company plans to continue the exploration of its properties in Idaho. Since
many companies are engaged in the exploration of mineral properties, and may
have substantially greater financial resources than the Company, The Company may
be at a disadvantage with respect to some of its competitors in the acquisition
and development of mining properties and companies.
SOURCES AND AVAILABILITY OF RAW MATERIALS
The materials and vendors necessary for the Company to continue its exploration
activities are available from many sources. The Company foresees no shortage of
supplies or difficulties in acquiring materials and vendors necessary to conduct
its business as presently conducted.
ENVIRONMENTAL AND REGULATORY MATTERS
The Company is engaged in exploring for gold and is subject to various Federal,
state and local provisions regarding environmental and ecological matters. Many
of the Company's exploration activities are conducted on public lands. The
U.S.D.A. Forest Service extensively regulates exploration activities conducted
in National Forests where most of the Company's claims are located. All
operations of the Company involving the exploration for minerals are subject to
existing laws and regulations adopted by Federal, state and local governmental
authorities. Requirements imposed by any such authorities could be costly, time
consuming, and may delay operations. Future legislation and regulations,
including those designed to protect the environment, as well as future
interpretations of existing laws and regulations, may require substantial
increases in equipment and operating costs to the Company and may cause delays,
interruptions, or a termination of operations. While to date, environmental
requirements have not had a material effect on the Company's operations, The
Company cannot accurately predict or estimate the impact of any future laws or
regulations, or future interpretations of existing laws and regulations, on its
operations.
GOLD ASSAY SYSTEM
The Company has the world wide right to make, sell and use the Gold Assay
System. The Company ceased research and development efforts related to the Gold
Assay System in 1995.
EMPLOYEES
At February 29, 1996, The Company had two full time employees. The Company also
uses independent contractors and consultants, as necessary. At May 31, 1995,
the Company had four full time employees and anticipates hiring additional
employees in the future.
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PRINCIPAL OFFICE
The Company is a Nevada corporation with its executive office located at 7601
Lewinsville Road, Suite 200, McLean, Va. 22102, telephone number (703)
761-1500.
ITEM 2. PROPERTIES
MINING CLAIM PROPERTIES
The Company's mining claim properties are described in the "Mining Claim
Properties" section of Item 1.
OFFICE FACILITIES
At February 29, 1996, the Company leases the following facilities:
<TABLE>
<CAPTION>
Approximate
Square Lease
Location Primary Use Footage Expiration
- ------------------- ---------------- ----------- --------------
<S> <C> <C> <C>
San Francisco, CA Corporate Office 1,300 July 1999
Englewood, CO Corporate Office 3,664 September 2000
</TABLE>
The Company is committed under noncancellable operating lease agreements for
office space at the above locations and has subleased both these locations on
terms similar to its master leases.
In connection with the appointment of Mr. Theodore J. Georgelas as the Company's
new President and Chief Executive Officer, The Company moved the location of its
corporate office to Northern Virginia and is currently renting office space in
McLean Virginia under a short term sublease agreement while it negotiates a
noncancellable operating lease. DBE and other affiliated companies of Mr.
Georgelas are subtenants of the Company's under its current lease.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to any material pending legal proceedings. The
complaint received by the Company for breach of contract in July 1995 was
dismissed by the United States District Court, Northern District of California
on May 31, 1996.
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
No matters were brought to a vote of the Security Holders during the quarter
ended February 29, 1996.
The Board of Directors of the Company adopted, on May 15, 1996, a resolution
authorizing amendments to the Company's Amended and Restated Articles of
Incorporation approving a reverse split of the Company's outstanding Common
Stock, par value $0.001 per share on the basis of one new share of common stock
of the Company for each 5.909635 shares of presently outstanding Common Stock
and to change the name of Aurtex to "Sector Communications, Inc.".
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The Amendment was approved in accordance with Nevada General Corporation Law
(the "Nevada Law") which provides that the written consent of the holders of
outstanding shares of voting capital stock, having not less than the minimum
number of votes which would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted, may
be substituted for a special meeting. Pursuant to Nevada Law, a majority of the
outstanding shares of voting capital stock entitled to vote thereon is required
in order to amend the Company's Amended and Restated Articles of Incorporation.
In order to eliminate the costs and management time involved in holding a
special meeting and in order to effect the Amendment as early as possible in
order to accomplish the purposes of the Company as hereafter described, the
Board of Directors of the Company voted to utilize the written consent of the
holders of a majority in interest of the voting capital stock of the Company.
As discussed hereafter, the Board of Directors has recommended the Amendment in
order to permit the closing of the stock purchase agreement with Global which
cannot be closed at the present time based on the present authorized
capitalization of the Company.
The Amendment was approved by the written consent, dated May 15, 1996, of the
holders of approximately 52% of the outstanding shares of Common Stock.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's common stock trades on The Nasdaq SmallCap Market tier of The
Nasdaq Stock Market under the symbol "AURT". The following table sets forth the
high and low sales price for each quarter since the Company's listing on Nasdaq,
as reported by the Nasdaq Stock Market.
<TABLE>
<CAPTION>
Quarter Ended High Low
- ------------------- ---- ----
<S> <C> <C>
May 31, 1994 5.31 2.38
August 31, 1994 3.25 1.75
November 30, 1994 1.75 1.00
February 28, 1995 1.03 0.50
May 31, 1995 0.78 0.44
August 31, 1995 0.87 0.41
November 30, 1995 0.81 0.31
February 29, 1996 0.50 0.28
</TABLE>
At May 31, 1996 there were 269 holders of record of the Company's common stock.
The Company believes that many additional holders of the Company common stock
are unidentified because their shares are held by brokers in nominee accounts or
"street name". The number of beneficial owners holding stock in nominee or
"street name" is estimated by the Company to be approximately 750.
The Company has not paid cash dividends on its common stock and presently has no
intentions to do so. The Company expects to retain any future earnings to fund
operations for the foreseeable future.
As of May 31, 1996, there were outstanding, 25,638,540 shares of common stock
and warrants to purchase 6,278,542 shares of common stock at $ 0.30 per share of
which warrants for the purchase of 6,050,542 shares of common stock expire on
December 31, 1996, with the remaining warrants expiring in October 1997.
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ITEM 6. MANAGEMENT'S PLAN OF OPERATIONS
During 1996, the Company changed its corporate strategy and focus and decided
to concentrate its energies and efforts on building the Company into an
international telecommunications and software company through the acquisition of
already existing companies and products, and begin its transition from that of
being a gold exploration company.
As a first step in this process the Company has entered into a Definitive
Agreement for the acquisition of 100% of Global Communications Group, Inc.
("Global"). Included as part of this Agreement the Company acquired an option
to purchase the assets and liabilities of Global Communications Technologies,
Inc. for $1.00. The Company has also entered into letters of intent with
Histech and DBE. Also as a part of this process, the Company declared a reverse
stock split and a stock dividend, changed its name and will close the Global
transaction on or about June 17, 1996. The Company has not yet have entered
into, but is in the process of finalizing definitive agreements with both
Histech and DBE. Subsequent to February 29, 1996, has invested $500,000 and
$50,000, respectively into these companies as outlined in their respective
letters of intent.
Following the June 17,1996 closing of with Global, the Company will begin
integrating the operations of Global into the Company and establishing plans for
expanding Global's operations, first to additional customers along the
previously laid fiber cable, to other areas in the Republic of Bulgaria, and
then to other Eastern European counties. As described in Part 1, "business"
Global is currently providing services to twelve hotels in the Bulgarian capital
of Sofia and the second largest city and traditional fair and exhibition center
- - Plovdiv. Global has constructed five optical fiber cable routes in the city
of Sofia with a total length of 18 kilometers (6 fibers), creating an
infrastructure for future cost effective connection of additional customers and
further expansion.
Global's operations are currently generating positive cash flow which the
Company expects to use, along with new capital infusions or funds currently
available to it to expand Global's operations.
The Company also plans to continue expending significant efforts to locate
additional acquisitions and strategic partners.
The Company intends to fund the expansion of Global and the purchase of the
equity interests in HIS and DBE by raising additional equity capital. The
Company has a verbal commitment, from an offshore investment group, of which a
shareholder of Global is a part of, for $5,500,000. The Company received
$500,000 of this amount in May 1996 when it sold in an offshore private
placement 2,000,000 shares of its common stock. The proceeds of these funds
were used by the Company for its initial investment in Histech.
The Company's capital requirements under its letters of intent with Histech and
DBE require the Company to provide these companies with a total of $3,000,000
through August 1996, of which $550,000 has already been provided. Upon
completion of these initial capital investments the Company will own 30% and 20%
capital stock interest Histech and DBE, respectively.
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<PAGE>
Reverse Stock Split, Stock Dividend and Other Stock Issuances
- -------------------------------------------------------------
The Company set June 17, 1996 as the record date for a reverse stock split of
one share for every 5.909635 currently outstanding shares of common stock and
for a stock dividend of 1.25 shares of post reverse split common stock for each
share of common stock immediately after the reverse stock split and prior to the
issuance of shares to the shareholders of Global and the grant of restricted
stock to the Company's officers, directors and employees, the effect on the
Company's capital structure is shown in the table below.
<TABLE>
<CAPTION>
<S> <C>
Shares of common stock issued and outstanding on February 29, 1996 23,638,540
Issuance of additional shares in a Regulation S offering in May 1996 2,000,000
-----------
Shares of common stock issued and outstanding pre-split 25,638,540
Transactions scheduled to occur on June 17, 1996:
Impact on outstanding shares of reverse stock split (21,300,110)
Impact of stock dividend 5,423,038
Issuance to Global Communications Group, Inc. stockholders 17,000,000
Issuance to officers and employees under employment agreements 800,000
Issuance to directors 499,997
-----------
Shares of common stock issued and outstanding on June 17,1996 28,061,465
===========
</TABLE>
LIQUIDITY
- ---------
As described above, the Company has received a private placement equity
commitment for $5,500,000 from an offshore investment group, of which a
shareholder of Global is a part of, $500,000 of which has been received
subsequent to year end. The Company believes that with the proceeds from this
commitment and its current assets, primarily 1,671,852 shares of Northfield
Minerals, Inc. common stock it will be able to meet its investment commitments
and maintain its current and planned operations for at least the next twelve
months, including the exploration of its Ketchum and Vienna projects described
below. Should the Company's plans change, it will need to raise additional
funds for the acquisition of existing companies or products, expand Global's
telecommunications network, and/or for working capital. The Company will
attempt to raise capital as necessary, however no assurance can be given that
the necessary financing will be available, or if available, that such financing
can be secured on terms acceptable to the Company. If the Company cannot raise
the necessary financing, the Company will sell additional shares of Northfield
common stock it holds to the extent it is able to sell such shares. If adequate
funding is not available to the Company it may be required to curtail its
business activities accordingly, cease certain operations or expansion plans,
sell certain equity investments, seek out strategic partners or attempt to be
acquired.
15
<PAGE>
GOLD EXPLORATION ACTIVITIES
- ---------------------------
The Company plans to continue to continue its gold exploration activities on its
Vienna Property and Ketchum Property.
Vienna Property - Gold exploration activities at the Vienna Property during the
1995 exploration season included additional geological mapping of the claim area
and mechanized trenching and sampling across areas of known mineralization.
Results of the trenching program confirmed what the Company's geologists believe
to be the surface extent of the mineralized zones, provided information about
gold bearing rock types and essential information concerning the location of the
core drill targets planned for the 1996 exploration season. Exploration
drilling of the Vienna property was not be conducted during the 1995 exploration
season due to a shorter than normal exploration season resulting from excessive
snowfall and difficulty locating a qualified drilling contractor prior to the
first snowfall.
The Webfoot zone appears to be the largest of the mineralized zones on the
property and has a fairly well understood geometry and orientation. On that
basis, the Lodestone Group of Englewood, Colorado has been engaged to direct a
gold exploration surface drilling program to test the Webfoot vein system.
Based on the results of this drilling program The Company will decide whether to
pay $ 250,000 by August 31, 1996 to extend the Agreement for an additional three
year feasibility period. The Company has the right at the end of the feasibility
period to purchase the property for a payment of $ 3,500,000 on or before April
15, 1999.
The Company does not have a proven or probable reserve at its Vienna project.
Furthermore, there can be no assurances that the these claims may actually host
an economically minable gold deposit, or that the necessary funding to begin
production could be obtained.
Ketchum Project - In August 1995, after careful consideration and review of the
Ketchum claim block, the number of unpatented claims held on the Ketchum
Property was reduced by 397 from 656 to 259. Those claims where The Company
believed there was little potential for hosting a minable gold deposit or those
located in an environmentally sensitive area where it would be difficult to
obtain the necessary permits for exploration and development of the property
were dropped. The reduction in the number of unpatented claims is also
consistent with cost reduction since there is an annual rental payment
requirement of $ 100 per claim on unpatented claims. The Company does not
believe that this reduction in the size of the claim block has any impact on the
capitalized amount recorded in the financial statements.
During previous exploration seasons evidence of alteration and mineralization in
volcanic rocks was obtained at two localities in the current claim block. The
Company's geologists believe that this may give promise of more intense
alterations and mineralization in the underlying sandstones which are more
permeable, and hence are a more favorable host rock for gold. During the 1996
exploration season, The Company has engaged the services of Agricola Metals
Company, a principal of which is a shareholder of The Company, to direct a gold
exploration drilling program in one of these areas. The Company also plans to
continue to perform the necessary tasks to ensure that future exploration
permits are granted and that good title to the unpatented mining claims is
maintained.
16
<PAGE>
The Company does not have a proven or probable reserve at its Ketchum Project.
Furthermore, there can be no assurances that these claims may actually host an
economically minable gold deposit, or that the necessary funding to begin
production could be obtained.
THE GOLD ASSAY SYSTEM
- ---------------------
The Company ceased research and development efforts related to the Gold Assay
System in 1995, and has closed its facilities in Palo Alto, California and
Ketchum, Idaho, placed in storage the equipment and supplies necessary to
operate a Gold Assay System, and has sold all the remaining equipment and
supplies. The Company continues to have the exclusive worldwide right to make,
sell and use the Gold Assay System. Patent applications covering the
proprietary Gold Assay System are pending with the U.S. Office of Patents and
Trademarks and in selected countries worldwide. The Company will continue to
perform the necessary tasks to maintain its patents and/or patent applications.
17
<PAGE>
ITEM 7. FINANCIAL STATEMENTS
Index to Financial Statements
Independent Auditors' Report ........................................ 19
Balance Sheet as of February 29, 1996 ............................... 20
Statement of Operations for the years ended February 29, 1996 and
February 28, 1995, and the cumulative period from March 19, 1990,
inception, to February 29, 1996 .................................... 21
Statements of Changes in Stockholders' Equity for the years ended
February 29, 1996 and February 28, 1995 and the cumulative period
from March 19, 1990, inception, to February 29, 1995 ............... 22
Statements of Cash Flows for the years ended February 29, 1996
and February 28, 1995, and the cumulative period from March 19,
1990, inception, to February 29, 1996 .............................. 23
Notes to Financial Statements........................................ 25
18
<PAGE>
REPORT OF INDEPENDENT AUDITORS
------------------------------
To the Stockholders and Board of Directors of
Aurtex, Inc.
McLean, Virginia
We have audited the accompanying balance sheet of Aurtex, Inc. as of February
29, 1996, and the related statements of operations, stockholders' equity, and
cash flows for the two years ended February 29, 1996 and February 28, 1995, and
for the period from March 19, 1990 (date of inception) to February 29, 1996.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Aurtex, Inc. as of February 29,
1996, and the results of its operations and its cash flows for the two years
ended February 29, 1996 and February 28, 1995, and for the period from March 19,
1990 (date of inception) to February 29, 1996, in conformity with generally
accepted accounting principles.
Stark Tinter & Associates, LLC
Englewood, Colorado
June 5, 1996
19
<PAGE>
AURTEX, INC.
BALANCE SHEET
<TABLE>
<CAPTION>
February 29,
1996
------------
<S> <C>
ASSETS
Current Assets:
Cash $ 345,177
Investments (Note 2) 443,425
Note Receivable - Related Party (Note 4) -
Note Receivable (Note 5) -
Deposits and Prepaid Expenses 119,390
-----------
Total Current Assets 907,992
Equipment, Net of Accumulated Depreciation of $38,773 62,668
Capitalized Mining Claim Costs 2,240,000
-----------
Total Assets $ 3,210,660
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts Payable $ 185,607
Due to Stockholders and Affiliated Entities (Note 6) 100,047
-----------
Total Current Liabilities 285,654
-----------
Commitments and Contingencies (Notes 3 and 10) -
Stockholders' Equity: (Note 7)
Preferred stock, $.001 per share par value, 5,000,000
shares authorized, no shares issued and outstanding -
Common stock, $.001 per share par value, 50,000,000 shares
authorized, 23,638,540 shares issued and outstanding 23,639
Additional Paid in Capital 12,487,952
Accumulated Deficit (9,586,585)
-----------
Total Stockholders' Equity 2,925,006
-----------
Total Liabilities and Stockholders' Equity $ 3,210,660
===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
20
<PAGE>
AURTEX, INC.
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 29, 1995, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO FEBRUARY 29, 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Cumulative
From
Year Ended Year Ended March 19, 1990
February 29, February 28, Date of
1996 1995 Inception
------------- ------------ --------------
Aurtex Gold Assay System Development Costs (Note 1) $ 359,319 $ 814,319 $ 2,239,093
Gold Exploration Costs (Note 11) 522,981 2,613,097 3,136,078
General and Administrative Costs 1,192,498 1,719,064 4,328,139
------------- ------------ -----------
Total Operating Costs 2,074,798 5,146,480 9,703,310
Equity in Loss of Pangold S.A. 15,922 15,673 31,595
Allowance for Possible Writedown of Note Receivables (Notes 4 and 5) 333,898 - 333,898
Interest Expense, related parties 3,158 28,600 92,404
Interest Income (52,904) (159,927) (299,602)
Gain on the Marketable Securities (275,020) - (275,020)
------------- ------------ -----------
Net Loss $(2,099,852) $(5,030,826) $(9,586,585)
============= ============ ===========
Net Loss per Share $ (0.10) $ (0.28) $ (0.78)
============= ============ ===========
Weighted Average Common Shares Outstanding 21,782,177 18,249,646 12,249,540
============= ============ ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
<PAGE>
AURTEX, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED FEBRUARY 29, 1995 AND THE CUMULATIVE
PERIOD FROM INCEPTION, MARCH 19, 1990 TO FEBRUARY 28, 1995
<TABLE>
<CAPTION>
Additional Stock
Common Stock Paid In Accumulated Subscriptions
Shares Amount Capital Deficit Receivable Total
---------- ------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock on March 19, 1990. 2,000,000 $ 2,000 $ (1,000) $ $ $ 1,000
Merger with Adcom Systems, Inc. on December 4,
1992 accounted for as a recapitalization,
effective March 19, 1990, inception. 411,780 412 (84,691) (84,279)
Issuance of Preferred Stock in connection with
the transfer mining claims on August 9, 1991,
and converted to common stock simulantaneous
with the merger with Adcom Systems, Inc. on
December 4, 1992. 8,010,000 8,010 (7,260) 750
Sale of Preferred Stock in private offering
between January 1 and February 14, 1992, and
converted to common stock simultaneous with the
merger with Adcom Systems, Inc. 187,870 188 563,420 563,608
Sale of 327,000 Series C Warrants on January 1,
1992. 3,270 3,270
Sale of Preferred Stock in private offering
between March 1 and September 23, 1992, and
converted to common stock simultaneous with the
merger with Adcom Systems, Inc. 516,343 516 1,548,514 1,549,030
Sale of 522,000 Series B Warrants and 3,342,000
Series C Warrants between June 12 and
September 16, 1992. 38,640 38,640
Common stock to be issued in connection with the
merger of Adcom Systems, Inc. 749,995 750 19,500 (20,250) 0
Sale of common stock in a private offering
between June 15 and August 31, 1993. 2,191,600 2,192 4,381,008 4,383,200
Exercise of Stock Options between April 30, 1993
and January 31, 1994. 605,000 605 29,645 30,250
Exercise of Series B Warrants and Series C
Warrants between May 13, 1993 and February 28,
1994. 1,223,281 1,223 1,652,038 1,653,261
Conversion of accrued salaries to common stock on
June 30, 1993. 62,500 63 124,937 125,000
Receipt of stock subscription 20,250 20,250
Series C Warrants issued to two directors on
November 1, 1993 43,500 43,500
Sale of common stock in a private financing
between May 10 and July 15, 1994. 1,831,623 1,831 3,266,589 3,268,420
Stock issued for services in connection with a
private financing in June 1994 42,857 43 (43) 0
Exercise of Warrants In June of 1994 739,691 740 738,951 739,691
Exercise of Stock Options In August and December
of 1994 1,090,000 1,090 53,410 54,500
Other 20,000 20 (20)
Net loss, inception to February 28, 1995 (7,466,733) (7,486,733)
---------- ------- ----------- ----------- -------- -----------
Balances at February 28, 1995 19,682,540 19,683 12,370,408 (7,466,733) 0 4,903,358
Stock Issued to an Officer (Note 7) 200,000 200 20,800 21,000
Stock Issued to BAGA as up-front placement fee
(Note 7) 3,000,000 3,000 (3,000) 0
Exercise of Stock Options 300,000 300 14,700 15,000
Sale of common stock in a private financing 456,000 456 85,044 85,500
Net Loss (2,099,852) (2,099,852)
---------- ------- ----------- ----------- -------- -----------
Balances at February 29, 1996 23,638,540 $23,639 $12,487,952 $(9,566,585) $ 0 $ 2,925,006
========== ======= =========== =========== ======== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
<PAGE>
AURTEX, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED FEBRUARY 29, 1996 AND FEBRUARY 28, 1995, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Cumulative
From
Year Ended Year Ended March 19, 1990
February 29, February 28, Date of
1996 1995 Inception
----------- ----------- --------------
<S> <C> <C> <C>
Cash Flows From Operating Activities:
Net Loss $(2,099,852) $(5,030,826) $(9,586,585)
Adjustments to Reconcile Net Loss to
Cash Flow Used In Operations:
Depreciation 52,379 44,751 108,700
Gain on the Sale of Marketable Securities (275,020) (275,020)
Loss on the Disposal of Equipment 65,699 65,699
Allowance for Uncollectable Notes Receivable (Note 4 and 5) 333,898 333,898
Accrued Interest Income on Restricted Marketable
Securities, Treasury Bills and Notes Receivable 2,631 (38,894) (76,742)
Equity in Loss of Pangold S.A. 15,922 15,673 31,595
Write Down of Prior Years Mining Claim Costs (Note 9) -- 913,027 913,027
Compensation Portion of Restricted Stock and Warrant Grants 21,000 -- 64,500
Increase in Deposits and Prepaid Expenses (50,706) (43,678) (125,390)
Increase (Decrease) in Accounts Payable 9,977 (2,056) (70,206)
Increase (Decrease) in Due to Shareholders and
Affiliated Entities (9,542) (144,619) 143,105
----------- ----------- -----------
Cash Flows Used In Operating Activities (1,933,614) (4,286,622) (8,473,419)
----------- ----------- -----------
Cash Flows From Investing Activities:
Redemption of Treasury Bill -- 869,256 0
Increase in Capitalized Mining Claim Costs -- (100,000) (2,634,810)
Loan to Combined Metals Reduction Company (125,000) (125,000)
Purchase of Equipment (3,504) (195,570) (281,567)
Proceeds from the Disposal of Equipment 44,500 44,500
Investment in Pangold S.A. (175,000) (525,000) (700,000)
Proceeds from the Sale of Marketable Securities 500,000 500,000
Purchase of Adcom Systems, Inc. -- -- (84,279)
----------- ----------- -----------
Cash Flows Provided By (Used In) Investing Activities 240,996 48,686 (3,281,156)
----------- ----------- -----------
Cash Flows From Financing Activities:
Proceeds From Notes Payable - Stockholder 781,767
Repayment of Notes Payable - Stockholder -- (25,000)
Increase of Notes Receivable - Related Parties (705,000) (705,000)
Repayment of Notes Receivable - Stockholder 32,365 500,000 532,365
Proceeds From the Sale of Common Stock, Net 85,500 3,268,420 8,960,758
Proceeds From the Sale of Series B and Series C Warrants -- 41,910
Proceeds From the Exercise of Series B Warrants -- 1,433,264
Proceeds From the Exercise of Series C Warrants 320,000 539,991
Proceeds From the Exercise of Options 15,000 54,500 99,750
Receipt of Stock Subscription 419,691 -- 439,941
----------- ----------- -----------
Cash Flows Provided By Financing Activities 552,556 3,437,920 12,099,752
----------- ----------- -----------
(Decrease) Increase in Cash (1,140,062) (800,016) 345,177
Cash, Beginning of Period 1,485,239 2,285,255 0
----------- ----------- -----------
Cash, End of Period $ 345,177 $ 1,485,239 $ 345,177
=========== =========== ===========
</TABLE>
(Continued)
23
<PAGE>
AUTREX, INC.
STATEMENTS OF CASH FLOWS
(Continued)
FOR THE YEARS ENDED FEBRUARY 28, 1995, AND THE
CUMULATIVE PERIOD FROM INCEPTION, MARCH 19, 1990 TO FEBRUARY 29, 1996
<TABLE>
<CAPTION>
Cumulative
From
Year Ended Year Ended March 19, 1990
February 29, February 28, Date of
1996 1995 Inception
------------ ------------ -------------
<S> <C> <C> <C>
Supplemental Cash Flow Information:
Noncash financing activities involving
the assumption of liabilities and issuance
of capital stock in connection with the
transfer of the mining claims as follows:
Issuance of capital stock $ 750
Assumption of liabilities 517,467
---------
Capitalized mining claim costs $ 518,217
=========
Receipt of marketable securities in connection
with the sale of 250,000 units $ 750,000
Transfer of marketable securities to stockholder in
satisfaction of a note payable (750,000)
---------
$ 0
=========
Issuance of capital stock in exchange for a
reduction in the amount due to a stockholder $ 140,000
=========
Issuance of common stock in receipt of
notes receivable $419,691 $ 439,941
======== =========
Offset of accrued interest and accounts payable due to a
shareholder against accrued interest receivable as follows:
Accrued interest on shareholder note $ 18,113
Advances payable to shareholder 22,366
---------
Offset against accrued interest receivable
on restricted marketable securities $ 40,479
=========
Issuance of 62,500 shares of common stock in
exchange for a reduction in the amount due
to individual stockholders. $125,000 $ 125,000
======== =========
Issuance of 3,000,000 shares of common stock as
an up-front placement fee, recorded at par value (Note 7)
Common stock $ 3,000 $ 3,000
Additional paid in capital (3,000) (3,000)
-------- --------
$ 0 $ 0
======== ========
Exchange of a 40% capital stock interest in Pangold S.A.
for 2,520,000 restricted common shares of Northfield
Minerals, Inc. (Note 4) $648,327 $ 648,327
======== =========
Cash paid for interest $ - $ 21,493 $ 26,817
======== ======== =========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
24
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Change in Strategic Direction - Aurtex, Inc. (the "Company")
was incorporated on March 19, 1990 in the state of Nevada and has historically
been involved in the business of gold exploration and development. The Company
currently controls the unpatented mining claims located near Ketchum, Idaho it
received on August 9, 1991 pursuant to an exchange agreement with Biomyne North
Company (BNC) and has acquired an interest in mining claims, referred to as the
Vienna Property, also located in Idaho. The Company also has an exclusive
license to a proprietary method for rapid gold assay developed by Biomyne
Technology Company (BT).
Consistent with the Company's new corporate strategy of focusing its energies
and capabilities toward increasing its participation in the telecommunications
and software industries the Company has:
(1) On April 19, 1996, the Company entered into a Stock Purchase and Exchange
Agreement with Global Communications Group, Inc. ("Global"). The Agreement
calls for, among other things, the issuance of approximately 17,000,000
shares of Company Common Stock in exchange for 100% of the issued and
outstanding capital stock of Global. As a part of this transaction, the
Company will also receive the option to purchase the assets and liabilities
of Global Technologies, Inc. for $ 1.00. The Company has set a closing date
for the purchase of 100% of the outstanding stock of Global of June 17,
1996.
(2) On April 18, 1996, the Company entered into a Letter of Intent, and on May
27, 1996 executed a Memorandum of Understanding for the acquisition of up to
80% of HIS Technologies AG ("Histech") for a combination of cash and stock.
The Company has not yet entered into a Definitive Agreement with Histech.
(3) On April 18, 1996, the company entered into a Letter of Intent for the
acquisition of up to 100% of dbe Software, Inc. ("DBE") for cash and/or
stock. The Company has not yet entered into a Definitive Agreement with DBE.
(4) Set June 17, 1996 as the record date for a reverse stock split of one share
for every 5.909635 currently outstanding shares of common stock, and a stock
dividend of 1.25 shares of post reverse split common stock for each share of
common stock outstanding immediately after the reverse stock split and prior
to the issuance of shares to the shareholders of Global Communications
Group, Inc.
(5) Set June 17, 1996 as the record date to change its name from Aurtex, Inc. to
Sector Communications, Inc.
25
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Since none of the above events have occurred as of the completion of these
financial statements, the financial information presented includes only that of
Aurtex, Inc. and there has been no adjustment to either the capitalization or
per share computations in the financial statements.
The Company is currently a development stage enterprise under SFAS No. 7.
Capitalized Mining Claim Costs - The Company expenses exploration costs incurred
prior to the identification of specific land areas of interest and capitalizes
all costs directly associated with acquisition, exploration and development of
specific properties until the land area of interest to which these costs relate
are put into operation, or when the property is sold or abandoned, or when an
impairment in value has been determined. If exploration is successful these
costs will be amortized over the estimated life of the reserve using the units
of production method.
Aurtex Gold Assay System Development Costs - Costs incurred for improvements to
the licensed technology, described in Note 10, are expensed when incurred. The
Company ceased research and development efforts related to the Gold Assay System
during fiscal year ended February 29, 1996, and has closed its facilities in
Palo Alto, California and Ketchum, Idaho.
Equipment - Equipment is recorded at cost, and is depreciated using the
straight line method over the estimated useful life of the asset.
Loss per Share - Loss per share has been calculated based upon the weighted
average number of shares outstanding, and does not include the shares issuable
on exercise of the outstanding options or warrants, since such inclusion would
decrease the loss per share.
Use of Estimates - The preparation of the Company's financial statements in
conformity with generally accepted accounting standards required the Company's
management to make estimates and assumptions that affect the amounts of assets
and liabilities, the 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.
Impact of Recently Issued Accounting Standards - In March 1995, the Financial
Accounting Standards Board issued a new statement titled "Accounting for
Impairment of Long-Lived Assets" ("FAS 121"). This standard is effective for
year beginning after December 15, 1995 and would change the method of
determining impairment of long-lived assets. Although the Company has not
performed a detailed analysis of the impact of this new standard on the
Company's financial statements, the Company does not believe that adoption of
the new standard will have a material effect on the financial statements.
26
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1: ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In October 1995, the Financial Accounting Standards Board issued a new statement
titled "Accounting for Stock-Based Compensation" ("FAS 123"). The new standard
is effective for fiscal years beginning after December 15, 1995. FAS 123
encourages, but does not require, companies to recognize compensation expense
for grants of stock, stock options, and other equity instruments to employees
based on fair value. Companies that do not adopt the fair value accounting
rules must disclose the impact of adopting the new method in the notes to the
financial statements. Transactions in equity instruments for goods or services
must be accounted for on the fair value method. The Company currently does not
intend to adopt the fair value accounting prescribed by FAS 123, and will be
subject only to the disclosure requirements prescribed by FAS 123. However, the
Company intends to continue its analysis of FAS 123 and may elect to adopt its
provisions in the future.
NOTE 2: INVESTMENTS
In May 1995, the Company increased its capital stock ownership in Pangold S.A.,
a Panamanian registered company, from 30% to 40% for an additional investment of
$175,000. Also in May, 1995, the Company exchanged a 32% capital stock
interest it held in Pangold to Northfield Minerals, Inc. ("Northfield") for
2,080,000 shares of restricted Northfield common stock, and in November 1995,
exchanged its remaining 8% capital stock interest in Pangold for an additional
440,000 shares of restricted Northfield common stock.
During February 1996, the Company sold 848,148 shares of Northfield common stock
it held for $500,000. The market value of the remaining 1,671,852 shares of
restricted Northfield common stock held by the Company has a market value on
May 31, 1996 of approximately $2,700,000 based on the quoted bid price on the
Toronto Stock Exchange.
The Company's investment in Pangold has been reported using the equity method of
accounting through May 2, 1995.
On December 12, 1995, the agreement that the Company previously entered into
with a European entity for the purchase of its restricted stock of Northfield
and its capital stock interest in Pangold S.A. was terminated. In consideration
for this termination, the Company agreed to sell to this entity, through
February 15, 1996, to up to 1,000,000 units, each unit consisting of two shares
of Company Regulation S restricted common stock and a warrant for the purchase
of one share of Company Regulation S restricted common stock for $0.375. As of
February 15, 1996, a total of $85,500 was invested under this agreement,
$75,000 in October 1995 and $10,500 in January 1996, and the Company issued
456,000 shares of common stock and a warrant for the purchase of 228,000 shares
of common stock, expiring two years from the date of their issuance. The
exercise price if this warrant was subsequently repriced by the Board of
Directors to $0.30 per share as described in Note 7.
27
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3: PROPERTY ACQUISITION
On October 18, 1994, the Company entered into an Exploration License and Option
to Purchase Agreement with North American Financial Corporation ("NAFCO") to
carry out exploration and feasibility activities at its Vienna Property located
in Blaine County, Idaho. The Property consists of 43 patented and 13 unpatented
lode mining claims.
The Agreement has a term of four and one half years commencing October 15, 1994.
The Company has paid NAFCO $100,000 for an initial eighteen month exploration
period. The Company has the right to extend the Agreement, for an additional
three year feasibility period for a payment of $250,000 on April 15, 1996,
subsequently extended to August 31, 1996, and the right to purchase the Property
for a payment of $3,500,000 at the end of the three year feasibility period,
April 15, 1999. The Company has also committed in this Agreement to expend
$200,000 during the exploration period to explore, develop and/or determine the
feasibility of mining this Property. The Company has capitalized the initial
payment of $100,000.
NOTE 4: NOTE RECEIVABLE - RELATED PARTY
Notes receivable due from a related party at February 29, 1996 is as follows:
Unsecured promissory note receivable due from a
director and former Chairman of the Board, bearing
interest at 8% per annum and due on demand $ 197,323
Reserve for potential uncollectability (197,323)
---------
$ -
=========
Effective July 15, 1995, the Company began deducting amounts from this
individual's salary as repayments of this note. On November 22, 1995, this
individual stepped down as an officer and Chairman of the Board of Directors and
continues to serve the Company as an outside director. Effective that date, this
individual stopped receiving a salary from the Company and began receiving an
outside directors fee of $2,000 per month. The Company will offset this amount
against the receivable so long as the receivable has not been repaid.
During the year ended February 29, 1996, the Company deducted a total of
$27,365. During the year ended February 29, 1996 the Company established a
reserve for the full amount of this unsecured promissory note. This reserve
represents the amount due under this note in excess of this individual's
directors fee, and was established due to his inability to either repay the loan
or provide adequate collateral and the Company's estimate of the risk of
repayment.
During July 1995, the Company received payments totaling $466,130 in full
repayment of promissory notes due from a shareholder arising primarily from the
exercise of previously issued warrants for the purchase of 419,691 shares at
$1.00 per share on June 28, 1994.
28
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 5: NOTE RECEIVABLE
At November 30, 1995, the Company had an unsecured promissory note receivable
for $125,000 due from Combined Metals Reduction Company. This note is due on
30 days demand and bears interest at 10%. In October, 1995, the Company issued
demand for repayment of this note and in February 1996, established a reserve
for potential uncollectability of the entire amount of the note of $125,000
plus 11,525 of accrued, due to the Company's estimate of the risk of repayment.
NOTE 6: DUE TO A STOCKHOLDER AND AFFILIATED ENTITIES
As of February 29, 1996, the net amounts due to a stockholder and affiliated
entities are as follows:
Due to BNC $ 95,775
Due to Biomyne Inc. ("BI") 4,272
--------
$100,047
========
The amounts due to affiliated entities bear interest at 5% and are due on
demand. At February 29, 1996, BNC owned 8,010,000 shares of the issued and
outstanding common stock of the Company which represents a 33.9% ownership
interest in the Company. BT owns 71.8% and 65.0% limited partnership interests
in BNC and Biomyne Exploration Company ("BEC"), respectively. BT also owns 100%
of the outstanding stock of BI, which is the 1% general partner of both BNC and
BEC. The general partner of BT is also an individual stockholder and director
of the Company.
NOTE 7: STOCKHOLDERS' EQUITY
Common Stock
- ------------
In May 1996, the Company sold in an offshore private placement 2,000,000 shares
of its common stock for $500,000. The proceeds of these funds were used by the
Company's for its initial investment in Histech. Concurrent with this
investment, the Company entered into a loan agreement with Histech for $500,000,
which provides, among other things, for the conversion of this loan into equity
on the execution of a definitive agreement. The loan bears interest at 8%, is
due in May 1997 if not converted to equity, and is secured by certain rights to
the X-Series products contained in a Deposit Agreement.
29
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7: STOCKHOLDERS' EQUITY (CONTINUED)
BAGA Aktiengesellschaft Issuance
- --------------------------------
On July 5, 1995, the Company entered into an equity financing agreement with
BAGA Aktiengesellschaft (a shareholder of the Company), where BAGA committed to
provide up to $14,000,000, on a best efforts basis, to the Company over a two
year period. BAGA committed to provide this equity financing through the
purchase of unregistered common stock, issued pursuant to Regulation S under the
Securities Act of 1933, in several tranches at terms and under conditions set by
the Company. The share price of each tranche will be discounted, up to 30%, off
the bid price of the Company's common stock when the terms of each individual
financing are agreed to.
On August 1, 1995, as a part of this financing, BAGA received up-front
renumeration of 3,000,000 shares of the Company's common stock, issued pursuant
to Regulation S under the Securities Act of 1933 and subject to additional
Company imposed restrictions which were released effective December 31, 1995.
BAGA will also receive a performance incentive of 70,000 warrants for each
$1,000,000 of net proceeds provided to the Company. These warrants will have an
exercise price of $0.50 per share and expire three years after the date
issuance.
As of May 31, 1996, no financing has been provided by BAGA and none is
anticipated by the Company under this agreement.
Restricted Stock Grant
- ----------------------
During the year ended February 29, 1996, the Company issued restricted stock to
an officer in connection with his employment agreement in the form of a
restricted stock grant of 200,000 shares for the Company's common stock. Such
restricted stock vested 100,000 shares on May 1, 1995, 50,000 shares on July 1,
1995, and 50,000 shares on September 30, 1995. This individual resigned as an
officer effective November 1, 1995, but continues to work for the Company in a
non-officer capacity under an employment agreement.
Warrants
- --------
At February 29, 1996, the Company has reserved 6,500,542 shares of common stock
for issuance upon the exercise of the currently outstanding Warrants exercisable
at $0.30 per share. The exercise price of warrants were repriced by the Board
of Directors to $0.50 per share in June 1995, and subsequently repriced to
$0.30 per share in January 1996. The Board of Directors, in January extended the
expiration date of all the outstanding warrants scheduled to expire in 1996 to
December 31, 1996.
30
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8: STOCK OPTION PLANS
Under the 1991 and 1994 Stock Plans, the Company can grant incentive stock
options, nonstatutory stock options, and purchase rights to officers, key
employees, consultants and directors of the Company at a price not less than the
fair market value at the date of grant.
At February 29, 1996, the Company has options outstanding for the purchase of
150,000 shares under the 1994 Stock Plan, exercisable at $0.53 per share.
These options were canceled on April 15, 1996 in connection with the execution
of an employment agreement with this employee providing for, among other things,
the grant of an option to purchase 150,000 shares of common stock after the
reverse stock split contemplated on June 17, 1996 as described in Note 1.
On June 1, 1995, the Company granted to Mr. Douglas Silver, the Company's
President and Chief Executive Officer an incentive stock option for the purchase
of 400,000 shares for the Company's common stock at $0.53 per share under the
Company's 1994 Stock Plan. Such option vested for the purchase of 150,000
shares on June 1, 1995, with the remaining shares vesting 150,000 shares on the
first anniversary of such grant and 100,000 shares on the second anniversary of
such grant. In connection with Mr. Silver resignation as a director and as
President and Chief Executive Officer on December 1, 1995, the unvested portion
of this option, representing the right to purchase 250,000 shares of common
stock was canceled. The remaining right to purchase 150,000 shares of common
stock expired on February 29, 1996.
In July, the Board of Directors amended the 1994 Stock Plan increasing the
number of shares authorized for issuance under such plan by 3,000,000 to
4,000,000 shares and increased the number of shares for which options can be
granted to any one participant from 150,000 to 450,000 per year. The adoption of
both these amendments to the 1994 Stock Plan was approved by a majority of the
shareholders at the Annual Meeting held on August 7, 1995.
Also on August 7, 1995, the Board of Directors granted options to its two
outside directors for the purchase of 400,000 shares each at an exercise price
of $0.59 per share. Such options vested for the purchase of 100,000 shares on
August 7, 1995, with the remaining 300,000 shares vesting 100,000 on each of the
first, second and third anniversary dates of such grant. In January 1996, the
Board of Directors canceled the options issued to these two outside directors.
31
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 8: STOCK OPTION PLANS (CONTINUED)
A summary of stock option transactions are as follows:
<TABLE>
<CAPTION>
Year Year Cumulative
Ended Ended Through
February 29 February 28 February 29
1996 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Outstanding, beginning 650,000 1,530,000 -
Granted under the 1991 Stock Plan at an
exercise price of $0.05 per share - - 1,995,000
Granted under the 1994 Stock Plan at an
exercise price of $0.53 per share 1,200,000 210,000 1,550,000
Exercised under the 1991 Stock Plan at an
exercise price of $0.05 per share (300,000) (1,090,000) (1,995,000)
Expired or canceled under the 1994 Stock
Plan (1,400,000) - (1,400,000)
---------- ---------- ----------
Outstanding, Ending 150,000 650,000 150,000
========== ========== ==========
Exercisable, Ending 150,000 356,667 150,000
========== ========== ==========
</TABLE>
NOTE 9: INCOME TAXES
Effective March 1, 1993, the Company adopted SFAS No. 109, "Accounting for
Income Taxes" and has elected to apply its provisions without restating prior
periods. SFAS No. 109 requires deferred income taxes be computed under the
asset and liability method and to be adjusted to and maintained thereafter at
statutory rates in effect when the taxes are expected to be paid. SFAS No. 109
also requires that a valuation allowance be provided if it is more likely than
not that some portion or all of the deferred tax asset will not be realized.
Although the Company has a significant deferred tax asset, in the form of
operating loss carryforwards, its ability to generate future taxable income to
realize the benefit of this asset will depend primarily on bringing property
into production. The associated market, capital and environmental uncertainties
are considerable, resulting in the Company's conclusion that a full valuation
allowance be provided. The adoption of SFAS No. 109 resulted in no material
impact on the Company's financial position.
At February 29, 1996, the Company has net operating loss carryforwards of
approximately $9,900,000 available to offset future taxable income and tax
liabilities. The net operating loss carryforwards expire beginning in 2005
through 2011.
32
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS AND CONTINGENCIES
Operating Lease - On October 1, 1995, the Company entered into a noncancelable
operating lease agreement for office space in Denver ending on September 30,
1999. Monthly lease payments under this agreement begin at $4,885 and increase
by $76 per month on each anniversary date. The payments under this lease may
be escalated for increases in taxes and operating expenses commencing in 1995.
The Company entered into a noncancelable sublease for this space in May 1996,
effective July 1, 1996 on terms similar to the original lease. The Company's
San Francisco office space has also been subleased on terms identical to those
of the original lease.
The minimum lease payments under these lease agreements for each of the next
five years ending February 28 are as follows:
<TABLE>
<CAPTION>
Minimum Minimum
Lease Sublease
Payments Payments
-------- --------
<S> <C> <C>
1996 $ 94,825 $ 74,064
1997 95,744 90,908
1998 96,656 94,825
1999 76,678 74,849
2000 41,528 40,304
-------- --------
$405,431 $377,950
======== ========
</TABLE>
The Company is currently renting office space in McLean, Virginia under a short
term sublease agreement while it negotiates a noncancelable operating lease.
Total rental costs for the years ended February 29, 1996 and February 28, 1995
(net of sublease rental income for the year ended February 29, 1996 of $19,280)
were $81,857 and $133,383, respectively.
Idaho Mining Claims
- -------------------
On August 9, 1991, the Company entered into an exchange agreement with BI, as
the general partner of BNC. Under the exchange agreement, the Ketchum Claims
were transferred, by quitclaim deed, to the Company in exchange for 8,010,000
shares of Common Stock, and the assumption of certain liabilities. In addition,
if there is a future arrangement with a mining company relating to these claims,
45% of the first $15,000,000 of payments from the mining company shall be paid
directly to BNC and the remaining 55% paid to the Company.
33
<PAGE>
AURTEX, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 10: COMMITMENTS AND CONTINGENCIES (CONTINUED)
License Agreement
- -----------------
On August 9, 1991, the Company entered into a license agreement with BT relating
to the proprietary methods and apparatus developed by BT to perform the rapid
assay of gold and other minerals. This agreement provides the Company with a
worldwide exclusive license for the Licensed Technology developed by BT and any
Additional Licensed Technology developed by either the Company or BT. The
Company, in consideration for entering into this agreement, has agreed to pay to
BT a royalty of five percent of the gross revenues received from the
manufacture, sale, or use of the Technology in providing services to third
parties. For the purpose of this royalty calculation, the Company is not to
include as gross revenue, amounts received from the use of the Technology on
mining claims in which it has at least a 50% interest. Royalties are required
to be paid in semi-annual installments for fifteen years.
NOTE 11: ASSET WRITEDOWN
The Company performs a periodic evaluation of its exploration properties to
assess the recoverability of its investments in these properties. During the
year ended February 28, 1995, the Company determined, due to the fees imposed by
the Bureau of Land Management on Federal mining claims and increasingly
restrictive environmental laws and regulations, that the carrying value of the
Ketchum Claims exceeded the property's estimated recoverable value.
Accordingly, the Company reduced the net book value of its Ketchum Claims by
$1,873,507, through a charge to operations included in gold exploration costs.
$960,480 of these costs were exploration costs incurred during the fiscal year
ended February 28, 1995 and $913,027 represents costs capitalized in prior
years.
34
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS:
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
The following table lists the names, ages, and positions of the executive
officers and directors of the Company as of May 31, 1996. All officers and
directors have been appointed to serve until their successors are elected and
qualified. Additional information regarding the business experience, length of
time served in each capacity, and other matters relevant to each individual is
set forth following the table.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------------------------------------
<S> <C> <C>
Theodore J. Georgelas 49 President, Chief Executive Officer and
Chairman of the Board of Directors
S. Allan Kline 75 Director
Jeff L. Shear 54 Director
Roger Hedin 35 Vice President and Director
</TABLE>
Theodore J. Georgelas became President and Chief Executive Officer effective
January 17, 1996, and was elected as Chairman of the Board of Directors of the
Company at that time. Mr. Georgelas has been the Manager/Member of G & S
International L.C. (Developers of commercial, retail, industrial and residential
properties both domestically and internationally) for at least the last five
years. He serves on the Executive Committee and Board of United Bankshares,
Inc. and is Chairman of the Board of one of its subsidiaries, United Bank
(Virginia). He is a cofounder of a cellular telephone business in Delaware and
a cofounder of dbe Software, Inc., a software company marketing a database
utility programming tool.
Mr. S. Allan Kline was a founder of Aurtex, Inc. and has been a director since
its inception on March 19, 1990. Since 1988, he has been a director and is
currently the president of Biomyne, Inc., a corporation which is the general
partner of both Biomyne North Company and Biomyne Exploration Company. He is
also a general partner of Biomyne Technology Company, which owns 100% of the
capital stock of Biomyne Inc., and which is the 71.8% and 65% limited partner in
Biomyne North Company and Biomyne Exploration Company, respectively. Biomyne
North Company holds 8,010,000 shares of common stock of the Company. Mr. Kline
is a director of Xicor, Inc., a company in the semiconductor business, and of
Senetek PLC, an English company engaged in sponsored research in the life
sciences and biotechnology fields. Mr. Kline holds a degree in physics from the
University of Chicago, an engineering degree from the Illinois Institute of
Technology, and a LL.D. from Yale University.
35
<PAGE>
Mr. Jeff Shear has been a director of The Company since March 31, 1993. Since
1988 he has been president of Shear Kershman Labs, a consulting company for new
products for food and pharmaceutical companies. He was formerly chairman and
chief executive officer of Pharmaceutical Delivery Systems, a company which
manufactured and marketed pharmaceuticals.
Mr. Roger Hedin has been a director of the Company since February 16, 1995 and
was elected a vice president of the Company in January 1996. Mr. Hedin was
also a director of the Company from March 31, 1993 to November 1, 1993. He has
been involved with private businesses in Europe during the last seven years.
Prior to that time he was active in a corporate development division of ASEA in
Sweden. Mr. Hedin has studied engineering and economics at the Institute of
Technology in Linkoping and at the University of Linkoping.
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive a monthly fee of $2,000,
and are reimbursed for out-of-pocket expenses incurred in their capacity as
members of the Board of Directors.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than 10% of the
Company's Common Stock, to file with the Securities and Exchange Commission
initial reports of beneficial ownership and reports of changes in beneficial
ownership of Common Stock of the Company. Officers, directors and greater than
10% shareholders are required by the Securities and Exchange Commission to
furnish the Company with copies of all section 16(a) reports they file. To the
Company's knowledge, based solely on a review of the copies of such reports
furnished to the Company, all Section 16(a) filing requirements applicable to
its officers, directors and greater than 10% beneficial owners were complied
with for the year ended February 29, 1996, except for the late filings of form
3's by Mr. Armin Grabowski when he became an officer and a director, by Mr.
Heinz Schimmelbusch when he became a director; and the late filing of form 4's
by both Mr. Roger Hedin and Mr. Jeff Shear on the granting and subsequent
cancellation of stock options, by Mr. Shear on the repricing of stock purchase
warrants and by Mr. Stanker for a restricted stock grant; and the late filings
of forms 3 and 4 by BAGA Aktiengesellschaft related to the placement fee it
received in common stock. To the best of the Company's knowledge all of the
above forms have been subsequently filed.
ITEM 10. EXECUTIVE COMPENSATION
The information set forth under the caption "Executive Compensation" is
incorporated herein by reference from the Company's definitive proxy statement,
expected to be filed with the Commission on or before June 28, 1996.
36
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information set forth under the caption Security Ownership of Certain
Beneficial Owners and Management is incorporated by reference from the Company's
definitive proxy statement, expected to be filed with the Commission on or
before June 28, 1996.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information set forth under the caption Certain Relationships and Related
Transactions is incorporated by reference from the Company's definitive proxy
statement, expected to be filed with the Commission on or before June 28, 1996.
PART IV
Item 13. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Reports on Form 8-K - None
(b) Exhibits
Exhibit
Number Description
- ------- --------------------------------
3.1 Certificate of Incorporation of the Company, as amended.
(Incorporated herein by reference to Exhibit 3.1 of the Registrant's
Form 10-KSB for the year ended February 28, 1993.)
3.2 Articles of Merger, amending the Registrant's Articles of
Incorporation. (Incorporated herein by reference to Exhibit 3.2 of
the Registrant's Form 10-KSB for the year ended February 28, 1993.)
3.3 Bylaws of the Company. (Incorporated herein by reference to Exhibit
3.3 of the Registrant's Form 10-KSB for the year ended February 28,
1993.)
10.1 1991 Stock Plan of the Company. (Incorporated herein by reference to
Exhibit 10.1 of the Registrant's Form 10-KSB for the year ended
February 28, 1993.)
10.2 1994 Stock Plan of the Company. (Incorporated herein by reference to
Exhibit 99 of the Registrant's Form S-8 Registration no. 33-76718,
dated March 18. 1994.)
10.3 Agreement for the transfer of the claims from Biomyne North Company.
(Incorporated herein by reference to Exhibit 10.2 of the
Registrant's Form 10-KSB for the year ended February 28, 1993.)
10.4 Exploration License and Option to Lease Agreement for five patented
lode claims known as the Taylor claims. (Incorporated herein by
reference to
37
<PAGE>
Exhibit 10.3 of the Registrant's Form 10-KSB for the year ended
February 28, 1993.)
10.5 License agreement for the technology with Biomyne Technology
Company. (Incorporated herein by reference to Exhibit 10.5 of the
Registrant's Form 10-KSB for the year ended February 28, 1993.)
10.6 Exploration license and option to purchase agreement for forty three
patented and thirteen unpatented lode mining claims, collectively
known as the Vienna Property. (Incorporated herein by reference to
Exhibit 10.8 of the Registrant's Form 10-QSB for the quarter ended
November 30, 1994.)
10.8 Promissory Note Agreement with Mr. S. Allan Kline, Dated August 11,
1995. (Incorporated herein by reference to Exhibit 10.10 of the
Registrant's Form 10-KSB for the year ended February 28, 1995.)
10.9 Employment Agreement with Mr. Theodore J. Georgelas, Dated
January 15, 1996 (filed herewith).
10.10 Stock Purchase and Exchange Agreement with Global Communications
Group, Inc., Dated April 19, 1996 (filed herewith).
10.11 Amendment No. 1 to the Stock Purchase and Exchange Agreement with
Global Communications Group, Inc. (filed herewith).
10.12 Debt Repayment Agreement (filed herewith).
24.1 Consent of Stark Tinter & Associates (filed herewith.)
38
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) to the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
AURTEX, INC.
Date: June 19, 1996
_______________________________
Theodore J. Georgelas
President, CEO and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Company and in
the capacities and on the dates indicated.
Date: June 19, 1996
_______________________________
S. Allan Kline, Director
Date: June 19, 1996
_______________________________
Jeff L. Shear, Director
Date: June 19, 1996
_______________________________
Roger Hedin, Director
39
<PAGE>
Aurtex, Inc.
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ------------------------------------------------------ ----
<S> <C> <C>
10.9 Employment Agreement with Mr. Theodore J. Georgelas,
Dated January 15, 1996. 41
10.10 Stock Purchase and Exchange Agreement with Global
Communications Group, Inc., Dated April 19, 1996. 47
10.11 Amendment No. 1 to the Stock Purchase and Exchange
Agreement with Global Communications Group, Inc. 87
10.12 Debt Repayment Schedule 90
24.1 Consent of Stark Tinter & Associates 92
</TABLE>
40
<PAGE>
EXHIBIT 10.9
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (the "Agreement") is entered into as of the fifteenth
day of January, 1996 (the "Effective Date") by and between Aurtex, Inc., a
Nevada corporation (the "Company"), and Theodore J. Georgelas (the "Employee").
RECITALS
A. Employee is willing to be employed by the Company as a President and Chief
Executive Officer and the Company wishes to so employ Employee, all on the terms
and conditions contained herein.
NOW THEREFORE, in consideration of the mutual promises and agreements
hereinafter contained, the parties hereby agree as follows:
1. AGREEMENT.
---------
1.1 Employment. The Company hereby engages Employee as a President and Chief
Executive Officer of the Company, and Employee hereby accepts such employment,
all on the terms and conditions set forth in this Agreement. Employee shall have
such responsibilities and duties as are consistent with his position of a
President and Chief Executive Officer of the Company. Employee shall report to
the Board of Directors of the Company.
1.2 Extent of Service. Employee shall devote substantially all of his
business time, ability and energy to the performance of his duties hereunder;
provided, that Employee may devote reasonable time during normal business hours
to such civic and charitable activities as he deems appropriate. The Company's
principal office shall be located in McLean, Virginia.
2. COMPENSATION
------------
2.1 Base Salary. As compensation for the performance by Employee of his
obligations as President and Chief Executive Officer hereunder, beginning with
the commencement of his employment hereunder and upon the Effective date hereof,
the Company shall pay Employee a base salary at the rate of $120,000 per year
(the "Base Salary"), less the usual payroll deductions and required
withholdings, payable in accordance with the normal payment pattern of the
Company.
2.2 Additional Incentive Compensation. In addition to Base Salary, Employee
shall also receive as additional compensation in the form of a restricted stock
grant. The Board of Directors of the Company shall grant to Employee, as of the
record date of a reverse stock split, but no late than September 1, 1996,
500,000 shares of the Company's post reverse split Common Stock. Such stock
grant be fully vested on the date of grant and the Board of Directors shall
provide that such shares granted to Employee shall contain piggyback
registration rights.
41
<PAGE>
2.3 Expenses. The Company shall pay directly or reimburse the Employee
promptly for all reasonable business expenses incurred by the Employee in the
performance of his duties hereunder so long as the Employee furnishes to the
Company appropriate documentation regarding such expenses.
2.4 Benefits and Perquisites. The Employee and his family shall be entitled,
at the Company's cost, to participate in the Company's health insurance program.
Employee shall also be entitled to participate in the Company's 401K and other
retirement plans, and other benefit plans and programs as may become generally
available to executives of the Company.
2.5 Vacations. Subject to the requirements of the Employee's office,
Employee shall be entitled to three weeks of vacation during each calender year,
pro-rated for partial years. Employee shall not be entitled to accrue in any
calender year for use in later years more than five days of unused vacation.
2.6 Directors and Officers Insurance. The Company will, at its sole cost,
use its best efforts to maintain Directors and Officers Insurance similar to the
insurance in effect on the Effective Date of this Agreement for the original or
any extended term of this Agreement.
3. TERMS AND TERMINATION.
---------------------
3.1 Term. The initial term of Employee's employment with the Company shall
commence on January 15, 1996 and shall end on January 14, 1997. Unless Employee
or the Company shall have given the other notice of his or its election not to
extend the employment of Employee hereunder at least 90 days prior to the
expiration of the original or any extended term of this Agreement, this
Agreement automatically shall extent for one year terms following the expiration
of the original and each extended term hereof.
3.2 Rights of Severance in the Event of Termination.
-----------------------------------------------
(a) Severance Pay.
-------------
(1) If Employee's employment shall be terminated by the Company
without "cause" at any time during the initial or extended term of this
Agreement, the Company shall pay to Employee as severance an amount equal to the
base salary remaining to be paid under this Agreement. The amount of severance
pay payable pursuant to this clause shall be paid to Employee with 10 days of
the termination of Employee's employment.
(2) If the Company terminates Employee's employment for "cause"
at any time, or if Employee voluntarily terminates his employment, Employee
shall not be entitled to any severance pay or other fringe benefit continuation
under this Section 3.2. For purposes of this Agreement, "cause" shall mean and
be limited to: (i) any willful and material act of dishonesty or fraud which is
materially injurious to the Company; (ii) conviction of, or plea of nolo
contendere to a felony involving moral turpitude; (iii) repeated or continuous
failure, neglect or refusal to perform Employee's duties hereunder following not
less than 30 days prior written notice of such failure, neglect, refusal or
breach.
42
<PAGE>
3.3 Death or Disability. The Company shall, at its expense obtain a
disability insurance policy in favor or Employee equal to 50% of the Employee's
annual salary. In the event of Employee's death or permanent disability, as
hereinafter defined, the compensation payable to him under Section 2 hereof
shall cease. After the date Employee is deemed to be permanently disabled,
Employee shall be entitled to receive a lump sum or other disability payments in
accordance with such disability insurance policy.
For purposes of this Agreement, Employee shall be deemed to have become
"permanently disabled" if, because of ill health or mental disability: (i) he
shall have been unable to perform his duties and responsibilities hereunder in
the ordinary and usual manner required of a person in Employee's position for
180 days (consecutively or cumulatively in any period of 365 days); and (ii)
after such 180-day period either the Company or the Employee shall have been
advised the other in writing, together with professional third party diagnosis
in writing, that Employee shall be deemed to be permanently disabled. The date
Employee shall be deemed to be permanently disabled shall be the first day
immediately following delivery of said written notice of disability.
3.4 No Duty of Mitigation. The Company acknowledges that it would be very
difficult and generally impractical to determine the ability of or extent to
which Employee may mitigate any damages he may incur by reason of termination of
this Agreement as provided in Section 3.2 above or otherwise. The Company has
taken this into account in entering into this Agreement and, accordingly, the
Company acknowledges and agrees that Employee shall have no duty to mitigate any
such damages and that Employee shall be entitled to receive all of the payments
and benefits provided for herein regardless of any income that Employee may
receive from other sources after any such termination.
4. CONFIDENTIALITY. The Employee shall not, unless authorized by the Company,
disclose to anyone outside the Company, or use in other than Company business,
confidential information relating to the business of the Company. Employee
agrees and understands that information received in confidence from third
parties by the Company are included within the meaning of confidential
information hereunder. Employee shall return to the Company all tangible forms
of such confidential information or materials in his possession upon termination
of employment. This Section 4 shall not apply to any such information or
material which: (a) is now or becomes generally available to the public other
than as a result of a breach of this Section 4; (b) was in the Employee's
possession on a nonconfidential basis prior to its being obtained by the
Employee in the capacity of an employee, officer, of director of the Company or
as a consultant to the Company; or (c) is now or becomes available to the
Employee on a nonconfidential basis from a source other than the Company;
provided, the Employee does not know (or have reason to know) of any breach by
such source of any confidentiality obligations it may have with respect thereto.
43
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5. NONCOMPETITION; NONSOLICITATION; REMEDIES.
-----------------------------------------
5.1 Agreement Not to Compete. Employee shall not, during the initial or any
extended term of this agreement, directly or indirectly (whether for
compensation or otherwise), alone or as an agent, principal, partner, officer,
employee, trustee, director, shareholder or in any other capacity, own, manage,
operate, join, control, or participate in the ownership, management, operation
or control of or furnish any capital to or be connected in any manner with or
provide any services as a consultant for, any business which competes with the
business of the Company or its subsidiaries or affiliates as it may be conducted
from time to time. Notwithstanding the foregoing, nothing in this Agreement
shall be deemed to preclude Employee from owning publicly traded capital stock
of any entity, whether or not in competition with the business of the Company,
its subsidiaries or affiliates.
5.2 No Solicitation. Employee shall not, during the initial or any extended
term of this Agreement either directly or indirectly, on his own behalf or in
the services of others, solicit or induce employees of the Company to leave the
employ of the Company or hire any employees of the Company without having
received the Company's prior written permission to do so.
5.3 Equitable Relief. Employee hereby acknowledges and agrees that any
breach or threatened breach of any term, provision and/or covenant of Section 4
or 5 of this Agreement could cause irreparable injury to the Company which could
not be adequately compensated in monetary damages and that the remedy at law for
such breach will be entirely insufficient and inadequate to protect the
Company's legitimate interest. Therefore, the Employee hereby acknowledges and
agrees that the Company shall at all times be and remain fully entitles to seek
and obtain injunctive relief for any such breach or threatened breach in
addition to any and all other rights and remedies available to the Company at
law or in equity.
6. MISCELLANEOUS.
-------------
6.1 Notice. Notices authorized or required to be sent pursuant to this
Agreement shall be in writing and shall be considered given upon personal
delivery or five days after deposit in U.S. Mail, by certified or registered
mail, return receipt requested, to the parties at the following addresses:
If to Employee, at: Theodore J. Georgelas
7601 Lewinsville Road, Suite 200
McLean, Va. 22102
if to Company, at: Aurtex, Inc.
7601 Lewinsville Road, Suite 200
McLean, Va. 22102
Either party may change the address of notice hereunder by providing to the
other party notice of such change in accordance with this Section 6.1.
44
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6.2 Construction and Assignment. This Agreement and the performance hereof
shall be governed, interpreted, construed and regulated by the laws of the
Commonwealth of Virginia applicable to agreements made and to be performed
entirely in Virginia. This Agreement shall not be assignable by the Employee or
the Company.
6.3 Waiver. The waiver by either party of a breach of any provision of this
Agreement shall not operate or be construed as a waiver of any subsequent breach
of this Agreement.
6.4 Severability. If any terms, covenant, condition, or provision of this
Agreement, or the application thereof to any person or circumstance, shall at
anytime or to any extent be invalid or unenforceable, the remainder of this
Agreement, or the application or such term or provision to persons or
circumstances other than those as to which it is held invalid or unenforceable,
shall not be affected thereby and each term, covenant, condition and provision
of this Agreement shall be valid and enforced to the fullest extent permitted by
law.
6.5 Entire Agreement. This Agreement constitutes the entire Agreement and
understanding of the parties with respect to the transactions contemplated
herein, and supersedes all prior agreements, arrangements, policies and
undertakings related to the subject matter thereof. No representation, promise,
inducement or statement of intention has been made by any of the parties not
embodied in this Agreement or in the documents referred to herein, and no party
shall be bound by or liable for any alleged misrepresentation, promise,
inducement, or statements of intention not set forth or referred to herein.
6.6 Arbitration. Any controversy or dispute hereunder shall be submitted to
arbitration under the rules then in effect of the American Arbitration
Association. The determination of the arbitrator(s) shall be binding, final and
conclusive on the parties. The expenses in connection with any arbitration
shall be borne equally by the parties unless determined otherwise by the
arbitrator(s).
6.7 Attorneys' Fees. In the event of any suit, arbitration or other
proceeding between the parties hereto with respect to any of the transactions
contemplated hereby or the subject matter hereof, the prevailing party as
determined by the court or the arbitrator(s) shall, in addition to such other
relief as the court or arbitrator(s) may award, be entitled to recover from the
other party its attorneys' fees and expenses actually incurred in such suit,
arbitration or other proceeding.
6.8 Headings. The headings of the sections and paragraphs of this Agreement
are inserted for convenience only and shall not be deemed to constitute a part
of this Agreement.
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IN WITNESS WHEREOF, the Company and the Employee have executed this agreement as
of the day and year first above written
AURTEX, INC.
By: ______________________________________
S. Allan Kline
Acting Chairman of the Board
EMPLOYEE
By: ______________________________________
Theodore J. Georgelas
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EXHIBIT 10.10
STOCK PURCHASE AND EXCHANGE AGREEMENT
BY AND AMONG
AURTEX, INC.
AND
THE SHAREHOLDERS OF
GLOBAL COMMUNICATIONS GROUP, INC.
APRIL 19, 1996
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TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I
THE SHARE EXCHANGE............................................................ 2
1.1 Exchange of Shares.................................................... 2
1.2 Purchase Price........................................................ 2
1.3 Closing............................................................... 2
1.4 Deliveries by Shareholders............................................ 2
1.5 Deliveries by Parent.................................................. 2
1.6 Tax and Accounting Consequences....................................... 3
ARTICLE II
REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY......................................................... 3
2.1 Organization of the Company........................................... 3
2.2 Company Capital Structure............................................. 4
2.3 Authority............................................................. 4
2.4 Company Financial Statements.......................................... 4
2.5 No Undisclosed Liabilities............................................ 5
2.6 Absence of Certain Changes or Events.................................. 5
2.7 Taxes................................................................. 5
2.8 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment............................................................. 6
2.9 Intellectual Property................................................. 7
2.10 Agreements, Contracts and Commitments................................. 7
2.11 Government Authorization.............................................. 8
2.12 Litigation............................................................ 8
2.13 Environmental Matters................................................. 8
2.14 Labor Matters......................................................... 9
2.15 Employee Benefit Plans................................................ 9
2.16 Insurance............................................................. 10
2.17 Compliance With Laws.................................................. 10
2.18 Complete Copies of Materials.......................................... 10
2.19 Representations Complete.............................................. 10
ARTICLE III
INDIVIDUAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS................. 10
3.1 Title and Voting...................................................... 10
3.2 Effect of Transfer of Shares.......................................... 11
3.3 Consents and Approvals; No Violations................................. 11
3.4 Delivery of Documents................................................. 11
3.5 Broker's or Finder's Fees............................................. 12
3.6 Due Authorization..................................................... 12
3.7 Securities Law Matters................................................ 12
</TABLE>
48
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<S> <C>
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS OF PARENT
AND AURTEX EXPLORATION........................................................ 13
4.1 Organization of Parent................................................. 13
4.2 Capital Structure...................................................... 13
4.3 Authority.............................................................. 14
4.4 SEC Documents; Parent Financial Statements............................. 15
4.5 No Undisclosed Liabilities............................................. 15
4.6 Absence of Certain Changes or Events................................... 16
4.7 Tax Returns and Audits................................................. 16
4.8 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.............................................................. 17
4.9 Government Authorization............................................... 18
4.10 Employee Benefit Plans................................................. 18
4.11 Insurance.............................................................. 18
4.12 Litigation............................................................. 18
4.13 Environmental Matters.................................................. 19
4.14 Agreements, Contracts and Commitments.................................. 19
4.15 Labor Matters.......................................................... 19
4.16 Compliance With Laws................................................... 20
4.17 Brokers' and Finders' Fees............................................. 20
4.18 Information Statement; Proxy Statement................................. 20
4.19 Complete Copies of Materials........................................... 20
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE................................. 21
5.1 Conduct of Business of the Company..................................... 21
5.2 Conduct of Business of Parent.......................................... 23
5.3 No Solicitation........................................................ 26
ARTICLE VI
ADDITIONAL AGREEMENTS......................................................... 27
6.1 Proxy Statement........................................................ 27
6.2 Meeting of Stockholders................................................ 27
6.3 Distributions Prior to Share Exchange.................................. 27
6.4 Reverse Stock Split.................................................... 28
6.5 Registration Rights.................................................... 28
6.6 Access to Information.................................................. 29
6.7 Expenses; Fees......................................................... 30
6.8 Public Disclosure...................................................... 30
6.9 Consents............................................................... 30
6.10 Legal Requirements..................................................... 30
</TABLE>
49
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
<S> <C>
6.11 Blue Sky Laws........................................................ 30
6.12 Company Debt......................................................... 31
6.13 Best Efforts and Further Assurances.................................. 31
6.14 Update to Disclosures................................................ 31
ARTICLE VII
CONDITIONS TO THE SHARE EXCHANGE.............................................. 31
7.1 Conditions to Obligations of Each Party to Effect the Share Exchange. 31
7.2 Additional Conditions to Obligations of Shareholders................. 32
7.3 Additional Conditions to the Obligations of Parent................... 34
ARTICLE VIII
TERMINATION................................................................... 35
8.1 Mutual Termination................................................... 35
8.2 Termination by Shareholders.......................................... 35
8.3 Termination by Parent................................................ 35
8.4 Confidentiality and Effect of Termination............................ 35
ARTICLE IX
GENERAL PROVISIONS............................................................ 36
9.1 Assignment........................................................... 36
9.2 Confidentiality...................................................... 36
9.3 Expenses............................................................. 36
9.4 Notices.............................................................. 36
9.5 Entire Agreement..................................................... 37
9.6 Survival of Terms.................................................... 38
9.7 Governing Law........................................................ 38
9.8 Severability......................................................... 38
9.9 Headings............................................................. 38
9.10 Counterparts......................................................... 38
9.11 Mutual Contributions................................................. 38
</TABLE>
50
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STOCK PURCHASE AND EXCHANGE AGREEMENT
-------------------------------------
This STOCK PURCHASE AND EXCHANGE AGREEMENT (the "Agreement") is made and
entered into as of April 19, 1996 among Aurtex, Inc., a Nevada corporation
("Parent"), Global Communications Group, Inc., a Texas corporation ("Company")
and the persons and entities listed on Exhibit A hereto (the "Shareholders"),
who are all of the shareholders of the Company.
R E C I T A L S
- - - - - - - -
A. Parent desires to acquire all of the issued and outstanding shares of
capital stock of the Company ("Company Common Stock"), and the shareholders are
willing to sell the Company Common Stock to Parent in exchange for shares of the
Common Stock, $0.001 par value, of Parent ("Parent Common Stock"). The transfer
and sale of all of the Company Common Stock for Parent Common Stock shall be
referred to herein as the "Share Exchange."
B. Immediately prior to consummation of the Share Exchange, Parent shall
effect a 5.909635 for one reverse stock split (the "Reverse Stock Split").
C. Prior to the consummation of the Share Exchange, Parent shall contribute
all of the assets, liabilities and obligations of Parent (other than this
Agreement) to a to be formed Nevada corporation, which will be a wholly owned
subsidiary of Parent ("Aurtex Exploration"), and thereafter shall distribute,
via a special dividend, all of the stock of Aurtex Exploration to the
stockholders of Parent.
D. Aurtex Exploration shall, concurrently with the consummation of the Share
Exchange, execute an Indemnification Agreement in favor of the Shareholders
acceptable in form and substance to the Shareholders pursuant to which it shall
indemnify the Shareholders for any and all liabilities and obligations of the
Parent and Aurtex Exploration arising from events or circumstances occurring
prior to the consummation of the Share Exchange.
E. The Shareholders, the Company and Parent desire to make certain
representations and warranties and other agreements in connection with the Share
Exchange.
F. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the parties
intending to be legally bound agree as follows:
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ARTICLE I
THE SHARE EXCHANGE
1.1 Exchange of Shares. Upon the terms and subject to the conditions of this
Agreement, the Shareholders shall sell, assign, transfer, convey and deliver all
of the shares of Company Common Stock (the "Shares") to Parent, and Parent shall
purchase the Shares from the Shareholders, free and clear of all liens, security
interests, encumbrances, pledges, claims, restrictions or other conditions
affecting title or transferability (other than restrictions imposed by
applicable state or federal securities laws) ("Encumbrances"). The sale,
transfer, assignment and conveyance of the Shares shall be made by the delivery
by the Shareholders of stock certificates representing the Shares duly endorsed
for transfer or accompanied by duly executed stock powers and such other
instruments of assignment and transfer as Parent may reasonably request.
1.2 Purchase Price. The total purchase price for the Shares to be paid by
Parent to the Shareholders shall be 17,000,000 shares of Parent Common Stock.
The number of shares of Parent Common Stock to be received by each Shareholder
is set forth on Exhibit B.
1.3 Closing. The Closing of the transactions contemplated hereby (the
"Closing") shall take place at 1:00 p.m. at the offices of the Parent on May 30,
1996, or at such other time, date and location as the parties hereto agree (the
"Closing Date").
1.4 Deliveries by Shareholders. At the Closing, the Shareholders shall
deliver the following to Parent:
1.4.1 Stock certificates representing the Shares duly endorsed for
transfer or accompanied by duly executed stock powers, and any other documents
as are necessary to transfer to Parent good title to the Shares, free and clear
of all Encumbrances;
1.4.2 The stock books, stock ledgers, minute books, corporate records and
corporate seals of the Company; and
1.4.3 Such certificates and other documents as Parent or its counsel
shall reasonably request to evidence the receipt by the Shareholders of all
necessary consents, authorizations and approvals for the consummation of the
transactions contemplated hereby.
1.5 Deliveries by Parent. At the Closing, Parent shall deliver the following
to the Shareholders:
1.5.1 Certificates representing the shares of Parent Common Stock to be
delivered to each Shareholder in accordance with Section 1.2 hereof.
1.5.2 Executed copies of the Indemnification Agreement referred to in
Recital D above and the Registration Rights Agreement referred to in Section 6.5
hereof.
1.5.3 Such certificates and other documents as the Shareholders or their
counsel shall reasonably request to evidence the receipt by the Parent of all
necessary consents, authorizations and approvals for the consummation of the
transactions contemplated hereby.
52
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1.6 Tax and Accounting Consequences. The parties intend that the Share
Exchange shall constitute a tax free plan of reorganization and plan to
consummate the Share Exchange in accordance with the provisions of Section 368
and for accounting treatment as a reorganization/reverse merger.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
REGARDING THE COMPANY
The Company hereby represents and warrants to Parent, subject to the
exceptions specifically disclosed (or to be disclosed) in writing in the
schedules to be supplied by the Company to Parent (the "Company Disclosure
Schedules") or, subject to the subsequent approval in writing by Parent of
updated Company Disclosure Schedules, as of the Closing Date, as set forth below
regarding the Company. The Company Disclosure Schedules shall be delivered to
Parent on or before April 29, 1996, or such later date as the Company may
reasonably request, but in not event later than May 15, 1996. If such Company
Disclosure Schedules are not reasonably satisfactory to Parent, then Parent may,
within five (5) days of such delivery, by notice sent to the Shareholders, elect
to terminate this Agreement. Unless specified otherwise, all references to the
Company herein shall include the Company and all of its subsidiaries and
branches, taken as a whole.
2.1 Organization of the Company. Each of the Company and its subsidiaries is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a material adverse effect on the business,
assets (including intangible assets), financial condition, results of operations
or prospects ("Material Adverse Effect") of the Company. The Company has
delivered to Parent a true and complete list of all of the Company's
subsidiaries, together with the jurisdiction of incorporation or organization of
each subsidiary. The Company has also delivered to Parent a true and correct
copy of the charter documents of the Company and each of its subsidiaries, each
as amended to date.
2.2 Company Capital Structure. The authorized capital stock of the Company
consists of 10,000 shares of Common Stock, of which 10,000 shares are issued and
outstanding. A list of all of the shareholders of Company, with the number of
shares owned by each as of the date hereof, is attached hereto as Exhibit A.
All such issued and outstanding shares have been duly authorized and validly
issued in compliance with all applicable state and federal corporate and
securities laws, and are fully paid and nonassessable. There are no outstanding
warrants, options, agreements, convertible or exchangeable securities or other
commitments pursuant to which the Company is or may become obligated to issue,
sell, purchase, retire or redeem any shares of capital stock or other
securities.
2.3 Authority. The Company has all requisite corporate power and authority to
own and lease its properties and to carry on its business as now conducted. The
execution and delivery of this Agreement by the Shareholders does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default
53
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under (with or without notice or lapse of time, or both), or give rise to a
right of termination, cancellation or acceleration of any obligation or loss of
any benefit under: (a) any provision of the Articles of Incorporation, as
amended, or Bylaws of the Company; or (b) any material mortgage, indenture,
lease, contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or its properties or assets other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect on the Company. Section 2.3 of
the Company Disclosure Schedules will set forth a full and complete list of all
necessary consents, waivers and approvals ("Consents") of third parties material
to the operations of the Company that are required to be obtained by the Company
in connection with the execution and delivery of this Agreement by the
Shareholders and the performance of the obligations hereunder or thereunder
prior to the Closing. Prior to the Closing Date, the Shareholders will use best
efforts to obtain all such Consents.
2.4 Company Financial Statements. The Company has made (or will make, no
later than April 29, 1996, or such later date as the Company may reasonably
request, but in not event later than May 15, 1996) available to Parent true and
complete copies of its audited consolidated financial statements for the two (2)
years ended December 31, 1995 (the "Company Financial Statements"). When
completed and delivered to the Parent, the Company Financial Statements will:
comply in all material respects with applicable accounting requirements; have
been prepared in accordance with United States generally accepted accounting
standards applied on consistent basis, except as may be indicated therein or in
the notes thereto; present fairly, in all material respects, the financial
position of the Company as at the dates thereof and the results of its
operations and cash flows for the periods then ended; and are, in all material
respects, in accordance with the books of account and records of the Company.
The audited consolidated balance sheet as of December 31, 1995 is hereinafter
referred to as the "Company Balance Sheet".
2.5 No Undisclosed Liabilities. The Company does not have any material
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate: (a) have not been reflected in the Company Financial
Statements; or (b) are not normal or recurring liabilities incurred since
December 31, 1995 in the ordinary course of business consistent with past
practices.
2.6 Absence of Certain Changes or Events. Since the date of the Company
Balance Sheet, the Company has conducted its businesses only in the ordinary
course and in a manner consistent with past practice and, since such date, there
has not been: (a) any material adverse change in the properties, financial
condition, results of operations or business of the Company, or, to the
Company's knowledge, any other event that would have a Material Adverse Effect
on the Company; (b) any damage, destruction or loss (whether or not covered by
insurance) with respect to the Company or any of its subsidiaries having a
Material Adverse Effect on the Company; (c) any material change by the Company
in its accounting methods, principles or practices to which Parent has not
previously consented in writing; (d) any revaluation by the Company of any of
its assets having a Material Adverse Effect on the Company, including, without
limitation, writing down the value of any asset or writing off notes or accounts
receivable other than in the ordinary course of business, unless Parent has
previously consented thereto in writing; or (e) any other action or event that
would have required the consent of Parent pursuant to Section 5.1 had
54
<PAGE>
such action or event occurred after the date of this Agreement and that has a
Material Adverse Effect on the Company.
2.7 Taxes.
-----
(a) Definition of Taxes. For the purposes of this Agreement, "Taxes" or a
"Tax", means any and all federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, excise and property taxes, together with all
interest, penalties and additions imposed with respect to such amounts and any
obligations under any agreements or arrangements with any other person with
respect to such amounts and including any liability for taxes of a predecessor
entity.
(b) Tax Returns and Audits.
----------------------
(i) The Company has accurately prepared and timely filed all required
federal, state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to any and all Taxes concerning or attributable to
the Company or its operations and such Returns are true and correct and have
been completed in accordance with applicable law, except where failure to do so
would not have a Material Adverse Effect on the Company.
(ii) The Company as of the Closing Date: (A) will have paid all Taxes
it is required to pay prior to the Closing Date as set forth on all filed
Returns; and (B) will have withheld with respect to its employees all federal
and state income taxes, FICA, FUTA and other Taxes required to be withheld,
except in each case where failure to do so would not have a Material Adverse
Effect on the Company.
(iii) The Company has not been delinquent in the payment of any Tax,
which delinquency has had a Material Adverse Effect on the Company, nor is
there, to the best of the Company's knowledge, any Tax deficiency outstanding,
proposed or assessed against the Company which is material to the Company, nor
has the Company executed any waiver of any statute of limitations on or
extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company is
presently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(v) The Company does not have, to the best of the Company's knowledge,
any liabilities for unpaid federal, state, local or foreign Taxes which have not
been accrued for or reserved on the Company Balance Sheet, whether asserted or
unasserted, which are material to the Company.
(vi) The Company's tax basis in its assets for purposes of determining
its future amortization, depreciation and other federal income tax deductions is
accurately reflected in all material respects on the Company's tax books and
records, to the best of
55
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the Company's knowledge.
2.8 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) Property. The Company has provided Parent with a true and complete
list in all material respects of all real property owned or leased by the
Company, and, in the case of leased real property, the name of the lessor, the
date of the lease and each amendment thereto and the aggregate annual rental or
other fee payable under any such lease. To the best of the Company's knowledge,
all such leases are valid and effective in accordance with their respective
terms, and there is not, under any of such leases, any existing material default
or event of default (or event which, with notice or lapse of time, or both,
would constitute a material default) and in respect of which the Company has not
taken reasonably adequate steps to prevent such default from occurring, except
where the lack of validity and effectiveness or the existence of such default or
event of default would not have a Material Adverse Effect on the Company.
(b) Title to Property. To the best of the Company's knowledge, the
Company has good and valid title to, or, in the case of leased properties and
assets, valid leasehold interests in, all of its material tangible properties
and assets, real, personal and mixed, used in its business, free and clear of
any liens, charges or encumbrances ("Liens"), except as reflected in the Company
Financial Statements and except for such imperfections of title and
encumbrances, if any, which do not have a Material Adverse Effect on the
Company.
(c) Equipment. To the best of the Company's knowledge, all the equipment
owned or leased by the Company is, taken as a whole: (i) reasonably adequate
for the conduct of the business of the Company consistent with its past
practice; (ii) reasonably suitable for the uses to which it is currently
employed; (iii) in reasonably good operating condition, subject to normal wear
and tear; (iv) reasonably maintained; and (v) not obsolete, dangerous or in need
of renewal or replacement, except for renewal or replacement in the ordinary
course of business.
2.9 Intellectual Property. To the best of the Company's knowledge, the
Company or its subsidiaries own or possess adequate licenses or other valid
rights to use all material patents, patent rights, trademarks, trademark rights,
trade names, trade name rights, copyrights, know-how and other proprietary
information used or held for use in connection with the business of the Company
("Company IP Rights") as currently being conducted, except where the failure to
own or possess Company IP Rights would not have a Material Adverse Effect on the
Company and are unaware of any assertions or claims challenging the validity of
any of the foregoing, except where such assertion or claims, if correct, would
not have a Material Adverse Effect on the Company; and to the best knowledge of
the Shareholders, the conduct of the business of the Company as now conducted
does not conflict with any patents, patent rights, licenses, trademarks,
trademark rights, trade names, trade name rights or copyrights of others in any
way likely to have a Material Adverse Effect. No infringement which would be
material to the Company of any propriety right owned by or licensed by or to the
Company or any of its subsidiaries is known to the Shareholder.
2.10 Agreements, Contracts and Commitments. To the best of the Company's
knowledge, the Company has not breached, or received in writing any claim or
threat that it has breached, any of the terms or conditions of any material
agreement, contract or commitment
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("Material Contracts") to which it is a party in such a manner as would permit
any other party to cancel or terminate the same or would permit any other party
to seek material damages from the Company thereunder. Except for failures which
would not have a Material Adverse Effect on the Company, to the best of the
Company's knowledge, each Material Contract is in full force and effect and,
except as otherwise disclosed, is not subject to any material default thereunder
of which the Shareholders are aware by any party obligated to the Company
pursuant thereto. The Company has provided Parent with an opportunity to review
true and complete copies of all Material Contracts to which it is a party or by
which it may be bound.
2.11 Government Authorization. Section 2.11 to the Company Disclosure
Schedules will contain a list, accurate in all material respects to the best of
the Company's knowledge, of each consent, license, permit, grant or other
authorization material to the Company and issued to the Company by any federal,
state, local or foreign governmental body or authority (each, a "Governmental
Entity"): (a) pursuant to which the Company currently operates or holds any
interest in any of its properties; or (b) which is required for the operation of
its business or the holding of any such interest (herein collectively called
"Company Authorizations"), which Company Authorizations are in full force and
effect and constitute all Company Authorizations required to permit the Company
to operate or conduct its business, as presently conducted, or hold any interest
in its properties, except for Company Authorizations, the lack of which, would
not have a Material Adverse Effect on the Company.
2.12 Litigation. There is no action, suit or proceeding, claim, arbitration or
investigation pending, or as to which the Company has received any notice of
assertion nor, to the Company's knowledge, is there a reasonable basis to expect
such notice of assertion against the Company which in any manner challenges or
seeks to prevent, enjoin, alter or materially delay any of the transactions
contemplated by this Agreement or which would reasonably be anticipated to have
a Material Adverse Effect on the Company.
2.13 Environmental Matters.
(a) Hazardous Material. As of the date hereof, no underground storage
tanks and no amount of any substance that has been designated by any
Governmental Entity or by applicable federal, state or local law to be
radioactive, toxic, hazardous or otherwise a danger to health or the environment
("Hazardous Material"), but excluding office and janitorial supplies, is
present, as a result of the actions of the Company, or, to the Company's
knowledge, as a result of any actions of any third party or otherwise, in, on or
under any property, including the land and the improvements, ground water and
surface water thereof, that the Company has at any time owned, operated,
occupied or leased.
(b) Hazardous Materials Activities. At no time prior to the date hereof
has the Company transported, stored, used, manufactured, disposed of, released
or exposed its employees or others to Hazardous Materials in violation of any
law in effect on or before the Closing, nor has the Company disposed of,
transported, sold or manufactured any product containing a Hazardous Material
(collectively "Hazardous Materials Activities") in violation of any rule,
regulation, treaty or statute promulgated by any Governmental Entity in effect
prior to or as of the date hereof to prohibit, regulate or control Hazardous
Materials or any Hazardous Material Activity.
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(c) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning any Governmental Authorization relating to environmental
matters ("Environmental Permit") or any Hazardous Materials Activity of the
Company. The Shareholders are not aware of any fact or circumstance which would
involve the Company in any environmental litigation or impose upon the Company
any environmental liability which would have a Material Adverse Effect on the
Company.
2.14 Labor Matters. Except as to matters which will not, individually or in
the aggregate, have a Material Adverse Effect on the Company, to the best of the
Company's knowledge: the Company is in compliance with all currently applicable
laws and regulations respecting employment, discrimination in employment, terms
and conditions of employment, wages, hours and occupational safety and health
and employment practices, and is not engaged in any unfair labor practice; the
Company has not received any notice from any Governmental Entity, and there has
not been asserted before any Governmental Entity, any claim, action or
proceeding to which the Company is a party or involving the Company, and there
is neither pending, nor threatened any investigation or hearing concerning the
Company arising out of or based upon any such laws, regulations or practices;
there are no pending claims against the Company under any workers compensation
plan or policy or for long term disability; the Company has fully complied with
all applicable provisions of COBRA; the Company has not given to or received
from any current employee of the Company a notice of termination of employment,
except in each case where such event would not have a Material Adverse Effect on
the Company.
2.15 Employee Benefit Plans. The Company has made available to Parent
complete, accurate and current copies of all material bonus, profit sharing,
employee benefit, incentive, pension or retirement, stock option or stock
purchase plans ("Employee Plans") of the Company and all amendments and filings
relating thereto, including but not limited to any statements, filings, reports
or returns filed with any Governmental Entity with respect to the Employee Plans
at any time within the three-year period ending on the date hereof.
2.16 Insurance. The Company has provided Parent with an accurate list of all
insurance policies and fidelity bonds which are material to the Company covering
the assets, business, equipment, properties, operations, employees, officers and
directors of the Company. Except in each case as would not result in a Material
Adverse Effect on the Company, there is no claim by the Company which is
material to the Company pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds; all premiums due and payable under all such policies and
bonds have been paid and the Company is otherwise in full compliance with the
terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage); the Shareholders have no knowledge of
any threatened termination of, or material premium increase with respect to, any
of such policies.
2.17 Compliance With Laws. To the best of the Company's knowledge, the Company
has complied in all material respects with, is not in material violation of, and
has not received any notices of violation with respect to, any federal, state,
local or foreign statute, law or regulation with respect to the conduct of its
business, or the ownership or operation of its properties, the
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violation of which would have a Material Adverse Effect on the Company.
2.18 Complete Copies of Materials. The Company has delivered or made available
true and complete copies of each document (or summaries of same) which has been
requested by Parent or its counsel in connection with their legal and accounting
review of the Company.
2.19 Representations Complete. None of the representations or warranties made
with respect to the Company, nor any statement made in any Schedule, Exhibit or
certificate furnished by the Shareholders pursuant to this Agreement, nor any of
the information provided by the Company in writing specifically for inclusion in
the Proxy Statement, when all such documents are read together in their
entirety, contains or will contain any untrue statement of a material fact at
the Closing Date, or omits or will omit at the Closing Date to state any
material fact necessary in order to make the statements contained herein or
therein, in the light of the circumstances under which made, not misleading.
ARTICLE III
INDIVIDUAL REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
Each of the Shareholders individually represents and warrants to Parent that:
3.1 Title and Voting. Such Shareholder is the sole record and beneficial owner
of the number of Shares set forth opposite such Shareholder's name in column (b)
of Exhibit A, free and clear of all (i) voting trust and other arrangements that
require or permit any of the Shares owned by such Shareholder to be voted by or
at the discretion of anyone other than such Shareholder and (ii) Encumbrances.
3.2 Effect of Transfer of Shares. Upon consummation of the transactions
contemplated hereby, such Shareholder will have transferred to Parent such
Shareholder's Shares, free and clear of all Encumbrances other than such
Encumbrances as have been or may be created pursuant to this Agreement.
3.3 Consents and Approvals; No Violations. Neither the execution nor delivery
by such Shareholder of this Agreement or any of the other documents contemplated
hereby, the performance by such Shareholder of the terms hereof or thereof, nor
the consummation of the transactions contemplated hereby (i) requires any
notice, consent, or approval under, or has resulted or will result (with or
without notice, lapse of time, or otherwise) in a breach of the terms or
conditions of, a default under, a conflict with, or the acceleration of (or the
creation in any person of any right to cause the acceleration of any performance
or any increase in any payment required by, or the termination, suspension,
modification, impairment, or forfeiture (or the creation in any Person) of any
rights or privileges of such Shareholder under, any material agreement,
instrument, undertaking, judgment, award, regulatory or other restriction, or
obligation to which such Shareholder, any of such Shareholder's Shares, or any
of such Shareholder's properties, assets, or businesses may be bound or
affected, in each case which would result in a Material Adverse Effect on the
Company; (ii) has resulted or will result (with or without notice, lapse of
time, or otherwise) in the creation, imposition or foreclosure of, or right to
exercise or foreclose any Encumbrance of any nature whatsoever upon or in any of
such Shareholder's Shares; (iii) does or will conflict with any requirement of
law applicable to such
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Shareholder or by which such Shareholder or any of such Shareholder's Shares may
be bound or affected in each case which would result in a Material Adverse
Effect on the Company; or (iv) requires such Shareholder to make any filing
with, give any notice to, or obtain any permit, authorization, consent, or
approval of, any Person, the failure of which would result in a Material Adverse
Effect on the Company.
3.4 Delivery of Documents.
(a) This Agreement has been, and at the Closing each of the other
documents contemplated hereby to which such Shareholder is a party will have
been, duly executed and delivered by such Shareholder.
(b) This Agreement constitutes, and each of the other documents
contemplated hereby to which such Shareholder is a party when executed and
delivered by such Shareholder will constitute, a legal, valid and binding
obligation of such Shareholder, enforceable against such Shareholder in
accordance with its terms.
3.5 Broker's or Finder's Fees. Except as set forth in the Company Disclosure
Schedules, no agent, broker, or other Person acting on such Shareholder's behalf
is or will be entitled to any commission or broker's or finder's fees from any
of the parties hereto, or from any affiliate of any of the parties hereto, in
connection with any of the transactions contemplated hereby.
3.6 Due Authorization. Such Shareholder has full legal capacity, right, power
and authority to enter into, deliver and perform this Agreement and each of the
other documents to which he is, or is intended to be, a party or which he has
delivered, or is required to deliver, pursuant hereto and to consummate the
transactions contemplated hereby and thereby.
3.7 Securities Law Matters.
(a) Such Shareholder is acquiring the Parent Common Stock for such
Shareholder's own account, and not for the account of any other person. Such
Shareholder is acquiring the Parent Common Stock for investment and not with a
view to distribution or resale thereof except in compliance with applicable laws
regulating securities.
(b) Such Shareholder has had the opportunity to ask questions of, and to
receive answers from, appropriate executive officers of the Parent with respect
to the terms and conditions of the transactions contemplated hereby and with
respect to the business, affairs, financial condition, and results of operations
of the Parent. Such Shareholder has had access to such financial and other
information as is necessary in order for such Shareholder to make a fully-
informed decision as to investment in the Parent by way of purchase of the
Parent Common Stock, and has had the opportunity to obtain any additional
information necessary to verify any of such information to which such
Shareholder has had access.
(c) Such Shareholder's investment in the Parent represented by the Parent
Common Stock is highly speculative in nature and is subject to a high degree of
risk of loss in whole or in part. The amount of such investment is within such
Shareholder's risk capital means
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and is not so great in relation to such Shareholder's total financial resources
as would jeopardize the personal financial needs of such Shareholder or such
Shareholder's family in the event such investment were lost in whole or in part.
(d) Such Shareholder may bear the economic risk of investment for an
indefinite period of time because the sale to such Shareholder of the Parent
Common Stock has not been registered under the Securities Act, and the Parent
Common Stock cannot be transferred by such Shareholder, unless such transfer is
registered under the Securities Act or an exemption from such registration is
available.
ARTICLE IV
REPRESENTATIONS, WARRANTIES, COVENANTS OF PARENT
AND AURTEX EXPLORATION
Parent represents and warrants to the Company, subject to the exceptions
specifically disclosed in writing in the schedules supplied by Parent to the
Shareholders (the "Parent Disclosure Schedules") and dated as of the date hereof
or as otherwise disclosed in the Parent SEC Reports (as defined below) or,
subject to the subsequent approval in writing by the Company of updated Parent
Disclosure Schedules, as of the Closing Date. Unless specified otherwise, all
references to the Parent herein shall include the Parent and all of its
subsidiaries and branches, taken as a whole.
4.1 Organization of Parent. Each of the Parent and its subsidiaries is a
corporation duly organized, validly existing and in good standing under the laws
of the Nevada, has the corporate power to own, lease and operate its property
and to carry on its business as now being conducted and as proposed to be
conducted, and is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on Parent. Except as set forth in the
Parent SEC Reports, Parent does not directly or indirectly own any equity or
similar interest in, or any interest convertible into or exchangeable or
exercisable for, any corporation, partnership, joint venture or other business
association or entity. Parent has delivered to the Shareholders a true and
correct copy of the Articles of Incorporation and Bylaws or other charter
documents of Parent and each of its subsidiaries, each as amended to date.
4.2 Capital Structure. The authorized capital stock of Parent is 5,000,000
shares of Preferred Stock, $0.001 par value, and 50,000,000 shares of Common
Stock, $0.001 par value. As of March 31, 1996, 23,638,540 shares of Parent
Common Stock were validly issued and outstanding, fully paid and nonassessable,
and no shares of preferred stock were issued and outstanding, and, since that
date through the date of execution and delivery of this Agreement, no additional
shares of Parent Common Stock have been issued. All such issued and outstanding
shares have been duly authorized and validly issued in compliance with all
applicable state and federal corporate and securities laws, and are fully paid
and nonassessable. As of completion of the Reverse Stock Split and as of the
Closing Date, subject to the issuance of additional Shares pursuant to the
exercise of outstanding stock options and warrants, 4,000,000 shares of Parent
Common Stock will be outstanding. Except for warrants and options to acquire an
aggregate of 6,678,542 shares of Parent Common Stock (or 1,130,110 shares of
Parent Common Stock as of completion of the Reverse Stock Split), all of which
are currently exercisable, there are no
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outstanding warrants, options, agreements, convertible or exchangeable
securities or other commitments pursuant to which Parent is or may become
obligated to issue, sell, purchase, retire or redeem any shares of capital stock
or other securities.
The shares of Parent Common Stock to be issued pursuant to the Share Exchange
will be duly authorized, validly issued, fully paid, nonassessable and will vest
in the Shareholders good title thereto free of any Encumbrances.
4.3 Authority. Parent has all requisite corporate power and authority to own
and lease its properties, to carry on its business as now conducted, to enter
into this Agreement and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Parent subject only to the approval of the
Reverse Stock Split by Parent's stockholders as contemplated by Section 7.1(a).
This Agreement has been duly executed and delivered by Parent and constitutes
the valid and binding obligations of Parent, enforceable in accordance with its
terms. The execution and delivery of this Agreement does not, and the
consummation of the transactions contemplated hereby will not, conflict with, or
result in any violation of, or default under (with or without notice or lapse of
time, or both), or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a benefit under: (a) any provision of
the Articles of Incorporation or Bylaws of Parent; or (b) any material mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or its properties or assets other than any such
conflicts, violations, defaults, terminations, cancellations or accelerations
which would not have a Material Adverse Effect on the Parent.
No consent, approval, order or authorization of, or registration, declaration
or filing with, any Governmental Entity, is required by or with respect to
Parent in connection with the execution and delivery of this Agreement by Parent
or the consummation by Parent of the transactions contemplated hereby, except
for: (i) the Proxy Statement referenced in Section 6.1 hereof being filed with
the Commission in connection with the Reverse Stock Split; (ii) the filing of a
Form 8-K and Form 10-C with the Commission within fifteen (15) days and ten (10)
days, respectively, after the Closing Date, which Parent agrees to timely file;
(iii) the listing of the shares of Parent Common Stock to be issued in the Stock
Exchange with the Nasdaq Stock Market; (iv) any filings as may be required under
applicable state securities laws and the laws of any foreign country; and (v)
such other consents, authorizations, filings, approvals and registrations which
if not obtained or made would not have a Material Adverse Effect on Parent.
4.4 SEC Documents; Parent Financial Statements.
(a) Parent has filed all forms, reports and documents required to be filed
with the Securities and Exchange Commission (the "Commission") since December 4,
1992, and has heretofore delivered to the Company, in the form filed with the
Commission, true and complete copies of its: (i) Annual Report on Form 10-K for
the years ended February 28, 1994 and 1995 as filed with the Commission; (ii)
Quarterly Reports on Form 10-Q for the quarters ended May 31, 1995, August 31,
1995 and November 30, 1995 as filed with the Commission; (iii) proxy statement
related to its 1995 Annual Meeting of Shareholders; and (iv) all other reports
(and any amendments thereto) filed with the Commission since the filing of its
Form 10-K for the year
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ended February 28, 1995 that Parent was required to file with the Commission
pursuant to the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and the rules and regulations of the Commission thereunder since that
date (the documents referred to in clauses (i) through (iv) being referred to
herein collectively as the "SEC Reports"). As of their respective dates, the
SEC Reports complied in all material respects, and any other reports filed by
the Parent with the Commission will comply in all material respects, with the
requirements of the Exchange Act and the rules and regulations of the Commission
thereunder applicable to such SEC Reports. As of their respective dates, the
SEC Reports did not contain any untrue statement of a material fact or omit 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. The audited financial statements and unaudited interim
financial statements of Parent included in the SEC Reports comply in all
material respects with applicable accounting requirements and with the published
rules and regulations of the Commission with respect thereto. The financial
statements included in the SEC Reports have been prepared in accordance with
United States generally accepted accounting principles applied on a consistent
basis (except as may be indicated therein or in the notes thereto); present
fairly, in all material respects, the financial position of Parent as at the
dates thereof and the results of its operations and cash flows for the periods
then ended subject, in the case of the unaudited interim financial statements,
to normal year-end audit adjustments, any other adjustments described therein
and the fact that certain information and notes have been condensed or omitted
in accordance with the Exchange Act and the rules promulgated thereunder; and
are, in all material respects, in accordance with the books of account and
records of Parent. The unaudited balance sheet of Parent, as of November 30,
1995 is hereinafter referred to as the "Parent Balance Sheet".
(b) Parent has heretofore furnished to the Company a complete and correct
copy of each of the SEC Reports.
4.5 No Undisclosed Liabilities. Parent does not have any material
liabilities, either accrued or contingent (whether or not required to be
reflected in financial statements in accordance with generally accepted
accounting principles), and whether due or to become due, which individually or
in the aggregate: (a) have not been reflected in the Parent Financial
Statements; or (b) are not normal or recurring liabilities incurred since
November 30, 1995 in the ordinary course of business consistent with past
practices. At the Closing, Parent and its subsidiaries shall have no direct or
indirect liabilities or obligations of any nature whatsoever, contingent or
otherwise, whether such liabilities or obligations have theretofore arisen or
may arise in the future.
4.6 Absence of Certain Changes or Events. Since the date of the Parent
Balance Sheet, except as disclosed in the SEC Reports filed since the date of
the Parent Balance Sheet to the date of this Agreement, except with respect to
the actions contemplated by this Agreement, Parent has conducted its businesses
only in the ordinary course and in a manner consistent with past practice and,
since such date, there has not been: (a) any material adverse change in the
financial condition, results of operations or business of the Parent, or any
other event that would have a Material Adverse Effect on Parent; (b) any damage,
destruction or loss (whether or not covered by insurance) with respect to the
Parent or any of its subsidiaries having a Material Adverse Effect on the
Parent; (c) any material change by the Parent in its accounting methods,
principles or practices to which Parent has not previously consented in writing;
(d) any
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revaluation by the Parent of any of its assets having a Material Adverse Effect
on the Parent, including, without limitation, writing down the value of any
asset or writing off notes or accounts receivable other than in the ordinary
course of business, unless the Shareholders have previously consented thereto in
writing; or (e) any other action or event that would have required the consent
of the Shareholders pursuant to Section 5.1 had such action or event occurred
after the date of this Agreement and that has a Material Adverse Effect on the
Parent.
4.7 Tax Returns and Audits.
(a) The Parent has accurately prepared and timely filed all required
federal, state, local and foreign returns, estimates, information statements and
reports ("Returns") relating to any and all Taxes concerning or attributable to
the Parent or its operations and such Returns are true and correct and have been
completed in accordance with applicable law, except where failure to do so would
not have a Material Adverse Effect on the Parent.
(b) The Parent, as of the Closing Date: (i) will have paid all Taxes it
is required to pay prior to the Closing Date as set forth on all filed Returns;
and (ii) will have withheld with respect to its employees all federal and state
income taxes, FICA, FUTA and other Taxes required to be withheld, except where
failure to do so would not have a Material Adverse Effect on the Parent.
(c) The Parent has not been delinquent in the payment of any Tax, nor is
there, to the best of the Parent's knowledge, any Tax deficiency outstanding,
proposed or assessed against the Parent, nor has the Parent executed any waiver
of any statute of limitations on or extending the period for the assessment or
collection of any Tax.
(d) No audit or other examination of any Return of the Parent is presently
in progress, nor has the Parent been notified of any request for such an audit
or other examination.
(e) The Parent does not have, to the best of the Parent's knowledge, any
liabilities for unpaid federal, state, local or foreign Taxes which have not
been accrued for or reserved on the Parent Balance Sheet, whether asserted or
unasserted, contingent or otherwise.
(f) The Parent's tax basis in its assets for purposes of determining its
future amortization, depreciation and other federal income tax deductions is
accurately reflected on the Parent's tax books and records, to the best of the
Parent's knowledge.
4.8 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment.
(a) Leased Property. Parent owns no real property. Parent has provided
the Shareholders with a true and complete list of all real property leased by
the Parent and the names of the lessors, the date of each lease and each
amendment thereto and the aggregate annual rental or other fee payable under
such lease. To the best of the Parent's knowledge, all such leases are valid
and effective in accordance with their respective terms, and there is not, under
any of such leases, any existing material default or event of default (or event
which with notice or lapse of time, or both, would constitute a material default
and in respect of which Parent has not taken
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adequate steps to prevent such default from occurring), except where the lack of
validity and effectiveness or the existence of such default or event of default
would not have a Material Adverse Effect on the Parent.
(b) Title to Property. To the best of the Parent's knowledge, Parent has
good and valid title to, or, in the case of leased properties and assets, valid
leasehold interests in, all of its material tangible properties and assets,
real, personal and mixed, used in its business, free and clear of any Liens,
except as reflected in the Parent Financial Statements and except for such
imperfections of title and encumbrances, if any, which are not substantial in
character, amount or extent, and which do not materially detract from the value,
or interfere with the present use, of the property subject thereto or affected
thereby.
(c) Equipment. To the best of the Parent's knowledge, all of the
equipment owned or leased by the Parent is, taken as a whole: (i) adequate for
the conduct of the business of Parent consistent with its past practice; (ii)
suitable for the uses to which it is currently employed; (iii) in good operating
condition, subject to normal wear and tear; (iv) reasonably maintained; (v) not
obsolete, dangerous or in need of renewal or replacement, except for renewal or
replacement in the ordinary course of business.
4.9 Government Authorization. Section 4.9 to the Parent Disclosure Schedules
contains a list, accurate in all material respects to the best of the Parent's
knowledge, of each consent, license, permit, grant or other authorization
material to the Parent and issued to the Parent by any Governmental Entity: (a)
pursuant to which the Parent currently operates or holds any interest in any of
its properties; or (b) which is required for the operation of its business or
the holding of any such interest (herein collectively called "Parent
Authorizations"), which Parent Authorizations are in full force and effect and
constitute all Parent Authorizations required to permit the Parent to operate or
conduct its business, as presently conducted, or hold any interest in its
properties, except for Parent Authorizations, the lack of which, would not have
a Material Adverse Effect on the Parent.
4.10 Employee Benefit Plans. The Parent has made available to the Shareholders
complete, accurate and current copies of all material Employee Plans of the
Parent and all amendments and filings relating thereto, including but not
limited to any statements, filings, reports or returns filed with any
Governmental Entity with respect to the Employee Plans at any time within the
three-year period ending on the date hereof.
4.11 Insurance. The Parent has provided the Shareholders with an accurate list
of all insurance policies and fidelity bonds which are material to the Parent
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Parent. Except in each case as would not result in
a Material Adverse Effect on the Parent, there is no claim by the Parent which
is material to the Parent pending under any of such policies or bonds as to
which coverage has been questioned, denied or disputed by the underwriters of
such policies or bonds; all premiums due and payable under all such policies and
bonds have been paid and the Parent is otherwise in full compliance with the
terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage); the Parent has no knowledge of any
threatened termination of, or material premium increase with respect to, any of
such policies.
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4.12 Litigation. There is no action, suit, proceeding, claim, arbitration
or investigation pending, or as to which Parent has received any notice of
assertion nor, to Parent's knowledge, is there a reasonable basis to expect such
notice of assertion against Parent which in any manner challenges or seeks to
prevent, enjoin, alter or materially delay any of the transactions contemplated
by this Agreement or which could reasonably be anticipated to have a Material
Adverse Effect on Parent.
4.13 Environmental Matters.
---------------------
(a) Hazardous Material. As of the date hereof, no underground storage
tanks and no Hazardous Material, but excluding office and janitorial supplies,
is present, as a result of the actions of Parent, or, to Parent's knowledge, as
a result of any actions of any third party or otherwise, in, on or under any
property, including the land and the improvements, ground water and surface
water thereof, that Parent has at any time owned, operated, occupied or leased.
(b) Permits. Parent currently holds all Environmental Permits
necessary for the conduct of Parent's Hazardous Material Activities and other
businesses of Parent as such activities and businesses are currently being
conducted.
(c) Environmental Liabilities. No action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning or relating to Parent, any Environmental Permit or any
Hazardous Materials Activity of Parent. To the best of Parent's knowledge, no
fact or circumstance could involve Parent in any environmental litigation or
impose upon Parent any environmental liability which would have a Material
Adverse Effect on Parent.
4.14 Agreements, Contracts and Commitments. Parent has not breached, or
received in writing any claim or threat that it has breached, any of the terms
or conditions of any material agreement, contract or commitment to which Parent
is party ("Parent Material Contracts") in such a manner as would permit any
other party to cancel or terminate the same or would permit any other party to
seek material damages from Parent thereunder. Each Parent Material Contract is
in full force and effect and, except as otherwise disclosed, is not subject to
any material default thereunder of which Parent is aware by any party obligated
to Parent pursuant thereto. Parent has provided the Parent with an opportunity
to review true and complete copies of all Parent Material Contracts.
4.15 Labor Matters. Except as to matters which could not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect on
Parent, Parent is in compliance with all currently applicable laws and
regulations respecting employment, discrimination in employment, terms and
conditions of employment, wages, hours and occupational safety and health and
employment practices, and is not engaged in any unfair labor practice. Parent
has not received any notice from any Governmental Entity, and there has not been
asserted before any Governmental Entity, any claim, action or proceeding to
which Parent is a party or involving Parent, and there is neither pending, nor
threatened any investigation or hearing concerning Parent arising out of or
based upon any such laws, regulations or practices. There are no pending claims
against Parent under any workers compensation plan or policy or for long term
disability. Parent has fully complied with all applicable provisions of COBRA
and has
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no obligations with respect to any former employees or qualifying beneficiaries
thereunder. Parent has not given or received from any current employee of Parent
a notice of termination of employment. As of the date hereof, the employees of
Parent are listed in Section 4.15 of the Parent Disclosure Schedules.
4.16 Compliance With Laws. Parent has complied in all material respects
with, is not in material violation of, and has not received any notices of
violation with respect to, any federal, state or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business.
4.17 Brokers' and Finders' Fees. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby.
4.18 Information Statement; Proxy Statement. The information supplied by
Parent for inclusion in the Proxy Statement to be filed with the Commission as
provided in Section 6.1 (the "Proxy Statement") shall not, on the date the Proxy
Statement is first mailed to Parent's stockholders, at the time of the Parent's
Stockholders Meeting and at the Closing Date, contain any statement which, at
such time and in light of the circumstances under which it shall be made, is
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not false or
misleading, or omit to state any material fact necessary to correct any
statement in any earlier communication with respect to the solicitation of
proxies for the Parent's Stockholders Meeting which has become false or
misleading. If at any time prior to the Closing Date any event relating to
Parent, Aurtex Exploration or any of their respective affiliates, officers or
directors should be discovered by Parent which should be set forth in a
supplement to the Proxy Statement, Parent will promptly inform the Parent.
Parent agrees to send any such supplement to its shareholders at a sufficient
time prior to the Parent's Stockholders Meeting. Notwithstanding the foregoing,
Parent makes no representation or warranty with respect to any information
supplied by the Shareholder in writing specifically to be contained in any of
the foregoing documents.
4.19 Complete Copies of Materials. Parent has delivered or made available
true and complete copies of each document (or summaries of same) which has been
requested by the Company in order for the Company to make a complete legal and
accounting review of Parent.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING DATE
5.1 Conduct of Business of the Company. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Closing, the Shareholders agree, unless Parent shall otherwise
agree in writing, to cause the Company to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay its debts and taxes when due subject to good faith disputes
over such debts or taxes, to pay or perform other material obligations when due,
and, to the extent consistent with such business, use all reasonable efforts
consistent with past practices and policies to preserve intact the Company's
present business organizations, keep available the services of its present
officers and key employees and preserve its relationships with customers,
suppliers,
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distributors, licensors, licensees and others having business dealings with the
Company, in each case to avoid a Material Adverse Effect on the Company. The
Shareholders shall cause the Company to use its best efforts to: (a) maintain
insurance coverages and its books, accounts and records in the usual manner
consistent with prior practices; (b) comply in all material respects with all
laws, ordinances and regulations of Governmental Entities applicable to the
Company; (c) maintain and keep its properties and equipment in reasonably good
repair, working order and condition, ordinary wear and tear excepted; and (d)
perform in all material respects its obligations under all contracts and
commitments to which it is a party or by which it is bound, in each case of
clauses (a) through (d) other than where the failure to so maintain, comply or
perform, either individually or in the aggregate, would result in a Material
Adverse Effect. The Shareholders shall promptly notify Parent of any event or
occurrence not in the ordinary course of business of the Company and will not
permit the Company to enter into any agreement or take any action which would
have a Material Adverse Effect on the Company. The Shareholders shall promptly
notify Parent if any event, agreement or occurrence would have a Material
Adverse Effect on the Company. Except as expressly contemplated by this
Agreement, the Shareholders shall use their best efforts not to permit the
Company to, without the prior written consent of Parent, such consent not to be
unreasonably withheld:
(a) Sell, lease or otherwise dispose of any of its properties or assets
which are material, individually or in the aggregate, to the business of the
Company, except in the ordinary course of business;
(b) Transfer or license to any person or entity or otherwise extend, amend
or modify any rights to the Company's Intellectual Property Rights or enter into
grants to future patent rights, other than in the ordinary course of business
consistent with past practices;
(c) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company, or enter into any joint ventures, strategic partnerships or
alliances or agreements with respect thereto, except in the ordinary course of
business consistent with prior practice; provided, however that the Company
shall not be prohibited by the terms of this Agreement from issuing additional
shares of Company Common Stock to adjust the ownership interests of the
Shareholders; provided, further, that any such additional shares shall be
treated as Shares hereunder, and shall be purchased by the Parent with no
adjustment in the total purchase price under Section 1.2;
(d) Violate, amend or otherwise modify the terms of any of the Material
Contracts to which the Company is a party in a way that would have a Material
Adverse Effect;
(e) Commence a lawsuit other than: (i) for the routine collection of
bills; or (ii) in such cases where the Company in good faith determines that
failure to commence suit would result in the material impairment of a valuable
aspect of the Company's business; provided, that the Company consults with
Parent prior to the filing of such a suit;
(f) Except as provided in clause (c) above, declare or pay any dividends
on
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or make any other distributions (whether in cash, stock or property) in respect
of any of its capital stock or split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of capital stock of the Company, or
repurchase or otherwise acquire, directly or indirectly, any shares of its
capital stock, except from former employees, directors and consultants in
accordance with agreements providing for the repurchase of shares in connection
with any termination of service to the Company;
(g) Except as provided in clause (c) above, issue, deliver or sell or
authorize or propose the issuance, delivery or sale of, or purchase or propose
the purchase of, any shares of its capital stock or securities convertible into,
or subscriptions, rights, warrants or options to acquire, or other agreements or
commitments of any character obligating it to issue, any such shares or other
convertible securities, except as contemplated by this Agreement;
(h) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(i) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to the existing credit facility) or guarantee any
such indebtedness or issue or sell any debt securities of the Company or
guarantee any debt securities of others;
(j) Adopt or amend any employee benefit or stock purchase or option plan,
enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, increase the salaries or wage rates of
its employees other than in the ordinary course, or grant any severance or
termination pay: (i) to any director or officer; or (ii) to any other employee,
except payments made pursuant to standard written agreements outstanding on the
date hereof and as previously disclosed to Parent;
(k) Except in accordance with applicable accounting principles, revalue
any of its assets, including without limitation writing down the value of
inventory or writing off notes or accounts receivable, other than in the
ordinary course of business;
(l) Pay, discharge or satisfy in an amount in excess of $50,000 (in any
one case) or $100,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved against in the Company Financial Statements
(or the notes thereto), or liabilities incurred since the Company Balance Sheet
in conformance with this Agreement;
(m) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Return or
any amendment to a material Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(n) Take, or agree in writing or otherwise to take, any of the actions
described in Section 5.1(a) through (m) above, or any action which would make
any of the
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representations or warranties of the Company contained in this Agreement untrue
or incorrect or prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
5.2 Conduct of Business of Parent. Except as specifically contemplated by
this Agreement, during the period from the date of this Agreement and continuing
until the earlier of the termination of this Agreement or the Closing, Parent
agrees (except to the extent that the Company shall otherwise consent in
writing), to carry on its business in the usual, regular and ordinary course in
substantially the same manner as heretofore conducted, to pay its debts and
taxes when due subject to good faith disputes over such debts or taxes, to pay
or perform other obligations when due, and, to the extent consistent with such
business, use all reasonable efforts consistent with past practices and policies
to preserve intact Parent's present business organizations, keep available the
services of its present officers and key employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees and
others having business dealings with Parent, in each case to avoid a Material
Adverse Effect on the Parent. Parent shall: (a) maintain insurance coverages
and its books, accounts and records in the usual manner consistent with prior
practices; (b) comply in all material respects with all laws, ordinances and
regulations of Governmental Entities applicable to the Parent; (c) maintain and
keep its properties and equipment in good repair, working order and condition,
ordinary wear and tear excepted; and (d) perform in all material respects its
obligations under all contracts and commitments to which it is a party or by
which it is bound, in each case other than where the failure to so maintain,
comply or perform, either individually or in the aggregate, would result in a
Material Adverse Effect. Parent shall promptly notify the Company of any event
or occurrence not in the ordinary course of business of Parent, and will not
enter into any agreement or take any action which could have a Material Adverse
Effect on Parent. Parent shall promptly notify the Company if any event,
agreement or occurrence could have a Material Adverse Effect. Except as
expressly contemplated by this Agreement, Parent shall not, without the prior
written consent of the Company, such consent not to be unreasonably withheld:
(a) Sell, lease, license or otherwise dispose of any of its properties or
assets which are material, individually or in the aggregate, to the business of
Parent, except in the ordinary course of business;
(b) Acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the assets of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
Parent, or enter into any joint ventures, strategic partnerships or alliances or
purchase any distributors;
(c) Accelerate, amend or change the period of exercisability of stock
options or warrants granted by the Parent or authorize cash payments in exchange
for any options or warrants granted by the Parent;
(d) Violate, amend or otherwise modify the terms of any of Parent Material
Contracts in a way that could have a Material Adverse Effect;
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(e) Commence a lawsuit other than: (i) for the routine collection of
bills; or (ii) in such cases where Parent in good faith determines that failure
to commence suit would result in the material impairment of a valuable aspect of
Parent's business; provided, that Parent consults with the Company prior to the
filing of such a suit;
(f) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock, or
split, combine or reclassify any of its capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in substitution
for shares of capital stock of Parent, or repurchase or otherwise acquire,
directly or indirectly, any shares of its capital stock, except from former
employees, directors and consultants in accordance with agreements providing for
the repurchase of shares in connection with any termination of service to
Parent;
(g) Issue, deliver or sell or authorize or propose the issuance, delivery
or sale of, or purchase or propose the purchase of, any shares of its capital
stock or securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the repurchase of shares of Parent's Common Stock from terminated employees
pursuant to the terms of restricted stock purchase agreements and the issuance
of shares of Parent's Common Stock pursuant to the exercise of Parent stock
options or warrants therefor outstanding as of the date of this Agreement as set
forth in Section 5.2 of the Parent Disclosure Schedules.
(h) Cause or permit any amendments to its Articles of Incorporation or
Bylaws;
(i) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to Parent's existing bank facility) or guarantee any
such indebtedness or issue or sell any debt securities of Parent or guarantee
any debt securities of others;
(j) Adopt or amend any employee benefit or stock purchase or option plan
(except as required to add additional shares to the existing option plan), enter
into any employment contract, pay any special bonus or special remuneration to
any director or employee, increase the salaries or wage rates of its employees
other than in the ordinary course; or grant any severance or termination pay:
(i) to any director or officer; or (ii) to any other employee, except payments
made pursuant to standard written agreements outstanding on the date hereof and
as previously disclosed to the Company;
(k) Revalue any of its assets, including without limitation writing down
the value of inventory or writing off notes or accounts receivable other than in
the ordinary course of business;
(l) Pay, discharge or satisfy in an amount in excess of $50,000 (in any
one case) or $100,000 (in the aggregate), any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business of
liabilities reflected or reserved for in the Parent Financial Statements (or the
notes thereto);
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(m) Make or change any material election in respect of Taxes, adopt or
change any accounting method in respect of Taxes, file any material Return or
any amendment to a material Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(n) Take, or agree in writing or otherwise to take, any of the actions
described in Sections 5.2(a) through (m) above, or any action which would make
any of the representations or warranties of Parent contained in this Agreement
untrue or incorrect or prevent Parent from performing or cause Parent not to
perform its covenants hereunder.
5.3 No Solicitation. Except as otherwise specifically permitted by the
provisions of Sections 5.1 or 5.2, as the case may be, prior to the Closing,
neither Parent nor the Shareholders will (nor will the Shareholders or Parent
permit any of the Company's or Parent's officers, directors, agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any party other than Parent or Company (respectively) and
its designees, except as required by law (including actions which the Company's
Board of Directors or the Parent's Board of Directors determines, after
consultation with outside legal counsel, are required pursuant to its fiduciary
duties under applicable law):
(a) Solicit, encourage, initiate or participate in any negotiations or
discussions with respect to, any offer or proposal to acquire all or
substantially all of the Parent's or Company's or any subsidiary's business,
assets or properties or to purchase or acquire capital stock of the Company or
any subsidiary whether by merger, purchase of assets, tender offer or otherwise
(an "Acquisition");
(b) Disclose any information not customarily disclosed to any person other
than its attorneys or financial advisors concerning the Parent's or Company's or
any subsidiary's business and properties or afford to any person or entity
access to its properties, books or records; or
(c) Assist or cooperate with any person to make any proposal to consummate
a transaction of the type referred to in clause (a) above.
In the event the Company or Parent shall receive any such written offer
proposal, directly or indirectly, oral or written, of the type referred to in
clause (a) or (c) above, or any request for disclosure or access pursuant to
clause (b) above, the Company or Parent shall immediately inform Parent or
Company as to all material facts relating to any such offer or proposal
(including the identity of the party making such offer or proposal and the
specific terms thereof) and will cooperate with Parent or Company by furnishing
any information it may reasonably request.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Proxy Statement. As promptly as practicable after the execution of this
Agreement, Parent shall prepare and file with the Commission the Proxy
Statement, which shall include preliminary proxy materials relating to the
approval of the Reverse Stock Split, and which
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complies in form with applicable Commission requirements. The Proxy Statement
shall include the recommendation of the Board of Directors of Parent in favor of
the Reverse Stock Split; provided, that such recommendation may not be included
or may be withdrawn if previously included if Parent has been advised by its
outside legal counsel that Parent's Board of Directors would be in breach of its
fiduciary duties if it included such recommendation or did not withdraw such
recommendation if previously included. Parent shall use all reasonable efforts
to effect the clearance of the Proxy Statement by the Commission as soon as
practicable.
6.2 Meeting of Stockholders.
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(a) Parent shall promptly after the date hereof take all action necessary
in accordance with Nevada Law and its Articles of Incorporation and Bylaws to
convene the Parent Stockholders' Meeting on May 30, 1996 or as soon thereafter
as is practicable. Subject to Section 6.1, Parent shall use reasonable efforts
to solicit from stockholders of Parent proxies in favor of the Reverse Stock
Split.
6.3 Distributions Prior to Share Exchange. The parties agree and acknowledge
that Parent shall form Aurtex Exploration, which shall be a wholly-owned
subsidiary of Parent and thereafter shall contribute to Aurtex Exploration all
of its assets, liabilities and obligations of any kind. All employees of Parent
other than those listed on the Parent Disclosure Schedules shall become
employees of Aurtex Exploration and all liabilities and obligations relating to
such employees, including without limitation, severance, vacation, issuance and
pension liabilities, whether accruing before or after the Closing, shall become
the liabilities and obligations of Aurtex Exploration. Prior to the Closing
Date, Parent shall make a distribution by means of a dividend to its
shareholders of record on the Record Date of all of the shares of Aurtex
Exploration (the "Distribution"), which after the Distribution shall own and
operate the business and assets, and be responsible for the obligations and
liabilities, of Parent. All matters relating to the formation of Aurtex
Exploration, the aforesaid contribution and the Distribution shall be reasonably
satisfactory to the Shareholders.
6.4 Reverse Stock Split. Immediately prior to the Closing Date, and subject
to approval of the stockholders of Parent at the Parent Stockholders' Meeting,
Parent shall effect the Reverse Stock Split.
6.5 Registration Rights. On or prior to the Closing, the parties shall enter
into a registration rights agreement (the "Registration Rights Agreement") on
terms satisfactory to the parties. The Registration Rights Agreement shall
contain, among other things, provisions consistent with the following:
(a) Piggyback Registrations. If, at any time after the Closing Date,
Parent proposes to register any of its securities under the Securities Act of
1933 (the "Securities Act") for sale to the public, whether for its own account
or for the account of other security holders or both (except with respect to
registration statements on Forms S-4, S-8 or another form not available for
registering the securities for sale to the public), each such time Parent will
give at least thirty (30) days prior written notice to the Shareholders of its
intention so to do. Upon the written request of a Shareholder, received by the
Parent within twenty (20) days after the giving of any such notice by the
Parent, to register any of the Parent Common Stock received in the
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Share Exchange (the "Registrable Securities"), Parent will cause such
Registrable Securities as to which registration shall have been so requested to
be included in the securities to be covered by the registration statement
proposed to be filed by the Parent, all to the extent required to permit the
sale or other disposition of such Registrable Securities by the Shareholder
thereof, at the Parent's expense.
(b) Demand Registrations.
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(i) At any time from and after the Closing Date upon the written
request of Shareholders holding not less than 25% of the Registrable Securities
which have not been disposed of, requesting that the Parent effect the
registration under the Securities Act of all or part of such Shareholders'
Registrable Securities and specifying the intended method of disposition
thereof, the Parent will promptly give written notice of such requested
registration to all other Shareholders, and thereupon will, as expeditiously as
possible, use commercially reasonable efforts to promptly effect the
registration under the Securities Act of:
(A) the Registrable Securities which the Parent has been so requested
to register by such Shareholders; and
(B) all other Registrable Securities which the Parent has been
requested to register by any other Shareholder thereof by written request given
to the Parent within twenty (20) days after the giving of such written notice by
the Parent (which request shall specify the intended method of disposition of
such Registrable Securities), so as to permit the disposition (in accordance
with the intended method thereof as aforesaid) of the Registrable Securities so
to be registered; provided, however, that the Company may delay filing the
registration statements for up to ninety (90) days if the Board of Directors of
the Parent determines that the filing of the registration statement would be
detrimental to the Parent. Any such registration shall be at the Parent's
expense.
(ii) Limitation on Demand Rights.
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(A) Maximum Number of Demands. The Parent shall only be requested to
effect four (4) registrations pursuant to this Section 6.5 for the Registrable
Securities.
(B) Demand Date Restriction. No Holder or Holders of any Registrable
Securities may demand registration within six (6) months after the effective
date of a registration statement with respect to sale of Registrable Securities
pursuant to a demand registration.
(C) Other Provisions. The Shareholders shall have a priority over all
other Aurtex securityholders in piggyback and demand registrations. The
Registration Rights Agreement shall provide for customary indemnification and
"blue sky" provisions and requirements that the Shareholders receive customary
legal opinions and "cold comfort" letters. In any piggyback or demand
registration, Parent will enter into such underwriting agreements as the holders
of the Registrable Securities may reasonably request. Rights under the
Registration Rights Agreement may be exercised by purchasers of Registrable
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Securities.
6.6 Access to Information. Each of the Company and Parent shall afford to the
other and to the others' employees, accountants, counsel and other
representatives, full access during normal business hours during the period
prior to the Closing Date to all its properties, books, contracts, commitments,
records and personnel and, during such period, each shall furnish promptly to
the other: (a) a copy of each record, schedule or other document filed or
received by it pursuant to the requirements of federal or state securities laws;
and (b) all other information concerning the business, properties and personnel
of such party as the other party may reasonably request (including, without
limitation, updated information on pending litigation). An employee or
representative of a party desiring access pursuant to this Section 6.6 shall
contact one of the representatives of the other party whose name is set forth in
Schedule 6.6. Each of the Company and Parent shall hold, and shall cause their
respective employees and agents to hold, in confidence all such information. No
information or knowledge obtained in any investigation pursuant to this Section
6.5 shall affect or be deemed to modify any representation or warranty contained
herein or the conditions to the obligations of the parties to consummate the
Exchange.
6.7 Expenses; Fees. All fees and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such fees and expenses; provided, that if the Share Exchange is
consummated, the Shareholders' fees and expenses shall be paid or reimbursed by
the Company.
6.8 Public Disclosure. Parent and the Shareholders shall consult with each
other before issuing any press release or otherwise making any public statement
with respect to this Agreement and shall not issue any such press release or
make any such public statement prior to such consultation, except as may be
required by law.
6.9 Consents. Each of Parent and the Shareholders shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Share Exchange and the
other transactions contemplated by this Agreement, and the Shareholders shall
use their best efforts to obtain all necessary consents, waivers and approvals
under any of the Company's material agreements, contracts, licenses or leases in
connection with the Share Exchange and the other transactions contemplated by
this Agreement for the assignment thereof or otherwise.
6.10 Legal Requirements. Each of Parent and the Shareholders will take
all reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including resolution of any
litigation prompted hereby) and will promptly cooperate with and furnish
information to any party hereto necessary in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
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6.11 Blue Sky Laws. Parent shall take such steps as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable to the issuance of the Parent Common Stock pursuant hereto. The
Shareholders shall use their best efforts to assist Parent as may be necessary
to comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of Parent Common Stock pursuant
hereto.
6.12 Company Debt. Prior to the Closing Date, Parent shall enter into
an agreement pursuant to which it shall agree to pay the outstanding principal
amount of and accrued interest, if any, on the debt owed by the Company to
Peacetime Communications, Ltd. (the "Peacetime Agreement"), which agreement
shall provide that Parent may, at any time within three (3) years of the Closing
Date, repay in full the principal amount of such debt and any accrued and unpaid
interest by issuing to Peacetime Communications Ltd. 3,000,000 shares of Parent
Common Stock.
6.13 Best Efforts and Further Assurances. Each of the parties to this
Agreement shall each use its best efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
closing under this Agreement (including, but not limited to using all reasonable
efforts to obtain all necessary waivers, consents and approvals, to effect all
necessary registrations and filings, and the resolution of any litigation
prompted hereby and, in such case, to proceed with the Share Exchange as
expeditiously as possible). Each party hereto, at the reasonable request of
another party hereto, shall execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of this Agreement and the transactions
contemplated hereby. Notwithstanding the foregoing, there shall be no action
required to be taken and no action will be taken in order to consummate and make
effective the transactions contemplated by this Agreement if such action, either
alone or together with another action, would result in a Material Adverse Effect
with respect to either to Company or Parent.
6.14 Update to Disclosures. Without limiting either party's right to
rely on the representations and warranties as of the date of this Agreement,
each party shall provide the other party with updates to the disclosures
provided or made available to the other party as to material facts which arise
between the date of this Agreement and the Closing Date, and which, if they had
occurred and been known prior to the date of this Agreement, would have been
required to have been disclosed in order to make the representations warranties
of such party contained in this Agreement true and correct as of the date of
this Agreement; provided, that the non-disclosing party may terminate this
Agreement pursuant to its terms if such disclosure is materially adverse.
ARTICLE VII
CONDITIONS TO THE SHARE EXCHANGE
7.1 Conditions to Obligations of Each Party to Effect the Share Exchange.
The respective obligations of each party to this Agreement to effect the Share
Exchange shall be subject to the satisfaction at or prior to the Closing Date of
the following conditions:
(a) Reverse Stock Split. The amendment to the Articles of Incorporation
of the Parent providing for the Reverse Stock Split shall have been approved and
adopted by the requisite vote of the stockholders of Parent, and the Reverse
Stock Split shall have been effected immediately prior to the Closing Date.
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(b) Proxy Statement Effective. No stop order or similar adverse action
with respect to the Proxy Statement or any part thereof shall have been issued
and no proceeding for that purpose shall have been initiated or threatened by
the Commission; and all requests for additional information on the part of the
Commission shall have been complied with to the reasonable satisfaction of the
parties hereto.
(c) Listing of Additional Shares. The Parent Common Stock issuable in the
Share Exchange shall have been authorized for listing on the Nasdaq Stock
Market.
(d) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Share Exchange shall have been issued, nor
shall any proceeding brought by an administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, seeking any of
the foregoing be pending; nor shall there be any action taken, or any statute,
rule, regulation or order enacted, entered, enforced or deemed applicable to the
Stock Exchange, which makes the consummation of the Share Exchange or the
Distribution illegal; nor any action, proceeding or similar action shall have
been brought or threatened which, in the reasonable judgment of Parent or the
Shareholders, could reasonably be expected to have a Material Adverse Effect on
the parties to this Agreement.
(e) Approval. Parent and the Company shall have timely obtained from each
Governmental Entity all approvals, if any, necessary for consummation of the
Stock Exchange and the transactions contemplated hereby.
(f) Tax-Free Organization. Parent and the Shareholders shall be
reasonably satisfied that the Stock Exchange shall be treated as a
reorganization within the meaning of Section 368 of the Code.
7.2 Additional Conditions to Obligations of Shareholders. The obligations of
the Shareholders to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Closing Date of each of the following conditions, any of which may be waived, in
writing, exclusively by the Company:
(a) Representations, Warranties and Covenants. The representations and
warranties of Parent in this Agreement shall be true and correct in all material
respects on and as of the Closing Date as though such representations and
warranties were made on and as of such time and Parent shall have performed and
complied in all material respects with all covenants, obligations and conditions
of this Agreement required to be performed and complied with by it as of the
Closing Date.
(b) Certificate of Parent. The Company shall have been provided with a
certificate executed on behalf of Parent by its President and its Chief
Financial Officer to the effect that, as of the Closing Date:
(i) all representations and warranties made by Parent under this
Agreement are true and complete in all material respects; and
77
<PAGE>
(ii) all covenants, obligations and conditions of this Agreement to be
performed by Parent on or before such date have been so performed in all
material respects.
(c) Material Adverse Change. There shall not have occurred any Material
Adverse Change in the business of Parent as defined in Section 3.6 hereof.
(d) Indemnification Agreement and Registration Rights Agreement. Aurtex
Exploration and the Shareholders shall have entered into an Indemnification
Agreement acceptable in form and substance to the Shareholders. The Parent and
the Shareholders shall have entered into a Registration Rights Agreement as
contemplated by Section 6.6.
(e) Aurtex Exploration Officer's Certificate. Aurtex Exploration shall
have delivered an Officer's Certificate signed by its Chief Executive Officer
acceptable in form and substance to the Shareholders certifying that the Reverse
Stock Split and transfer of Parent's liabilities and obligations to Aurtex
Exploration as contemplated by this Agreement were completed and that Aurtex
Exploration had assumed all of the liabilities and obligations of Parent
pursuant thereto.
(f) Parent Officer's Certificate. Parent shall have delivered an
Officer's Certificate signed by its Chief Executive Officer acceptable in form
and substance to the Company certifying that: (i) the Reverse Stock Split and
transfer of Parent's liabilities and obligations to Aurtex Exploration as
contemplated by this Agreement were completed and that Parent had assigned all
of its liabilities and obligations to Aurtex Exploration pursuant thereto; and
(ii) the consents, approvals and filings set forth in items (i), (iii), (iv) and
(v) of the second paragraph of Section 4.3 have been had or obtained.
(g) Third Party Consents. Shareholders shall have been furnished with
evidence reasonably satisfactory to them of the consent or approval of those
persons whose consent or approval shall be required to effectuate the Share
Exchange, the Reverse Stock Split and the Distribution, or whose consents are
necessary to assign contracts, licenses, leases or other instruments material to
the business of the Company.
(h) Distribution Completed. The Distribution shall have been declared by
the Board of Directors of Parent and shall have been effected prior to the
Closing Date.
7.3 Additional Conditions to the Obligations of Parent. The obligations of
Parent to consummate and effect this Agreement and the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing Date of
each of the following conditions, any of which may be waived, in writing,
exclusively by Parent:
(a) Representations, Warranties and Covenants. The representations and
warranties of the Shareholders in this Agreement shall be true and correct in
all material respects on and as of the Closing Date as though such
representations and warranties were made on and as of such time and the
Shareholders shall have performed and complied in all material respects with all
covenants, obligations and conditions of this Agreement required to be performed
and complied with by them as of the Closing Date.
78
<PAGE>
(b) Certificate of the Shareholders. Parent shall have been provided with
a certificate executed by the Shareholders to the effect that, as of the Closing
Date:
(i) all representations and warranties made with respect to the Company
under this Agreement are true and complete in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement to be
performed by the Shareholders on or before such date have been so performed in
all material respects.
(c) Third Party Consents. Parent shall have been furnished with evidence
reasonably satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required to effectuate the Share Exchange or whose
consents are necessary to assign contracts, licenses, leases or other
instruments material to the business of the Company.
(d) Joint Activity Agreement. The Joint Activity Agreement dated January
24, 1994 to which the Company is a party shall have been reinstated or the
Company shall have entered into a new agreement with respect to the matters
covered in the Joint Activity Agreement, which new agreement shall be in form
and substance satisfactory to Parent.
(e) No Material Adverse Changes. There shall not have occurred any
Material Adverse Change in the business of the Company as defined in Section 2.7
hereof and the operating results of the Company for the four-month period ended
April 30, 1996 shall be satisfactory to Parent.
(f) Peacetime Agreement. Parent, the Company and Peacetime Communications
Ltd. shall have entered into the Peacetime Agreement.
(g) Option Agreement. Parent shall have entered into an agreement
pursuant to which Parent shall be entitled to acquire, within one year after the
Closing Date, all of the assets and liabilities of Global Communications
Technologies, Inc. for $1.00.
ARTICLE VIII
TERMINATION
8.1 Mutual Termination. This Agreement may be terminated and the Share
Exchange abandoned at any time prior to the Closing Date by the mutual written
consent of the Company and Parent.
8.2 Termination by Shareholders. This Agreement may be terminated and the
Share Exchange abandoned at any time prior to the Closing Date by the
Shareholders alone, by means of written notice to Parent if: (a) there has been
a material breach of any representation, warranty, covenant or agreement
contained in this Agreement on the part the Parent and such breach has not been
cured within five (5) business days after written notice (provided, that, no
cure period shall be required for a breach which by its nature cannot be cured);
(b) if any condition to the Shareholders' obligation to complete the Share
Exchange has not been satisfied or waived by the Shareholders by June 30, 1996;
or (c) there shall be any final action taken, or any statute, rule,
79
<PAGE>
regulation or order enacted, promulgated or issued or deemed applicable to the
Share Exchange, the Reverse Stock Split or the Distribution by any Governmental
Entity which would make consummation of the Share Exchange, the Reverse Stock
Split or the Distribution illegal.
8.3 Termination by Parent. This Agreement may be terminated and the Stock
Exchange abandoned at any time prior to the Closing Date by Parent alone, by
means of written notice to Company if: (a) there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
on the part the Company and such breach has not been cured within five (5)
business days after written notice (provided, that, no cure period shall be
required for a breach which by its nature cannot be cured); (b) if any condition
to Parent's obligation to complete the Share Exchange has not been satisfied or
waived by Parent by June 30, 1996; (c) there shall be any final action taken, or
any statute, rule, regulation or order enacted, promulgated or issued or deemed
applicable to the Share Exchange by any Governmental Entity which would make
consummation of the Stock Exchange illegal; or (d) if the Parent's stockholders
do not approve the Reverse Stock Split at the Parent's Stockholders' Meeting.
8.4 Confidentiality and Effect of Termination. In the event that this
Agreement is terminated, each of the parties shall return (without retaining
copies) all documents and papers containing confidential information (including
without limitation technical information, customer lists, financial data and any
similar information developed by another party pursuant to this Agreement or in
contemplation of the transactions contemplated by this Agreement) and shall
neither use, nor disclose any such information, except to the extent that such
information is available to the public or is otherwise rightfully obtained.
Neither party shall have any obligation to the other whatsoever with respect to
this Agreement, the transactions provided for herein, or the expenses either of
them incurred in connection with or in contemplation of such transactions.
ARTICLE IX
GENERAL PROVISIONS
9.1 Assignment. Neither party may assign, by operation of law or otherwise,
all or any portion of its rights or duties under this Agreement without the
prior written consent of the other party, which consent may be withheld in the
absolute discretion of the party being asked to give consent.
9.2 Confidentiality. Neither party shall issue a press release or otherwise
publicize the transactions contemplated by this Agreement or otherwise disclose
the nature or contents of this Agreement on or prior to the Closing Date, except
as otherwise required by applicable law, regulation or stock exchange
requirement. No information, documents or reports provided to or obtained by
either party in connection with this transaction shall be disclosed to any
nonparty, except as required in carrying out the transactions contemplated
hereby. In the event this Agreement is terminated as permitted herein, each
party shall return to the other party (without retaining copies) all such
documents, information and reports.
9.3 Expenses. Except as otherwise expressly provided herein, the parties
will each pay their own costs and expenses, including legal and accounting
expenses, related to the transactions provided for herein, irrespective of when
incurred.
80
<PAGE>
9.4 Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been duly given on the
date of service if served personally, or five (5) days after the date of mailing
if mailed, by first class mail, registered or certified, postage prepaid and
addressed as follows:
If to Parent, to:
Aurtex, Inc.
7601 Lewinsville Road, Suite 200
McLean, Virginia 22102
ATTENTION: President
Telephone Number: (703) 821-1540 x 570
Fax Number: (703) 893-3426
with a copy to:
Heller, Ehrman, White & McAuliffe
525 University Avenue, Suite 1100
Palo Alto, California 94301-1900
ATTENTION: Richard A. Peers, Esq.
Phone Number: (415) 326-7000
Fax Number: (415) 324-0638
If to the Shareholders to:
Global Communications Group, Inc.
4801 Spring Valley Road, Suite 105A
Dallas, Texas 75244
ATTENTION: Mr. Arnold Salinas, President
Phone Number: (214) 386-0022 ext. 600
Fax Number: (214) 386-0718
81
<PAGE>
with a copy to:
William Meier, Esq.
2350 Airport Freeway, Suite 660
Bedford, Texas 76022
Phone Number: (817) 540-5295
Fax Number: (817) 545-9042
and:
---
Stephen Silbert, Esq.
CHRISTENSEN, WHITE, MILLER, FINK, JACOBS,
GLASER & SHAPIRO, LLP
2121 Avenue of the Stars, 18th Floor
Los Angeles, California 90067-5010
Phone Numbers: (310) 282-6266
Fax Number: (310) 556-7867
Or at such other address as a party has designated by notice in writing to the
other party in the manner provided by this Section.
9.5 Entire Agreement. This Agreement and the documents and instruments and
other agreements among the parties hereto, including the Company Disclosure
Schedules and the Parent Disclosure Schedules: (a) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof; (b) are not intended to
confer upon any other person any rights or remedies hereunder; and (c) shall not
be assigned by operation of law or otherwise, except as otherwise specifically
provided. This Agreement may only be amended by written instrument signed by the
parties.
9.6 Survival of Terms. All warranties, representations and covenants
contained in this Agreement and any certificate or other instrument delivered by
or on behalf of the parties pursuant to this Agreement shall not survive the
Closing.
9.7 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
9.8 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent jurisdiction
to be illegal, void or unenforceable, the remainder of this Agreement will
continue in full force and effect and the application of such provision to other
persons or circumstances will be interpreted so as reasonably to effect the
intent of the parties hereto. The parties further agree to replace such void or
unenforceable provision of this Agreement with a valid and enforceable provision
that will achieve, to the extent possible, the economic, business and other
purposes of such void or unenforceable provision.
82
<PAGE>
9.9 Headings. The headings appearing at the beginning of several
Sections contained herein have been inserted for identification and reference
purposes and shall not by themselves determine the construction or
interpretation of this Agreement.
9.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which when taken together shall
constitute one and the same instrument.
9.11 Mutual Contributions. The parties to this Agreement and their
counsel have mutually contributed to its drafting.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above set forth.
PARENT:
AURTEX, INC.
By:_____________________________________
President, Chief Executive Officer
and Chairman of the Board
SHAREHOLDERS:
TELECOM PARTNERS, LTD.
By:_____________________________________
Mohammed A. Hadid, Co-Chairman
By his signature herein, Mohammed Hadid represents that he is authorized to sign
this Agreement on behalf of all other Shareholders of the Company and his
signature above is in fact a signature representing a signature for each of the
Shareholders listed below.
_________________________________________
Keith Finley
_________________________________________
Arnold Salinas
83
<PAGE>
_________________________________________
Angel Stoicher
_________________________________________
Charles Petroff
_________________________________________
Joe Grosz
84
<PAGE>
EXHIBIT A
SHAREHOLDERS OF GLOBAL COMMUNICATIONS GROUP, INC.
<TABLE>
<CAPTION>
(a) Name (b) Number of Global Shares
---- -----------------------
<S> <C>
Telecom Partners, Ltd. 9,485
Keith Finley 74
Arnold Salinas 147
Angel Stoicher 176
Charles Petroff 59
Joe Grosz 59
------
10,000
======
</TABLE>
85
<PAGE>
EXHIBIT B
---------
SHARES OF AURTEX TO BE RECEIVED
-------------------------------
<TABLE>
<CAPTION>
(a) Name (b) Number of Parent Shares
---- -----------------------
<S> <C>
Telecom Partners, Ltd. 16,125,000
Keith Finley 125,000
Arnold Salinas 250,000
Angel Stoicher 300,000
Charles Petroff 100,000
Joe Grosz 100,000
----------
17,000,000
==========
</TABLE>
<PAGE>
EXHIBIT 10.11
AMENDMENT NO. 1 TO STOCK PURCHASE AND EXCHANGE AGREEMENT
--------------------------------------------------------
This AMENDMENT NO. 1 TO STOCK PURCHASE AND EXCHANGE AGREEMENT is made and
entered into as of June 13, 1996 among Aurtex, Inc., a Nevada corporation
("Parent") and the persons and entities listed as "Shareholders" on the
signature page hereof (the "Shareholders"), who are all of the shareholders of
Global Communications Group, Inc., a Texas corporation ("Company").
RECITALS
--------
A. The parties have previously entered into a Stock Purchase and Exchange
Agreement dated as of April 19, 1996 (the "Stock Purchase Agreement") pursuant
to which Parent is to acquire all of the issued and outstanding shares of
capital stock of the Company from the shareholders in exchange for shares of the
Common Stock, $0.001 par value, of Parent ("Parent Common Stock"). All
capitalized terms used herein which are not defined herein shall have the
meaning given them in the Stock Purchase Agreement.
B. The Stock Purchase Agreement contemplates that Parent will contribute all
of the assets, liabilities and obligations of Parent (other than the Stock
Purchase Agreement) to a to-be formed Nevada corporation, which will be a
wholly-owned subsidiary of Parent, and thereafter shall make the Distribution, a
special dividend of all of the stock of this wholly-owned subsidiary to the
stockholders of Parent.
C. Parent has formed Krissos Resources, Inc., a wholly-owned subsidiary, and
has contributed to Krissos all of its assets, liabilities and obligations (other
than the Stock Purchase Agreement), but has determined not to distribute the
stock of Krissos to its stockholders, and instead immediately after the Reverse
Stock Split, will issue a dividend of Parent Common Stock to its stockholders in
the ratio of 1.25 shares of Parent Common Stock to one share of Parent Common
Stock outstanding following the Reverse Stock Split.
D. The parties wish to amend the Stock Purchase Agreement to reflect the
changes to the transactions contemplated thereby as described in paragraph C
above, all on the terms and conditions set forth herein.
AGREEMENT
---------
1. The parties acknowledge that the Board of Directors and the stockholders
of Parent have approved of the transactions contemplated by the Stock Purchase
Agreement pursuant to written consent, rather than pursuant to a meeting of
stockholders, and that the stockholders of Parent will receive an Information
Statement describing such transactions rather than the Proxy Statement as
originally contemplated by the Stock Purchase Agreement. As a consequence, the
parties agree and acknowledge that Sections 6.1 and 6.2 of the Stock Purchase
Agreement shall be deleted in their entirety.
87
<PAGE>
2. Section 6.3 of the Stock Purchase Agreement is hereby amended to read in
its entirety as follows:
6.3 Distributions. The parties agree and acknowledge that Parent has
formed Krissos Resources, Inc., which is a wholly-owned subsidiary of
Parent and has contributed to Krissos Resources all of its assets,
liabilities and obligations of any kind other than for the Stock Purchase
Agreement. Immediately after the effectiveness of the Reverse Stock
Split, Parent shall make a distribution by means of a Common Stock
dividend to its shareholders of record of 1.25 shares of Parent Common
Stock for each share of Parent Common Stock held. All matters relating to
the formation of Krissos Resources, the aforesaid contribution and such
Distribution shall be reasonably satisfactory to the Shareholders.
3. Section 7.2(d) of the Stock Purchase Agreement shall be amended to delete
the reference to indemnification in the heading of such paragraph and by
deleting in its entirety the first sentence of Section 7.2(d).
4. Section 7.2(h) of the Stock Purchase Agreement shall be deleted in its
entirety and shall be replaced with the following:
7.2(h) Stock Dividend. Parent shall have declared as of a record date
prior to the Closing Date a stock dividend of 1.25 shares of Parent Common
Stock for one share of Parent Common Stock outstanding (after giving
effect to the Reverse Stock Split).
5. Except as specifically provided herein, the Stock Purchase Agreement shall
not be amended or modified and shall remain in full force and effect.
IN WITNESS WHEREOF, the parties hereto have caused this AMENDMENT NO. 1 TO
STOCK PURCHASE AND EXCHANGE AGREEMENT to be executed as of the date first
written above.
PARENT:
AURTEX, INC.
By:______________________________________
President, Chief Executive Officer
and Chairman of the Board
88
<PAGE>
SHAREHOLDERS:
TELECOM PARTNERS, LTD.
By:_____________________________________
Mohammed A. Hadid, Co-Chairman
----------------------------------------
Keith Finley
----------------------------------------
Arnold Salinas
----------------------------------------
Angel Stoicher
----------------------------------------
Charles Petroff
89
<PAGE>
EXHIBIT 10.12
DEBT REPAYMENT AGREEMENT
------------------------
This DEBT REPAYMENT AGREEMENT is made and entered into as of June 14, 1996
among Aurtex, Inc., a Nevada corporation ("Parent"), Global Communications
Group, Inc., a Texas corporation ("Company") and Peacetime Communications Ltd.
("Peacetime").
RECITALS
--------
A. Parent and the shareholders of the Company have entered into a Stock
Purchase and Exchange Agreement dated April 19, 1996 (the "Stock Purchase
Agreement").
B. The Company is indebted to Peacetime in the aggregate amount at
December 31, 1995 of $3,754,228, including accrued interest of $572,640, which
bears interest at an adjustable rate equal to two hundred basis points plus the
prime rate as reported by the Wall Street Journal (the "Peacetime Debt").
C. Pursuant to Section 6.12 of the Stock Purchase Agreement, Parent has
agreed to enter into an agreement with the Company and Peacetime pursuant to
which Parent will agree to pay the Peacetime Debt, all on the terms and
conditions set forth herein.
TERMS, COVENANTS AND CONDITIONS
-------------------------------
1. Assumption of Debt. Parent hereby agrees to assume and pay in full the
Peacetime Debt, which shall be due and payable in full three years from the
Closing Date under the Stock Purchase Agreement (the "Maturity Date").
2. Peacetime hereby agrees that the Peacetime Debt may be repaid in full at
any time on or prior to the Maturity Date by the issuance to Peacetime of 3
million shares of fully paid and non-assessable shares of Common Stock of
Parent. The number of shares to be issued in repayment of the Debt has been
determined based on a 5.909635 for one reverse stock split to be effected by
Parent on or about June 17, 1996 (the "Reverse Stock Split"), as well as a 1.25
for one Common Stock dividend to be distributed to stockholders of Parent
immediately following the Reverse Stock Split (the "Stock Dividend"). The
number of shares of Parent Common Stock to be issued to Peacetime shall
thereafter be subject to equitable adjustment in the event of any stock split,
stock dividend, reverse stock split or the like with respect to the Common Stock
of Parent occurring after the Reverse Stock Split and the Stock Dividend.
90
<PAGE>
3. Following repayment in full of the Peacetime Debt, Peacetime shall deliver
to Parent any and all evidence of the Peacetime Debt marked "canceled" or "paid
in full", and after such payment in full, such debt shall be fully extinguished.
IN WITNESS WHEREOF, the parties hereto have caused this DEBT REPAYMENT
AGREEMENT to be executed as of the date first written above.
PARENT:
AURTEX, INC.
By:____________________________________
President, Chief Executive Officer
and Chairman of the Board
COMPANY:
GLOBAL COMMUNICATIONS GROUP, INC.
By:____________________________________
PEACETIME COMMUNICATIONS LTD.
By:____________________________________
91
<PAGE>
EXHIBIT 24.1
CONSENT OF INDEPENDENT AUDITORS
We hereby consent to the incorporation by reference in the August 25, 1995
Registration Statement on Form S-8 (Registration No. 33-96614) and the March 21,
1994 Registration Statement on Form S-8 (Registration No. 33-76718) of Aurtex,
Inc. of our report dated June 5, 1996, which appears in Part II of this annual
report on Form 10-KSB for the year ended February 29, 1996.
Stark Tinter & Associates, LLC
Englewood, Colorado
June 5, 1996
92
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-28-1996
<PERIOD-START> MAR-01-1995
<PERIOD-END> FEB-28-1996
<CASH> 345,177
<SECURITIES> 443,425
<RECEIVABLES> 333,848
<ALLOWANCES> 333,848
<INVENTORY> 0
<CURRENT-ASSETS> 907,992
<PP&E> 62,668
<DEPRECIATION> 38,773
<TOTAL-ASSETS> 3,210,660
<CURRENT-LIABILITIES> 285,654
<BONDS> 0
0
0
<COMMON> 23,639
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 3,210,660
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (2,074,798)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,074,798)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,074,798)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,099,852)
<EPS-PRIMARY> (.10)
<EPS-DILUTED> 0
</TABLE>
