<PAGE> 1
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
(FEE REQUIRED)
For the fiscal year ended MARCH 31, 1997
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
(NO FEE REQUIRED)
For the transition period from _______________ to _______________
Commission file number 33-16110-D
SOUTHWESTERN WATER EXPLORATION CO.
-------------------------------------
(Formerly Star Acquisitions Corporation)
(Name of small business issuer in its charter)
COLORADO 84-1062895
-------- ----------
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
15 MACLEOD TRAIL S.E., SUITE 1100, T2G 4T8
ROCKY MOUNTAIN PLAZA, CALGARY, ALBERTA ----------
- ----------------------------------------
(Address of principal executive offices) (Zip Code)
(403) 531-2630
--------------
(Issuer's telephone number, including area code)
------------------------------
Securities registered under Section 12(b) of the Exchange Act: NONE.
Securities registered under Section 12(g) of the Exchange Act: NONE.
Check whether the issuer (1) filed all reports required to be filed
by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for
such shorter period that the registrant was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days. Yes
No X ---
---
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B not contained in this form, and no disclosure will be
contained, to the best of the registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [X]
For the fiscal year ended March 31, 1997 the Issuer's revenues were
approximately $61.00
As of March 1, 1998, the aggregate market value of Issuer's voting
stock held by non-affiliates was approximately $5,306.00. No market
currently exists for any of the Issuer's equity securities.
As of April 2, 1998, the Registrant had 5,633,000 shares of common
stock outstanding.
Documents Incorporated by Reference: NONE
Transitional Small Business Disclosure Format: Yes No X
----- -----
================================================================================
<PAGE> 2
PART I
ITEM 1. DESCRIPTION OF BUSINESS.
Business Development
Southwestern Water Exploration Co. (the "Company"), formerly Star
Acquisitions Corporation, was incorporated in the State of Colorado on July 10,
1987. The Company's principal offices are located at 1100 Rocky Mountain Plaza,
615 Macleod Trail, S.E., Calgary, Alberta T2G 4T8.
Pursuant to approval of its board of directors, the Company entered
into an Agreement and Plan of Reorganization with American Institute of
Formation Evaluation Co.("AIFE") on October 23, 1993 (the "Plan"). Under the
Plan, the Company acquired all of the issued and outstanding shares of AIFE in
exchange for 4,500,000 shares of restricted common stock of the Company and AIFE
became a wholly owned subsidiary of the Company. On November 12, 1993, the
Company filed Amended and Restated Articles of Incorporation, pursuant to which
the Company's name was changed to Southwestern Water Exploration Co.
Business Description
The Company intends to locate, develop and market potable water
throughout the American Southwest. The Company will do this by acquiring water
rights to deep reservoirs in order to provide supplies of fresh water to cities,
municipalities, and farmers in the Southwest. The Company has acquired a
proprietary copy of a historical computerized database with information
concerning water bearing strata (the "Database"). The Database contains
information concerning over 150,000 computerized drill stem tests. Such
information is not available from any other known sources. A drill stem test is
a test run on a well drilled for hydrocarbons to determine pressures, flow
rates, and chemical properties of fluids, gas, and temperatures. Drill stem
tests are the only type of preliminary test which is run that measures the
actual properties of the reservoir. Information in the Database, which dates to
the 1950's, has been enhanced often. Using information contained in the
Database, the Company has identified a potential drilling site close to the City
of Las Vegas. The Company has also retained a geology firm to undertake a
detailed hydrogeological study of deep water flow patterns to identify drill
sites close to Las Vegas. The study concluded that the site identified by the
Company close to Las Vegas was likely to contain deep water reserves. The
Company believes that the Database will provide information to locate additional
sources of potable water from deep reservoirs.
Projects
Using the information contained in the Database, the Company has
identified what it believes to be preferential drilling sites for significant
reserves of potable water in Lincoln County, Nevada. If significant reserves are
located, the Company intends to deliver water reserves to Clark County, Nevada,
which includes the cities of Las Vegas, Henderson, and Laughlin. The Company
believes that drilling sites in Lincoln County, Nevada (the "Nevada Project")
will be its principal source of revenue initially. The Company intends to pursue
additional projects in the American Southwest with information from the
Database. The Company has identified at least 10,000 potential well sites
throughout the American Southwest. The Company intends to extract water from
some of these well sites and sell water from those sites to large metropolitan
communities.
Competition
The Company has identified a number of other companies, individuals,
and partnerships which market services similar to those of the Company. Many of
these competitors are better capitalized than the Company.
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Many of the Company's competitors, however, have advocated strategies which
focus on obtaining water from known water sources. There are relatively few
proposals to deliver subsurface water to municipalities, as planned by the
Company. While the Company believes that the information from the Database
provides it with a competitive advantage, there can be no assurance that the
Company will be able to compete effectively with others to locate sources of
potable water or to obtain favorable contracts for the sale of such water.
Government Regulation
The Nevada Project will be subject to significant government
regulation and a potentially lengthy government approval process. Other future
projects may face comparable government regulation and involve extensive
governmental approvals. Nevada law requires that a permit be issued before any
water may be diverted. The drilling site involved in the Nevada Project is
located in an area which may require the Company to obtain a permit to
appropriate water or obtain permission to drill an exploratory well.
The Nevada State Engineer (the "State Engineer") may issue a written
waiver to the permit requirements for wells drilled to determine the
availability or quality of water. The State Engineer may grant such a waiver
upon a showing of good cause. The Company believes that good cause exists to
grant such a waiver because it will likely be drilling for water at a depth and
in an area where there has been no prior drilling for deep water reserves of
potable water. After the Company submits its appropriation application, the
State Engineer will publish a notice of the application in a newspaper of
general circulation. The State Engineer would also be required to give notice to
the counties from which water would be diverted and to the counties to which it
would be delivered. County commissioners would then review the application and
provide comments to the State Engineer. Pursuant to Nevada law, comments and
protests could also be submitted by interested persons prior to the granting of
a drilling permit for a development well. This procedure may involve an open
forum consultation process lasting one year or more.
If the proposed use of the discovered unappropriated water does not
tend to impair the value of existing rights and is not detrimental to the public
interest, the State Engineer is required by statute (with some exceptions) to
approve a permit application within one year. The State Engineer, however, may
impose additional requirements. Most of these requirements relate to the
transfer of limited amounts of shallow subsurface groundwater. It is not
anticipated that these requirements will impede the timing of the Nevada Project
because the Company is developing deep water reserves.
Prior to the commencement of work on the Nevada Project, the Company
will have to comply with certain environmental regulations. Commencement of the
Nevada Project may require the completion of an Environmental Impact Study
("EIS"). The Company believes, based on its research, that the drilling program
and the proposed pipeline route of the Nevada Project would cause minimal
environmental impact. The Company may also be required to obtain approval from
the Bureau of Land Management and the U.S. Fish and Game Department, among
others. Construction of the pipeline may also require compliance with numerous
federal laws, including but not limited to the Endangered Species Act.
The construction of a pipeline to deliver water from the well site
to the end user will also be subject to government regulation and approval with
regard to property rights. The Company may need to purchase easements on
property owned by the State of Nevada or the federal government. The purchase of
such easements may require the Company to obtain governmental approvals and to
comply with federal and state regulations, which may result in significant
delay. The Company believes that construction of the pipeline and a pumping
station will be financed by an issuance of public-sector or other securities.
The need for governmental approval and compliance with federal or state
regulations for such financing may result in significant delays or render the
Nevada Project or other future projects prohibitively expensive. The failure to
obtain such financing may prevent the Company from completing the Nevada Project
or other future projects.
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<PAGE> 4
The Company has not yet received a permit to drill for water for the
Nevada Project or to divert water. The Company has not received any waiver from
the aforementioned permit process. Nor has the Company received any approvals or
permits for the construction of the pipeline for the Nevada Project.
Existing or future state or federal regulations will play a critical
role in the Company's successful completion of the Nevada Project and other
future projects of the Company. Such existing or future legislation could
prevent the Company from undertaking the Nevada Project or other future projects
or prohibit the Company from profitably completing the Nevada Project or other
future projects.
Research and Development
For the period from March 31, 1995 to March 31, 1997, the Company
expended approximately $438,000 on research and development. None of this amount
was borne directly by the Company's customers.
Environmental Compliance
The Company has not previously been subject to any material costs
for compliance with any environmental laws. The Company believes that the cost
and effect of environmental laws upon its proposed operations relating to the
Nevada Project will not be material. The Company does believe, however, that an
Environmental Impact Study ("EIS") will be required for the pipeline route in
the Nevada Project. The cost of the EIS is expected to be approximately $45,000.
Employees
At the present time, the Company has no full-time employees. The
Company plans to retain full-time employees in the future to implement its
business plan. See "Management's Discussion and Analysis or Plan of Operation."
ITEM 2. DESCRIPTION OF PROPERTY.
The Company's principal place of business is located at Suite 1100,
615 Macleod Trail, S.E., Calgary, Alberta, T2G 4T8. The Company entered into a
lease agreement with the American Institute of Formation Evaluation, Ltd. ("AIFE
Ltd.") effective November 1, 1993, under a month to month lease. The Company
pays $1,000 to AIFE Ltd. for office services. See "Certain Relationships and
Related Transactions." The Company does not own or lease any other property.
ITEM 3. LEGAL PROCEEDINGS.
The Company is not a party to any legal proceedings which in the
opinion of Company's management are individually or collectively, material to
its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
During the fourth quarter of the 1996-1997 fiscal year, the Company
did not submit any matter to a vote of security holders through the solicitation
of proxies or otherwise.
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PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There is no current public trading market for the Company's common
stock.
On April 2, 1998, there were approximately 143 shareholders of
record of the Company's common stock and 5,633,000 shares of common stock
outstanding.
To date, the Company has not paid or declared any dividends with
respect to its common stock. The current policy of the Board of Directors is to
retain earnings, if any, in order to provide for growth of the Company.
Consequently, no cash dividend or any other dividend is expected to be paid on
the common stock in the foreseeable future. Furthermore, there can be no
assurance that the future operations of the company will generate the revenues
and cash flow necessary to declare a cash dividend or that the Company will have
legally available funds to pay dividends.
The Company's Transfer Agent is Securities Transfer Corporation
located in Dallas, Texas.
Recent Sales of Unregistered Securities
From March 31, 1994 to March 31, 1997, the Company issued
approximately 410,000 Units to certain sophisticated individuals at a price per
Unit of $1.00 for a total offering of $410,000. Each Unit consisted of one share
of its $.001 par value common stock; a warrant to purchase one share of common
stock of the Company at an exercise price of $2.00 which expires on April 30,
1998; and a redeemable preferred share in the Company's subsidiary, AIFE. The
preferred share is redeemable at the option of the Company at any time or from
time to time at the discretion of AIFE's Board of Directors at a price of $1.00
per share. An overwhelming majority of investors were residents of Canada. The
securities comprising the Units were issued with a Rule 144 restrictive legend.
Each purchaser of a Unit was informed and advised about certain matters
concerning the Company including its business and financial affairs. No general
form of advertising was used in connection with the placement of such
securities. No underwriters were used in connection with the issuance of these
securities and no commissions were paid to any person. The Company relied on the
exemptions from registration contained in Sections 4(2) and 3(b) of the 1933 Act
and Regulation S and Regulation D promulgated under the 1933 Act.
On October 23, 1993, the Company issued 4,500,000 shares of its
common stock to AIFE in exchange for all of the issued and outstanding shares of
AIFE. No underwriters were used in connection with the issuance of these shares
and no commissions were paid to any person. The Company relied on the exemption
from registration contained in Section 4(2) of the 1933 Act.
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<PAGE> 6
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION.
General
Southwestern Water Exploration Co. (the "Company"), formerly Star
Acquisitions Corp., was incorporated in the State of Colorado on June 10, 1987.
The Company's activities from inception consisted primarily of reviewing
possible business opportunities and acquisitions, and maintaining the business
entity. The Company had only nominal net assets and no operational activities
from the fiscal years 1987 through 1995 and all expenses incurred were solely
related to maintaining the entity and reviewing potential business
opportunities.
The Company intends to develop and market potable water throughout
the American Southwest. During its development stage, the Company acquired the
Database which it believes will provide surface drilling locations to mine deep
(below 2,000 ft) subsurface aquifers. The Database provides specific information
including surface location, depth(s) of aquifers, temperature, production
capability, and mineral properties from wells previously drilled for
hydrocarbons and subsequently abandoned.
The Company has identified a number of sites which it believes will
provide potable water, including a significant water reservoir in Nevada, by
utilizing the Database. Once developed, it is the intent of the Company to
market the water from these sites. If the marketing effort is unsuccessful, the
Company intends to sell the water rights to these sites.
Management believes that the Company can satisfy its cash
requirements from existing funds for another three months. The Company intends
to raise additional funds to meet is cash requirements through a private
placement of its securities. The Company anticipates that funding of future
operations will be provided by the completion of a private placement for a
minimum of $1.5 million. There can be no assurances, however, that the Company
will be successful in the completion of the private placement. In the event the
private placement is not successful or fails to raise sufficient funds, the
Company may seek alternative financing in the form of short-term or long-term
debt or securities convertible into common stock of the Company.
In the event the private financing is successful, the Company
intends to engage Messrs. Misner and Webb as full-time employees and pay them
monthly salaries of approximately $5,000 per month respectively. Even if the
amount raised in the private placement meets expectations, the Company does not
plan to hire additional employees or purchase or acquire plant or significant
equipment. The Company will meet its personnel, drilling and pipeline
requirements by contracting for these services with third parties.
ITEM 7. FINANCIAL STATEMENTS.
The following financial statements are filed as a part of this Form
10-KSB:
<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Independent Auditors Report ............................ F-1
Consolidated Balance Sheet ............................. F-2
Consolidated Statements of Loss and Deficit ............ F-3
</TABLE>
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<TABLE>
<CAPTION>
Financial Statements Page
-------------------- ----
<S> <C>
Consolidated Statements of Cash Flow .................... F-4
Notes to Consolidated Financial Statements .............. F-5
</TABLE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
During the last two fiscal years there have been no changes in or
disagreements with the Company's principal independent accountant on accounting
or financial disclosure. No principal independent accountant or subsidiary's
independent accountant on whom the principal accountant has expressed reliance
has resigned or been dismissed.
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS, AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT.
Officers and Directors
The Officers and Directors of the Company are:
<TABLE>
<CAPTION>
Officer and/or
Name and Addresses Age Position Director Since
------------------ --- -------- --------------
<S> <C> <C> <C>
Steven B. Misner 38 President and Director 1993
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Barbara J. McAllister 61 Secretary, 1993
Suite 1100 Chief Financial Officer,
615 MacLeod Trail, S.E. and Director
Calgary, Alberta
Arthur Webb 58 Vice-President of 1993
Suite 1100 Operations and Director
615 MacLeod Trail, S.E.
Calgary, Alberta
</TABLE>
All directors hold office until the next annual meeting of
stockholders, and until they or their successor have been elected and qualified.
Officers serve at the discretion of the Board of Directors.
Steven B. Misner
Mr. Misner has served as the President and as a Director of the
Company since October, 1993. During the past five years, Mr. Misner has served
as the President of AIFE. In 1989, Mr. Misner initiated research into the
viability of utilizing underground water reservoirs which could meet the water
requirements of the American Southwest. In 1986, Mr. Misner negotiated the
acquisition of the Petroleum Research Corporation's database of the United
States. In 1985, he initiated a Hydrodynamics Division to study underground
waterflow patterns. In 1983, Mr. Misner spearheaded the acquisition of the
Canadian database. In 1978, Mr. Misner joined the Research and Project Team
where he initiated the creation of a database containing historical drill stem
test data on federal and provincial lands of Canada. Mr. Misner has also served
as a director of several Canadian companies involved in Canadian data sales, oil
and gas exploration, and real estate development.
Barbara J. McAllister
Ms. McAllister has served as the Secretary, Chief Financial Officer,
and as a Director of the Company since October, 1993. During the past five
years, Ms. McAllister has also been the Executive Vice President and Treasurer
of AIFE. Ms. McAllister has been active in all areas of running the Company. Ms.
McAllister has participated in the gathering of drill stem test data and in
negotiating contracts with clients and others who utilize information from the
Company's Database. She administers a staff which analyzes data and maintains
the Company's Database. Ms. McAllister has a wide range of administrative skills
acquired through former employment as an educator, businesswoman, and realtor.
She has worked extensively overseas during her
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<PAGE> 9
involvement in the petroleum industry. Ms. McAllister received her graduate
degrees from the University of Calgary, in Calgary, Alberta.
Arthur Webb
Mr. Webb has been a director of the Company since October, 1993 and
Vice President of Operations since 1995. Mr. Webb has over 35 years of
experience in the oil business including, drilling, geological and land
negotiation. During the past twenty-five years, Mr. Webb has been the owner and
served as the President of A.J. Webb Oilfield Consultants and A&M Enterprises,
Inc. During the past five years, he served as a Director and Vice President of
Craft Energy Ltd., Director and Chief Financial Officer of St. Jude Resources,
which is listed on the Vancouver Stock Exchange, and Director and President of
S.A.W. Holdings Ltd.
ITEM 10. EXECUTIVE COMPENSATION.
No compensation was paid to any officer or director for the last
three fiscal years.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the number of shares of the Company's
common stock beneficially owned by each person who, as of the date hereof, was
known by the Company to own beneficially more than five percent (5%) of its
common stock, all directors and nominees, each of the named executive officers
as defined in Item 402(a)(2), and directors and officers as a group.
<TABLE>
Name and Address of Amount and Nature of Percent
Beneficial Owner Beneficial Ownership of Class
---------------- -------------------- --------
<S> <C> <C>
Steven B. Misner 1,205,176 22.7%
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Barbara J. McAllister 1,303,507 24.5%
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Arthur Webb 359,999(1) 6.7%
Suite 1100
615 MacLeod Trail, S.E.
Calgary, Alberta
Landmark Corporation 966,667 18.2%
Suite 1710, Bow Valley 2
Calgary, Alberta T2P 2V7
Officers and Directors
As a Group (3 persons) 3,835,349 72.2%
</TABLE>
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(1) 200,000 of the 359,999 shares listed as held by Mr. Webb have not
been issued, but are subject to Mr. Webb's right to acquire such
shares within 60 days from the date hereof. 33,333 of the 359,999
shares listed as held by Mr. Webb are owned by his spouse. 116,666
of the 359,999 shares listed as held by Mr. Webb are owned by Mr.
Webb through A&M Enterprises, Inc., Suite 1100, 615 MacLeod Trail,
S.E.,Calgary, Alberta.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company and its subsidiary, American Institute of Formation
Evaluation Co. ("AIFE"), share office space, telephone and certain office
personnel with AIFE Ltd., a Canadian company ("AIFE Ltd."). Mr. Misner and Mrs.
McAllister are controlling shareholders of AIFE Ltd. The Company and AIFE pay
$1,000 per month to AIFE Ltd. in exchange for office space, use of telephones
and certain personnel.
AIFE Ltd. has provided updates to the Company for the Database.
Since 1996 AIFE Ltd. has charged the Company $427,200 for such updates. AIFE
Ltd. has billed the Company for these updates at the same rate as charged to
third parties.
AIFE Ltd. has from time to time advanced funds to the Company which
were used for working capital. Since 1996, AIFE Ltd. has advanced $511,911 to
the Company. As of March 31, 1997, the Company was indebted to AIFE Ltd. in the
amount of $496,008. The amounts advanced by AIFE Ltd. are not evidenced by a
written instrument, do not bear interest and have no fixed maturity date.
On September 1, 1993, AIFE entered into a license agreement with
AIFE Ltd. whereby AIFE Ltd. granted to AIFE a non-exclusive license to use
certain drill stem test reports and other oil and gas and water information
until August 31, 2013 (the "License Agreement"). The license fee is 10% of the
annual net cash flow profits of AIFE with a one year maximum of $150,000 and a
maximum cumulative fee over the license term of $1,500,000. Neither AIFE nor the
Company have paid any amounts to AIFE Ltd. in connection with the License
Agreement during the fiscal years ended March 31, 1996 and March 31, 1997. The
Company intends to use the drill stem reports and other information subject to
the License Agreement to locate subterranean water in the American Southwest.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit
- ------ ----------------
<S> <C>
2.1 Agreement and Plan of Reorganization between Star Acquisitions
Corporation and Southwestern Water Exploration Co., dated October
23, 1993
3.1 Amended and Restated Articles of Incorporation
3.2 By-laws
</TABLE>
10
<PAGE> 11
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit
- ------ ----------------
<S> <C>
10.1 License Agreement between American Institute of Formation Evaluation
Ltd. and American Institute of Formation Evaluation Co., dated
September 1, 1993
21.1 A description of the Registrant's subsidiary is contained in this
Registration Statement under the caption "Business Development"
which is incorporated herein by reference
27.1 Financial Data Schedule
</TABLE>
(b) Reports on Form 8-K. The Company did not file any reports on
Form 8-K during the fourth quarter of the fiscal year ended March 31, 1997.
11
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act,
registrant caused this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
Southwestern Water Exploration Co.
Date: April 23, 1998 By: /s/ Steven B. Misner
--------------------------------
Steven B. Misner
President
In accordance with the Exchange Act, this report has been signed by
the following persons on behalf of the registrant and in the capacities and on
the dates indicated.
Date: April 23, 1998 By: /s/ Steven B. Misner
--------------------------------
Steven B. Misner
President and Director
Date: April 23, 1998 By: /s/ Barbara J. McAllister
--------------------------------
Barbara J. McAllister
Secretary, Chief Financial
Officer and Director
Date: April 23, 1998 By: /s/ Arthur Webb
--------------------------------
Arthur Webb
Vice-President of Operations
and Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(d) OF THE EXCHANGE ACT BY NON-REPORTING ISSUERS
The issuer has not furnished any annual reports or proxy statements
to its security holders.
12
<PAGE> 13
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying balance sheets of Southwestern Water
Exploration Co. as at March 31, 1997 and 1996 and the related statements of
income, retained earnings, and cash flows for the years then ended and for the
period from commencement of operations on April 1, 1992 to March 31, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with United States generally accepted
auditing standards. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Southwestern Water Exploration
Co. as at March 31, 1997 and 1996, and the results of its operations and its
cash flows for the years then ended and for the period from commencement of
operations on April 1, 1992 to March 31, 1997 in conformity with United States
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raises substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are disclosed in note 1. The financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ KPMG
Chartered Accountants
Calgary, Canada
September 26, 1997
F-1
<PAGE> 14
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Consolidated Balance Sheets
March 31, 1997 and 1996
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 1,473 $ --
Prepaid expenses -- 1,000
- --------------------------------------------------------------------------------------------------
1,473 1,000
- --------------------------------------------------------------------------------------------------
Property, plant and equipment, at cost less accumulated
depreciation 5,844 6,929
License and other assets 201 201
- --------------------------------------------------------------------------------------------------
$ 7,518 $ 8,130
- --------------------------------------------------------------------------------------------------
Liabilities
Current liabilities:
Cash overdraft $ -- $ 16
Accounts payable and accrued liabilities 33,599 19,084
- --------------------------------------------------------------------------------------------------
33,599 19,100
Due to affiliated company (note 3) 496,008 511,911
Minority interest (note 4) 735,072 490,317
Shareholders' equity:
Share capital (note 5) 835 590
Deficit accumulated during development stage (966,756) (722,548)
Deficit accumulated prior to April 1, 1992 (291,240) (291,240)
- --------------------------------------------------------------------------------------------------
(1,257,161) (1,013,198)
- --------------------------------------------------------------------------------------------------
$ 7,518 $ 8,130
- --------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-2
<PAGE> 15
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Consolidated Statements of Loss and Deficit
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------
Period from
commencement
of operations on
Years ended March 31, April 1, 1992
----------------------------- to March 31,
1997 1996 1997
- ---------------------------------------------------------------------------------------
(note 2)
<S> <C> <C> <C>
Interest revenue $ 61 $ 147 $ 340
Expenses:
Development 213,600 213,600 747,205
Professional 15,793 4,792 77,544
Office expense 12,786 26,710 79,069
Bank charges 420 849 1,677
Miscellaneous 250 2,466 6,790
Travel -- 1,100 16,569
Consulting fees -- 11,466 30,217
Depreciation 1,420 1,732 8,025
- ---------------------------------------------------------------------------------------
244,269 262,715 967,096
- ---------------------------------------------------------------------------------------
Net loss (244,208) (262,568) (966,756)
Deficit, beginning of period (722,548) (459,980) --
- ---------------------------------------------------------------------------------------
Deficit, end of period $(966,756) $(722,548) $(996,756)
- ---------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 16
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Consolidated Statements of Cash Flow
(Expressed in U.S. Dollars)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------
Period from
commencement
of operations on
Years ended March 31, April 1, 1992
----------------------------- to March 31,
1997 1996 1997
- ----------------------------------------------------------------------------------------------------------------
(note 2)
<S> <C> <C> <C>
Cash provided by (used in):
Operations:
Loss for the period $(244,208) $(262,568) $(966,756)
- ----------------------------------------------------------------------------------------------------------------
Item not involving cash:
Depreciation 1,420 1,732 8,025
- ----------------------------------------------------------------------------------------------------------------
(242,788) (260,836) (958,731)
Net change in non-cash operating working capital:
Prepaid expenses 1,000 (1,000) --
Accounts payable and accrued liabilities 14,515 2,357 33,600
- ----------------------------------------------------------------------------------------------------------------
(227,273) (259,479) (925,131)
Financing:
Decrease in cash overdraft (16) (3,383) --
Issuance of share capital 145 220 40,983
Advances from affiliated company 84,097 42,057 409,868
Shares issued to minority interest 144,855 220,585 490,315
- ----------------------------------------------------------------------------------------------------------------
229,081 259,479 941,166
Investing:
Purchase of capital assets (335) -- (14,562)
- ----------------------------------------------------------------------------------------------------------------
Cash provided during the period 1,473 -- 1,473
Cash, beginning of the period -- -- --
- ----------------------------------------------------------------------------------------------------------------
Cash, end of period $ 1,473 $ -- $ 1,473
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying note to consolidated financial statements.
F-4
<PAGE> 17
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated financial Statements
Years ended March 31, 1997 and 1996
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
INCORPORATION AND BASIS OF PRESENTATION:
The Company is incorporated under the laws of the State of Colorado and is
planning to develop projects for the production of water reservoirs in the
United States but has not commenced active business.
These financial statements are presented using U.S. dollars as the functional
and reporting currency and have been prepared in accordance with generally
accepted accounting principles in the United States. They include the accounts
of the Company and its wholly owned subsidiary.
1. ORGANIZATION AND BUSINESS:
These financial statements have been prepared on the basis of accounting
principles applicable to a going concern, which assume that the Company will
continue in operations for the foreseeable future and will be able to
realize its assets and discharge its obligations in the normal course of
operations.
At March 31, 1997 the Company is in the development stage, has a working
capital deficiency, and has no history of generating cash flow from its
operations. The Company intends to develop and market potable water
throughout the United States southwest. During the development stage of the
Company it has acquired the rights to a proprietary computerized drill stem
test database (the "Database") which it believes will provide surface
drilling locations to access deep (below 2,000 ft) subsurface aquifers. The
Database provides specific information including surface location, depth(s)
of aquifers, temperature, production capability, and mineral properties from
wells previously drilled for hydrocarbons and subsequently abandoned.
The Company has identified a number of sites which it believes will provide
potable water, including a significant water reservoir in Nevada, by
utilizing the Database. In order to develop these sites the Company needs to
acquire access rights and raise financing in order to commence drilling.
Once developed , it is the intent of the Company to market the water from
these sites, or in the event it is unsuccessful, to sell the water rights.
During its development stage, the Company has funded the acquisition of the
Database and its operating activities primarily by issuing equity and other
financial instruments. The Company anticipates that funding of future
activities will be provided by the completion of a private placement of
common stock for a minimum of $1.5 million. There can be no assurances,
however, that the Company will be successful in completing the private
placement.
F-5
<PAGE> 18
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated financial Statements, page 2
Years ended March 31, 1997 and 1996
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
1. ORGANIZATION AND BUSINESS, CONTINUED:
In the event the private placement is not completed, the Company may incur
additional short or long term debt, or seek to sell additional shares of
common stock or stock purchase warrants, as deemed necessary by the Company,
to generate working capital. There can be no assurance of the Company's
ability to continue as a going concern. The application of the going concern
concept is dependent upon the Company receiving the continued support of its
shareholders, its ability to raise new capital and its ability to achieve a
commercial level of production and sales and profitable operations.
2. SIGNIFICANT ACCOUNTING POLICIES:
(a) Property, plant and equipment
Property, plant and equipment are stated at cost. Depreciation is
provided using a rate of 20% on a declining balance.
(b) Development costs:
Costs incurred in the development of water projects are expensed in the
period incurred.
(c) Foreign currency translation:
The functional currency of the company is the U.S. dollar. Monetary
assets and liabilities expressed in other currencies are translated at
the year end rate and the resulting translation adjustments are
recognized in income. Operating statement items are translated at the
exchange rate in effect at the transaction date.
(d) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenue and expenses
during the period. Actual results could differ from these estimates.
(e) Period from commencement of operations:
April 1, 1992 is considered the commencement of the current development
stage activities of the Company. Prior to this date, the subsidiary was
involved in other unrelated activities. Accordingly, cumulative amounts
from April 1, 1992 to March 31, 1997 have been reported in the
statements of loss and deficit, cash flow and the share capital note.
F-6
<PAGE> 19
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated financial Statements, page 3
Years ended March 31, 1997 and 1996
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
3. RELATED PARTY TRANSACTIONS:
AIFE, American Institute of Formation Evaluation Ltd. ("AIFE Canada"), an
affiliate, provides updates to the Company's licensed proprietary data base.
During 1997 $213,600 (1996 - $213,600) was charged by AIFE Canada for the
updates, which costs are included in development expenses of the Company. In
addition, $12,000 (1996 - $12,000) of office expenses were allocated by AIFE
Canada to the Company. These transactions are in the normal course of
operations and are measured at the exchange amount, which is the amount of
consideration established and agreed to by the related parties.
From time to time amounts are also advanced by AIFE Canada to the Company as
and when required for operating purposes. There is, however, no obligation
for AIFE Canada to make future advances. During 1997 a net amount of $3,007
was repaid (1996 - y$21,832).
On September 1, 1993 the Company acquired an exclusive 20 year license to
use data owned by AIFE Canada to explore for water in the Continental United
States. The license was acquired for $1 plus a license fee of 10% of the
annual net cash flow from operations of the Company, to a maximum aggregate
license fee of $1.5 million over the license term.
The amount due to affiliate (AIFE Canada) of $496,008 (1996 - $511,911) is
non-interest bearing with no fixed terms of repayment and is classed as long
term as the affiliate has agreed not to demand repayment within the next
year.
4. MINORITY INTEREST:
The minority interest consists of preferred shares issued by the Company's
operating subsidiary. The 776,000 preferred shares are redeemable at the
discretion of the subsidiary at the issued value of $1 per share and
dividends are payable at the discretion of the subsidiary.
F-7
<PAGE> 20
SOUTHWESTERN WATER EXPLORATION CO.
(A Development Stage Enterprise)
Notes to Consolidated financial Statements, page 4
Years ended March 31, 1997 and 1996
(Expressed in U.S. Dollars)
- --------------------------------------------------------------------------------
5. SHARE CAPITAL:
The following share capital of Southwestern Water Exploration Co. was
authorized, issued and outstanding as at March 31, 1997:
Authorized:
50,000,000 preferred shares with a par value of $.001 per share
150,000,000 common shares with a par value of $.001 per share
Issued and outstanding:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------
Number of Subscriptions
shares Amount receivable
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued and outstanding, April 1, 1992 12,300,000 $ 492 $ --
Effective of reverse split, October 23, 1993 (11,808,000) -- --
Elimination of deficit -- (492) --
Shares issued in reverse takeover 4,500,000 325 15
- -----------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 4,992,000 325 15
Issued for cash 30,000 30 --
Amounts receivable collected -- 15 (15)
- -----------------------------------------------------------------------------------------------------------
Balance March 31, 1995 5,022,000 370 --
Issued for cash and subscriptions receivable 235,000 220 15
- -----------------------------------------------------------------------------------------------------------
Balance March 31, 1996 5,257,000 590 15
Issued for cash and subscriptions receivable 265,000 245 20
- -----------------------------------------------------------------------------------------------------------
Balance, March 31, 1997 5,522,000 $ 835 $ 35
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Amounts receivable are not included in share capital on the balance sheet
until settled.
6. INCOME TAXES:
The Company has loss carry forwards for income tax purposes approximating
its cumulative deficit. However, these may be subject to change following
filing and assessment of current and prior year income tax returns with US
tax authorities.
F-8
<PAGE> 21
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Title of Exhibit
- ------- ----------------
<S> <C>
2.1 Agreement and Plan of Reorganization between Star Acquisitions
Corporation and Southwestern Water Exploration Co., dated
October 23, 1993
3.1 Amended and Restated Articles of Incorporation
3.2 By-laws
10.1 License Agreement between American Institute of Formation
Evaluation Ltd. and American Institute of Formation Evaluation
Co., dated September 1, 1993
21.1 A description of the Registrant's subsidiary is contained in this
Registration Statement under the caption "Business Development"
which is incorporated herein by reference
27.1 Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
13
<PAGE> 1
EXHIBIT 2.1
AGREEMENT AND PLAN OF REORGANIZATION
October 23, 1993
STAR ACQUISITIONS CORPORATION
ACQUISITION OF
SOUTHWESTERN WATER EXPLORATION CO.
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Recitals ................................................................. 1
Agreement ................................................................ 1
1. Plan of Reorganization .......................................... 1
2. Exchange of Shares .............................................. 1
3. Delivery of Shares .............................................. 2
4. Representations of Stockholders and Acquiree .................... 2
5. Representations of Acquiring Corporation ........................ 4
6. Closing Date .................................................... 7
7. Conditions Precedent to the Obligations of
Acquiree ........................................................ 7
8. Conditions Precedent to the obligations of
Acquiror......................................................... 8
9. Indemnification.................................................. 8
10. Nature and Survival of Representations........................... 9
11. Documents at Closing............................................. 10
12. Miscellaneous.................................................... 10
Signature Page ............................................................ 12
</TABLE>
-ii-
<PAGE> 3
AGREEMENT AND PLAN OF REORGANIZATION
THIS Agreement and Plan of Reorganization is entered into this 23rd day
of October, 1993, by and between STAR ACQUISITIONS CORPORATION, a Colorado
corporation, (hereinafter "Acquiror"); SOUTH WESTERN WATER EXPLORATION CO. , a
Colorado corporation, formerly known as AIFE, The American Institute of
Formation Evaluation Co.; (hereinafter referred to as "Acquiree"); and the
undersigned Stockholders of Acquiree, (hereinafter referred to as "Stock-
holders").
RECITALS
Stockholders of Acquiree own all of the issued and outstanding common
stock of Acquiree. Acquiror desires to acquire all of the issued and outstanding
stock of Acquiree, making Acquiree a wholly-owned subsidiary of Acquiror, and
Stockholders desire to make a tax-free exchange solely of their shares in
Acquiree for shares of Acquiror's common stock to be exchanged as set out herein
with said Stockholders.
NOW, THEREFORE, for the mutual consideration set out herein, the parties
agree as follows:
AGREEMENT
1. Plan of Reorganization. Stockholders of Acquiree are the
owners of all the issued and outstanding common stock of said Acquiree.
It is the intention of the parties hereto that all of the issued and
outstanding common stock of Acquiree shall be acquired by Acquiror in
exchange solely for Acquiror voting stock. It is the intention of the
parties hereto that this transaction qualify as a tax-free
reorganization under Section 351 of the Internal Revenue Code of 1986,
as amended, and related sections thereunder.
2. Exchange of Shares. Acquiror and Stockholders agree that all
of the issued and outstanding shares of common stock of Acquiree shall
be exchanged with Acquiror for a total of 4,500,000 shares of restricted
common stock of Acquiror. As of the Closing Date and prior to the
exchange of shares hereunder, there will be no more than 500,000 shares
of common stock in the Acquiror, after giving effect to a
one-for-twenty-five reverse split.
The Acquiror shares will, on the Closing Date, as hereafter
defined, be delivered to the Stockholders in exchange for their shares
in Acquiree. Stockholders
<PAGE> 4
represent and warrant that they will hold such shares of common stock of
Acquiror for investment purposes and not for further public distribution
and agree that the shares shall be appropriately restricted.
3. Delivery of Shares. On or before the Closing Date, Stockholders
will deliver certificates for the shares of Acquiree duly endorsed so as
to make Acquiror the sole holder thereof; free and clear of all claims
and encumbrances; and on such Closing Date, delivery of the Acquiror
shares, which will be appropriately restricted as to transfer, will be
made to the Stockholders as set forth herein. A list of the shares of
Acquiree, the owners thereof, and shares of Acquiror to be received by
said Stockholders is attached hereto as Exhibit "A" and by this
reference is incorporated herein.
4. Representations of Stockholders and Acquiree. The Stockholders
and Acquiree, hereby represent and warrant that, with respect to their
own shares and as to the Acquiree, effective this date and the Closing
Date, the representations listed below are true and correct. Said
representations are meant and intended by all parties to apply to the
Acquiree.
(a) The listed Stockholders on Exhibit "A" are the sole owners of all
of the issued and outstanding shares of common stock of Acquiree;
such shares are free from claims, liens, or other encumbrances; and
Stockholders have the unqualified right to transfer and dispose of
such shares.
(b) The shares constitute validly issued shares of Acquiree fully-paid
and nonassessable.
(c) The audited year-end financial statements as of the last fiscal
year, with unaudited statements for the most recent fiscal quarter,
which have been delivered to Acquiror are complete, accurate and
fairly present the financial condition of Acquiree as of the date
thereof and the results of its operations for the periods covered
except as otherwise disclosed to Acquiree. There are no
liabilities, either fixed or contingent, not reflected in such
financial statements other than contracts or obligations in the
ordinary and usual course of business; and no such contracts or
obligations in the usual course of business constitute liens or
other liabilities which, if disclosed, would alter substantially
the financial condition of such Acquiree as reflected in such
financial statements. These financial statements have been prepared
in accordance with generally accepted accounting principles
2
<PAGE> 5
consistently applied, except as otherwise stated therein.
(d) Prior to the Closing Date there will not be any negative material
changes in the financial position of Acquiree, except changes
arising in the ordinary course of business, which changes will in
no event adversely affect the financial position of said Acquiree.
(e) To the best of Acquiree's knowledge, information and belief, it is
not involved in any pending litigation or governmental
investigation or proceeding not reflected in such financial
statement, or otherwise disclosed in writing to Acquiror and, to
the best knowledge of Acquiree and Stockholders, no litigation,
claims, assessments, or governmental investigation or proceeding is
threatened against Acquiree, its principal stockholders or
properties.
(f) As of the Closing Date, Acquiree will be in good standing in its
state of incorporation, and will be in good standing and in the
process of becoming duly qualified to do business in each state
where required to be so qualified.
(g) Acquiree has complied with all state, federal and local laws in
connection with its formation, issuance of securities,
organization, capitalization and operations, and to the best of
Acquiree's knowledge, information and belief, no contingent
liabilities have been threatened or claims made, and no basis for
the same exists with respect to said operations, formation or
capitalization, including claims for violation of any state or
federal securities laws.
(h) Acquiree has filed all governmental, tax or related returns and
reports due or required to be filed and has paid all taxes or
assessments which have become due as of Closing.
(i) Except as disclosed on any Exhibit, Acquiree has not breached any
agreement to which it is a party.
(j) Acquiree has no subsidiary corporations.
(k) The corporate financial records, minute books, and other documents
and records of Acquiree are to be available to present management
of Acquiror prior to the Closing Date and turned over to new
management in their entirety at Closing.
3
<PAGE> 6
(l) The execution of this Agreement will not violate or breach any
agreement, contract, or commitment to which Acquiree or
Stockholders are a party and has been duly authorized by all
appropriate and necessary action.
(m) The authorized capitalization of Acquiree is as set forth in the
most recent audited March 31, 1992 balance sheet of Acquiree.
Acquiree has one class of capital stock, common, and all
outstanding shares have been duly authorized, validly issued and
are fully paid and nonassessable with no personal liability
attaching to the ownership thereof. There are no outstanding
convertible securities, warrants, options or commitments of any
nature which may cause authorized but unissued shares to be issued
to any person.
(n) At the date of this Agreement Stockholders have, and at the Closing
Date they will have to the best of their knowledge, disclosed all
events, conditions and facts materially affecting the business and
prospects of Acquiree. Stockholders have not now and will not have,
at the Closing Date, with held knowledge of any such events,
conditions, and facts which they know, or have reasonable grounds
to know, may materially affect the business and prospects of
Acquiree.
(o) To the best knowledge of Stockholders and Acquiree their products,
materials and brochures do not infringe the patent or copyright
rights of any other person or entity.
5. Representations of Acquiring Corporation. Acquiror hereby
represents and warrants as follows:
(a) As of the Closing Date, the Acquiror shares to be delivered to the
Stockholders will constitute valid and legally issued shares of
Acquiror, fully-paid and nonassessable, and will be legally
equivalent in all respects to the common stock of Acquiror issued
and outstanding as of the date thereof.
(b) The officers of Acquiror are duly authorized to execute this
Agreement and have taken all actions required by law and
agreements, charters, and bylaws, to properly and legally execute
this Agreement.
(c) Acquiror has delivered to Acquiree current audited financial
statements for the fiscal year ended
4
<PAGE> 7
December 31, 1988 and at Closing shall deliver all of its financial
records, which shall be true, complete and accurate; there are and
shall be no substantial liabilities, either fixed or contingent,
not reflected in such financial statements and records or to which
the Acquiree has not been made aware. Said financial statements
fairly and accurately reflect the financial condition of the
Acquiror as of the date thereof and the results of operations for
the period reflected therein. Such statements shall have been
prepared in accordance with generally accepted accounting
principles, consistently applied, except as otherwise stated
therein.
(d) Since the date of the financial statements there will have been,
but as of the Closing Date there will not be, any material changes
in the financial position of Acquiror, except changes arising in
the ordinary course of business, which changes will in no event
adversely affect the financial condition of the Company.
(e) Acquiror is not involved in any pending litigation, claims, or
governmental investigation or proceeding not reflected in such
financial statements or otherwise disclosed in writing to the
Stockholders and there are no lawsuits, claims, assessments,
investigations, or similar matters, to the best knowledge of
management, threatened or contemplated against Acquiror, its
management or properties.
(f) As of the Closing Date and date hereof Acquiror is duly organized,
validly existing and in good standing under the laws of the State
of Colorado; it has the corporate power to own its property and to
carry on its business as now being conducted and is duly qualified
to do business in any jurisdiction where so required.
(g) Acquiror has filed all federal, state, county and local income,
excise, property and other tax returns, forms, or reports, which
are due or required to be filed by it prior to the date hereof and
has paid or made adequate provision for the payment of all taxes,
fees, or assessments which have or may become due pursuant to such
returns or pursuant to any assessments received.
(h) Acquiror has not breached, nor is there any pending or threatened
claims or any legal basis for a claim that Acquiror has breached,
any of the terms or
5
<PAGE> 8
conditions of any agreements, contracts or commitments to which it
is a party or is bound and the execution and performance hereof
will not violate any provisions of applicable law of any agreement
to which Acquiror is subject.
(i) The present capitalization of Acquiror comprises authorized common
stock of 150,000,000 shares, $0.001 par value, of which 500,000
shares will be issued and outstanding as of the Closing Date
hereof, after taking into account a one-for-twenty-five reverse
split. Acquiror also has 50,000,000 preferred shares, $0.001 par
value. As of the date hereof, no preferred shares are issued or
outstanding. All outstanding shares have been duly authorized,
validly issued, and fully paid and there are no outstanding or
presently authorized securities, warrants, options or related
commitments of any nature not reflected in the current financial
statements of Acquiror or otherwise known to Acquiree.
(j) Acquiror has no subsidiary corporation.
(k) The shares of restricted common stock of Acquiror to be issued to
Stockholders at Closing will be validly issued, nonassessable and
fully-paid under Colorado corporation law and will be issued in a
non-public offering and exempted transaction under federal and
state securities laws.
(1). The authorized capitalization of Acquiror is as set forth in the
most current balance sheet of Acquiror. There is only one class of
capital stock and there are no outstanding convertible securities,
warrants, options or commitments of any nature which may cause
authorized but unissued shares to be issued to any person.
(m) At the date of this Agreement Acquiror has, and at the Closing Date
it will have, disclosed all events, conditions and facts materially
affecting the business and prospects of Acquiror. Acquiror has not
now and will not have, at the Closing Date, withheld disclosure of
any such events, conditions, and facts which it, through management
has knowledge of, or has reasonable grounds to know, may materially
affect the business and prospects of Acquiror.
(n) The corporate financial records, minute books, and other documents
and records of Acquiror are to be
6
<PAGE> 9
available to present management of Acquiree prior to the Closing
Date and turned over to new management in their entirety at
Closing or as soon there after as practicable.
(o) Acquiror is a public company and represents that it has no existing
or threatened liabilities, claims, lawsuits, or basis for the same
with respect to its original stock issuance to its founders, its
recent public offering or any dealings with its Stockholders, the
public, brokers, the U.S. Securities and Exchange Commission, state
agencies or other persons. This includes matters relating to state
or federal securities laws as well as general common law or state
corporation law principles.
6. Closing Date. The Closing Date herein referred to shall be upon such
date as the parties hereto may mutually agree upon but is expected to be
on or about October 23, 1993. This Agreement is executed by the parties
as of the date hereof subject only to ratification by Acquiror
shareholders. As of the said ratification, the Stockholders will be
deemed to have accepted delivery of the certificates of stock to be
issued in their respective names, and in connection therewith will make
delivery of their stock in Acquiree to Acquiror. Certain exhibits, etc.
may be delivered subsequent to the Closing Date upon the mutual
agreement of the parties hereto.
7. Conditions Precedent to the Obligations of Acquiree. All obligations of
Acquiree and Stockholders under this Agreement are subject to the
fulfillment, prior to or as of the Closing Date, of each of the
following conditions:
(a) The representations and warranties by or on behalf of Acquiror
contained in this Agreement or in any certificate or document
delivered to Acquiree pursuant to the provisions hereof shall be
true in all material respects at and as of the time of Closing as
though such representations and warranties were made at and as of
such time.
(b) Acquiror shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing on the
Closing Date.
(c) The present Directors of Acquiror will cause the appointment of all
of Acquiree's nominees to the Board of Directors of Acquiror as
directed by
7
<PAGE> 10
Acquiree and will have arranged for the resignation of the existing
officers and directors of Acquiror.
(d) The Directors of Acquiror and a majority of the stockholders of
Acquiror shall have approved this transaction and such other
reasonable matters as requested by Acquiree as pertaining to this
transaction.
(e) All instruments and documents delivered to Stockholders pursuant
to the provisions hereof shall be reasonably satisfactory to
Stockholders.
8. Conditions Precedent to the Obligations of Acquiror. All obligations of
the Acquiror under this Agreement are subject fulfillment, prior to or
at the Closing on the Closing Date, of each of the following conditions:
(a) The representations and warranties by Acquiree and Stockholders
contained in this Agreement or in any certificate or document
delivered to Acquiror pursuant to the provisions hereof shall be
true at and as of the time of Closing as though such
representations and warranties were made at and as of such time.
(b) Acquiree and Stockholders shall have performed and complied with
all covenants, agreements, and conditions required by this
Agreement to be performed or complied with by it prior to or at the
Closing; including the delivery of all of the outstanding stock of
Acquiree.
(c) Stockholders shall deliver to Acquiror a letter commonly known as
an "investment letter" agreeing that the shares of stock in
Acquiror are being acquired for investment purposes, and not with a
view to resale.
(d) Stockholders hereby state that the materials, including, current
financial statements, prepared and delivered by Acquiror to
stockholders, have been read and understood by Stockholders, that
they are familiar with the business of Acquiror, that they are
familiar with the business of Acquiror, that they are acquiring the
Acquiror shares under Section 4(2), commonly known as the private
offering exemption of the Securities Act of 1933, under Regulation
D of said Act, and that the shares are restricted and may not be
resold, except in reliance on an exemption under the Act, and that
the
8
<PAGE> 11
Stockholders will thereby be taking control of Acquiror.
9. Indemnification. Within the period provided in paragraph 10
herein and in accordance with the terms of that paragraph, each party to
this Agreement, shall indemnify and hold harmless each other party at
all times after the date of this Agreement against and in respect of any
liability, damage or deficiency, all actions, suits, proceedings,
demands, assessments, judgments, costs and expenses including attorney's
fees incident to any of the foregoing, resulting from any
misrepresentations, breach of covenant or warranty or non-fulfillment of
any agreement on the part of such party under this Agreement or from any
misrepresentation in or omission from any certificate furnished or to be
furnished to a party hereunder. Subject to the terms of this Agreement,
the defaulting party shall reimburse the other party or parties on
demand, for any reasonable payment made by said parties at any time
after the Closing, in respect of any liability or claim to which the
foregoing indemnity relates, if such payment is made after reasonable
notice to the other party to defend or satisfy the same and such party
failed to defend or satisfy the same.
10. Nature and Survival of Representations. All representations,
warranties and covenants made by any party in this Agreement shall
survive the Closing hereunder and the consummation of the transactions
contemplated hereby for two years from the date hereof. All of the
parties hereto are executing and carrying out the provisions of this
Agreement in reliance solely on the representations, warranties and
covenants and agreements contained in this Agreement or at the Closing
of the transactions herein provided for and not upon any investigation
upon which it might have made or any representations, warranty,
agreement, promise or information, written or oral, made by the other
party or any other person other than as specifically set forth herein.
11. Documents at Closing. Between the date hereof and the date
of ratification by the shareholders of Acquiror, the following
transactions shall occur, all of such transactions being deemed to occur
simultaneously:
(a) Stockholders will deliver, or cause to be delivered, to Acquiror
the following:
(1) stock certificates for the stock of Acquiree being tendered
hereunder, duly endorsed in blank,
9
<PAGE> 12
(2) all corporate records of Acquiree, including without
limitation corporate minute books (which shall contain copies of
the Articles of Incorporation and Bylaws, as amended to the
Closing), stock books, stock transfer books, corporate seals,
and such other corporate books and records as may reasonably
requested for review by Acquiror and its counsel;
(3) a certificate executed by at lease one Principal Stockholder
to the effect that all representations and warranties made by
Acquiree under this Agreement are true and correct as of the
Closing, the same as though originally given to Acquiror on said
date;
(4) such other instruments, documents and certificates, if any,
as are required to be delivered pursuant to the provisions of
this Agreement or which may be reasonably requested in
furtherance of the provisions of this Agreement;
(b) Acquiror will deliver or cause to be delivered to Stockholders and
Acquiree:
(1) stock certificates for Common Stock to be issued as a part
of the exchange as listed on Exhibit "A";
(2) a certificate of the President and Secretary of Acquiror to
the effect that all representations and warranties of Acquiror
made under this Agreement are reaffirmed on the Closing Date,
the same as though originally given to Stockholders on said
date;
(3) certified copies of resolutions by Acquiror's Board of
Directors and Stockholders authorizing this transaction;
(4) such other instruments and documents as are required to be
delivered pursuant to the provisions of this Agreement.
12. Miscellaneous.
(a) Further Assurances. At any time, and from time to time, after the
effective date, each party will execute such additional instruments
and take such action as may be reasonably requested by the other
party to confirm or perfect title to any property
10
<PAGE> 13
transferred hereunder or otherwise to carry out the intent and
purposes of this Agreement.
(b) Waiver. Any failure on the part of any party hereto to comply with
any of its obligations, agreements or conditions hereunder may be
waived in writing by the party to whom such compliance is owed.
(c) Brokers. Neither party has employed any brokers or finders with
regard to this Agreement unless otherwise described in writing to
all parties hereto.
(d) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in
person or sent by prepaid first class registered or certified mail,
return receipt requested.
(e) Headings. The section and subsection headings in this Agreement are
inserted for convenience only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same
instrument.
(g) Governing Law. This Agreement was negotiated and is being
contracted for in the State of Colorado, and shall be governed by
the laws of the State of Colorado, and the securities being issued
herein are being issued and delivered in the State of Colorado in
accordance with the isolated transaction and non-public offering
exemption.
(h) Binding Effect. This Agreement shall be binding upon the parties
hereto and inure to the benefit of the parties, their respective
heirs, administrators, executors, successors and assigns.
(i) Entire Agreement. This Agreement is the entire agreement of the
parties covering everything agreed upon or understood in the
transaction. There are no oral promises, conditions,
representations, understandings, interpretations or terms of any
kind of condition or inducements to the execution hereof.
(j) Time. Time is of the essence.
11
<PAGE> 14
(k) Severability. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in full
force and effect.
(1) Default Costs. In the event any party hereto has to resort to legal
action to enforce any of the terms hereof, such party shall be
entitled to collect attorneys fees and other costs from the party
in default.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
STAR ACQUISITIONS CORPORATION
By: /s/ CHRISTINE M. RICHARD
------------------------------------
President
SOUTHWESTERN WATER EXPLORATION CO.
By: /s/ [SIG]
------------------------------------
Chairman
12
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
STAR ACQUISITIONS CORPORATION
Pursuant to the provisions of the Colorado Corporation Code, as amended,
the undersigned Corporation hereby adopts the following Amended and Restated
Articles of Incorporation to its Articles of Incorporation: to supersede the
original Articles of Incorporation.
ARTICLE I
Name
The name of the Corporation shall be SOUTHWESTERN WATER EXPLORATION CO.
ARTICLE II
Period of Duration
The Corporation shall exist in perpetuity.
ARTICLE III
Objects and Purposes
The nature of the business and the objects and purposes to be
transacted, promoted or carried on, and for which the Corporation is organized,
are as follows:
1. To engage in the development and sale of water on its own behalf and
on behalf of clients.
2. To take, hold and acquire by purchase, lease, exchange, merger or
otherwise, and to sell, lease, mortgage, pledge, exchange or otherwise deal in
personal property of every kind, nature and description, and any and all
interests therein and wherever situated.
3. To construct buildings or other improvements upon its land or upon
the land of others, and to furnish, manage or operate the same.
4. To act as agent, nominee, contractor, trustee or otherwise, either
alone or in company with others, including
<PAGE> 2
natural persons, corporations, partnerships, joint ventures, and all other
business entities, as fully and to the same extent as natural persons might or
could do.
5. To purchase, hold, transfer or sell the shares of its own capital
stock, provided that it shall not use its funds or property for the purchase of
its own shares of capital stock, when such use would cause any impairment of its
capital.
6. To guarantee, purchase, hold, sell, assign, transfer, mortgage,
pledge or otherwise dispose of or acquire ownership interests in business
entities shares of the capital stock of corporations, or any bonds, securities,
notes or other evidence of indebtedness, created or issued by any other
corporation or association or business entity organized under the laws of any of
the states or territories of the United States or under the laws of any nation
or government, and while the owner thereof to exercise and enjoy all the rights,
powers, and privileges of ownership.
7. To borrow money from or lend money to any person, persons,
partnership, venture, business entity, or corporation, or any combination of the
same, for such rates of interest as the corporation shall deem advisable, and to
accept as security therefor or to give security therefor, mortgages, deeds of
trust, bonds, notes, debentures or otherwise, and to generally deal in the
transfer, sale, assignment, or conveyance of notes, deeds of trust, mortgages,
debentures, bonds, bills of lading, stocks or other negotiable securities.
8. To engage in any other lawful business or activity for which a
corporation may be incorporated pursuant to the Colorado Corporation Code.
9. To carry on any business or activity in connection with the foregoing
and to have and exercise all of the powers, rights and privileges which a
corporation organized pursuant to the Colorado Corporation Code may have and
exercise.
The foregoing clauses shall be construed as objects, powers and purposes
of the Corporation, and shall not be held to limit or restrict in any manner the
same. It is the intention that the objects, powers and purposes specified in
each clause shall not be limited or restricted by reference to or inference from
the terms of any other clause, which shall be regarded as independent objects,
powers and purposes.
ARTICLE IV
Authorized Shares
Section 1: Number. The aggregate number of shares of capital stock which
the Corporation shall have authority to issue is Two Hundred Million
(200,000,000), consisting of 150,000,000
<PAGE> 3
Common Shares, of all one series and class, and 50,000,000 Preferred Shares, of
such series and classes as the Board of Directors may determine from time to
time. All capital stock of the Corporation shall have a par value of $0.001 per
share.
Section 2: Dividends. Dividends in cash, property or shares of the
Corporation may be paid upon the capital stock,, as and when declared by the
Board of Directors, out of funds of the Corporation to the extent and in the
manner permitted by law.
Section 3: Assessment. The capital stock of the Corporation shall not be
subject to assessment, but shall be issued as fully paid and nonassessable.
ARTICLE V
Preemptive Rights
The holders of the capital stock of this Corporation shall not have the
preemptive right to acquire additional unissued shares or treasury shares of the
capital stock of this Corporation, or securities convertible into shares of
capital stock or carrying capital purchase warrants or privileges.
ARTICLE VI
Provisions for Regulation of the
Internal Corporate Affairs
The following provisions are inserted for the management of the business
and for the regulation of the internal affairs of the Corporation, and the same
are in furtherance of and not in limitation or exclusion of the powers conferred
by law.
Section 1: Bylaws. The Board of Directors shall have the power to adopt,
alter, amend or repeal, from time to time, such Bylaws as it deems proper for
the management of the affairs of the Corporation, according to these Articles
and the laws in such cases made and provided.
Section 2: Executive Committee. The Bylaws may provide for designation
by the Board of Directors of an Executive Committee and one or more other
committees, the personnel and authority of which and the other provisions
relating to which shall be as may be set forth in the Bylaws.
Section 3: Place of Meetings. Both Stockholders" and Directors' meetings
may be held either within or without the State of Colorado, as may be provided
in the Bylaws.
Section 4: Compensation to Directors. The Board of Directors is
authorized to make provisions for reasonable
<PAGE> 4
compensation to its members for their services as Directors. Any Director of the
Corporation may also serve the Corporation in any other capacity and receive
compensation therefor in any form.
Section 5: Conflicts of Interest. No contract or other transaction of
the Corporation with any other person, firm or corporation, or in which this
Corporation is interested, shall be affected or invalidated solely by: (a) the
fact that any one or more of the Directors or Officers of this corporation is
interested in or is a director or officer of another corporation; or (b) the
fact that any Director or officer, individually or jointly with others, may be a
party to or may be interested in any such contract or transaction.
Section 6: Registered Owner of Stock. The Corporation shall be entitled
to treat the registered holder of any shares of the corporation as the owner
thereof for all purposes, including all rights deriving from such shares, on the
part of any other person, including, but not limited to, a purchaser, assignee
or transferee of such shares or rights deriving from such shares, unless and
until such purchaser, assignee, transferee or other person becomes the
registered holder of such shares, whether or not the Corporation shall have
either actual or constructive notice of the interest of such purchaser,
assignee, transferee or other person. The purchaser, assignee or transferee of
any of the shares of the Corporation shall not be entitled to: (a) receive
notice of the meetings of the Shareholders; (b) vote at such meetings; (c)
examine a list of the Shareholders; (d) be paid dividends or other sums payable
to Shareholders, or (e) own, enjoy or exercise any other property or rights
deriving from such shares against the Corporation, until such purchaser,
assignee or transferee has become the registered holder of such shares.
Section 7: Conduct of Business. The Corporation may conduct part or all
of its business, not only in the State of Colorado, but also in every other
state of the United States and the District of Columbia, and in any territory,
district and possession of the United States, and in any foreign country, and
the Corporation may qualify to do business in any of such locations and appoint
an agent for service of process therein. The Corporation may hold, purchase,
mortgage, lease and convey real and personal property in any of such locations.
Part or all of the business of the Corporation may be carried on beyond the
limits of the State of Colorado, and the Corporation may have one or more
offices out of the State of Colorado.
Section 8: Amendment of Articles of Incorporation. The Corporation
reserves the right, from time to time, to amend, alter or repeal, or add any
provisions to, its Articles of Incorporation by a vote of a majority of its
shareholders, and in the manner prescribed by the laws of the State of Colorado.
Section 9: Restrictions on Stock. The Directors shall have the right,
from time to time, to impose restrictions or to
<PAGE> 5
enter into agreements on behalf of the Corporation imposing restrictions on the
transfer of all or a portion of the Corporation's shares, provided that no
restrictions shall be imposed on the transfer of shares outstanding at the time
the restrictions are adopted unless the holder of such shares consents to the
restrictions.
Section 10: Indemnification of Officers and Directors. The corporation
hereby adopts, incorporates, and extends indemnification from liability for its
officers and directors to the fullest extent as now permitted or may hereafter
be permitted under the provisions of the Colorado Corporation Code.
ARTICLE VII
Registered Office and Agent
The address of the registered office of the Corporation in Colorado is
8400 East Prentice Avenue, Englewood, Colorado 80111, and the name of the
registered agent at such address is Corporate Filing Corp. Books of accounts,
records, documents and other papers may be kept at the registered office of
the Corporation or at such other place as may be determined by the Board of
Directors.
ARTICLE VIII
Board of Directors
Except as to the number constituting the initial Board of Directors,
the number of Directors may be increased or decreased, from time to time,
according to the applicable provisions in the Bylaws. However, there shall be
a minimum of at least three (3) members on the Board of Directors. Any
vacancies on the Board of Directors may be filled by majority vote of the then
Directors, even though such then Directors are less than a quorum in number.
ARTICLE IX
cumulative voting
Cumulative voting of shares of stock of the Corporation shall not be
allowed or authorized in the election of the Board of Directors of the
Corporation.
ARTICLE X
Adoption of Amended and Restated Articles
Section 1: Manner of Adoption. The foregoing amended and restated
Articles of Incorporation were adopted by the Shareholders of the Corporation on
November 8, 1993, in the manner prescribed by
<PAGE> 6
the Colorado Corporation Code, as amended, which consisted of a vote of the
shareholders. The number of shares voted for the amendment was sufficient for
approval.
Section 2: Manner of Effect on Issued Shares. The manner, if not set
forth in such amendment, in which any exchange, reclassification, or
cancellation of issued shares provided for in the amendment shall be affected is
as follows: NONE.
Section 3: Manner of Change in Capital. The manner in which such
amendment effects a change in the amount of stated capital, and the amount of
stated capital as changed by such amendment, are as follows: NONE.
Dated this 8th day of November, 1993.
STAR ACQUISITIONS CORPORATION
By: /s/ STEVEN B. MISNER
-------------------------------------
Steven B. Misner,
President
By: /s/ BARBARA J. MCALLISTER
-------------------------------------
Barbara J. McAllister,
Secretary
<PAGE> 1
EXHIBIT 3.2
BYLAWS
OF
STAR ACQUISITIONS CORPORATION
as of October 23, 1993
ARTICLE I
Offices
The principal office of the Corporation shall be located in Calgary,
Albert, Canada, and other offices at such places within or without the State of
Colorado and as the Board of Directors may from time to time establish.
ARTICLE II
Registered Office and Agent
The registered office of the Corporation shall be located at 8400 E.
Prentice Ave., Penthouse Suite, Englewood, Colorado 80111, and the registered
agent shall be Corporate Filing Corp. The Board of Directors may, by appropriate
resolution from time to time, change the registered office and/or agent.
ARTICLE III
Meetings of Stockholders
Section 1. Annual Meetings. The annual meeting of the Stockholders for
the election of Directors and for the transaction of such other business as may
properly come before such meeting shall be held at such time and date as the
Board of Directors shall designate from time to tine by resolution duly adopted.
Section 2. Special Meetings. A special meeting of the Stockholders may
be called at any time by the President, the Chairman of the Board of Directors,
or the Board of Directors, and shall be called by the President or the Chairman
of the Board of Directors upon the written request of Stockholders of record
holding in the aggregate one-tenth (1/10) or more of the outstanding shares of
stock of the Corporation entitled to vote, such written request to state the
purpose or purposes of the meeting and to be delivered to the President or the
Chairman of the Board of Directors.
Section 3. Place of Meetings. All meetings of the Stockholders shall be
held at the principal office of the Corporation or at such other place, within
or without the State of
<PAGE> 2
Colorado, as shall be determined from time to time by the Board of Directors or
the Stockholders of the Corporation.
Section 4. Change in Time or Place of Meetings. The time and place
specified in this Article III for annual meetings shall not be changed within
thirty (30) days next before the day on which such meeting is to be held. A
notice of any such change shall be given to each Stockholder at least ten (10)
days before the meeting, in person or by letter mailed to his last known post
office address.
Section 5. Notice of Meetings. Written notice, stating the place, day
and hour of the meeting, and in the case of a special meeting, the purposes for
which the meeting is called, shall be given by or under the direction of either
the President, the Chairman of the Board of Directors, or Secretary at least ten
(10) days but not more than fifty (50) days before the date fixed for such
meeting; except that if the number of the authorized shares of the Corporation
are to be increased, at least thirty (30) days' notice shall be given. Notice
shall be given to each Stockholder entitled to vote at such meeting, of record
at the close of business on the day fixed by the Board of Directors as a record
date for the determination of the Stockholders entitled to vote at such meeting,
or if no such date has been fixed, of record at the close of business on the day
next preceding the day on which notice is given. Notice shall be in writing and
shall be delivered to each Stockholder in person or sent by United States Mail,
postage prepaid, addressed as set forth on the books of the Corporation. A
waiver of such notice, in writing, signed by the person or persons entitled to
said notice, whether before or after the time stated therein, shall be deemed
equivalent to such notice. Except as otherwise required by statute, notice of
any adjourned meeting of the Stockholders shall not be required.
Section 6. Quorum. Except as may otherwise be required by statute, the
presence at any meeting, in person or by proxy, of the holders of record of
one-third of the shares then issued and outstanding and entitled to vote shall
be necessary and sufficient to constitute a quorum for the transaction of
business. In the absence of a quorum, a majority in interest of the Stockholders
entitled to vote, present in person or by proxy, or, if no Stockholder entitled
to vote is present in person or by proxy, any Officer entitled to preside or act
as secretary of such meeting, may adjourn the meeting from time to time for a
period not exceeding sixty (60) days in any one case. At any such adjourned
meeting at which a quorum may be present, any business may be transacted which
might have been transacted at the meeting as originally called. The Stockholders
present at a duly organized meeting may continue to do business until
adjournment, notwithstanding the withdrawal of enough Stockholders to leave less
than a quorum.
2
<PAGE> 3
Section 7. Voting. Except as may otherwise be provided by statute or
these Bylaws, including the provisions of Section 4 of Article VIII hereof, each
Stockholder shall at every meeting of the Stockholders be entitled to one (1)
vote, in person or by proxy, for each share of the voting capital stock held by
such Stockholder. However, no proxy shall be voted on after eleven (11) months
from its date, unless the proxy provides for a longer period. At all meetings of
the Stockholders, except as may otherwise be required by statute, the Articles
of Incorporation of this Corporation, or these Bylaws, if a quorum is present,
the affirmative vote of the majority of the shares represented at the meeting
and entitled to vote on the subject matter shall be the act of the Stockholders.
Persons holding stock in a fiduciary capacity shall be entitled to vote
the shares so held, and persons whose stock is pledged shall be entitled to
vote, unless in the transfer by the pledgor on the books of the Corporation he
shall have expressly empowered the pledgee to vote thereon, in which case only
the pledgee or his proxy may represent said stock and vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation shall not be voted directly or indirectly.
Section 8. Consent of Stockholders in Lieu of Meeting. Whenever the vote
of Stockholders at a meeting thereof is required or permitted to be taken in
connection with any corporate action, by any provision of statute, these Bylaws,
or the Articles of Incorporation, the meeting and vote of Stockholders may be
dispensed with if all the Stockholders who would have been entitled to vote upon
the action if such meeting were held shall consent in writing to such corporate
action being taken.
Section 9. Telephonic Meeting. Any meeting held under this Article III
may be held by telephone, in accordance with the provisions of the Colorado
Corporations Code.
Section 10. List of Stockholders Entitled to Vote. The Officer who has
charge of the stock ledger of the Corporation shall prepare and make, at least
ten (10) days before every annual meeting, a complete list of the Stockholders
entitled to vote at such meeting, arranged in alphabetical order, and showing
the address of each Stockholder and the number of shares registered in the name
of each Stockholder. Such list shall be open to the examination of any
Stockholder during ordinary business hours, for a period of at least ten (10)
days prior to election, either at a place within the city, town or village where
the election is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where said meeting is to be held.
The list shall be produced and kept at the time and place of election during the
whole time thereof and be subject to the inspection of any Stockholder who may
be present.
3
<PAGE> 4
ARTICLE IV
Board of Directors
Section 1. General Powers. The business and affairs of the Corporation
shall be managed by the Board of Directors, except as otherwise provided by
statute, the Articles of Incorporation of the Corporation, or these Bylaws.
Section 2. Number and Qualifications. The Board of Directors shall
consist of at least three (3) members, and not more than nine (9) members, as
shall be designated by the Board of Directors from time to time, and in the
absence of such designation, the Board of Directors shall consist of three (3)
members; provided, however, that in the event that the outstanding shares are
held of record by fewer than three (3) Stockholders, there shall be only as many
Directors as there are Stockholders, absent a designation by the Board of
Directors to the contrary. This number may be changed from time to time by
resolution of the Board of Directors. However, no such change shall have the
effect of reducing the number of members below three (3) if the outstanding
shares are held of record by three (3) or more Stockholders. Directors need not
be residents of the State of Colorado or Stockholders of the Corporation.
Directors shall be natural persons of the age of eighteen (18) years or older.
Section 3. Election and Term of Office. Members of the initial Board of
Directors of the Corporation shall hold office until the first annual meeting of
Stockholders. At the first annual meeting of Stockholders, and at each annual
meeting thereafter, the Stockholders shall elect Directors to hold office until
the next succeeding annual meeting. Each Director shall hold office until his
successor is duly elected and qualified, unless sooner displaced. Election of
Directors need not be by ballot.
Section 4. Compensation. The Board of Directors may provide by
resolution that the Corporation shall allow a fixed sum and reimbursement of
expenses for attendance at meetings of the Board of Directors and for other
services rendered on behalf of the Corporation. Any Director of the Corporation
may also serve the corporation in any other capacity, and receive compensation
therefor in any form, as the same may be determined by the Board in accordance
with these Bylaws.
Section 5. Removals and Resignations. Except as may otherwise be
provided by statute, the Stockholders may, at any special meeting called for the
purpose, by a vote of the holders of the majority of the shares then entitled to
vote at an election of Directors, remove any or all Directors from office, with
or without cause.
4
<PAGE> 5
A Director may resign at any time by giving written notice to either the
Board of Directors, the President, the Chairman of the Board of Directors, or
the Secretary of the Corporation. The resignation shall take effect immediately
upon the receipt of the notice, or at any later period of time specified
therein. The acceptance of such resignation shall not be necessary to make it
effective, unless the resignation requires acceptance for it to be effective.
Section 6. Vacancies. Any vacancy occurring in the office of a Director,
whether by reason of an increase in the number of directorships or otherwise,
may be filled by a majority of the Directors then in office, though less than a
quorum. A Director elected to fill a vacancy shall be elected for the unexpired
term of his predecessor in office, unless sooner displaced.
When one or more Directors resign from the Board, effective at a future
date, a majority of the Directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote thereon
to take effect when such resignation or resignations shall become effective.
Each Director so chosen shall hold office as herein provided in the filling of
other vacancies.
Section 7. Executive Committee. By resolution adopted by a majority of
the Board of Directors, the Board may designate one or more committees,
including an Executive Committee, each consisting of one (1) or more Directors.
The Board of Directors may designate one (1) or more Directors as alternate
members of any such committee, who may replace any absent or disqualified member
at any meeting of such committee. Any such committee, to the extent provided in
the resolution and except as may otherwise be provided by statute, shall have
and may exercise the powers of the Board of Directors in the management of the
business and affairs of the Corporation and may authorize the seal of the
Corporation to be affixed to all papers which may require the same. The
designation of such committee and the delegation thereto of authority shall not
operate to relieve the Board of Directors, or any member thereof, of any
responsibility imposed upon it or him by law. If there be more than two (2)
members on such committee, a majority of any such committee may determine its
action and may fix the time and place of its meetings, unless provided otherwise
by the Board. If there be only two (2) members, unanimity of action shall be
required. Committee action may be by way of a written consent signed by all
committee members. The Board shall have the power at any time to fill vacancies
on committees, to discharge or abolish any such committee, and to change the
size of any such committee.
Except as otherwise prescribed by the Board of Directors, each committee
may adopt such rules and regulations governing its proceedings, quorum, and
manner of acting as it shall deem proper and desirable.
5
<PAGE> 6
Each such committee shall keep a written record of its acts and
proceedings and shall submit such record to the Board of Directors. Failure to
submit such record, or failure of the Board to approve any action indicated
therein will not, however, invalidate such action to the extent it has been
carried out by the corporation prior to the time the record of such action was,
or should have been, submitted to the Board of Directors as herein provided.
ARTICLE V
Meetings of Board of Directors
Section 1. Annual Meetings. The Board of Directors shall meet each year
immediately after the annual meeting of the Stockholders for the purpose of
organization, election of officers, and consideration of any other business that
may properly be brought before the meeting. No notice of any kind to either old
or new members of the Board of Directors for such annual meeting shall be
necessary.
Section 2. Regular Meetings. The Board of Directors from time to time
may provide by resolution for the holding of regular meetings and fix the time
and place of such meetings. Regular meetings may be held within or without the
State of Colorado. The Board need not give notice of regular meetings provided
that the Board promptly sends notice of any change in the time or place of such
meetings to each Director not present at the meeting at which such change was
made.
Section 3. Special Meetings. The Board may hold special meetings of the
Board of Directors at any place, either within or without the State of Colorado,
at any time when called by the President, the Chairman of the Board of
Directors, or two or more Directors. Notice of the time and place thereof shall
be given to and received by each Director at least three (3) days before the
meeting. A waiver of such notice in writing, signed by the person or persons
entitled to said notice, either before or after the time stated therein, shall
be deemed equivalent to such notice. Notice of any adjourned special meeting of
the Board of Directors need not be given.
Section 4. Quorum. The presence, at any meeting, of a majority of the
total number of Directors shall be necessary and sufficient to constitute a
quorum for the transaction of business. Except as otherwise required by statute,
the act of a majority of the Directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors; however, if only two (2)
Directors are present, unanimity of action shall be required. In the absence of
a quorum, a majority of the Directors present at the time and place of any
meeting may adjourn such meeting from time to time until a quorum is present.
6
<PAGE> 7
Section 5. Consent of Directors in Lieu of Meeting. Unless otherwise
restricted by statute, the Board may take any action required or permitted to be
taken at any meeting of the Board of Directors without a meeting, if a written
consent thereto is signed by all members of the Board, and such written consent
is filed with the minutes of proceedings of the Board.
Section 6. Telephonic Meeting. Any meeting held under this Article V may
be held by telephone, in accordance with the provisions of the Colorado
Corporations Code.
Section 7. Attendance Constitutes Waiver. Attendance of a Director at a
meeting constitutes a waiver of any notice to which the Director may otherwise
have been entitled, except where a Director attends a meeting for the express
purpose of objecting the transaction of any business because the meeting is not
lawfully called or convened.
ARTICLE VI
Officers
Section 1. Number. The Corporation shall have a Chairman of the Board, a
President, one or more Vice Presidents as the Board may from time to time elect,
a Secretary and a Treasurer, and such other Officers and Agents as may be deemed
necessary. One person may hold any two offices except the offices of President
and Secretary.
Section 2. Election, Term of Office, and Qualifications. The Board shall
choose the Officers specifically designated in Section 1 of this Article VI at
the annual meeting of the Board of Directors and such Officers shall hold office
until their successors are chosen and qualified, unless sooner displaced.
Officers need not be Directors of the Corporation.
Section 3. Subordinate Officers. The Board of Directors, from time to
time, may appoint other Officers and Agents, including one or more Assistant
Secretaries and one or more Assistant Treasurers, each of whom shall hold office
for such period, and each of whom shall have such authority and perform such
duties as are provided in these Bylaws or as the Board of Directors from time to
time may determine. The Board of Directors may delegate to any Officer or the
Chairman of the Board of Directors the power to appoint any such subordinate
Officers and Agents and to prescribe their respective authorities and duties.
Section 4. Removals and Resignations. The Board of Directors may, by
vote of a majority of their entire number, remove from office any Officer or
Agent of the Corporation, appointed by the Board of Directors.
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<PAGE> 8
Any Officer may resign at any time by giving written notice to the Board
of Directors. The resignation shall take effect immediately upon the receipt of
the notice, or any later period of time specified therein. The acceptance of
such resignation shall not be necessary to make it effective, unless the
resignation requires acceptance for it to be effective.
Section 5. Vacancies. Whenever any vacancy shall occur in any office by
death, resignation, removal, or otherwise, it shall be filled for the unexpired
portion of the term in the manner prescribed by these Bylaws for the regular
election or appointment to such office, at any meeting of Directors.
Section 6. The Chairman of the Board. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and, subject to the direction and
under the supervision of the Board of Directors' shall have general charge of
all of the affairs of the Corporation. The Chairman shall preside at all
meetings of the Stockholders and of the Board of Directors at which he is
present.
Section 7. The President. The President shall be the chief operating
officer of the Corporation and, subject to the direction and under the
supervision of the Board of Directors, shall have general charge of the
day-to-day operations and of the property of the Corporation, and shall have
control over its Officers, Agents and Employees. The President shall preside at
all meetings of the Stockholders and of the Board of Directors at which the
Chairman is not present. The President shall do and perform such other duties
and may exercise such other powers as these Bylaws or the Board of Directors
from time to time may assign to him.
Section. 8. The Vice President. At the request of the President or in
the event of his absence or disability, the Vice President, or in case there
shall be more than one Vice President, the Vice President designated by the
President, or in the absence of such designation, the Vice President designated
by the Board of Directors, shall perform all the duties of the President, and
when so acting, shall have all the powers of, and be subject to all the
restrictions upon, the President. Any Vice President shall perform such other
duties and may exercise such other powers as from time to time these Bylaws or
by the Board of Directors or the President be assign to him.
Section 9. The Secretary. The Secretary shall:
a. record all the proceedings of the meetings of the
corporation and Directors in a book to be kept for that
purpose;
b. have charge of the stock ledger (which may, however, be
kept by any transfer agent or agents of the Corporation
under the direction of the
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<PAGE> 9
Secretary) , an original or duplicate of which shall be
kept at the principal office or place of business of the
Corporation;
c. see that all notices are duly and properly given;
d. be custodian of the records of the Corporation and the
Board of Directors, and the and of the seal of the
Corporation, and see that the seal is affixed to all
stock certificates prior to their issuance and to all
documents for which the Corporation has authorized
execution on its behalf under its seal;
e. see that all books, reports, statements, certificates,
and other documents and records required by law to be
kept or filed are properly kept or filed;
f. in general, perform all duties and have all powers
incident to the office of Secretary, and perform such
other duties and have such other powers as these Bylaws,
the Board of Directors, the Chairman of the Board of
Directors, or the President from time to time may assign
to him; and
g. prepare and make, at least ten (10) days before every
election of Directors, a complete list of the
Stockholders entitled to vote at said election, arranged
in alphabetical order.
Section 10. The Treasurer. The Treasurer shall:
a. have supervision over the funds, securities, receipts
and disbursements of the Corporation;
b. cause all moneys and other valuable effects of the
Corporation to be deposited in its name and to its
credit, in such depositories as the Board of Directors
or, pursuant to authority conferred by the Board of
Directors, its designee shall select;
c. cause the funds of the Corporation to be disbursed by
checks or drafts upon the authorized depositaries of the
corporation, when such disbursements shall have been
duly authorized;
d. cause proper vouchers for all moneys disbursed to be
taken and preserved;
e. cause correct books of accounts of all its business and
transactions to be kept at the principal office of the
Corporation;
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<PAGE> 10
f. render an account of the financial condition of the
Corporation and of his transactions as Treasurer to the
President, the Chairman of the Board of Directors, or
the Board of Directors, whenever requested;
g. be empowered to require from the Officers or Agents of
the Corporation reports or statements giving such
information as he may desire with respect to any and all
financial transactions of the Corporation; and
h. in general, perform all duties and have all powers
incident to the office of Treasurer and perform such
other duties and have such other powers as from time to
time may be assigned to him by these Bylaws or by the
Chairman of the Board of Directors, the Board of
Directors or the President.
Section 11. Salaries. The Board of Directors shall from time to time fix
the salaries of the Officers of the Corporation. The Board of Directors may
delegate to any person the power to fix the salaries or other compensation of
any Officers or Agents appointed, in accordance with the provisions of Section 3
of this Article VI. No Officer shall be prevented from receiving such salary by
reason of the fact that he is also a Director of the Corporation. Nothing
contained in this Bylaw shall be construed so as to obligate the Corporation to
pay any officer a salary, which is within the sole discretion of the Board of
Directors.
Section 12. Surety Bond. The Board of Directors may in its discretion
secure the fidelity of any or all of the Officers of the Corporation by bond or
otherwise.
ARTICLE VII
Execution of Instruments
Section 1. Checks, Drafts, Etc. The President or the Chairman of the
Board of Directors and the Secretary or Treasurer shall sign all checks, drafts,
notes, bonds, bills of exchange, and orders for the payment of money of the
Corporation, and all assignments or endorsements of stock certificates,
registered bonds, or other securities, owned by the Corporation, unless
otherwise directed by the Board of Directors, or unless otherwise required by
law. The Board of Directors or the Chairman of the Board of Directors may,
however, authorize any Officer or the Chairman of the Board to sign any of such
instruments for and on behalf of the Corporation without necessity of
countersignature, and may designate Officers, or Employees of the Corporation
other
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<PAGE> 11
than those named above who may, in the name of the Corporation, sign such
instruments.
Section 2. Execution of Instruments Generally. Subject always to the
specific direction of the Board of Directors, the President or the Chairman of
the Board of Directors shall execute all deeds and instruments of indebtedness
made by the Corporation and all other written contracts and agreements to which
the Corporation shall be a party, in its name, attested by the Secretary. The
Secretary, when necessary required, shall affix the corporate seal thereto.
Section 3. Proxies. The President, the Chairman of the Board and the
Secretary or an Assistant Secretary of the Corporation or by any other person or
persons duly authorized by the Board of Directors may execute and deliver
proxies to vote with respect to shares of stock of other corporations owned by
or standing in the name of the Corporation from time to time on behalf of the
Corporation.
ARTICLE VIII
Capital Stock
Section 1. Certificates of Stock. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed in the name of the
Corporation by either the Chairman of the Board of Directors or the President
and by the Secretary of the Corporation, certifying the number of shares owned
by that person in the Corporation.
Certificates of stock shall be in such form as shall, in conformity to
law, be prescribed from time to time by the Board of Directors.
Section 2. Transfer of Stock. Shares of stock of the Corporation shall
only be transferred on the books of the Corporation by the holder of record
thereof or by his attorney duly authorized in writing, upon surrender to the
Corporation of the certificates for such shares endorsed by the appropriate
person or persons, with such evidence of the authenticity of such endorsement,
transfer, authorization and other matters as the Corporation may reasonably
require. Surrendered certificates shall be canceled and shall be attached to
their proper stubs in the stock certificate book.
Section 3. Rights of Corporation with Respect to Registered Owners.
Prior to the surrender to the Corporation of the certificates for shares of
stock with a request to record the transfer of such shares, the Corporation may
treat the registered owner as the person entitled to receive dividends, to vote,
to
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<PAGE> 12
receive notifications, and otherwise to exercise all the rights and powers of an
owner.
Section 4. Closing Stock Transfer Book. The Board of Directors may close
the Stock Transfer Book of the Corporation for a period not exceeding fifty (50)
days preceding the date of any meeting of Stockholders, the date for payment of
any dividend, the date for the allotment of rights, the date when any change,
conversion or exchange of capital stock shall go into effect, or for a period of
not exceeding fifty (50) days in connection with obtaining the consent of
Stockholders for any purpose. However, in lieu of closing the Stock Transfer
Book, the Board of Directors may in advance fix a date, not exceeding fifty (50)
days preceding the date of any meeting of Stockholders, the date for the payment
of any dividend, the date for the allotment of rights, the date when any change
or conversion or exchange of capital stock shall go into effect, or a date in
connection with obtaining such consent, as a record date for the determination
of the Stockholders entitled to notice of, and to vote at, any such meeting and
any adjournment thereof, or entitled to receive payment of any such dividend, or
to any such allotment of rights, or to exercise the rights in respect of any
such change, conversion or exchange of capital stock, or to give such consent.
In such case such Stockholders of record on the date so fixed, and only such
Stockholders shall be entitled to such notice of, and to vote at, such meeting
and any adjournment thereof, or to receive payment of such dividend, or to
receive such allotment of rights, or to exercise such rights, or to give such
consent, as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
Section. 5. Lost, Destroyed and Stolen Certificates. The Corporation may
issue a new certificate of shares of stock in the place of any certificate
theretofore issued and alleged to have been lost, destroyed or stolen. However,
the Board of Directors may require the owner of such lost, destroyed or stolen
certificate or his legal representative, to: (a) request a new certificate
before the Corporation has notice that the shares have been acquired by a bona
fide purchaser; (b) furnish an affidavit as to such loss, theft or destruction;
(c) file with the Corporation a sufficient indemnity bond; or (d) satisfy such
other reasonable requirements, including evidence of such loss, destruction, or
theft as may be imposed by the Corporation.
ARTICLE IX
Dividends
Section 1. Sources of Dividends. The Directors of the Corporation,
subject to the Colorado Revised Statutes, may declare
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<PAGE> 13
and pay dividends upon the shares of the capital stock of the Corporation.
Section 2. Reserves. Before the payment of any dividend, the Directors
of the Corporation may set apart out of any of the funds of the Corporation
available for dividends a reserve or reserves for any proper purpose, and the
Directors may abolish any such reserve in the manner in which it was created.
Section 3. Reliance on Corporate Records. A Director in relying in good
faith upon the books of account of the Corporation or statements prepared by any
of its officials as to the value and amount of the assets, liabilities, and net
profits of the Corporation, or any other facts pertinent to the existence and
amount of surplus or other funds from which dividends might properly be declared
and paid shall be fully protected.
Section 4. Manner of Payment. Dividends may be paid in cash in property,
or in shares of the capital stock of the Corporation.
ARTICLE X
Seal and Fiscal Year
Section 1. Seal. The corporate seal, subject to alteration by the Board
of Directors, shall be in the form of a circle, shall bear the name of the
Corporation, and shall indicate its formation under the laws of the State of
Colorado and the year of incorporation. Such seal may be used by causing it or a
facsimile thereof to be impressed, affixed, or otherwise reproduced.
Section 2. Fiscal Year. The Board of Directors shall, in its sole
discretion, designate a fiscal year for the Corporation.
ARTICLE XI
Amendments
Except as may otherwise be provided herein, a majority vote of a quorum
of the Board of Directors at any meeting of the Board, is required to amend or
repeal any provision of these Bylaws.
ARTICLE XII
Indemnification of Officers and Directors
Section 1. Exculpation. No Director or Officer of the Corporation shall
be liable for the acts, defaults, or omissions of any other Director or Officer,
or for any loss sustained by the Corporation, unless the same has resulted from
his own willful misconduct, willful neglect, or gross negligence.
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<PAGE> 14
Section 2. Indemnification. Each Director and Officer of the Corporation
and each person who shall serve at the Corporation's request as a director or
officer of another corporation in which the Corporation owns shares of capital
stock or of which it is a creditor shall be indemnified by the Corporation
against all reasonable costs, expenses and liabilities (including reasonable
attorneys' fees) actually and necessarily incurred by or imposed upon him in
connection with, or resulting from any claim, action, suit, proceeding,
investigation, or inquiry of whatever nature in which he may be involved as a
party or otherwise by reason of his being or having been a Director or Officer
of the Corporation or such director or officer of such other corporation,
whether or not he continues to be a Director or Officer of the Corporation or a
director or officer of such other corporation, at the time of the incurring or
imposition of such costs, expenses or liabilities, except in relation to matters
as to which he shall be finally adjudged in such action, suit, proceeding,
investigation, or inquiry to be liable for willful misconduct, willful neglect,
or gross negligence toward or on behalf of the Corporation in the performance of
his duties as such Director or Officer of the Corporation or as such director
or officer of such other corporation. As to whether or not a Director or Officer
was liable by reason of willful misconduct, willful neglect, or gross negligence
toward or on behalf of the Corporation in the performance of his duties as such
Director or Officer of the Corporation or as such director or officer of such
other corporation, in the absence of such final adjudication of the existence of
such liability, the Board of Directors and each Director and Officer may
conclusively rely upon an opinion of independent legal counsel selected by or in
the manner designated by the Board of Directors. The foregoing right to
indemnification shall be in addition to and not in limitation of all other
rights which such person may be entitled as a matter of law, and shall inure to
his legal representatives' benefit.
Section 3. Liability Insurance. The Corporation may purchase and
maintain insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, association, or other enterprise
against any liability asserted against him and incurred by him in any such
capacity or arising out of his status as such, whether or not he is indemnified
against such liability by this Article XII.
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<PAGE> 1
Exhibit 10.1
LICENSE AGREEMENT
This License Agreement made as of the 1st day of September, 1993.
Between:
AIFE, AMERICAN INSTITUTE OF FORMATION EVALUATION LTD., a body
corporate, incorporated under the laws of the Province of
Alberta, Canada (hereinafter referred to as the "Grantor")
OF THE FIRST PART
- and -
AIFE, AMERICAN INSTITUTE OF FORMATION EVALUATION CO., a body
corporate, incorporated under the laws of the State of Colorado,
of the United States of America (hereinafter referred to as the
"Licensee")
OF THE SECOND PART
WHEREAS the Grantor is the owner of the Licensed Products as
hereinafter defined and has agreed to grant a non-exclusive limited License for
the use of such Licensed Products for the Licensed Period and subject to the
terms and conditions hereinafter contained.
NOW THEREFORE THIS LICENSE WITNESSETH that in consideration of
the foregoing and the payment by the Licensee to the Grantor of the License Fee
as hereinafter defined the Grantor hereby grants unto the Licensee the
non-exclusive limited license and authority throughout the Continental United
States and for the term of Twenty (20) years commencing on the 1st day of
September, 1993 and expiring on the 31st day of August, 2013, (herein called the
"License Period") subject to the observance of and performance by the Licensee
of the following covenants and conditions and with the benefit of the covenants
of the Grantor to observe and perform that is to say:
<PAGE> 2
1. Definitions:
(a) "Continental United States" means those States of the United
States of America located contiguously to each other at the date
of this Agreement and specifically excluding the States of
Alaska and Hawaii;
(b) "Fiscal Year" means the 12 consecutive calendar months as chosen
by the Licensee for the purposes of calculating and reporting
its income;
(c) "License Fee" means, subject to the provisions of paragraph 5
hereof, a maximum annual payment of 10% of the annual net cash
flow profits of the Licensee to a maximum amount per annum to be
One Hundred and Fifty Thousand ($150,000.00) Dollars U.S. and
the total maximum cumulative License Fee payable over the term
of this license to be no more than One Million Five Hundred
Thousand ($1,500,000.00) Dollars U.S. The annual net cash flow
profits of the Licensee shall be defined as the positive number
represented by the sum of the net income or loss of the Licensee
(as indicated in its annual audited financial statements) and
any non-cash expenses as such depreciation and amortization; and
(d) "Licensed Products" means those drill stem test reports and
other oil and gas and water well information all as set out in
Schedule "A" to this Agreement.
2. Grant and Scope of the Licensee: Subject to the payment of royalties and
other conditions hereinafter contained, the Grantor grants to the
Licensee the non-exclusive and limited right for the License Period to
use the Licensed Products for the limited purpose of assisting it to
locate subterranean water in the Continental United States. Not so as to
limit the generality of the foregoing it is specifically understood and
agreed that the Licensee shall not use the Licensed Products for the
purpose of assisting it or others to locate or find or to obtain mines
and minerals or oil and gas and other hydrocarbons. However, should any
such items be found in the normal course of drilling for water, they are
the property of the Licensee.
<PAGE> 3
- 3 -
3. Confidentiality: The parties hereto mutually understand and agree and
acknowledge that the Licensed Products constitute valuable property rights
and trade secrets owned by the Grantor and the Licensee agrees:
(a) to hold the Licensed Products and all information contained therein
and obtained in using the Licensed Products or derived therefrom in
the strictest confidence;
(b) to disclose the contents of Licensed Products and the information
contained therein to its employees only on a need-to-know basis and
to require all such employees to maintain the secrecy of such
information;
(c) to use the Licensed Products and the information contained therein
only for the purposes contemplated by this Agreement; and
(d) to not disclose any of the Licensed Products or information contained
therein or obtained from them as outlined above to any third party
except when it is required by the Licensee in order to carry out is
business as outlined in paragraph 2 above and then only on the same
need-to-know basis as outlined above and to limit the amount of the
information given to any such third party to the minimum required in
order for them to properly carry out their tasks assigned to them by
the Licensee and then only after such third party has agreed in
writing by way of an enforceable contract to maintain the
confidentiality of the Licensed Products and information contained
therein including to return such information to the Licensee when it
is no longer required and to not keep copies of same.
4. Delivery and Return of the Licensed Products: The Licensee acknowledges
that the Grantor has delivered to it on this date the Licensed Products
and on termination of this License Agreement the Licensee agrees to return
to the Grantor the Licensed Products and all
<PAGE> 4
-4-
additional information that it has obtained regarding or enhancing the
Licensed Products as outlined above and it agrees to keep no copies of the
Licensed Products, the improvements or enhancement thereof on its delivery
of same to the Grantor on termination of this Agreement.
5. Remuneration: The Licensee agrees to pay the Grantor, subject to the
ability to defer payment as set out below, the following sums of money on
account of the Licensee Fee annually on the following basis:
(a) within 180 days of the conclusion of each Fiscal Year end of the
License granted for the 20 years of the License Period and the year
immediately following the end of the License Period the Licensee shall
forward to the Grantor its audited financial statements including the
report thereon of its certified public accountant or similarly
qualified accountant as approved in writing by the Grantor, and if
approved by a resolution of the Directors of the Licensee, a bank
draft in U.S. funds for the amount of the Licensee Fee or any portion
thereof as approved by the Directors of the Licensee due for the
immediately previous Fiscal Year of the Licensee. All of or the
portion of the Licensee Fee for any year that payment is not approved
by the Directors of the Licensee shall be deferred, without interest
being accumulated thereon, to the following year and any deferred
payments may likewise be deferred from year to year. Any unpaid
deferred payments at the end of the Licensee shall become null and
void and non-payable at that date;
(b) it is understood and agreed that the License may not change its
Fiscal Year during the course of the 20 years in which this License
is in place without the consent in writing of the Grantor which
consent the Grantor agrees to not unreasonably withhold or delay. The
Licensee agrees that it will take no steps to divert to another
source any income or business opportunities which may result in less
income and/or profits being received by the Licensee or to
artificially increase its expenses (including but not limited to such
items as paying artificially high salaries) and will take all
reasonable
<PAGE> 5
-5-
steps to maximize its income so that the Grantor may receive, subject
to its absolute and unfettered right to defer payments as referred to
in sub-paragraph (a) above, the maximum amount of the License Fee as
referred to herein. The Licensee will enclose together with its
financial statements either a notice of deferment or its bank draft
and a letter signed by its chief executive officer and its chief
financial officer wherein they shall certify that the financial
statements enclosed and the calculation of the License Fee have been
done in accordance with the provisions and spirit of this License
Agreement. It is further understood and agreed that there shall be no
interest factor payable on the outstanding License Fee (unless it is
for overdue payments as set out elsewhere herein) and when the full
not deferred License Fee has been paid to the Grantor, no further
monies will be payable pursuant to this License Agreement but that the
License shall continue for its full 20 year period of time; and
(c) Interest on Late Payment: any portion of the not deferred License Fee
that is not paid in the time set out herein or deferred as set out
herein shall be subject to payment of an interest charge commencing
on the last day set out herein for the payment of such License Fee at
the rate of 3% per annum above the prime rate of interest charged by
the United Bank of Denver to its most favourite customers, as
announced by that bank from time-to-time. It is specifically agreed
between the parties hereto that this provision for late interest
payment does not waive the rights of the Grantor provided for
hereunder if any amounts are not paid when due.
6. Books and Records:
(a) records from which the License Fee may be readily and correctly
determined shall be kept by the Licensee. Such records shall be full,
true and accurate and kept in accordance with all the requirements of
this Agreement and otherwise in accordance with the generally
accepted accounting practices. Such records relating to each Fiscal
Year shall be kept by the Licensee until at least the third
anniversary of the end of such Fiscal Year. The Grantor or anyone
designated by the Grantor shall have
<PAGE> 6
-6-
access to the Licensee's records at any and all times during business
hours for the purpose of examining and reviewing all the records and
procedures adopted by the Licensee for the recording and control of
all transactions affecting the determination of the License Fee. The
Licensee covenants to comply with all reasonable directions, rules
and regulations issued to it by the Grantor from time to time
respecting such records and procedures to be adopted for the proper
and accurate recording and control of all transactions affecting the
determination of the License Fee;
(b) the Licensee shall furnish all such statements, information and other
supporting data respecting calculation of the License Fee as the
Grantor may reasonably require. The Grantor agrees not to disclose
any confidential information so obtained except to the extent that
disclosure is reasonable in the conduct of the Grantor's business.
(c) as the bona fide reporting of the net cash flow from profits and the
due payment of License Fee or giving notice that such payment is
deferred is essential to the proper business relationship of the
parties, the Grantor, in addition to its rights specified above shall
be entitled at any time and from time to time to have all or any of
the records and procedures of the Licensee affecting the
determination of its net cash flow specially audited or examined by a
licensed, chartered or other public accountant designated by the
Grantor and who may be required by the Grantor to report to the
Grantor its opinion as to any matters arising under that this
Agreement including:
(i) the adequacy of the Licensee's accounting records and
procedures, and recommendations in regard thereto;
(ii) whether the Licensee has complied with this Agreement and any
directions, rules and regulations of the Grantor; and
(iii) whether the Licensee has accurately reported the amount of any
payment of the License Fee.
<PAGE> 7
- 7 -
(d) if such accountant shall report to the Grantor that, as at the date
of his or her audit or examination, that in his or her opinion:
(i) the Licensee's records and procedures were inadequate or the
Licensee was not complying with this Agreement;
(ii) the Licensee's records and procedures were sufficient to
permit a determination of License Fee for any period and such
report shall therein set out his or her determination of the
portion of License Fee accrued for such period and the amount
of any overpayment or underpayment of the License Fee; or
(iii) the Licensee's records and procedures which it was able to
inspect were not sufficient to permit a reasonably accurate
determination of the portion of the License Fee payable for
any relevant period;
and if the Grantor delivers a copy of such accountant's report to
the Licensee, then the Licensee shall forthwith and for the
remainder of the License Period take such steps as may be
recommended, necessary or advisable to remedy any reported default;
and the Grantor shall forthwith repay to the Licensee any amount
therein set out as an over-payment of the License Fee (subject to
the deduction of any monies then owed by the Licensee to the
Grantor) or the Licensee shall forthwith pay to the Grantor any
amount therein set out as an under-payment of the License Fee, as
the case may be using such records of the Licensee as have been
made available having regard to the possibility of errors,
omissions or inaccuracies therein). Every such estimate shall be
binding upon the Licensee until and except to the extent the
Licensee proves it to be inaccurate, and shall not be contestable
by the Licensee after one year after the date the Licensee receives
such report;
<PAGE> 8
- 8 -
(e) all costs of any special audit, examination or report under this
Agreement shall be payable by the Licensee to the Grantor on demand
if such accountant shall report that in his or her opinion the
Licensee's records and procedures were inadequate or the Licensee
was not complying with this Agreement, or if the License Fee for
any reporting period as determined by such accountant is greater
than Two (2%) percent more than the amount reported by the Licensee;
(f) the acceptance by the Grantor of any statement of the License Fee
delivered by the Licensee or any payment on the Licensee Fee based
thereon or any accountant's determination thereof, shall not be
deemed to relieve the Licensee from its obligations to comply with
this Agreement or from the consequences of any default thereunder,
nor be a waiver by the Grantor of any of the obligations of the
Licensee or any rights of the Grantor under this License and,
without limiting the generality of the foregoing, the Grantor shall
be entitled to all its remedies under this License and in any event
shall have the remedy of termination and forfeiture if there shall
be any substantial or continuing breach of such obligations by the
Licensee, or there shall have been any refusal or omission by the
Licensee to report or to maintain or produce records affecting the
determination of the annual portion of the License Fee, or to
maintain procedures recommended by an auditor appointed by the
Grantor; and provided that if any such License Period commences or
terminates on date other than the beginning or end of the Fiscal
Year the License Fee shall be adjusted pro rata and shall be paid
for the time such License Period commences to the date it ceases.
7. General Matters:
(a) Early Termination for Breach. Upon a material breach of this
Agreement by the Licensee, the Grantor may at its option terminate
this Agreement. Any termination of this Agreement for a material
breach shall require 30 days' prior written notice by the Grantor
to the Licensee setting out the nature of the breach and, if the
material breach is cured within the 30 day notice period, the
termination notice shall not be
<PAGE> 9
-9-
effective. Any such termination shall be without prejudice
to any other rights available to either party in law or
equity. Notwithstanding the generality of the foregoing the
parties hereto stipulate and agree that the Licensee's
failure to make proper payments of the License Fee shall
constitute a material breach of this Agreement.
(b) Termination Due to Certain Events. In addition to any other
remedies Grantor may have, Grantor may terminate this
Agreement, effective immediately upon receipt by Licensee of
written notice of termination, in the event of the following
occurrences:
(i) Licensee enters into voluntary or involuntary
bankruptcy, receivership, liquidation, or winding up
proceedings, or any arrangement or composition with
creditors provided however that this right shall be
stayed, for involuntary third party proceedings
brought against the Licensee which it forthwith and
diligently defends;
(ii) the business, assets or shares of stock or other
participations in the capital of Licensee are
confiscated, expropriated, seized, taken over,
nationalized, or otherwise controlled, directly or
indirectly, by any government, governmental unit, or
government controlled agency or enterprise; or
(iii) Licensee purports to assign any of its rights under
this or to circumvent the obligations to pay a full
and proper License Fee in contravention of the terms
hereof.
(c) No Assignment of Licensee. The Licensee shall not assign,
sublicense or otherwise dispose of any of the rights herein
granted;
(d) Notices. All notices, requests, demands and other
communications required or; permitted to be given under this
Agreement shall be in writing and shall be deemed
<PAGE> 10
-10-
to have been duly given, and received only when personally
delivered, or mailed by prepaid certified or registered mail
addressed:
To Grantor: AIFE, American Institute of Formation
Evaluation Ltd.
c\o 1100 Rocky Mountain Plaza
615 MacLeod Trail S.E.
Calgary, Alberta
T2G 4T8
To Licensee AIFE, American Institute of Formation
Evaluation Co.
c\o 1100 Rocky Mountain Plaza
615 MacLeod Trail S.E.
Calgary, Alberta
T2G 4T8
Any notices so sent shall be deemed to have been given to and
received by the addressee at the time and on the date of receipt at such
address.
Either party may change its address specified above upon giving
written notice to the other party to that effect.
(e) Negation of Partnership It is not the intent of the parties
hereto to create a relationship of partnership, joint venture,
employer and employee, principal and agent. Instead, it is the
intent of the parties that their obligations shall be limited to
their respective obligations set forth in this Agreement.
(f) Non-Waiver of Rights No failure or delay on the part of any
party in exercising any right under this Agreement will impair or
operate as a waiver of any such right. No single or partial
exercise of any such right shall preclude any other or further
exercise thereof or the exercise of any other right. No waiver of
any such right shall be effective unless given in a signed
writing and no such waiver of any right shall be deemed a waiver
of any other right hereunder.
<PAGE> 11
-11-
(g) Entire Agreement; Amendments. This Agreement constitutes
the entire agreement, and supersede any prior or
contemporaneous understanding or written or oral agreement,
between the parties regarding the subject matter of this
Agreement. This Agreement may not be amended or modified
except by a written instrument executed by the party against
which such amendment or modification is sought to be
enforced.
(h) Enurement. This license shall enure to the benefit of and
be binding upon the Grantor and the Licensee and their
respective permitted successors and assigns.
(i) Severability. If any provisions of this License becomes or
is rendered illegal or unenforceable, it will be considered
severable and the remaining provisions will remain in force.
(j) Governing Law: this license shall be construed in all
respects according to the laws of the Province of Alberta,
Canada.
IN WITNESS WHEREOF the parties have duly executed this
License as of the day and year first above written.
AIFE, AMERICAN INSTITUTE OF FORMATION
EVALUATION LTD.
Per: /s/ BARBARA J. MCALLISTER
-----------------------------------
AIFE, AMERICAN INSTITUTE OF FORMATION
EVALUATION CO.
Per: /s/ STEVEN B. MISNER
-----------------------------------
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