U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For Quarterly period ended Commission File
March 31, 2002 Number 0-5781
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
------------------------ ---------------------
EMEX CORPORATION
(Exact name of small business issuer as specified
in its charter)
NEVADA 83-0211955
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
12600 West Colfax Avenue, Suite C-500
Lakewood, CO 80215
(Address of principal executive offices)
(303) 986-0100
(Issuer's telephone number)
NOT APPLICABLE
(Former name, former address, and former fiscal year, if changed
since last report)
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 |X| No|_|
Common stock, 25,759,929 shares having a par value of $.01 per share were
outstanding as of April 26, 2002.
Transitional Small Business Disclosure format (check one):
Yes |_| No |X|
EMEX CORPORATION AND SUBSIDIARIES
Index
Page
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 1
Consolidated Statements of Operations and Comprehensive Loss
for the three months ended March 31, 2002 and 2001 2
Consolidated Statements of Cash Flows for the three months
ended March 31, 2002 and 2001 3
Notes to Consolidated Financial Statements 4-14
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 15-17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 18
Item 2. Changes in Securities; Recent Sales of Unregistered
Securities 19-20
Item 5. Other Information 21
Item 6. Exhibits and Reports on Form 8-K 22-23
Signatures 24
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 2002 AND DECEMBER 31, 2001
2002 2001
---- ----
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 453,000 $ 558,000
Accounts receivable 11,000 11,000
Other current assets 267,000 263,000
------------ ------------
Total current assets 731,000 832,000
------------ ------------
PROPERTY AND EQUIPMENT, net 2,828,000 2,806,000
------------ ------------
INVESTMENTS AND OTHER ASSETS
Note receivable -- 18,000
Available for sale investments 11,000 10,000
Goodwill, net 325,000 334,000
Other assets 74,000 39,000
------------ ------------
410,000 401,000
------------ ------------
$ 3,969,000 $ 4,039,000
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable $ 132,000 $ 146,000
Notes payable - related party 10,819,000 9,017,000
Capital lease obligation 28,000 28,000
Accounts payable 438,000 609,000
Accrued liabilities 118,000 123,000
------------ ------------
Total current liabilities 11,535,000 9,923,000
------------ ------------
LONG TERM DEBT
Notes payable - related party -- --
Capital lease obligation 30,000 35,000
------------ ------------
30,000 35,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST -- --
SHAREHOLDERS' EQUITY
Capital stock:
Preferred stock, $.01 par value, 997,000 shares
authorized , no shares issued -- --
Common stock, $.01 par value, 50,000,000 shares authorized,
25,759,929 and 25,111,590 shares issued and outstanding
in 2002 and 2001 respectively 258,000 251,000
Capital in excess of par value of common stock 31,367,000 29,377,000
Accumulated other comprehensive loss (63,000) (64,000)
Accumulated deficit (39,158,000) (35,483,000)
------------ ------------
(7,596,000) (5,919,000)
------------ ------------
$ 3,969,000 $ 4,039,000
============ ============
See notes to consolidated financial statements
1
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(unaudited)
2002 2001
---- ----
OPERATIONS
Operating revenue:
Oil and gas sales $ 2,000 $ 32,000
Consulting fees -- 5,000
------------ ------------
2,000 37,000
------------ ------------
Operating expenses:
Lease operating 10,000 14,000
Exploration 277,000 429,000
Research and development 425,000 337,000
Depreciation, depletion and amortization 86,000 59,000
General and administrative 694,000 721,000
------------ ------------
1,492,000 1,560,000
------------ ------------
Operating loss from continuing operations (1,490,000) (1,523,000)
Other income (expense):
Other income 14,000 --
Interest income -- 13,000
Interest expense (202,000) (30,000)
------------ ------------
Loss from continuing operations before taxes (1,678,000) (1,540,000)
Provision for taxes:
Current -- --
------------ ------------
Net loss $ (1,678,000) $ (1,540,000)
============ ============
Loss per share:
Weighted average number of
common shares outstanding 25,759,929 25,759,929
Basic and diluted loss $ (0.07) $ (0.06)
============ ============
COMPREHENSIVE INCOME/(LOSS)
Net loss $ (1,678,000) $ (1,540,000)
Other comprehensive loss:
Unrealized gain (loss) on available-for-sale securities 1,000 (24,000)
Change in currency translation -- (4,000)
------------ ------------
Comprehensive loss $ (1,677,000) $ (1,568,000)
============ ============
See notes to consolidated financial statements
2
EMEX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2002 AND 2001
(unaudited)
2002 2001
----------- -----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(1,678,000) $(1,540,000)
Add: Depreciation and depletion and amortization 86,000 59,000
Loss on disposal of fixed assets 4,000 --
Accrued interest 198,000 27,000
Bad Debt - Notes Receivable 12,000 --
Changes in assets and liabilities:
Accounts receivable -- (41,000)
Other current assets 2,000 (12,000)
Other assets (55,000) 61,000
Accounts payable (171,000) 293,000
Accrued liabilities (5,000) (31,000)
----------- -----------
Cash used in operating activities (1,607,000) (1,184,000)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of fixed assets (83,000) (395,000)
----------- -----------
Cash used in investing activities (83,000) (395,000)
----------- -----------
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Notes payable 1,590,000 --
Capital lease payments (5,000) (2,000)
----------- -----------
Cash provided by financing activities 1,585,000 (2,000)
----------- -----------
NET (DECREASE) IN CASH (105,000) (1,581,000)
CASH AT BEGINNING OF YEAR 558,000 2,279,200
----------- -----------
CASH AT END OF PERIOD $ 453,000 $ 698,200
=========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 4,000 $ 2,000
Income taxes -- --
Schedule of Noncash Investing and Financing Transactions:
Stock dividend 1,997,000 --
Marketable securites received in payment of
account receivable -- 53,000
Marketable securities received in payment for
option -- 5,000
See notes to consolidated financial statements
3
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION OF INTERIM PERIOD STATEMENTS:
The accompanying financial statements are unaudited and have been presented by
Emex Corporation and its subsidiaries (collectively, the "Company") pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain
information and note disclosures typically included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. In the opinion of
management, the financial statements include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair statement of the results for
the interim periods presented. The preparation of financial statements in
conformity with generally accepted accounting principles require management to
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results may differ from such estimates
and assumptions. The financial statements should be read in conjunction with the
audited financial statements and notes thereto included in the Company's 2001
Annual Report on Form 10KSB pages F-1 to F-25. The results of operations for an
interim period are not necessarily indicative of the results of operations for a
full year.
The business of the Company is carried on principally through two divisions,
namely, the Company's Lands Division, which is engaged primarily, through
subsidiaries, in exploration for and development of gold and other metal and
mineral resources in Alaska, and the Company's Technologies Division, which is
primarily engaged, through a subsidiary, in the development of environmentally
friendly technologies related to the conversion of natural gas into liquid
fuels, specialty chemicals and waxes and other products, with co-generation of
electricity and production of potable water as additional results of the
process. In addition, the Company continues to hold working interests in several
oil and gas properties.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Risks and Uncertainties
Mining Activities
The Company is currently exploring for minerals and has yet to exercise any
options to lease prospects. The Company has therefore not produced any revenues
since inception and there can be no assurance that revenues will be generated
during the next twelve months.
The Company's operations will be significantly affected by the market price of
gold. Gold prices can fluctuate widely and are affected by numerous factors that
are beyond the Company's control. A further sustained period of low gold prices
could have a material adverse effect on the Company's financial position,
results of operations and its ability to raise additional financing.
4
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Energy Technology
The Company is currently researching to develop new approaches for natural gas
utilization and has yet to generate any revenues from this research since
inception. There can be no assurance that revenues will be generated during the
next twelve months.
Oil and Gas Producing Activities
Historically, the market for oil and natural gas has experienced significant
price fluctuations. Prices for oil and natural gas in the Rocky Mountain region
have been particularly volatile in recent years. The price fluctuations can
result from variations in weather, levels of regional or national production,
availability of transportation capacity to other regions of the country and
various other factors. Increases or decreases in prices received could have a
significant impact on future results.
Concentration of Credit Risk
Cash accounts at banks are insured by the FDIC for up to $100,000. Amounts in
excess of insured limits were approximately $284,000 at March 31, 2002.
NOTE 3 - RELATED PARTY ACTIVITY
At March 31, 2002 and December 31, 2001, the Company owed Equistar Consolidated
Holdings, LLC ("Equistar"), a Nevada limited liability company, the members of
which are Thorn Tree Resources, LLC ("Thorn Tree") and Universal Equities, LLC
("Universal"), major shareholders of the Company, principal totaling $1,551,000
and $1,548,000 respectively. The advances accrue interest at 7% per annum and
are due to be repaid on July 31, 2002. Equistar agreed to extend the maturity
date of the indebtedness owed by the Company to Equistar until the completion of
the Standstill Period (as defined below).
Accrued interest on the advances totaled $205,000 and $178,000 at March 31, 2002
and December 31, 2001, respectively. Interest expense on these advances were
$27,000 and $27,000 for the three months ended March 31, 2002 and 2001
respectively.
5
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (CONTINUED)
To continue as a going concern and meet its 2002 funding requirements, the
Company must borrow additional funds from Thorn Tree and/or seek equity or debt
financing from other investors or the public. The Company has not entered into
any agreements with Thorn Tree or other investors, and there can be no assurance
that Thorn Tree will make additional loans or that the Company's efforts to
obtain equity or debt financing from other investors or the public will be
successful. If the Company does obtain financing, it may not be on favorable
terms. As of the date of this report, Thorn Tree has given no indication to the
Company that it intends to make or decline to make additional advances to the
Company in addition to the $3,262,000 it agreed to loan and has loaned to the
Company in 2002.
As part of a bridge funding commitment by Thorn Tree and Universal to the
Company in 2001, the Company received loan proceeds in the amount of $1,085,000
from Thorn Tree and $200,000 from Universal during the quarter ended June 30,
2001. Those loans accrue interest at 7% per annum and are due to be repaid on
July 31, 2002, subject to the extension pursuant to the terms of the Settlement
Agreement described below. Prior to maturity, those loans can be converted at
the lender's election into shares of the Company's common stock, par value $.01
per share (the "Common Stock"), at the rate of one share of Common Stock for
each $10.00 of the loan principal and interest outstanding. Accrued interest as
of March 31, 2002 and December 31, 2001 on those loans totaled $61,000 and
$42,000 to Thorn Tree and $13,000 and $9,000 to Universal respectively. Interest
expense on those loans for the three months ended March 31,2002 was $19,000 to
Thorn Tree and $4,000 to Universal.
On October 17, 2001 the Company entered into a formal bridge financing
arrangement with Thorn Tree (the "Bridge Financing"). Pursuant to the terms and
conditions contained in a Secured Grid Note ("October Note"), Thorn Tree agreed
to loan the Company up to an aggregate principal amount of $6.0 million through
December 31, 2001. At December 31, 2001 $5,820,000 had been loaned to the
Company and by January 25, 2002 the entire $6.0 million had been loaned.
Interest on the unpaid principal amount due at maturity is computed at an annual
rate of 3% over the prime rate of JP Morgan Chase & Co., compounded monthly. The
Note is secured by all the assets of the Company and its subsidiaries pursuant
to a general security agreement (the "General Security Agreement"). The General
Security Agreement includes provisions defining defaults under other agreements
of the Company as defaults under the General Security Agreement that could allow
Thorn Tree to foreclose on the Company's or its subsidiaries' assets. The terms
of the October Note provide that the Company will not perform the following
actions without the consent of Thorn Tree: (i) liquidate or dissolve; (ii) sell,
transfer, lease or otherwise dispose of its assets and properties or grant
options, warrants or other rights with respect to its property or assets, with
certain exceptions; (iii) purchase, redeem or retire, or make any dividend or
distribution on account of, any equity and/or debt securities of the Company,
6
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (CONTINUED)
except for certain dividends payable in Common Stock until June 30, 2002; (iv)
create, incur, assume or suffer to exist any indebtedness, with certain
exceptions; (v) create, incur, assume or suffer to exist any mortgage, pledge,
hypothecation, assignment, security interest, encumbrance, lien, preference,
priority or preferential arrangement on its property, revenues or assets, with
certain exceptions; (vi) purchase, own, invest in or acquire any stock or other
securities, with certain exceptions; (vii) enter into any transaction with any
person or entity affiliated with the Company where the transaction is valued in
excess of $50,000; and (viii) issue any securities of the Company, with certain
exceptions. Additionally, the Company must obtain the written consent of Thorn
Tree before taking the following actions: (i) amending or extending the Option
Agreement between Doyon and North Star; (ii) committing to any new material
expenditures in excess of $100,000; (iii) settling any material litigation; and
(iv) hiring any new executive officers of the Company. All principal and
interest under the October Note is due on December 31, 2002. The outstanding
balance under the October Note may be prepaid by the Company at any time without
penalty. The terms of the October Note allow Thorn Tree to elect, in its sole
discretion, to convert at any time some or all of the principal amount
outstanding under the October Note and any accrued interest thereon into shares
of the Common Stock, at a price equal to $7.00 per share of Common Stock,
subject to certain anti-dilution adjustments. The Company also issued to Thorn
Tree warrants to purchase 500,000 shares of Common Stock, at any time until
October 17, 2006, at a price of $7.00 per share, subject to certain
anti-dilution adjustments. Thorn Tree was granted the right to include the
shares underlying the warrants in the Company's future registration statements.
Accrued interest for this Note totaled $265,000 and $134,000 at March 31, 2002
and December 31, 2001 respectively. Interest expense for the three months ended
March 31, 2002 for the October Note totaled $131,000.
Effective January 23, 2002, Thorn Tree made a loan (the "January Loan") to the
Company in the sum of $628,000 on terms similar to the Bridge Financing. The
January Loan originally had a maturity date of April 23, 2002, which was
extended, after the end of the period reported on, to December 31, 2002, the
same as the maturity date of the Bridge Financing. The principal of the January
Loan accrues interest at a rate of the prime rate at J.P. Morgan Chase & Co.
plus three percent per annum. The default rate of interest is 5% over such prime
rate, payable on demand. Under the terms of the January Loan, Thorn Tree may
elect, in its sole discretion, to convert at any time some or the entire
principal amount outstanding on the January Loan and any accrued interest
thereon into shares of Common Stock at a price of $3.01 per share, subject to
certain anti-dilution adjustments. The Company granted Thorn Tree warrants to
purchase 53,525 shares of Common Stock, at any time until January 23, 2007, at a
price of $3.01 per share, subject to certain anti-dilution adjustments.
7
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (CONTINUED)
Accrued interest and interest expense as of March 31, 2002 for the January Loan
totaled $8,000.
Effective February 11, 2002, Thorn Tree agreed to make a loan (the "February
Loan") to the Company, in the form of advances through April 30, 2002, in the
aggregate amount of up to $2,034,100, with an original maturity date of June 1,
2002. The maturity date of the February Loan was extended, after the period
reported on, to December 31, 2002. At March 31, 2002, $793,000 of the $2,034,100
had been loaned to the Company.
The February Loan will bear interest at an annual rate of 5% over the prime rate
of JP Morgan Chase & Co., compounded monthly. The default rate of interest is 7%
over such prime rate payable on demand. Thorn Tree has the right, in its sole
discretion, to convert at any time all or part of the principal amount
outstanding under the February Loan and any accrued interest thereon into shares
of Common Stock at a price of $3.00 per share, subject to certain anti-dilution
adjustments. All other terms are similar to the Bridge Financing. In connection
with the February Loan, the Company granted to Thorn Tree warrants to purchase
170,000 shares of Common Stock, at any time until February 11, 2007, at a price
of $3.00 per share, subject to certain anti-dilution adjustments.
Accrued interest and interest expense as of March 31, 2002 for the February Loan
totaled $10,000.
Pursuant to the terms of a Secured Note (the "May Note"), Thorn Tree agreed to
loan the Company $600,000 on May 1, 2002 (the "May Loan"). The May Note bears
interest at a rate equal to the Prime Rate of J.P. Morgan Chase & Co. as of the
date of the May Note plus 3% per annum, compounded monthly. The default rate of
interest is 5% over such prime rate, payable on demand. The maturity date of the
May Note is December 31, 2002. Thorn Tree has the right, in its sole discretion,
to convert some or all of the outstanding principal of the May Note and any
accrued interest thereon into shares of Common Stock at a price equal to $2.57
per share, subject to certain anti-dilution adjustments. All other terms of the
May Note are similar to the Bridge Financing. The Company granted Thorn Tree
warrants to purchase 50,000 shares of Common Stock at any time until May 1, 2007
at a price of $2.57 per share, subject to certain anti-dilution adjustments.
At the end of the period reported on (therefore excluding the May Note), the
Company, at March 31, 2002 had the following total indebtedness to Thorn Tree,
Universal and Equistar: (1) $1,085,000 plus accrued interest to Thorn Tree,
which will mature on July 31, 2002, subject to extension pursuant to the
Settlement Agreement described below; (2) $200,000 plus accrued interest to
Universal, which will mature on July 31, 2002, subject to extension pursuant to
the Settlement Agreement described below; (3) $1,551,000 plus accrued interest
to Equistar which will mature on July 31, 2002, subject to extension pursuant to
8
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (CONTINUED)
the Settlement Agreement described below; (4) $6,000,000 plus accrued interest
to Thorn Tree, which will mature on December 31, 2002; (5) $628,000 plus accrued
interest to Thorn Tree, the maturity date of which was extended after March 31,
2002, to December 31, 2002; and (6) $793,000 plus accrued interest to Thorn
Tree, the maturity date of which was extended after March 31, 2002, to December
31, 2002 (this $793,000 being the portion of the proceeds of the February Note
that were lent prior to March 31, 2002).
Vincent P. Iannazzo, Milton E., Stanson, David H. Peipers, Thorn Tree and
Universal (collectively, the "Controlling Shareholders"), The Cornerhouse
Limited Partnership, The Winsome Limited Partnership, the Company, Equistar,
Sixth Avenue Associates LLC and Ms. Dorothy D. Eweson (Sixth Avenue Associates
LLC and Ms. Dorothy D. Eweson are referred to herein as the "Controlling
Shareholders' Lenders") entered into a settlement agreement (the "Settlement
Agreement") on April 12, 2002 to resolve outstanding disputes among the parties.
Pursuant to the Settlement Agreement, among other things, the parties agreed
that the sums owed by the Company to Thorn Tree and Universal for borrowings
made in May and June 2001 shall not be repaid, without the prior written consent
of Sixth Avenue Associates LLC, until the debt owed to the Controlling
Shareholders' Lenders by Equistar and secured by shares owned by each of Thorn
Tree and Universal (the "Stockholder Debt") is satisfied in full in cash.
Further, Universal and Equistar agreed to extend the maturity date of the
indebtedness owed to them by the Company until the earlier of (i) the
satisfaction in full in cash of all loans and obligations theretofore owed by
Universal and certain of its affiliates to Sixth Avenue, Thorn Tree and certain
of their affiliates, and (ii) the completion of the period that is three years
from the date of the Settlement Agreement, as such period may be extended from
time to time (the "Standstill Period").
The Settlement Agreement also provides that during the Standstill Period,
Universal shall have the right to nominate one person, with the consent of each
of Stanson and Iannazzo, reasonably acceptable to Sixth Avenue Associates LLC,
to serve on the Company's board of directors. Sixth Avenue Associates LLC shall
have the right to nominate all other members to serve on the company's board of
directors until the obligations to the Controlling Shareholders' Lenders secured
by Universal's shares are satisfied in full in cash. Upon such satisfaction in
full in cash, the right to nominate all other members to serve on the Company's
board of directors will inure to the benefit of David H. Peipers until the debt
owed to Thorn Tree and certain of its affiliates that is secured by Universal's
shares has been satisfied in full in cash.
In connection with the Settlement Agreement the Company, Sixth Avenue Associates
LLC, Thorn Tree and Universal entered into a Registration Rights Agreement,
dated April 12, 2002, pursuant to which the Company, at its expense, agreed to
use its best efforts to file a shelf registration statement for an offering to
be made on a continuous basis pursuant to
9
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 3 - RELATED PARTY ACTIVITY (CONTINUED)
Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"),
covering (i) 24,214,204 shares of Common Stock pledged by Thorn Tree and
Universal to Sixth Avenue Associates LLC in connection with the Settlement
Agreement and (ii) the 300,000 shares of Common Stock retained by Universal in
connection with the Settlement Agreement, to become effective under the
Securities Act on the day next following the Effective Date, or at the earliest
possible time thereafter.
Prior to the period reported on, the Company's corporate offices in New York
City were occupied under a use and occupancy agreement with Equistar. During the
period reported on, the Company closed its New York offices and has ceased to
occupy them. The parties have settled the unpaid rent on the premises for
$143,378.52.
NOTE 4 - COMMITMENTS AND CONTINGENCIES
Doyon Agreement
In May 1997 North Star entered into an Option Agreement (the "Agreement") with
Doyon, Limited ("Doyon"), a regional Alaska Native Corporation, with respect to
lands as to which Doyon had received rights under the Alaska Native Claims
Settlement Act. Doyon granted North Star, which is owned 90 percent by the
Company and 10 percent by Doyon, the exclusive right to explore for minerals on
certain of those lands until January 31, 2002, to lease prospects identified in
the course of such exploration, and to develop and produce minerals pursuant to
such leases. The optioned lands encompassed approximately seven million acres
comprised of 24 individually named blocks, plus additional obligations to Doyon
in the surrounding lands within a defined area of interest.
In order to maintain its rights, North Star was required to spend a total of $9
million over the term of the Agreement, with minimum commitments per year and
with specific minimum expenditures per block. As of January 31, 2002, North Star
had spent a total of approximately $11 million, which satisfied the minimum
expenditure requirement under the Agreement. The agreement expired on January
31, 2002 and has not yet been renewed.
As a result of negotiations between North Star and Doyon, the Company believes
agreement in principle has been reached upon the terms of a proposed new
three-year option agreement to expire on December 31, 2004. These proposed terms
are described below, but there can be no assurance the Company will finalize a
new option agreement with Doyon on those terms or at all. Based upon the
exploration work accomplished under the initial agreement, North Star has
identified the targets which it believes have mineral deposits of economic
significance and has decided to prioritize its future efforts accordingly.
Therefore, under the
10
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
proposed new agreement, North Star will be required to make expenditures with
respect to only five of the original 24 Doyon land blocks, and North Star's
option rights will be limited to those five land blocks, which cover
approximately 1.2 million acres, as compared with 7 million acres covered by the
original agreement. The minimum annual exploration expenditures required of
North Star under the proposed new agreement will be $1,000,000 for the first
year ending December 31, 2002, $470,000 for the second year and $1,100,000 for
the third year, amounting to a total required minimum exploration expenditure of
$2,570,000 for the full three year term of the new agreement. North Star's
exploration expenditures in excess of the minimum amount for any year will be
permitted to be carried forward and credited to expenditure requirements for
future years with certain limitations. In addition to exploration expenditures,
North Star will be required to pay Doyon $245,000 per year to maintain the
option, subject to reduction to a minimum of $150,000 in each of the second and
third years if North Star decides to relinquish some of the properties.
At North Star's request, in order to make projects more attractive to joint
venture partners, the proposed new agreement is to have a more competitive
royalty structure, and there is to be a reduction in the size of the surrounding
area of interest referred to above.
Under the proposed new option agreement it is contemplated that at any time
during the term North Star may, if it has conducted a specified minimum amount
of drilling, made a specified minimum amount of exploration expenditures and
received a positive pre-feasibility study with respect to a particular mineral
area, exercise its option to lease that area for mineral development for a
specified initial term. If North Star achieves commercial production during the
initial term, the lease will continue so long as there is commercial production.
The lands covered by the new agreement, like the old one, include not only areas
currently owned by Doyon but also areas from lands that may be selected by Doyon
pursuant to the Alaska Native Claims Settlement Act but not yet conveyed to
Doyon.
The old option agreement specified the following terms if the Company leased
land from Doyon, and such terms have been proposed to be continued with respect
to the proposed new agreement: each mining lease would provide for an annual
payment to Doyon, which commences upon the execution of the lease, of a
specified amount per acre leased, but not less than a specified annual minimum
total, until a feasibility study is delivered to Doyon. If such feasibility
study is not delivered to Doyon before the fifth anniversary of the execution of
the lease, the annual per acre and minimum total amounts owed to Doyon would
increase. North Star would be required to incur minimum expenditures until the
feasibility study was delivered to Doyon. Starting on the date of submittal of a
feasibility study North Star would be required to pay Doyon a yearly advance
royalty which would be larger than the annual minimum total that was payable
prior to the delivery of a feasibility study and
11
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
which was recoupable out of 50% of future royalties. From commencement of
commercial production, North Star would be required to pay Doyon a specified
percentage royalty of net smelter returns, or a specified percentage of net
profits, whichever was greater, until payback, and a larger specified percentage
royalty or net smelter returns, or a larger specified percentage of net profits,
whichever was greater, after payback. Doyon reserved the right to buy a
fractional portion of the equity in a project after the deliverance by the
Company of a positive feasibility study.
North Star has not exercised an option to lease any mineral area from Doyon for
development. It is North Star's intention to exercise such options at such time,
and if, it can do so on behalf of a joint venture or partnership in which it and
another party will each have an interest. Meanwhile, North Star is endeavoring
to develop the properties that it regards as most attractive in order to induce
a major mining company to enter into a joint venture under which, in exchange
for an interest in the property, the mining company would undertake
responsibility for the expenditures to bring the property to feasibility, and
North Star and the mining company would be joint venture partners in the
commercial exploitation of the property.
While the Company believes that agreement in principal has been reached upon the
terms of the proposed new agreement with Doyon, until the definitive documents
have been completed and executed there can be no assurance that such new
agreement will be actually entered into or that its terms will be favorable to
the Company or consistent with the terms of the agreement in principle described
above. As more fully discussed below, in addition to any rights of North Star by
agreement with Doyon, the Company has, through subsidiaries other than North
Star, acquired mineral rights in Alaska on properties not controlled by Doyon.
In the event the proposed new agreement with Doyon should fail to be executed
and completed, the Company's exploration efforts will be limited to projects not
located on Doyon lands. The failure to enter into a definitive and final
agreement with Doyon would have a material adverse effect on North Star's
business.
Technologies Division
One of the goals of the Technologies Division, through Blue Star, was the
construction of an efficient, scalable, stand-alone plant to be made up of one
or more modules each capable of producing approximately 500 barrels per day of
liquefied synthetic fuel and/or high purity wax plus electricity and clean
water. Such a plant would be suitable for erection at a special need location,
such as a "stranded" natural gas field too remote for connection to pipeline
systems, or an oil field with flaring "waste" natural gas that could feed the
plant, or an urban location served with natural gas where, in addition to liquid
fuel, or hydrogen for fuel cell based electricity, the plant could produce heat
and water for a small apartment complex. The plant and units would be "scalable"
so that the number of 500
12
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
barrel per day modules linked together could be increased for larger production
facilities if there were natural gas feed stock available in sufficient
quantity.
As an intermediate step, however, before commencing construction of such a large
plant, Blue Star is considering the development of a medium sized plant able to
produce at least 10 barrels a day of clean liquid fuels. Although only twice as
large in capacity as the existing plant, the intermediate plant would be large
enough for commercial use but would be small enough to be mobile and would be
designed for being moved to natural gas well-heads, where the plant could be
used to produce liquid fuel and water on site, as well as electricity to furnish
part of the energy for ongoing operation of the plant.
After the period reported on, the Company's management decided to follow certain
recommendations of outside consultants hired by the Company to assist in
refining and further developing the Company's business plans related to its Blue
Star natural gas conversion technology. Specifically, subject to board approval,
management determined to focus its resources during 2002 on improving and
testing its existing technology relating to the scalability of its two to five
barrel per day module and to enhance the prospect of commercialization of its
existing technology on a lesser scale. While the Company intends to continue to
seek financing to build an intermediate ten barrel per day plant, if it does not
obtain such financing, Blue Star intends to take steps described above to
improve its technology and further its commercialization goals. Thorn Tree has
indicated to the Company that it will not provide the Company financing for
building a ten barrel per day plant in 2002. There can be no assurance that the
Company will be able to attract other financing in 2002 to construct a ten
barrel per day plant.
Although the management of Blue Star believes that its prototype plant is
demonstrating the practicality and efficiency of Blue Star's natural gas
refinement method, it is still in a developmental phase, and there can be no
assurance that the 10 barrel per day plant under consideration or the 500 barrel
per day modules, or any later developments of the Tripgen Plant technology, will
prove commercially viable.
Legal Actions
A class action was commenced on June 4, 2001, in the United States District
Court for the Southern District of New York by a shareholder who alleged that he
had purchased shares of the Company during April and May 2001 in reliance on a
press release issued by the Company concerning project financing for the
construction of a natural gas conversion plant for Blue Star. The complaint
alleged that the press release overstated the role of Credit Suisse First Boston
Corporation in the potential financing and was therefore false and misleading.
Thereafter, two additional class actions were commenced by two other
shareholders on June 7, 2001, and July 11, 2001, based on similar allegations.
On October 25, 2001, the three actions were consolidated into a single action.
On October 30, 2001 a fourth class action was commenced against the same
defendants, based on similar allegations. On November 2, 2001, a consolidated
amended complaint was filed which substantially repeated the allegations of the
four prior complaints and referred to another Company press release, which the
plaintiffs alleged contained misleading statements.
The defendants in the consolidated action are the Company, Walter W. Tyler,
Milton E. Stanson, Vincent P. Iannazzo, David H. Peipers, Universal Equities
Consolidated LLC and
13
EMEX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - COMMITMENTS AND CONTINGENCIES (continued)
Thorn Tree Resources LLC. The relief sought is money damages in an unstated
amount. A motion on behalf of all the defendants to dismiss the complaint was
made on December 17, 2001 and is presently pending. Subsequent to the period
reported on, in April 2002, the Company received notice that Jeffrey Caimi, a
representative of Credit Suisse First Boston Corporation, intends to make a
claim against the Company for damages in an unstated amount based on statements
allegedly made by the Company concerning him which he claims were defamatory,
the contents of which alleged statements are not stated in the notice. As of the
date of this report on Form 10-QSB, no action or legal proceeding has yet been
commenced against the Company based upon such claim.
Environmental Compliance
The Company's management believes that it is in compliance with environmental
laws and regulations as currently enacted. The Company's management has filed
all necessary permits to fulfill current environmental compliance requirements.
However, the exact nature of environmental compliance, which the Company may be
exposed to in the future, cannot be predicted. This is primarily due to the
increasing number, complexity and changing character of environmental
requirements that may be enacted by federal and state authorities. Provisions
for reclamation will be made when mining begins.
14
EMEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This report on Form 10-QSB includes "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act") and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). All statements other than statements of historical
fact included in this report on Form 10-QSB are forward-looking statements.
Although the Company believes that the expectations reflected in such
forward-looking statements are reasonable, it can give no assurance that such
expectations will prove to have been correct. Important factors that could cause
actual results to differ materially from the Company's expectations are
disclosed in this report on Form 10-QSB, including without limitation in
conjunction with the forward looking statements contained in this report on Form
10-QSB and in the Company's report on Form 10-KSB for the period ended December
31, 2001.
The principal changes in the Company's financial condition from the end of the
preceding fiscal year to the date of its March 31, 2002 balance sheet were a
decrease of $70,000 in assets and an increase of $1,612,000 in current
liabilities (partly offset by a decrease of $5,000 in other liabilities) which
were due primarily to the comprehensive loss of $1,677,000 reported for the
quarter ended March 31, 2002.
The operating loss from continuing operations reported by the Company for the
quarter ended March 31, 2002 was $35,000 less than for the corresponding period
of the preceding fiscal year. The difference was due to decreases of $4,000 in
lease operating expense, $152,000 in exploration expense and $26,000 in general
and administrative expense, which were partly offset by increases of $78,000 in
research and development expense and $24,000 in depreciation, depletion and
amortization, as compared with such prior corresponding period. However, with
respect to interest expense, the Company reported for the quarter ended March
31, 2002 an increase in interest expense of $172,000 (offset by an increase in
interest and other income of $1,000) as compared with the corresponding period
of the preceding fiscal year, with the result that, notwithstanding the decrease
in operating expense, there was an increase of $136,000 in overall expense, and
a resulting increase of $136,000 in net loss, as compared with the corresponding
period of the preceding fiscal year. The increase in interest expense was due
primarily to the fact that loans from shareholders were outstanding during the
quarter reported on ($7,105,000 in principal amount on January 1, 2002 that
increased to $8,706,000 in principal amount by March 31, 2002) that were not
outstanding during the corresponding period of the preceding fiscal year.
On January 23, 2002 and February 11, 2002 the Company issued secured grid notes
(the "January Note" and the "February Note") payable to the order of Thorn Tree
in the respective amounts of $628,000 and $2,034,100. The full amount of the
January Note and $793,000 of the February Note had been borrowed by March 31,
2002, and the remaining $1,241,000 of the February Note was borrowed thereafter.
On May 1, 2002, after the end of the period reported on, the Company issued a
secured note (the "May Note") payable to
15
EMEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Thorn Tree for an additional $600,000, all of which has been borrowed. The terms
of the January Note, the February Note and the May Note are described below in
Item 2 of Part II.
The Company's total funding requirements for 2002 are expected to be
approximately $10.8 million, which includes approximately $2.2 million for the
Lands Division, assuming the consummation of the proposed new agreement with
Doyon under the proposed terms outlined herein, and $7.8 million for the
Technologies Division, assuming that the Company begins building a ten barrel
per day plant. The Company does not anticipate earning material revenues in
2002. If the Company is unable to raise financing to develop the ten barrel per
day plant, its required funding for the Technologies Division would decrease by
approximately $4.0 million. See "Note 4 - Commitments and Contingencies -
Technologies Division". Thorn Tree has so far loaned the Company in 2002 an
aggregate of $3,262,100. The Company plans to meet the remaining 2002 funding
requirements by borrowing additional funds from Thorn Tree (other than funding
for the development of a ten barrel per day plant) and/or seeking equity or debt
financing from other investors or the public. As the Company has not entered
into any agreements with Thorn Tree or other investors, there can be no
assurance that Thorn Tree will make additional loans or that the Company's
efforts to obtain equity or debt financing from other investors or the public
will be successful. If the Company does obtain financing, it may not be on terms
favorable to the Company. As of the date of this report, Thorn Tree has given no
indication to the Company that it intends to make or decline to make additional
advances to the Company in 2002 in excess of the $3,262,100 it previously made.
As previously reported, the Company's option agreement with Doyon expired on
January 31, 2002, and the Company has engaged in negotiations, and believes it
has reached agreement in principle, with Doyon on a new option agreement on the
terms summarized in the Company's report on Form 10-KSB for the year ended
December 31, 2001. There can be no assurance that such new option agreement will
actually be entered into or, if so, that the terms will be favorable to the
Company. If a new option agreement should fail to be entered into with Doyon,
the Company's business would be materially adversely affected.
The Company's loans from Thorn Tree since October 2001 are secured by a pledge
of all the Company's assets under an Amended and Restated Security Agreement
dated as of February 11, 2002 described below in Item 2 of Part II. The Company
does not presently have any prospect of being able to repay those loans by their
December 31, 2002 maturity date. While the Company intends to request an
extension of the maturity date from Thorn Tree, if needed, there can be no
assurance that such extension will be granted. In the event the Company should
fail to obtain such extension and Thorn Tree should foreclose on the pledge, the
Company would be materially adversely affected. Certain of the Company's earlier
loans from Thorn Tree, amounting to $1,085,000 in principal amount, have an
earlier maturity date of July 31, 2002, but have been conditionally extended
pursuant to the Settlement Agreement
16
EMEX CORPORATION AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
referred to below in Item 5 of Part II. Under the terms of the pledge, a default
under any loan from Thorn Tree to the Company would also entitle Thorn Tree to
foreclose, which would have a material adverse effect upon the Company.
17
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
A class action was commenced on June 4, 2001, in the United States District
Court for the Southern District of New York by a shareholder who alleged that he
had purchased shares of the Company during April and May in reliance on a press
release issued by the Company concerning project financing for the construction
of a natural gas conversion plant for Blue Star. The complaint alleged that the
press release overstated the role of Credit Suisse First Boston Corporation in
the potential financing and was therefore false and misleading. Thereafter, two
additional class actions were commenced by two other shareholders on June 7,
2001, and July 11, 2001, based on similar allegations. On October 25, 2001, the
three actions were consolidated into a single action. On November 2, 2001, a
consolidated amended complaint was filed which substantially repeated the
allegations of the original complaints and referred to another Company press
release which the plaintiffs alleged contained misleading statements.
The defendants in the consolidated action are the Company, Walter W. Tyler,
Milton E. Stanson, Vincent P. Iannazzo, David H. Peipers, Universal Equities
Consolidated, LLC and Thorn Tree Resources, LLC. The relief sought is money
damages in an unstated amount. A motion on behalf of all the defendants to
dismiss the complaint was made on December 17, 2001 and is presently pending.
In April 2002, the Company received notice that Jeffrey Caimi, a representative
of Credit Suisse First Boston Corporation, intends to make a claim against the
Company for damages in an unstated amount based on statements allegedly made by
the Company concerning him which he claims were defamatory, the contents of
which alleged statements are not stated in the notice. As of the date of this
report on Form 10-QSB, no action or legal proceeding has yet been commenced
against the Company based upon such claim.
18
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES; RECENT SALES OF UNREGISTERED SECURITIES
On January 23, 2002 the Company issued a Secured Grid Note (the "January Note")
payable to the order of Thorn Tree in the amount of $628,000 bearing interest at
a rate equal to the Prime Rate at J.P. Morgan Chase & Co. as of that date plus
three percent per annum, subject to adjustment from and after default to a rate
equal to such prime rate plus five percent per annum. The January Note had a
maturity date of April 23, 2002, which was extended to December 31, 2002. Thorn
Tree has the right to convert some or all of the outstanding principal amount
and any accrued interest thereon into shares of the Common Stock, at a price
equal to $3.01, subject to certain anti-dilution adjustments. The Company
granted Thorn Tree warrants to purchase 53,535 shares of Common Stock until
January 23, 2007, at a price of $3.01 per share, subject to certain
anti-dilution adjustments.
On February 11, 2002 the Company issued a Secured Grid Note (the "February
Note") payable to the order of Thorn Tree in the amount of $2,034,100 bearing
interest, on amounts advanced pursuant to the note from time to time, at a rate
equal to the Prime Rate at J.P. Morgan Chase & Co. as of the date of the note
plus five percent per annum, compounded monthly, subject to adjustment from and
after default to a rate equal to such prime rate plus seven percent per annum.
The February Note when issued had a maturity date of June 1, 2002 which was
extended to December 31, 2002. Thorn Tree has the right to convert some or all
of the outstanding principal amount and any accrued interest thereon into shares
of Common Stock at a price equal to $3.00 per share, subject to certain
anti-dilution adjustments. The Company granted Thorn Tree warrants to purchase
170,000 shares of Common Stock until February 11, 2007, at a price of $3.00 per
share, subject to certain anti-dilution adjustments.
On May 1, 2002 the Company issued a Secured Note (the "May Note") payable to the
order of Thorn Tree in the sum of $600,000 bearing interest at a rate equal to
the Prime Rate of J.P. Morgan Chase & Co. as of the date of the note plus three
percent per annum, subject to adjustment from and after default to a rate equal
to such prime rate plus five percent per annum. The maturity date of the May
Note is December 31, 2002. Thorn Tree has the right to convert some or all of
the outstanding principal amount and any accrued interest thereon into shares of
Common Stock at a price equal to $2.57 per share, subject to certain
antidilution adjustments. The Company granted Thorn Tree warrants to purchase
50,000 shares of Common Stock until May 1, 2007, at a price of $2.57 per share,
subject to certain antidilution adjustments.
The January Note, the February Note and the May Note and a note issued by the
Company to Thorn Tree on October 17, 2001 (the "October Note") are secured by
all of the assets of the Company and its subsidiaries pursuant to an Amended and
Restated General Security Agreement dated as of February 11, 2002 (the "Security
Agreement"). The Security Agreement includes provisions defining defaults under
other agreements as defaults under the Security Agreement that could allow Thorn
Tree to foreclose on the Company's or its subsidiaries' assets.
19
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 2. CHANGES IN SECURITIES; RECENT SALES OF UNREGISTERED SECURITIES
CONTINUED.
Each of the October Note, January Note, February Note and May Note provide that
it shall constitute a default there under if the Company shall materially
default under or be in material breach of the October Note, the January Note,
the February Note or the May Note. The October Note provides that the Company
may not take any of the following actions without the consent of Thorn Tree: (1)
liquidate or dissolve, (2) sell, transfer, lease or otherwise dispose of its
assets and properties or grant options, warrants or other rights with respect to
its property or assets, with certain exceptions, (3) purchase, redeem or retire,
or make any dividend or distribution on account of, any equity and/or debt
securities of the Company, except for certain dividends payable in Common Stock
until June 30, 2002, (4)create, incur, assume or suffer to exist any
indebtedness, with certain exceptions, (5) create, incur, assume or suffer to
exist any mortgage, pledge, hypothecation, assignment, security interest,
encumbrance, lien, preference, priority or preferential arrangement on its
property, revenues or assets, with certain exceptions, (6) purchase, own, invest
in or acquire any stock or other securities, with certain exceptions, (7) enter
into any transaction with any person or entity affiliated with the Company where
the transaction is valued in excess of $50,000 or (8) issue any securities of
the Company, with certain exceptions. Additionally, the Company must obtain the
written consent of Thorn Tree before taking the following actions:(a) amending
or extending the Option Agreement with Doyon, (b) committing to any new material
expenditures in excess of $100,000, (c) settling any material litigation or (d)
hiring any new executive officers of the Company.
Each of the Warrant Agreements between Thorn Tree and the Company grants Thorn
Tree rights to include shares underlying Warrants in future registration
statements filed by the Company.
20
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Vincent P. Iannazzo, Milton E., Stanson, David H. Peipers, Thorn Tree and
Universal (collectively, the "Controlling Shareholders"), The Cornerhouse
Limited Partnership, The Winsome Limited Partnership, the Company, Equistar,
Sixth Avenue Associates LLC and Ms. Dorothy D. Eweson (Sixth Avenue Associates
LLC and Ms. Dorothy D. Eweson are referred to herein as the "Controlling
Shareholders' Lenders") entered into a settlement agreement (the "Settlement
Agreement") on April 12, 2002 to resolve outstanding disputes among the parties.
Pursuant to the Settlement Agreement, among other things, the parties agreed
that the sums owed by the Company to Thorn Tree and Universal for borrowings
made in May and June 2001 shall not be repaid, without the prior written consent
of Sixth Avenue Associates LLC, until the debt owed to the Controlling
Shareholders' Lenders by Equistar and secured by shares owned by each of Thorn
Tree and Universal (the "Stockholder Debt") is satisfied in full in cash.
Further, Universal and Equistar agreed to extend the maturity date of the
indebtedness owed to them by the Company until the earlier of (i) the
satisfaction in full in cash of all loans and obligations theretofore owed by
Universal and certain of its affiliates to Sixth Avenue, Thorn Tree and certain
of their affiliates, and (ii) the completion of the period that is three years
from the date of the Settlement Agreement, as such period may be extended from
time to time (the "Standstill Period").
The Settlement Agreement also provides that during the Standstill Period,
Universal shall have the right to nominate one person, with the consent of each
of Stanson and Iannazzo, reasonably acceptable to Sixth Avenue Associates LLC,
to serve on the Company's board of directors. Sixth Avenue Associates LLC shall
have the right to nominate all other members to serve on the Company's board of
directors until the obligations to the Controlling Shareholders' Lenders secured
by Universal's shares are satisfied in full in cash. Upon such satisfaction in
full in cash, the right to nominate all other members to serve on the Company's
board of directors will inure to the benefit of David H. Peipers until the debt
owed to Thorn Tree and certain of its affiliates that is secured by Universal's
shares has been satisfied in full in cash.
In connection with the Settlement Agreement the Company, Sixth Avenue Associates
LLC, Thorn Tree and Universal entered into a Registration Rights Agreement dated
April 12, 2002, pursuant to which the Company agrees, at its expense, to use its
best efforts to file a shelf registration statement for an offering to be made
on a continuous basis pursuant to Rule 415 under the Securities Act of 1933 as
amended (the "Securities Act") covering (i) 24,214,204 shares of Common Stock
pledged by Thorn Tree and Universal to Sixth Avenue Associates LLC in connection
with the Settlement Agreement and (ii) the 300,000 shares of common stock
retained by Universal in connection with the Settlement Agreement, to become
effective under the Securities Act on the next day following the Effective Date,
or at the earliest possible time thereafter.
21
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.1 Second Amended and Restated Articles of Incorporation of Hawks Industries,
Inc, are incorporated by reference to Exhibit 3(c) to the Company's Report
on Form 10-KSB for the year ended December 31, 2000.
3.2 Amended and Restated Bylaws of Emex Corporation are incorporated by
reference to Exhibit 3(ii) to the Company's Report on Form 10-KSB for the
year ended December 31, 2001.
10.1 Secured Grid Note dated January 23, 2002 issued by Emex Corporation in
favor of Thorn Tree Resources LLC is incorporated by reference to Exhibit
1 to Amendment No. 2 filed April 22, 2002 to Schedule 13-D of Thorn Tree
Resources LLC.
10.2 Amended and Restated General Security Agreement dated as of January 23,
2002 between Emex Corporation and Thorn Tree Resources LLC, is
incorporated by reference to Exhibit 2 to Amendment No. 2 filed April 22,
2002 to Schedule 13-D of Thorn Tree Resources LLC.
10.3 Warrant Agreement dated January 23, 2002 between Emex Corporation and
Thorn Tree Resources LLC, is incorporated by reference to Exhibit 3 to
Amendment No. 2 filed April 22, 2002 to Schedule 13-D of Thorn Tree
Resources LLC.
10.4 Secured Grid Note dated February 11, 2002 issued by Emex Corporation in
favor of Thorn Tree Resources LLC is incorporated by reference to Exhibit
4 to Amendment No. 2 filed April 22, 2002 to Schedule 13-D of Thorn Tree
Resources LLC.
10.5 Amended and Restated General Security Agreement dated as of February 11,
2002 between Emex Corporation and Thorn Tree Resources LLC, is
incorporated by reference to Exhibit 5 to Amendment No. 2 filed April 22,
2002 to Schedule 13-D of Thorn Tree Resources LLC.
10.6 Warrant Agreement dated February 11, 2002 between Emex Corporation and
Thorn Tree Resources LLC is incorporated by reference to Exhibit 6 to
Amendment No. 2 filed April 22, 2002 to Schedule 13-D of Thorn Tree
Resources LLC.
10.7 Letter Agreement, re: extension of maturity, dated April 22, 2002 between
Emex Corporation and Thorn Tree Resources LLC is filed with this report.
10.8 Secured Note dated May 1, 2002 issued by Emex Corporation in favor of
Thorn Tree Resources LLC is filed with this report.
10.9 Warrant Agreement dated May 1, 2002 between Emex Corporation and Thorn
Tree Resources
22
EMEX CORPORATION AND SUBSIDIARIES
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K CONTINUED
LLC is filed with this report.
10.10 Settlement Agreement and Release dated as of April 12, 2002, by and among
The Cornerhouse Limited Partnership, The Winsome Limited Partnership,
David H. Peipers, Thorn Tree Resources LLC, Vincent P. Iannazzo, Milton
E. Stanson, Universal Equities Consolidated, LLC, Equistar Consolidated
Holdings, LLC, Sixth Avenue Associates LLC, Ms. Dorothy D. Eweson and
Emex Corporation is incorporated by reference to Exhibit 10.1 to the
Company's report on Form 10-KSB for the year ended December 31, 2001.
10.11 Registration Rights Agreement, dated as of April 12, 2002, among Emex
Corporation, Sixth Avenue Associates LLC, Thorn Tree Resources LLC and
Universal Equities Consolidated, LLC, is incorporated by reference to
Exhibit 10.2 of the Company's report on Form 10-KSB for the year ended
December 31, 2001.
(b) Reports on Form 8-K
On April 24, 2002 the Company filed a Report on Form 8-K disclosing the
resignation of Vincent P. Iannazzo as a director of the Company effective April
19, 2002.
23
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EMEX CORPORATION
(Registrant)
By /s/ Walter W. Tyler (President and Chief Executive Officer)
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Date May 10, 2002
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By /s/ Joy K. Mosley (Acting Treasurer and Chief Financial Officer)
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Date May 10, 2002
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24