REORGANIZATION AGREEMENT
This REORGANIZATION AGREEMENT ("Agreement") is made as of this 22nd day of
March, 1999, between and among Arnox Corporation ("Company"), Xxxxx Corporation
II, a Nebraska corporation, ("Xxxxx XX"), and Telemetrix Resource Group, Inc., a
Colorado corporation ("Telemetrix Resource"), and the persons identified in
Exhibit A (the "Shareholders").
WHEREAS, the Shareholders own, and have the unrestricted right to sell,
transfer and convey, one hundred percent (100%) of the issued and outstanding
common stock of Xxxxx XX, and Telemetrix Resource (the "Securities"); and
WHEREAS, the Company wishes to acquire the Securities, solely in
exchange for Company Securities; and
WHEREAS, the Company's Shareholders previously approved, subject only to
the closing of this Reorganization Agreement, a reverse stock split which
positions the Company to complete the transactions contemplated by this
Agreement; and
WHEREAS, the shareholders of the Company have previously approved, subject
only to the closing of this Reorganization Agreement, a change in the name of
the Company to Telemetrix, Inc.
NOW, THEREFORE, in consideration of the mutual covenants, obligations and
benefits hereinafter set forth, the parties hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES BY XXXXX XX. Xxxxx XX hereby
warrants to the Company:
a. Xxxxx XX is a corporation duly organized, validly existing and
in good standing under the laws of the State of Nebraska and
has the corporate power to own its property and carry on its
business in the State of Nebraska. Certified copies of Xxxxx
II's Certificate of Incorporation and By-Laws have heretofore
been furnished to the Company by Xxxxx XX and/or the
Shareholders, and all such copies are true, correct and
complete copies of the original Certificate of Incorporation
and By-Laws, including all amendments thereto.
b. Xxxxx XX has the corporate authority to issue a total of 1,000
shares of Common Stock with a par value of $10.00, of which 939
shares have been validly issued, are now outstanding and are held
of record by the Shareholders identified in Exhibit A, Schedule
A-1.
c. The audited financial statements of Xxxxx XX dated as of
December 31, 1995, December 31, 1996 and December 31, 1997, and
the unaudited balance sheet dated as of December 31, 1998,
which are attached hereto as Exhibit B are in all material
respects true and correct statements of the financial condition
of Xxxxx XX and of Xxxxx II's assets and liabilities as of such
date. Except as described in the notes to such financial
statements, Xxxxx XX has not:
(1)issued any shares of its Common Stock or any other capital
stock, or any options or rights to acquire such securities, to
any person other than the persons listed in Exhibit A, Schedule
A-1;
(2)paid or declared any dividends or distributions of capital,
surplus, or profits with respect to any of its issued and
outstanding shares of capital stock;
(3)paid or agreed to pay any consideration in redemption of
any of its issued and outstanding common stock; or
(4)entered into any other transaction or agreement which would,
or might, materially impair their shareholders' equity of Xxxxx
XX as reflected in such financial statements.
d. Since October 31, 1997, Xxxxx XX has not engaged in any material
transactions other than transactions in the normal course of the
operation of its business, which would, or reasonably could be
expected to, materially impair the shareholder's equity of Xxxxx
XX.
e. Xxxxx XX is not involved in any pending or threatened litigation
which would, or reasonably could be expected to, materially affect
its financial condition and which has not been:
(1) provided for in the financial statements attached as an exhibit
to Xxxxx II's Business Plans; or
(2) disclosed to the Company in writing.
f. Xxxxx XX has good and marketable title to all of the property and
assets shown in its balance sheets free and clear of any and all
liens, encumbrances or restrictions, except for:
(1) the liens, encumbrances and restrictions which are set forth in
its balance sheets and the notes thereto;
(2) liens, taxes and assessments which may become due and payable
after the date of this Agreement; and
(3) easements or other minor restrictions with respect to its
property which do not materially affect the present use of such
property.
g. There are no unpaid assessments or proposed assessments of
federal income taxes pending against Xxxxx XX. All liabilities
for federal and state income or franchise taxes, as shown on
the tax returns filed, or to be filed, by Xxxxx XX for the
periods prior to the date hereof have been paid or the
liability therefor have been provided for in the attached
financial statements of Xxxxx XX, and all federal and state
income or franchise taxes for periods subsequent to the periods
covered by said returns likewise have been paid or adequately
accrued.
h. Except pursuant to Paragraph 9(b) herein, Xxxxx XX represents
and warrants to the Company and its principal stockholders that
they have not dealt with and do not know of any person, firm or
corporation asserting any right to receive a brokerage
commission, finder's fee or similar fee in connection with the
making or negotiation of this Agreement or the completion of
the transactions contemplated hereby. Xxxxx XX will indemnify
and hold the Company and its principal stockholders harmless
against and with respect to all claims for brokerage
commissions, finder's fees or similar fees with respect to this
Agreement or the closing of the transactions contemplated
hereby, based on any agreements, arrangements, or
understandings claimed to have been made by Xxxxx XX with any
third party.
Xxxxx XX further represents and warrants that all of the representations and
warranties set forth above are true as of the date of this Agreement, shall be
true at the Closing Date and shall survive the closing for a period of three (3)
years from the Closing Date.
2. REPRESENTATIONS AND WARRANTIES BY TELEMETRIX RESOURCE. Telemetrix
Resource warrants to the Company:
a. Telemetrix Resource is a corporation duly organized, validly
existing, and in good standing under the laws of the State of
Colorado and has the corporate power to own its property and
carry on its business in the State of Colorado. Certified
copies of Telemetrix Resource's Certificate of Incorporation
and By-Laws have heretofore been furnished to the Company by
Telemetrix Resource and/or the Shareholders, and all such
copies are true, correct and complete copies of the original
Certificate of Incorporation and By-Laws, including all
amendments thereto.
b. Telemetrix Resource has the corporate authority to issue a total
of 100,000,000 Common Shares with no par value and 100,000,000
Preferred Shares with a par value of $0.00l, of which 101 Common
Shares have been validly issued, are now outstanding and are held
of record by the Shareholders identified in Exhibit A, Schedule
A-2.
c. The developmental stage balance sheet of Telemetrix Resource dated
as of December 31, 1998, which is attached hereto as Exhibit B, is
in all material respects a true and correct statement of the
financial condition of Telemetrix Resource and of Telemetrix
Resource's assets and liabilities as of such date. As of the date
of such balance sheet, Telemetrix Resource has not:
(1) issued any shares of its Common Stock or any other capital
stock, or any options or rights to acquire such securities, to
any person other than the persons listed in Exhibit A, Schedule
A-2;
(2) paid or declared any dividends or distributions of capital,
surplus, or profits with respect to any of its issued and
outstanding shares of capital stock;
(3) paid or agreed to pay any consideration in redemption of any
of its issued and outstanding common stock; or
(4) entered into any other transaction or agreement which would, or
might, materially impair their shareholders' equity of
Telemetrix Resource as reflected in such balance sheet.
d. Since October 31, 1997, Telemetrix Resource has not engaged in any
material transactions other than transactions in the normal course
of the operation of its business, which would, or reasonably could
be expected to, materially impair the shareholder's equity of
Telemetrix Resource as reflected in its balance sheet.
e. Telemetrix Resource is not involved in any pending or threatened
litigation which would, or reasonably could be expected to,
materially affect its financial condition and which has not been:
(1) provided for in the balance sheet attached as an exhibit to
Telemetrix Resource's Business Plans; or
(2) disclosed to the Company in writing.
f. Telemetrix Resource has good and marketable title to all of the
property and assets shown in its balance sheets free and clear of
any and all liens, encumbrances or restrictions, except for:
(1) the liens, encumbrances and restrictions which are set forth in
its respective balance sheets and the notes thereto;
(2) liens, taxes and assessments which may become due and payable
after the date of this Agreement; and
(3) easements or other minor restrictions with respect to its
property which do not materially affect the present use of such
property.
g. There are no unpaid assessments or proposed assessments of
federal income taxes pending against Telemetrix Resource. All
liabilities for federal and state income or franchise taxes, as
shown on the tax returns filed, or to be filed, by Telemetrix
Resource for the periods prior to the date hereof have been
paid or the liability therefor has been provided for in the
attached financial statements of Telemetrix Resource, and all
federal and state income or franchise taxes for periods
subsequent to the periods covered by said returns likewise have
been paid or adequately accrued.
h. Telemetrix Resource represents and warrants to the Company and
its principal stockholders that it has not dealt with and does
not know of any person, firm or corporation asserting any right
to receive a brokerage commission, finder's fee or similar fee
in connection with the making or negotiation of this Agreement
or the completion of the transactions contemplated hereby
Telemetrix Resource and it will indemnify and hold the Company
and its principal stockholders harmless against and with
respect to all claims for brokerage commissions, finder's fees
or similar fees with respect to this Agreement or the closing
of the transactions contemplated hereby, based on any
agreements, arrangements, or understandings claimed to have
been made by Telemetrix Resource with any third party.
Telemetrix Resource further represents and warrants that all of the
representations and warranties set forth above are true as of the date of this
Agreement, shall be true at the Closing Date and shall survive the closing for a
period of three (3) years from the Closing Date.
3. REPRESENTATIONS AND WARRANTIES BY THE SHAREHOLDERS. The Shareholders
hereby jointly and severally warrant to the Company:
a. The Shareholders have full power and authority to exchange the
Xxxxx XX and Telemetrix Resource Common Stock which are held by
them upon the terms and conditions provided for in this Agreement,
and when delivered to the Company in accordance with the terms of
this agreement, the Xxxxx XX and Telemetrix Resource Common Stock
will be free and clear of any lien or other encumbrance on the
Closing Date specified herein.
b. The Shareholders are acquiring the Common Stock of the Company
solely for their own account, for investment, and not with a view
to any subsequent "distribution" thereof within the meaning of that
term as defined in the Securities Act of 1933, as amended (said Act
and rules and regulations promulgated thereunder being hereinafter
referred to as the "1933 Act"). The Shareholders understand that
the Common Stock of the Company has not been registered under the
Act or securities laws of any State ("State Act") by reason of the
specific exemptions therefrom, which exemptions depend in part upon
the Shareholders subjective investment intent as expressed herein.
In furtherance of the foregoing, each Shareholder shall be required
to execute and deliver to the Company an Investment Letter, in the
form attached hereto as Exhibit C, as a condition precedent to the
issuance of a certificate for the Common Stock of the Company that
will be issued to him.
c. The Shareholders hereby jointly acknowledge that they are either:
(1) "Accredited Investors" as such term is defined in Regulation D
promulgated under the Act; or
(2) That they have such knowledge and experience in financial and
business matters that they are capable of evaluating the
merits and risks of the proposed exchange of Xxxxx H's and
Telemetrix Resource's securities, respectively, for Common
Stock of the Company; and that they are able to bear the
economic risks of the investment and are able to protect their
own interests in an investment of this nature.
The Shareholders further represent and warrant that all of the representations
and warranties set forth above are true as of the date of this Agreement, shall
be true at the Closing Date and shall survive the closing for a period of three
(3) years from the Closing Date.
4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY. The Company hereby
represents and warrants to Xxxxx XX, Telemetrix Resource and the Shareholders:
a. The Company is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware and has the
corporate power to own its properties and carry on its business as now
being conducted. Certified copies of the Company 5 Certificate of
Incorporation and By-Laws have heretofore been furnished to Xxxxx XX and
Telemetrix Resource and/or the Shareholders by the Company, and all such
copies are true, correct and complete copies of the original Certificate
of Incorporation and By-Laws including all amendments thereto.
b. The Company has the corporate authority to issue a total of 10,000,000
shares of $0.001 par value Common Stock and 1,000,000 shares of $0.01 par
value Preferred Stock, of which 3,439,247 common shares ("Old Common Stock"
or "Old Common Shares") are presently issued and outstanding. The
beneficial owners of the Old Common Shares, as reflected on the records of
the Company, are identified in Exhibit D to this Agreement (the "Existing
Company Shareholders").
c. Prior to the closing date of this Reorganization Agreement, the Company
will effect a reverse split of all issued and outstanding shares of the
Company's Old Common Stock in the ratio of one (1) share of the
Company's new common stock ("New Common Shares" or "New Common Stock")
for each eleven and one-half (11.5) shares presently outstanding;
provided, however, that (a) no fractional shares shall be issued and all
calculations that would result in the issuance of a fractional share
shall be rounded up to the nearest whole number and (b) no stockholder
who was the beneficial owner of at least 100 shares of Old Common Stock
shall receive fewer than 100 shares of New Common Stock and all
calculations that would result in the issuance of fewer than 100 shares
of New Common Stock to such a stockholder will be rounded up to 100
shares; so that immediately thereafter the Company will have
approximately 320,000 shares of New Common Stock issued and outstanding,
all of which shares are fully paid, validly issued and nonassessable.
Except as specifically provided herein and in certain agreements between
the parties and their respective legal counsel, no other capital stock
of the Company or any rights whatsoever to purchase additional capital
stock of the Company will be outstanding on the Closing Date; except as
specifically provided herein and in such agreements with legal counsel,
no stockholder of the Company will have or obtain any registration
rights with respect to any shares of the Company's capital stock that
are issued and outstanding on the Closing Date.
d. The Company certifies that as of the closing date of this Reorganization
Agreement, there are no Company convertible or non-convertible preferred
shares of any class or series ("Preferred Shares" or "Preferred Stock")
issued and outstanding, nor are there any agreements granting any party
rights with respect to Preferred Stock or Company common stock resulting
from the exercise of conversion rights of Preferred Stock. The Company
hereby indemnifies and holds harmless Xxxxx XX, TRG, and the
Shareholders from any damage resulting from a claim of any party
alleging ownership of Preferred Stock or Company common stock resulting
from the exercise of conversion rights of Preferred Stock.
e. Prior to the closing date of this Reorganization Agreement, the Company
will amend its Certificate of Incorporation to increase the authorized
Common Stock of the Company from 10,000,000 shares to 25,000,000 shares and
to increase the authorized Preferred Stock of the Company from 1,000,000
shares to 5,000,000 shares.
f. The Company's audited Financial Statements for the period ending 12/31/98,
which are attached hereto as Exhibit E, constitute a substantially true and
correct statement of the financial condition of the Company and the
Company's assets, liabilities and income as of such date. Since the date of
such Balance Sheet, the Company has not:
(1) issued any shares of its Common Stock, convertible or nonconvertible
Preferred Stock, or any other capital stock, or any options or rights
to acquire such securities, to any person;
(2) converted any Company convertible Preferred Stock to Common Stock;
(3) paid or declared any dividends or distributions of capital, surplus,
or profits with respect to any of its issued and outstanding shares of
Common Stock;
(4) paid or agreed to pay any consideration in redemption of any of its
issued and outstanding shares of Common Stock; or
(5) entered into any other transaction or agreement which would, or might,
materially impair the Shareholder's Equity of the Company as reflected
in such Balance Sheet.
g. The Company has the corporate power and authority to execute and perform
all of its duties and obligations under the terms of this Agreement and to
issue and deliver to the Shareholders the Common Stock that is required to
be issued and delivered under the terms of this Agreement.
h. The execution and delivery of this Agreement, and the issuance of Common
Stock required to be issued hereunder, will have been duly authorized by
all necessary corporate action and neither the execution nor delivery of
this Agreement nor the issuance of Common Stock nor the performance,
observance or compliance with the terms and provisions of this Agreement
will violate any provision of law, any order of any court or other
governmental agency, the Certificate of Incorporation or By-Laws of the
Company or any indenture, agreement or other instrument to which the
Company is a party, or by which it is bound or by which any of its
property is bound.
i. The execution of this Reorganization Agreement and the performance of the
Company's obligations hereunder will not constitute a material default
under any contract, lease, sublease, license or agreement nor will it
create a conflict between the Company and any third party and the Company
is not obligated to obtain the consent of any third-party prior to the
execution of this Reorganization Agreement and the performance of the
Company's obligations hereunder.
j. The Company is not involved in any pending or threatened litigation, nor
does the Company have knowledge of any event which is likely to result in
litigation, which would, or might, materially affect its financial
condition and which has not been:
(1) identified in the financial statements attached hereto as Exhibit
E; or
(2) expressly disclosed to Xxxxx XX and Telemetrix Resource and the
Shareholders in writing.
k. Except as specifically disclosed to Xxxxx XX and Telemetrix Resource and
the Shareholders in writing, the Company has no subsidiaries, all former
subsidiaries have been legally dissolved in accordance with applicable law
and no person has any claim of any nature against the Company with respect
to the operations of any former subsidiary of the Company.
l. The Company filed a voluntary petition under Chapter 11 of the
Bankruptcy Act on September 11, 1989 in the U.S. Bankruptcy Court for
the District of New Jersey (Case # 89-02801) which was subsequently
converted to a case under Chapter 7 of the Bankruptcy Act on December
18, 1989 and later closed on July 12, 1994. As a result of the
Bankruptcy, the Company was inactive and engaged in no business
activities until June 10, 1996, when its corporate charter was restored.
On June 13, 1996, the Company filed with the Securities and Exchange
Commission an omnibus Annual Report on Form 10-K for the fiscal years
ended December 31, 1989 through December 31, 1995. Since June 13, 1996,
the Company has filed all registration statements, reports and other
documents required to be filed by it with the Securities and Exchange
Commission under the Securities Act of 1933, as amended, and the
Securities Exchange Act of 1934, as amended, and each such registration
statement, report or other document contained, at the time it was filed,
such information as was required to be included in such registration
statement, report or other document and all such information was correct
and complete in all material respects; the Company has made all reports
to shareholders required by law to be made by the Company and each such
report was correct and complete in all material respects; to the best of
the Company's knowledge, no event has occurred or is likely to occur
that required or would require an amendment to any registration
statement, report or other document referred to herein that has not been
filed or distributed as required.
m. There are no unpaid assessments or proposed assessments of Federal income
taxes pending against the Company. All liabilities for federal and state
income or franchise taxes, as shown on the tax returns filed, or to be
filed, by the Company, have been paid or the liability therefor has been
provided for in the attached Balance Sheet and all federal and state income
or franchise taxes for periods subsequent to the periods covered by the
Company's returns have also been paid or properly accrued.
n. Except as disclosed on the Balance Sheet, there are no liabilities of any
kind or nature and all contingent liabilities of every kind have likewise
have been paid or properly accrued.
o. The Common Stock which will be delivered to the Shareholders pursuant to
the terms of this Agreement will, on delivery in accordance with the terms
hereof, be duly authorized, validly issued and fully paid and
nonassessable.
p. Except as contemplated by this Agreement, the Company represents and
warrants to Xxxxx XX and Telemetrix Resource and the Shareholders that
it has not dealt with and does not know of any person, firm or
corporation asserting any right to receive a brokerage commission,
finder's fee or similar fee in connection with the making or negotiation
of this Agreement or the completion of the transactions contemplated
hereby and the Company will indemnify and hold Xxxxx XX and Telemetrix
Resource and the Shareholders harmless against and with respect to all
claims for brokerage commissions, finder's fees or similar fees with
respect to this Agreement or the closing of the transactions
contemplated hereby, based on any agreements, arrangements, or
understandings claimed to have been made by the Company with any third
party.
The Company further represents and warrants that all of the representations and
warranties set forth above are true as of the date of this Agreement, shall be
true at the Closing Date, and shall survive the closing for a period of three
(3) years from the Closing Date.
5. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The obligations of the
Company hereunder shall be subject to the following conditions:
a. The Company shall not have discovered any material error,
misstatement or omission in any of the representations and
warranties made by Xxxxx XX and Telemetrix Resource or the
Shareholders herein and all the terms and conditions of this
Agreement to be performed and complied with have been performed
and complied with.
b. There shall have been no material adverse changes in the
financial condition, business or operations of Xxxxx XX and
Telemetrix Resource taken as a whole from December 31, 1998,
until the Closing Date, except for changes resulting from
operations in the usual and ordinary course of its business,
and between such dates no business and assets of Xxxxx XX and
Telemetrix Resource shall have been materially adversely
affected as the result of any fire, explosion, earthquake.
flood, accident, strike, lockout, combination of the workmen,
condemnation of any assets by any governmental authorities,
riot, activities of armed forces, or Acts of God or of the
public enemies.
c. The Company shall have received the opinion of Haligman Xxxxxxx
Xxxxx & Xxxxxxx, P.C., legal counsel for Xxxxx XX and Telemetrix
Resource, to the effect that:
(1) Xxxxx XX is a corporation duly organized, validly existing and
in good standing under the laws of Nebraska and has the power
and authority to own its properties and to carry on its
business in the State of Nebraska as of the Closing Date;
(2) Telemetrix Resource is a corporation duly organized, validly
existing and in good standing under the laws of Colorado and
has the power and authority to own its properties and to carry
on its business in the State of Colorado as of the Closing
Date;
(3) Xxxxx II's outstanding Common Stock is validly issued, fully
paid and nonassessable;
(4) Telemetrix Resource outstanding Common Stock is validly
issued, fully paid and nonassessable; and
(5) This Agreement has been duly executed and delivered by Xxxxx
XX and Telemetrix Resource and the Shareholders and
constitutes a legal, valid and binding obligation of the
Shareholders enforceable in accordance with its terms.
6. CONDITIONS TO THE OBLIGATIONS OF XXXXX XX AND TELEMETRIX RESOURCE AND
THE SHAREHOLDERS. The obligations of the Xxxxx XX and Telemetrix Resource and
the Shareholders hereunder are subject to the following conditions:
a. The Shareholders shall not have discovered any material error or
misstatement in any of the representations and warranties made by the
Company herein and all the terms and conditions of this Agreement to
be performed and complied with by the Company have been performed and
complied with.
b. There shall have been no material adverse changes in the financial
condition, business or operations of the Company, from December 31,
1998 until the Closing Date, except for changes resulting from those
operations in the usual ordinary course of the business.
C. The Shareholders shall have received the opinion of Xxxx X. Xxxxxxxx,
legal counsel for the Company, to the effect that:
(1) The Company is a corporation duly organized and validly existing
under the laws of the State of Delaware and has the power to own and
operate its properties wherever the same shall be located as of the
Closing Date;
(2) The execution, delivery and performance of this Agreement by the
Company has been duly authorized by all necessary corporate action
and constitutes a legal, valid and binding obligation of the Company
enforceable in accordance with its terms;
(3) When delivered to the Shareholders, the Common Stock to be delivered
to the Shareholders pursuant to the terms of this Agreement will be
validly issued, fully paid and nonassessable;
(4) The Common Stock of the Company which was issued and outstanding
prior to the Closing Date of this Agreement has been (a) issued
pursuant to a valid claim of exemption under Section 4(2) of the
Securities Act of 1933, (b) issued pursuant to an effective
registration statement under the Securities Act of 1933, or (c)
issued in violation of the applicable registration requirements of
the Securities Act of 1933, but at a date sufficiently remote from
the Closing Date that purchasers of such shares are precluded from
initiating or maintaining an action in law or in equity based on the
sale and issuance of such shares; and
(5) The Common Stock of the Company is fully registered under the
Securities Exchange Act of 1934 and the Company has, for the
preceding 12 months, filed all reports required to be filed under
Sections 12 and 15 of the Exchange Act.
(6) As of the closing date of this Reorganization Agreement, the Company
has no convertible or non-convertible preferred shares of any class
or series ("Preferred Shares" or "Preferred Stock") issued and
outstanding, nor any agreements granting any party rights with
respect to Preferred Stock or the Company's common stock resulting
from the exercise of conversion rights of Preferred Stock, and that
Preferred Stock previously issued and outstanding, if any, no longer
exists, whether abrogated through bankruptcy or other method or
operation of law. Such opinion shall further state that the Company
is in a position to validly indemnify and hold harmless Xxxxx XX,
TRG, and the Shareholders from any damage resulting from a claim of
any party alleging rights in connection with Preferred Stock or the
Company's common stock resulting from the exercise of conversion
rights of Preferred Stock.
7. CLOSING DATE. The final closing of this Agreement shall take place in
Denver. Colorado on or about March 31, 1999, or at such other reasonable time
and place as the parties hereto shall agree upon (the "Closing" or "Closing
Date").
8. EXCHANGE OF SECURITIES. Subject to the terms and conditions set forth
herein, and at the time of the Closing set forth in Section 7 and the conditions
to which are specified in Sections 5 and 6, the Company will issue and deliver
to the Shareholders share certificates evidencing the ownership of a total of
11,500,000 of the Company's New Common Stock to each respective Shareholder for
the number of shares specified in Exhibit A, Schedule A-3. Concurrently
therewith the Shareholders shall deliver to the Company:
a. certificates evidencing the ownership of all issued and
outstanding capital stock of Xxxxx XX, duly endorsed to the
Company;
b. certificates evidencing the ownership of all issued and
outstanding capital stock of Telemetrix Resource, duly endorsed to
the Company.
9. ISSUANCE OF SECURITIES.
At or subsequent to the Closing, the Company will issue and deliver share
certificates evidencing the ownership of the Company's New Common Stock in the
following amounts to the following parties:
a. 300,000 of the Company's New Common Shares to Capston Network
Company as compensation for services rendered in connection with
the Company and the transaction contemplated by this Agreement
(the "Compensation Shares");
b. 467,000 of the Company's New Common Shares to be issued in
payment of a Finder's Fee, using the "reversed stretched Xxxxxx
formula" based on a transaction value of $21,131,581 (the
"Transaction Value") and calculated as follows: 1 % of the
first $2 million in Transaction Value; 2% of the second $2
million in Transaction Value, 3 % of the third $2 million in
Transaction Value, 4% of the fourth $2 million in Transaction
Value and 5 % of any Transaction Value in excess of $8
million. Such shares may be registered under the Securities
Act prior to issuance. Notwithstanding the foregoing, no
finder's fees will be paid to Capston Network Company or any of
its officers, directors, employees, agents or affiliates
without the prior consent of the Stockholders.
10. ACTIONS AT THE CLOSING. At the final Closing of this Agreement, the
Company and the Shareholders will each deliver, or cause to be delivered to the
other, the shares of stock to be exchanged in accordance with Section 8 of this
Agreement and each party shall pay any and all federal and state taxes required
to be paid in connection with the issuance and the delivery of their own
securities. All stock certificates shall be in the name of the party to which
the same are deliverable, as specified herein. In addition to the
above-mentioned exchange of certificates, the following transactions will take
place at the final Closing.
c. The Company will deliver to the Shareholders and Xxxxx XX and
Telemetrix
Resource:
(1) Duly certified copies of corporate resolutions and other
corporate proceedings taken by the Company to authorize the
execution, delivery and performance of this Agreement;
(2) The opinion of Xxxx Xxxxxxxx, Esquire, counsel for the
Company, as provided for in Section 6(c) hereof;
(3) A certificate executed by a principal officer of the Company
attesting that the foregoing representations and warranties of
the Company are true and correct as of the Closing Date and
that all of the conditions to the obligations of the
Shareholders which are to be performed by the Company have
been performed as of the Closing Date;
(4) A certificate of corporate good standing for the Company from
the Delaware Secretary of State which shall be dated no more
than 60 days prior to the Closing Date; and
(5) Duly executed resignations of all existing officers and
directors of the Company, effective as of 8:00 a.m. on the
Closing Date.
d. The Shareholders and Xxxxx XX and Telemetrix Resource will deliver
to the Company:
(1) The opinion of Haligman Xxxxxxx Xxxxx & Xxxxxxx, P.C., counsel
for Xxxxx XX and Telemetrix Resource, as provided for in
Section 5(d) hereof;
(2) A certificate of corporate good standing for Xxxxx XX from the
Nebraska Secretary of State which shall be dated no more than
sixty (60) days prior to the Closing Date;
(3) A certificate of corporate good standing for Telemetrix
Resource from the Colorado Secretary of State which shall be
dated no more than sixty (60) days prior to the Closing Date;
(4) A certificate by a principal officer of each of Xxxxx XX and
Telemetrix Resource that each of the representations and
warranties of the Shareholders and Xxxxx XX and Telemetrix
Resource, respectively, are true and correct as of the Closing
Date and that all of the conditions to the obligations of the
Company which are to be performed by Xxxxx XX and Telemetrix
Resource and the Shareholders have been performed as of the
Closing Date.
11. CONDUCT OF BUSINESS. Between the date hereof and the Closing Date, the
Company, Xxxxx XX and Telemetrix Resource shall conduct their business in the
same manner in which it has heretofore been conducted and the Shareholders will
not permit Xxxxx XX and Telemetrix Resource to (1) enter into any contract,
other than in the ordinary course of business, or (2) declare or make any
distribution in the nature of a dividend or return of capital to the
Shareholders without first obtaining the written consent of the Company.
Likewise, the Company will not 1) enter into any contract, other than in the
ordinary course of business, or (2) declare or make any distribution in the
nature of a dividend or return of capital to its shareholders without first
obtaining the written consent of the Shareholders.
12. BOARD OF DIRECTORS. Promptly after compliance with Securities Act
Section 14(f), the Board of Directors of the Company shall have a meeting, at
which all of the present directors of the Company shall resign, and they shall
elect as members of the Company's Board of Directors, in accordance with the
By-Laws of the Company, such individuals as the Shareholders shall designate to
the Company in writing.
13. FUTURE REGISTRATION OF COMMON STOCK. The Shareholders understand that
because the New Common Stock has not been registered under the Act or any state
Act, they must hold the New Common Stock for a minimum of two years from the
date of the closing of this Agreement and cannot dispose of any or all of the
New Common Stock unless such New Common Stock is subsequently registered under
the Act and any applicable State Act, or exemptions from registration are
available. The Shareholders acknowledge and understand that they have no
independent right to require the Company to register the shares of New Common
Stock. The Shareholders further understand that the Company may, as a condition
to the transfer of any of the New Common Stock, require that the request for
transfer by a Shareholder be accompanied by an opinion of counsel, in form and
substance satisfactory to the Company, provided at such Shareholder's expense,
to the effect that the proposed transfer does not result in violation of the Act
or any applicable State Act, unless such transfer is covered by an effective
registration statement under the Act and is in compliance with all applicable
State Acts.
14. TRANSFERABILITY. All certificates for shares of New Common Stock which
are issued to the Shareholders pursuant to the terms of this Agreement shall be
restricted securities within the meaning of Regulation D of the 1933 Act. The
Company shall issue stop transfer instructions to the transfer agent for its New
Common Stock with respect to the of New Common Stock and shall place the
following legend on the certificates representing such of New Common Stock:
"The shares represented by this certificate have been acquired pursuant to
a transaction effected in reliance upon an exemption under the Securities
Act of 1933, as amended (the "Act"), and have not been the subject to a
Registration Statement under the Act or any state securities act. The
securities may not be sold or otherwise transferred in the absence of such
registration or applicable exemption therefrom under the Act or any
applicable state securities act."
15. ACCESS TO INFORMATION. Either previously or concurrently herewith, the
Company has delivered to the Shareholders correct and complete copies of all
documents and records requested by the Shareholders. In addition, the
Shareholders have had the opportunity to ask questions of, and receive answers
from, officers and directors of the Company, and persons acting on its behalf
concerning the terms and conditions of the Agreement, and has received
sufficient information relating to the Company to enable them to make an
informed decision with respect to the acquisition of the New Common Stock.
16. NO SOLICITATION. At no time were the Shareholders presented with or
solicited by any leaflet, public promotion meeting, circular, newspaper or
magazine article, radio or television advertisement, or any other form of
general advertising in connection with its acquisition of the New Common Stock.
17. EXPENSES. The Shareholders, Xxxxx XX and Telemetrix Resource and the
Company shall each pay their respective expenses incident to this Agreement and
the transactions contemplated hereby, including all fees of their counsel and
accountants, whether or not such transactions shall be consummated; provided
that Xxxxx XX and Telemetrix Resource may pay the reasonable fees and expenses
of the Shareholders counsel and their accountants in connection with this
Agreement, the proposed transactions contemplated hereby, as well as travel and
lodging expenses of its officers related to the negotiation of this Agreement
with said payment being made by way of issuance of additional shares of the
Company's New Common Stock. The Shareholders shall pay all other fees and
expenses incurred by them or by Xxxxx XX and Telemetrix Resource by reason of
this Agreement and the proposed transactions contemplated hereby.
13. ATTORNEYS FEES. In the event of any litigation among the parties
related to this Agreement, the prevailing party shall be entitled to reasonable
attorneys fees and costs to be fixed by the Court, said fees to include appeal
and collection of judgment.
19. ARBITRATION. All disputes concerning this Agreement or the transactions
contemplated herein will be submitted to binding arbitration in Denver,
Colorado, in accordance with the rules of the American Arbitration Association.
The decisions of the Arbitrator must be delivered in writing accompanied by
written findings of fact and conclusions of law. Any court of competent
jurisdiction may enter judgment upon the Arbitrator's awards. The prevailing
party, as part of its damages, shall be entitled to recover its reasonable
attorneys fees and expenses incurred in such arbitration from the losing party.
20. MISCELLANEOUS.
a. This Agreement shall be controlled, construed and enforced in
accordance with the laws of the State of Colorado without giving
effect to conflict of laws principles thereof.
b. This Agreement shall not be assignable by any party without prior
written consent of the others.
c. All Section headings herein are inserted for convenience only. This
Agreement may be executed in several counterparts, each of which shall
be deemed an original, which together shall constitute one and the
same instrument. Facsimile signatures shall constitute original
signatures.
d. This Agreement sets forth the entire understanding between the
parties, there being no terms, conditions, warranties or
representations other than those contained herein and specifically
supersedes the letter of intent between the parties dated December 11,
1997 and accepted December 17, 1997, and no amendments hereto shall be
valid unless made in writing and signed by the parties hereto.
e. This Agreement shall be binding upon and shall inure to the benefit of
the heirs, executors, administrators and assigns of the Shareholders
and Xxxxx XX and Telemetrix Resource and upon the successors and
assigns of the Company.
f. All notices, requests, instructions, or other documents to be given
hereunder shall be in writing and sent by registered mail:
If to the Shareholders, Xxxxx XX or Telemetrix Resource, copies to:
Xxxxxxx X. Xxxxx
X.X. Xxx 0000
Xxxxxxxxxxx, Xxxxxxxx 00000
Telephone: 308 / 000-0000
Facsimile: 308 / 436-7101
With copies to:
Xxxxxxx X. Xxxxxx, Esquire
Haligman Xxxxxxx Xxxxx & Xxxxxxx PC
000 Xxxxxxxxxxx Xxxxxx - Xxxxx 0000
Xxxxxx, Xxxxxxxx 00000-0000
Telephone: 303 / 000-0000
Facsimile: 303 / 292-1300
If to the Company:
Xx. Xxxxx Xxxxxx
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Telephone: 727 / 000-0000
Facsimile: 727 / 443-5240
with copies to:
Xxxx X. Xxxxxxxx, Esquire
0000 Xxx Xxxxxx
Xxxxxxx, Xxxxx 00000
Telephone: 713 / 000-0000
Facsimile: 713 / 627-0927
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement as of
the day and year first above written.
ARNOX CORPORATION
BY: /s/ Xxxxx X. Xxxxxx
Xxxxx X. Xxxxxx, President and chairman of the Board
XXXXX CORPORATION II
BY: /s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx, President
TELEMETRIX RESOURCE GROUP, INC.
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, Secretary
SHAREHOLDERS IDENTIFIED IN EXHIBIT A, SCHEDULE A-1
By: /s/ Xxxxxxx X. Xxxxx
Xxxxxxx X. Xxxxx, Shareholder
HARTFORD HOLDING LTD., a Cayman Island corporation, Shareholder
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx
By: /s/ Xxxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxx, Shareholder
EXHIBIT A
Shareholders
Name and Address of Shareholder
Hartford Holdings Ltd
P.O. Box 143
Cayman Islands BWI
Xxxxxxx X. Xxxxx
000 Xxxx 0 0xx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Xxxxxxx X. Xxxxxx
0000 X. Xxxxxxx Xxxxxx
Xxxxxx Xxxxxxxx 00000
Schedule A-1
Shareholders of Xxxxx Corporation II
Name and Address of # of Shares Percentage
Shareholder Owned Owned
Hartford Holdings Ltd. .... 85.35 9.09%
X.X. Xxx 000
Cayman Islands, BWI
Xxxxxxx X. Xxxxx .......... 768.30 81.82%
000 Xxxx 00xx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Xxxxxxx X. Xxxxxx ......... 85.35 9.09%
0000 X. Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
TOTALS .................... 939.00 Shares 100.00%
Schedule A-2
Shareholders of Telemetrix Resource Group, Inc.
Name and Address # of Shares Owned Percentage Owned
of Shareholder
Hartford Holdings Ltd. 101 100.0
P.O. Box 143
Cayman Islands, BWI
Schedule A-3
Number of Company Shares to be Issued by the Company to the
Shareholders at the Closing
Name and Adress of Shareholder # of Shares to be Issued
Hartford Holdings Ltd. 6,900,000
X.X. Xxx 000
Cayman Islands, BWI
Xxxxxxx X. Xxxxx 4,140,000
000 Xxxx 00xx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxx 00000
Xxxxxxx X. Xxxxxx 460,000*
0000 X. Xxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxx 00000
TOTAL 11,500,000
* In addition, Xx. Xxxxxx is being issued 90,000 shares as payment for
legal services rendered, for a total of 550,000 shares.
EXHIBIT B
Audited Financial Statements of Xxxxx Corporation II
and
Balance Sheet of Telemetrix Resource Group, Inc.
[first document]
XXXXX CORPORATION II
Scottsbluff, Nebraska
CONSOLIDATED FINANCIAL STATEMENTS
and
INDEPENDENT AUDITOR'S REPORT
For the Years Ended December 31, 1996 and 1995
XXXXX CORPORATION II
Scottsbluff, Nebraska
TABLE OF CONTENTS
* * * *
Page Number
Independent Auditor's Report 1
Financial Statements
Balance Sheets 2 - 3
Statements of Income and Changes in Retained Earnings 4
Statements of Cash Flows 5
Notes to the Financial Statements 6 - 10
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Xxxxx Corporation II
Scottsbluff, Nebraska
We have audited the accompanying balance sheets of Xxxxx Corporation II as of
December 31, 1996 and 1995, and the related statements of income and changes in
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financials 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 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 Xxxxx Corporation II as of
December 31, 1996 and 1995, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
Gering, Nebraska
January 28, 1998
1996 1995
Assets
..............................................
Current assets:
Cash ......................................... $ 1,895 $ 343
Accounts receivable - trade .................. 54,557 15,890
Accounts receivable - other .................. 96,815 100,340
---------- ----------
Total current assets ....................... $ 153,267 $ 116,573
---------- ----------
Property, plant and equipment:
Land ......................................... $ 2,000 $ 2,000
Buildings and improvements ................... 11,549 11,549
Office equipment ............................. 37,151 34,601
Communications equipment ..................... 644,369 648,818
Vehicles ..................................... 32,147 28,497
---------- ----------
Total property, plant and equipment ........ $ 727,216 $ 725,465
Less accumulated depreciation .............. 619,430 595,776
---------- ----------
Total property, plant and equipment
net of accumulated depreciation ........ $ 107,786 $ 129,689
---------- ----------
Other assets:
FCC auction deposit .......................... $ 100,000 $ --
Deferred patronage dividends ................. 1,576 161
FCC license C block (net of amortization) .... 822,272 --
Patent (net of amortization) ................. 14,725 --
Investments in other organizations ........... -- 245,733
Deposits ..................................... -- 20
---------- ----------
Total other assets ......................... $ 938,573 $ 245,914
---------- ----------
Total assets ................................... $1,199,626 $ 492,176
========== ==========
1996 1995
Liabilities and Stockholder's Equity
..................................................
Current liabilities:
Accounts payable ................................. $ 11,811 $ --
Accrued interest ................................. 23,402 1,635
Other accrued expenses ........................... 711 --
Customer deposits ................................ 12,851 19,316
Current portion of long-term liabilities ......... 219,846 311,500
---------- ----------
Total current liabilities ...................... $ 268,621 $ 332,451
---------- ----------
Long-term liabilities:
Notes payable (net of current portion) ........... $ 773,888 $ --
---------- ----------
Total long-term liabilities .................... $ 773,888 $ --
---------- ----------
Total liabilities ............................ $1,042,509 $ 332,451
---------- ----------
Stockholder's equity:
Capital stock-authorized 1,000 common shares,
$10 par value; issued 652 shares ............... $ 6,520 $ 6,520
Capital surplus .................................. 148,500 148,500
Retained earnings ................................ 2,097 4,705
---------- ----------
Total stockholder's equity ..................... $ 157,117 $ 159,725
---------- ----------
Total liabilities and stockholder's equity ......... $1,199,626 $ 492,176
========== ==========
1996 1995
Sales and services .......................... $ 467,872 $ 442,696
--------- ---------
Gross profit .............................. $ 467,872 $ 442,696
--------- ---------
Expenses:
Depreciation and amortization ............. $ 57,723 $ 53,341
Research and development costs ............ 84,000 8,000
Bad debts ................................. 15,214 9,358
Selling, general and administrative ....... 319,213 327,924
Interest .................................. 36,851 9,306
--------- ---------
Total expenses .......................... $ 513,001 $ 407,929
--------- ---------
Operating income (loss) ............... $ (45,129) $ 34,767
--------- ---------
Other income:
Interest income ........................... $ -- $ 8,978
Lease income .............................. 15,182 --
Miscellaneous income ...................... 11,545 8,908
Gain (loss) on sale of assets ............. 23,959 --
Income (loss) on investments .............. ( 8,165) ( 4,267)
--------- ---------
Total other income ...................... $ 42,521 $ 13,619
--------- ---------
Net income (loss) ..................... $( 2,608) $ 48,386
Retained earnings, beginning of year ........ 4,705 $( 43,681)
--------- ---------
Retained earnings, end of year .............. $ 2,097 $ 4,705
========= =========
1996 1995
Cash flows from operating activities:
Net income (loss) ................................ ( 2,608) $ 48,386
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization .................. 57,723 53,341
(Gain) loss on sale of assets .................. ( 23,959)
-----------
(Increase) decrease in accounts receivable ..... ( 35,142) ( 1,834)
Increase (decrease) in accounts payable ........ 11,811 --
Increase (decrease) in accrued liabilities ..... 711 ( 1,495)
Increase (decrease) in interest payable ........ 21,767 --
Increase (decrease) in customer deposits ....... ( 6,465) ( 21,169)
----------- -----------
Net cash flows provided by (used in) operating
activities ................................. $ 23,838 $ 77,229
----------- -----------
Cash flows from investing activities:
Cash payments for the purchase of property ....... $ (19,841) $ (69,003)
Cash proceeds from the sale of property .......... 29,398 --
Cash payments for the purchase of FCC license .... ( 843,356)
-----------
Cash proceeds (payments) from investments in other
organizations and other assets ................. 129,279 ( 245,894)
----------- -----------
Net cash flows provided by (used in) investing
activities ................................. $( 704,520) $( 314,897)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ......... $ 1,027,985 $ 304,000
Principal payments on long-term debt ............. ( 345,751) ( 76,442)
----------- -----------
Net cash flows provided by (used in) financing
activities ................................. $ 682,234 $ 227,558
----------- -----------
Net increase (decrease) in cash and cash equivalents $ 1,552 $ (10,110)
Cash and cash equivalents, beginning of year ....... 343 10,453
----------- -----------
Cash and cash equivalents, end of year ............. $ 1,895 $ 343
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest expense ............................... $ 15,084 $ 7,671
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business - Xxxxx Corporation II (Company) is a Nebraska
corporation operating for profit in western Nebraska and Eastern Wyoming. The
Company's primary sources of revenue are the sales and rental of communication
pagers and the monthly service charges for the equipment. In the course of its
business, the Company extends credit to its customers for the purchase and
rental of paging equipment and the provision of service thereon. During 1996,
the Company acquired 100% interest in a partnership investment. This acquisition
enabled the Company to have all the rights granted in the FCC Franchise License
issued for Basic Trading Area (BTA) 411, which covers much of Western Nebraska
and a portion of Eastern Wyoming. This license permits the operation of Personal
Communications Systems (PCS) in this designated area.
Basis of Accounting - The Company uses the accrual basis of accounting. Under
the accrual basis of accounting, revenues are recognized when they are earned,
and expenses are recognized when they are incurred.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivables - The Company uses the direct charge off method for
doubtful receivables. When management determines an account to be uncollectible,
it is written off to bad debt expense.
Investments in Other Organizations - The investment in the Wireless
Communications Co. is stated at cost increased or decreased for the amount of
income or loss reflected on the income tax return attributable to the Company.
Property, Plant and Equipment and Depreciation - Property, plant and equipment
are stated at cost less accumulated depreciation. Expenditures for major
betterments are capitalized. Maintenance and repairs are charged to operations
in the year incurred. Gain or loss on sale, retirement or other disposition of
property, plant and equipment is credited or charged to operations in the year
sustained.
Depreciation is provided on an accelerated basis in accordance with generally
accepted accounting principles over the estimated useful lives of the respective
assets using the following lives:
Buildings and improvements 5 - 31.5 years
Office equipment 5 - 7 years
Communications equipment 5 - 7 years
Vehicles 5 years
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets - Intangible assets subject to amortization include patents
and franchise rights. These assets are amortized on a straight-line basis using
the following economic lives:
Term Cost
Patent 15 Years $ 15,059
Covenants not to Compete
FCC Franchise License 10 Years 843,356
-----------
Total $ 858,415
===========
Following is an analysis of activity in intangible assets for the fiscal year
ended December 31, 1996:
Beginning Ending
Balance Additions Removals Balance
Patent $ - $ 15,059 $ - $ 15,059
FCC Franchise License - 843,356 - 843,356
----------- ----------- ----------- -----------
Total $ - $ 858,415 $ - $ 858,415
Accumulated
amortization - 21,418 - 21,418
---------- ----------- ----------- -----------
Net total $ - $ 836,997 $ - $ 836,997
========== =========== =========== ===========
Research and Development Costs - Company sponsored research and development
expenses related to present and future products are expensed as incurred.
Research and development costs determined in accordance with FASB Statement No.
2, "Accounting for Research and Development Costs", were $84,000 and $8,000 for
the years ended December 31, 1996 and 1995, respectively.
Income Taxes and Deferred Taxes - The Company has elected to be taxed for
federal and state purposes as a Subchapter S Corporation. This election
transfers the income tax liability to the stockholders of the corporation.
There are no taxes for the Company in 1996 or 1995.
Cash and Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
NOTE 2 - CONCENTRATION OF RISK
The Company through a partnership investment and subsequent acquisition of the
entire interest, was the successful bidder for an FCC Franchise License for
Wireless Communications. In order for this franchise license to be profitable, a
substantial sum of capital will be required before any return on investment is
realized. Start up costs will be substantial before any revenue is received.
Management has estimated the time frame for realization of revenue to be up to
two years from the acquisition of the franchise license.
The Company has applications pending for patents which operate in conjunction
with various types of digital communications systems and system technologies.
The number of patent claims which will ultimately be granted is not known and it
is not possible to place a value on the patent applications. The patens deal
with systems and technologies that reduce the overall cost of consolidating and
delivering data, including such things as electrical and gas meter information,
security services, and vending replenishment information. The technology will be
first deployed on the Company's Personal Communications Systems in Basic Trading
Area 411. Upon successful deployment, the Company will license the use of the
technology and equipment to other digital communications providers thoughout the
world.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
Following is an analysis of changes in property, plant and equipment and
accumulated depreciation for the years ended December 31, 1996 and 1995:
Beginning Ending
Balance Additions Deletions Balance
1996
Land $ 2000 $ - $ - $ 2,000
Buildings and
improvements 11,549 - - 11,549
Office equipment 34,601 2,550 - 37,151
Communications
equipment 648,818 7,491 11,940 644,369
Vehicles 28,497 9,800 6,150 32,147
----------- ----------- ----------- -----------
Total $ 725,465 $ 19,841 $ 18,090 $ 727,216
Accumulated
depreciation 595,776 36,305 12,651 619,430
----------- ----------- ----------- -----------
Net total $ 129,689 $( 16,464) $( 5,439) $ 107,786
=========== =========== =========== ===========
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
(CONTINUED)
Beginning Ending
Balance Additions Deletions Balance
1995
Land ............... $ 2000 $ -- $ -- $ 2,000
Buildings and
improvements ..... 11,549 -- -- 11,549
Office equipment ... 28,333 6,268 -- 34,601
Communications
equipment ........ 596,445 52,373 -- 648,818
Vehicles ........... 18,135 10,362 -- 28,497
------------ ------------ ------------ ------------
Total ............ $ 656,462 $ 69,003 $ -- $ 725,465
Accumulated
depreciation ... 542,435 53,341 -- 595,776
------------ ------------ ------------ ------------
Net total ...... $ 114,027 $ 15,662 $ -- $ 129,689
============ ============ ============ ============
NOTE 4 - INVESTMENTS IN OTHER ORGANIZATIONS
On June 8, 1995, the Company acquired a fifty percent interest in Wireless
Communications Company (a Partnership). The net investment in the partnership as
of December 31, 1995, was $245,733. The Company acquired the entire interest in
the Partnership June 11, 1996. The primary asset of the Partnership was the FCC
Franchise License that is reflected on the December 31, 1996, Balance Sheet.
NOTE 5 - UNASSERTED CLAIMS AND ASSESSMENTS
On December 30, 1996, the Company by board resolution, authorized the
negotiation of the sale of up to thirty percent of the Company. The claims
outstanding regarding this board resolution, relate to two entities. Each is
entitled to receive fifteen percent of the stock of the Company. The acquisition
price is to be negotiated.
NOTE 6 - LONG-TERM OBLIGATIONS
Federal Communications Commission, C Block - Effective September 17, 1996, this
note is due on quarterly installments of approximately $55,874 beginning
December 31, 2002. The installment payments include interest calculated at an
annual interest rate of 7%. Interest up to the date of December 31, 2002, will
be paid as follows: one annual interest payment on September 30, 1997, of
approximately $56,128; quarterly installment interest payments of approximately
$13,543 due on the last day of the month and every 90 days thereafter beginning
on December 31, 1997, through and including September 30, 2002. The note is
secured by the FCC License No. PBB411C.
The annual requirements for the extinguishment of long-term liabilities for the
next five years and thereafter are as follows:
1996 1995
------------ ------------
1996 $ - $ -
1997 219,846 -
1998 - -
1999 - -
2000 - -
2001 - -
Thereafter 773,888 -
----------- -----------
Total $ 993,734 $ 311,500
NOTE 6 - RELATED PARTY
The accounts receivable other of $96,815 and $100,340 as of December 31, 1996
and 1995, respectively, was due from Xxxxx Broadcasting Corporation and Xxxxx
Corporation. Both amounts were paid off entirely April 29, 1997. The two
entities have the same ownership as Xxxxx Corporation II.
XXXXX CORPORATION II
Scottsbluff, Nebraska
CONSOLIDATED FINANCIAL STATEMENTS
and
INDEPENDENT AUDITOR'S REPORT
For the Years Ended December 31, 1997 and 1996
XXXXX CORPORATION II
Scottsbluff, Nebraska
TABLE OF CONTENTS
* * * *
Page Number
Independent Auditor's Report 1
Financial Statements
Balance Sheets 2 - 3
Statements of Income and Changes in Retained Earnings 4
Statements of Cash Flows 5
Notes to the Financial Statements 6 - 11
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Xxxxx Corporation II
Scottsbluff, Nebraska
We have audited the accompanying balance sheets of Xxxxx Corporation II as of
December 31, 1997 and 1996, and the related statements of income and changes in
retained earnings, and cash flows for the years then ended. These financial
statements are the responsibility of management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 financials 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 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 Xxxxx Corporation II as of
December 31, 1997 and 1996, and the results of its operations and cash flows for
the years then ended in conformity with generally accepted accounting
principles.
[SIGNED]
Gering, Nebraska
July 31, 1998
1997 1996
Assets
Current assets:
Cash ............................................. $ 62,566 $ 1,895
Accounts receivable - trade less
allowance for doubtful accounts
of $1,000 and $0 in 1997 and 1996,
respectively ................................... 52,403 54,557
Accounts receivable - other ...................... 26,416 96,815
---------- ----------
Total current assets ........................... $ 141,385 $ 153,267
---------- ----------
Property, plant and equipment:
Land ............................................. $ 3,000 $ 2,000
Buildings and improvements ....................... 12,910 11,549
Office equipment ................................. 48,869 37,151
Communications equipment ......................... 672,756 644,369
Vehicles ......................................... 32,147 32,147
---------- ----------
Total property, plant and equipment ............ $ 769,682 $ 727,216
Less accumulated depreciation .................. 651,571 619,430
---------- ----------
Total property, plant and equipment
net of accumulated depreciation ............ $ 118,111 $ 107,786
---------- ----------
Other assets:
FCC auction deposit .............................. $ -- $ 100,000
Deferred patronage dividends ..................... 2,191 1,576
FCC license C & F block net of accumulated
amortization of $113,570 and $21,084 in
1997 and 1996, respectively .................... 852,038 822,272
Patent net of accumulated amortization of
$1,569 and $334 in 1997 and 1996,
respectively ................................... 24,028 14,725
Construction in progress ......................... 488,045 --
Deposits ......................................... 170,430 --
---------- ----------
Total other assets ............................. $1,536,732 $ 938,573
---------- ----------
Total assets ....................................... $1,796,228 $1,199,626
========== ==========
1997 1996
Liabilities and Stockholder's Equity
...................................................
Current liabilities:
Accounts payable .................................. $ 163,683 $ 11,811
Accrued interest .................................. 101,684 23,402
Other accrued expenses ............................ 758 711
Customer deposits ................................. 10,840 12,851
Current portion of long-term liabilities .......... 898,786 219,846
--------------- ---------------
Total current liabilities ....................... $ 1,175,751 $ 268,621
--------------- ---------------
Long-term liabilities:
Notes payable (net of current portion) ............ $ 882,555 $ 773,888
--------------- ---------------
Total long-term liabilities ..................... $ 882,555 $ 773,888
--------------- ---------------
Total liabilities ............................. $ 2,058,306 $ 1,042,509
--------------- ---------------
Stockholder's equity:
Capital stock-authorized 1,000 common shares,
$10 par value; issued 652 shares ................ $ 6,520 $ 6,520
Capital surplus ................................... 148,500 148,500
Retained earnings (deficit) ....................... ( 417,098)
--------------- ---------------
2,097
Total stockholder's equity ...................... $ (262,078) $ 157,117
--------------- ---------------
Total liabilities and stockholder's equity .......... $ 1,796,228 1,199,626
=============== ===============
1997 1996
...................................................
Sales and services .................................... $ 381,961 $ 467,872
----------- -----------
Gross profit ........................................ $ 381,961 $ 467,872
----------- -----------
Expenses:
Depreciation and amortization ....................... $ 125,862 $ 57,723
Research and development costs ...................... 91,256 84,000
Bad debts ........................................... 11,248 15,214
Selling, general and administrative ................. 313,059 319,213
Interest ............................................ 93,576 36,851
----------- -----------
Total expenses .................................... $ 635,001 $ 513,001
----------- -----------
Operating income (loss) ......................... $ (253,040) $ (45,129)
----------- -----------
Other income:
Lease income ........................................ $ 16,431 $ 15,182
Miscellaneous income ................................ 17,414 11,545
Gain (loss) on sale of assets ....................... -- 23,959
Income (loss) on investments ........................ -- (8,165)
----------- -----------
Total other income ................................ $ 33,845 $ 2,521
----------- -----------
Net income (loss) ..................................... $ (219,195) $ (2,608)
Retained earnings, beginning of year .................. 2,097 4,705
Distributions ......................................... (200,000)
----------- -----------
Retained earnings, end of year ........................ $ (417,098) $ 2,097
=========== ===========
1997 1996
Cash flows from operating activities:
Net income (loss) ................................... $ (219,195) $ (2,608)
Adjustments to reconcile net income to net
cash flows provided by operating activities:
Depreciation and amortization ..................... 125,862 57,723
(Gain) loss on sale of assets ..................... -- (23,959)
(Increase) decrease in accounts receivable ........ 72,553 (35,142)
(Increase) decrease in deferred patronage dividends (615)
----------- -----------
Increase (decrease) in accounts payable ........... 151,872 11,811
Increase (decrease) in other accrued liabilities .. 47 711
Increase (decrease) in accrued interest ........... 78,282 21,767
Increase (decrease) in customer deposits .......... (2,011) (6,465)
----------- -----------
Net cash flows provided by (used in) operating
activities .................................... $ 206,795 $ 23,838
----------- -----------
Cash flows from investing activities:
Cash payments for the purchase of property .......... $ (42,466) $ (19,841)
Cash proceeds from the sale of property ............. -- 29,398
Cash payments for the purchase of FCC license ....... (122,252) (843,356)
Cash proceeds (payments) from (for) investments in
other organizations and other assets .............. (569,013) 129,279
----------- -----------
Net cash flows provided by (used in) investing
activities .................................... $ (733,731) $ (704,520)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance of long-term debt ............ $ 788,821 $ 1,027,985
Principal payments on long-term debt ................ (1,214) (345,751)
Dividends paid ...................................... (200,000) (--)
----------- -----------
Net cash flows provided by (used in) financing
activities .................................... $ 587,607 $ 682,234
----------- -----------
Net increase (decrease) in cash and cash equivalents .. $ 60,671 $ 1,552
Cash and cash equivalents, beginning of year .......... 1,895 343
----------- -----------
Cash and cash equivalents, end of year ................ $ 62,566 $ 1,895
=========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for
Interest expense .................................. $ 15,294 $ 15,084
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business - Xxxxx Corporation II (Company) is a Nebraska
corporation operating for profit in Western Nebraska and Eastern Wyoming. The
Company's primary sources of revenue are the sales and rental of communication
pagers and the monthly service charges for the equipment. In the course of its
business, the Company extends credit to its customers for the purchase and
rental of paging equipment and the provision of service thereon. During 1996,
the Company acquired 100% interest in a partnership investment. This acquisition
enabled the Company to have all the rights granted in the FCC Franchise License
issued for Basic Trading Area (BTA) 411, which covers much of Western Nebraska
and a portion of Eastern Wyoming. This license permits the operation of Personal
Communications Systems (PCS) in this designated area.
Basis of Accounting - The Company uses the accrual basis of accounting. Under
the accrual basis of accounting, revenues are recognized when they are earned,
and expenses are recognized when they are incurred.
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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivables - The Company uses the direct charge off method for
doubtful receivables. When management determines an account to be uncollectible,
it is written off to bad debt expense.
Property, Plant and Equipment and Depreciation - Property, plant and equipment
are stated at cost less accumulated depreciation. Expenditures for major
betterments are capitalized. Maintenance and repairs are charged to operations
in the year incurred. Gain or loss on sale, retirement or other disposition of
property, plant and equipment is credited or charged to operations in the year
sustained.
Depreciation is provided on an accelerated basis in accordance with generally
accepted accounting principles over the estimated useful lives of the respective
assets using the following lives:
Buildings and improvements 5 - 31.5 years
Office equipment 5 - 7 years
Communications equipment 5 - 7 years
Vehicles 5 years
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible Assets - Intangible assets subject to amortization include patents
and franchise rights. These assets are amortized on a straight-line basis using
the following economic lives:
Term Cost
Patent 15 Years $ 25,597
Covenants not to Compete
FCC Franchise License 10 Years 965,607
-----------
Total $ 991,204
===========
Following is an analysis of activity in intangible assets for the years ended
December 31, 1997 and 1996:
Beginning Ending
Balance Additions Removals Balance
1997
Patent ................ $ 15,059 $ 10,538 $ -- $ 25,597
FCC Franchise License . 843,356 122,252 -- 965,608
------------ ------------ ------------ ------------
Total ............... $ 858,415 $ 132,790 $ -- $ 991,205
Accumulated
amortization ........ 21,418 93,721 -- 115,139
------------ ------------ ------------ ------------
Net total ......... $ 836,997 $ 39,069 $ -- $ 876,066
============ ============ ============ ============
1996
Patent ................ $ -- $ 15,059 $ -- $ 15,059
FCC Franchise License . -- 843,356 -- 843,356
------------ ------------ ------------ ------------
Total ............... $ -- $ 858,415 $ -- $ 858,415
Accumulated
amortization ........ -- 21,418 -- 21,418
------------ ------------ ------------ ------------
Net total ......... $ -- $ 836,997 $ -- $ 836,997
============ ============ ============ ============
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Research and Development Costs - Company sponsored research and development
expenses related to present and future products are expensed as incurred.
Research and development costs determined in accordance with FASB Statement No.
2, "Accounting for Research and Development Costs", were $91,256 and $84,000 for
the years ended December 31, 1997 and 1996, respectively.
Income Taxes and Deferred Taxes - The Company has elected to be taxed for
federal and state purposes as a Subchapter S Corporation. This election
transfers the income tax liability to the stockholders of the corporation.
There are no taxes for the Company in 1997 or 1996.
Cash and Cash Equivalents - For purposes of the statements of cash flows, the
Company considers all highly liquid instruments purchased with a maturity of
three months or less to be cash equivalents.
NOTE 2 - CONCENTRATION OF RISK
The Company through a partnership investment and subsequent acquisition of the
entire interest, was the successful bidder for an FCC Franchise License for
Wireless Communications. In order for this franchise license to be profitable, a
substantial sum of capital will be required before any return on investment is
realized. Start up costs will be substantial before any revenue is received.
Management has estimated the time frame for realization of revenue to be up to
two years from the acquisition of the franchise license.
The Company has applications pending for patents which operate in conjunction
with various types of digital communications systems and system technologies.
The number of patent claims which will ultimately be granted is not known and it
is not possible to place a value on the patent applications. The patens deal
with systems and technologies that reduce the overall cost of consolidating and
delivering data, including such things as electrical and gas meter information,
security services, and vending replenishment information. The technology will be
first deployed on the Company's Personal Communications Systems in Basic Trading
Area 411. Upon successful deployment, the Company will license the use of the
technology and equipment to other digital communications providers thoughout the
world.
NOTE 3 - PROPERTY, PLANT AND EQUIPMENT AND ACCUMULATED DEPRECIATION
Following is an analysis of changes in property, plant and equipment and
accumulated depreciation for the years ended December 31, 1997 and 1996:
Beginning Ending
Balance Additions Deletions Balance
1997
Land $ 2,000 $ 1,000 $ -- $ 3,000
Buildings and
improvements 11,549 1,361 -- 12,910
Office equipment 37,151 11,718 -- 48,869
Communications
equipment 644,369 28,387 -- 672,756
Vehicles 32,147 -- -- 32,147
----------- ----------- ----------- -----------
Total $ 727,216 $ 42,466 $ -- $ 769,682
Accumulated
depreciation 619,430 32,141 -- 651,571
----------- ----------- ----------- -----------
Net total $ 107,786 $ 10,325 $ -- $ 118,111
=========== =========== =========== ===========
1996
Land $ 2,000 $ -- $ -- $ 2,000
Buildings and
improvements 11,549 -- -- 11,549
Office equipment 34,601 2,550 -- 37,151
Communications
equipment 648,818 7,491 11,940 644,369
Vehicles 28,497 9,800 6,150 32,147
----------- ----------- ----------- -----------
Total $ 725,465 $ 19,841 $ 18,090 $ 727,216
Accumulated
depreciation 595,776 36,305 12,651 619,430
----------- ----------- ----------- -----------
Net total $ 129,689 $( 16,464) $( 5,439) $ 107,786
=========== =========== =========== ===========
NOTE 4 - UNASSERTED CLAIMS AND ASSESSMENTS
On December 30, 1996, the Company by board resolution, authorized the
negotiation of the sale of up to thirty percent of the Company. The claims
outstanding regarding this board resolution, relate to two entities. Each is
entitled to receive fifteen percent of the stock of the Company. The acquisition
price is to be negotiated.
NOTE 5 - LONG-TERM OBLIGATIONS
Federal Communications Commission, C Block - Effective September 17, 1996, this
note is due in quarterly installments of approximately $55,874 beginning
December 31, 2002. The installment payments include interest calculated at an
annual rate of 7%. Interest up to the date of December 31, 2002, will be paid as
follows: one annual interest payment on September 30, 1997, of approximately
$56,128; quarterly installment interest payments of approximately $13,543 due on
the last day of the month and every 90 days thereafter beginning on December 31,
1997, through and including September 30, 2002. The note is secured by the FCC
License No. PBB411C.
Federal Communications Commission, F Block - This note payable was effective
April 28, 1997, for the principal sum of approximately $74,467. It is due in
quarterly installments of approximately $2,974 beginning July 28, 1999. The
installment payment includes interest calculated at an annual rate of 6.25%.
Interest up to the date of July 28, 1999, will be paid in equal quarterly
installments of approximately $1,163 due on July 28, 1997, and every quarter
thereafter on October 28, January 28, April 28 and July 28 through and including
April 28, 1999. The entire unpaid principal amount plus accrued and unpaid
interest is due and payable on April 28, 2007, if not paid sooner. The note
payable is secured by the FCC License No. CWB411F.
Federal Communications Commisssion, F Block - This note payable was effective
April 28, 1997, for the principal sum of $34,200. It is due in quarterly
installments of approximately $1,366 beginning July 28, 1999. The installment
payment includes interest calculated at an annual rate of 6.25%. Interest up to
the date of July 28, 1999, will be paid in equal quarterly installments of
approximately $534 due on July 28, 1997, and every quarter thereafter on October
28, January 28, April 28 and July 28 through and including April 28, 1999. The
entire unpaid principal amount plus accrued and unpaid interest is due and
payable on April 28, 2007, if not paid sooner. The note payable is secured by
the FCC License No. CWB270F.
NOTE 5 - LONG-TERM OBLIGATIONS (CONTINUED)
The annual requirements for the extinguishment of long-term liabilities for the
next five years and thereafter are as follows:
1997 1996
------------ ------------
1997 $ - $ 219,846
1998 898,786 -
1999 5,328 -
2000 11,164 -
2001 11,879 -
2002 54,970 -
Thereafter 799,214 773,888
----------- -----------
Total $ 1,781,341 $ 993,734
=========== ===========
NOTE 6 - SUBSEQUENT EVENTS
Xxxxx Corporation II has entered into agreements with TECORE, Inc., Spectrum
Wireless and UNISYS. These agreements are for the purchase of communications
equipment to utilize the FCC Franchise License for Personal Service
Communications in Basic Trading Area 411. The amount that has been obligated for
the payment of the communications equipment is $1,080,000.
NOTE 7 - RELATED PARTY
The accounts receivable other of $26,416 and $96,815 as of December 31, 1997 and
1996, respectively, were due from corporations with the same ownership as Xxxxx
Corporation II or the major stockholder. The current portion of long-term
liabilities for 1997 includes $325,000 due to Xxxx Xxxxx and bears interest at
the rate of 7.5% on $125,000 and 9.75% on $200,000.
Telemetrix Resource Group, Inc.
Balance Sheet
Telemetrix Resource Group, Inc.
Balance Sheet
As of December 31, 1998
--------------------------------------------------------------------------------
ASSETS
Current Assets
Accounts Receivable .............. $ 166
Property and Equipment
Billing and Information Management $ 25,000,000
Software
Accumulated Depreciation ......... $ (6,250,000)
Other Assets ................................ $ 28,113
Organizational Costs ............. $ (5,623)
------------
Accumulated Amortization
TOTAL .......................................... $ 18,772,657
============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current
Liabilities
Accounts Payable ................................ $ 31,113
Stockholders' Equity (Deficit)
Common Stock, no par value, 100 shares authorized $ 25,000,000
and outstanding
Retained Earnings ............................... $ (6,258,456)
------------
TOTAL ......................................................... $ 18,772,657
============
Telemetrix Resource Group, Inc.
Statement of Operations
For the Nine Months Ended 12/31/98
--------------------------------------------------------------------------------
REVENUE
Royalty Revenue .... $ 166
-----------
Total Revenue .... $ 166
-----------
EXPENSES
Legal and Accounting $ 3,000
Depreciation and ... $ 6,255,623
Amortization Expense
-----------
Total Expenses ... $ 6,258,623
-----------
NET LOSS ......................... $(6,258,456)
===========
Telemetrix Resource Group, Inc.
Statement of Cash Flow
For the Nine Months Ended 12/31/98
--------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss ........................................... $(6,258,456)
Adjustment to reconcile net loss to net cash used by
operating activites:
Depreciation ........................... $ 6,255,623
Accounts Receivable .................... $ (166)
Increase
Accounts Payable Increase .............. $ 31,113
-----------
Net Cash Used in Operating ........... $ 28,114
Activities
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capitalized Organizational Costs ................... $ (28,114)
-----------
Net Cash Used in Investing ........... $ (28,114)
Activities
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS ............ $ --
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD ..... $ --
-----------
CASH AND CASH EQUIVALENTS AT END OF PERIOD ........... $ --
===========
EXHIBIT C
Form of Shareholder Investment Letter
[Shareholder]
[Shareholder's Address]
Arnox Corporation
0000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxx, Xxxxxxx 00000
Re: Issuance of Arnox Corporation common shares
Gentlemen:
Under that certain Reorganization Agreement dated March 22, 1999, between and
among Arnox Corporation ("Arnox"), Xxxxx Corporation II, ("Xxxxx XX"), and
Telemetrix Resource Group, Inc. ("TRG"), Arnox, Xxxxx XX, and TRG will undergo a
reorganization ("Reorganization"). Concurrently with the Reorganization,
__________________common shares (the "Common Stock" or "Common Shares") in the
post-reorganization entity (the "Company") will be issued to the undersigned
investor ("Investor").
This letter shall confirm that Investor is acquiring the Common Shares solely
for Investor's own account, and, at the time of the acquisition, no other person
will have a direct or indirect beneficial interest in Investor's Common Shares.
Investor is acquiring the Common Shares for investment purposes only, with no
intention of distributing, reselling, assigning or otherwise transferring the
Common Shares. Investor is not a Distributor, Dealer or any person acting on
behalf of the foregoing, and has not made any pre-arrangement, arrangements or
entered into any agreement for the resale or distribution of Company securities.
Investor understands that the Common Stock has not been registered under the
U.S. Securities Act of 1933, as amended (the "Securities Act") or under any U.S.
state securities law ("Blue Sky Laws"). The Common Stock will be "restricted
securities" (as defined in SEC Rule 144) and therefore may not be resold or
otherwise transferred except pursuant to the registration provisions of the
Securities Act and Blue Sky Laws or pursuant to an exemption from such
registration provisions. Investor is not acquiring the Common Shares as part of
a plan or scheme to evade the registration provisions of the Securities Act or
any Blue Sky Laws.
Investor has sufficient knowledge and expertise in financial and business
matters to evaluate the merits and risks of the proposed exchange of Xxxxx II's
and TRG's securities, as applicable, for the Common Shares. The Common Shares
are the type of securities that Investor wishes to hold for investment and the
nature and amount of the Common Shares are consistent with Investor's investment
program.
Investor is able to bear the economic risks of the investment in the Common
Shares. Investor has adequate means of providing for Investor's current needs
and contingencies, Investor has no present need for liquidity in the Common
Shares, and Investor can afford to hold the Common Shares for an indefinite
period. Investor is able to protect Investor's own interests in an investment of
this nature, Investor can afford a complete loss of an investment in the Common
Shares, and Investor is willing to accept such investment risks.
Investor acknowledges that investing in the Common Shares is a speculative and
uncertain undertaking. Investor is familiar with the risks involved in such
investment and has considered such risks in making its decision to acquire the
Common Shares.
Investor understands that no U.S. federal or state agency has made any finding
or determination about the fairness of the proposed investment nor has
recommended or endorsed the Common Shares.
Investor was not solicited to acquire the Common Shares through any leaflet,
public promotional meeting, circular, newspaper article, magazine article, radio
advertisement, television commercial or any other form of general advertising.
Investor had access to all available material and relevant information
concerning the Company and its subsidiaries, its management, its current and
proposed business and other details of the investment sufficient for Investor to
make an informed investment decision whether to acquire the Common Shares.
Investor had an opportunity to ask questions about the Company and the Common
Shares and those questions were answered to Investor's satisfaction. All
information requested by Investor was furnished except for information that was
unavailable or would require unreasonable effort or expense.
Investor carefully reviewed all available material and relevant information
concerning the Company and the Common Shares, evaluated the reasonableness of
all assumptions and projections, conducted due diligence by investigating the
facts and circumstances, and therefore, is familiar with the business and
financial condition of the Company. Investor has not relied on the Company to
evaluate or make the investment decision to acquire the Common Shares. Investor
relied solely on its own tax, legal, and investment advisors concerning the
income tax and investment considerations of ownership of the Units.
Very truly yours,
By: Investor
EXHIBIT D
BENEFICIAL OWNERS OF COMPANY SHARES
[NOT INSERTED]
EXHIBIT E
AUDITED BALANCE SHEET OF THE COMPANY
Refer to 10-K filings of ARNOX.
