Here's some further information about Daniel Dror & Co. and Elk International Ltd. It is taken from the 1997 10K of MicroTel International:
www4.edgar-online.com
2. RELATED PARTY TRANSACTIONS
Daniel Dror was the Company's Chairman and Chief Executive Officer from 1994
until his resignation on November 15, 1996. Elkana Faiwuszeiwicz, the President
and control person of Elk International Corporation Ltd. ("Elk"), is the brother
of Mr. Dror. Based upon information contained in Elk's Schedule 13D filed with
the Securities and Exchange Commission dated January 25, 1994, Mr. Dror may be
deemed a "control" person of Elk and Mr. Dror, Daniel Dror & Company, Inc.
("DDC") and Elk may be deemed to constitute a "group" as those terms are defined
under the Securities Act of 1933, as amended, and Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder. Mr. Dror
and DDC each disclaim any beneficial ownership in Elk and in stock of the
Company owned by Elk.
Pursuant to an agreement dated January 5, l994, the Company issued 300,000
shares of the Company's common stock to the designees of DDC for $600,000 (or
$2.00 per share) including 210,000 shares to Elk. Additionally, pursuant to the
agreement, the Company issued to Elk warrants to purchase 100,000 shares for
$2.50 per share, exercisable at any time prior to December 25, l995. The Company
also entered into a common stock purchase agreement with DDC on March l0, l994
whereby DDC, or its designee, was to acquire 1,260,000 shares of the
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Company's common stock for an aggregate of $2,520,000 (or $2.00 per share),
payable in cash, or at the option of the Company, in cash, cash equivalents, or
marketable securities or any combination thereof. The stockholders of the
Company approved the common stock purchase agreement (the Agreement) on April
16, l994. The Agreement provided for a closing by June 30, l994 contingent upon
all conditions to closing being fulfilled.
As permitted under the terms of the Agreement, the Board of Directors on July
27, l994 amended the Agreement, following claims by DDC and its designee raised
prior to June 30, l994 that certain closing conditions had not been satisfied.
The amended Agreement required the Company to issue and sell 911,484 shares to
Elk as designee of DDC, for an aggregate purchase price of $1l,882,967 (based on
the previously agreed price of $2.00 per share), in cash, cash equivalents or
marketable securities. In September l994, Elk tendered the assignment of an
interest-free promissory note in the amount of $805,555 secured by shares of
another public company and transferred a brokerage account to the Company
consisting of cash and common stock of $1,077,412 amounting to an aggregate of
$l,882,967 (the Company assumed the liability for certain financial instruments
amounting to $506,250 which were secured by the cash and common stock
investments in the brokerage account). Subsequent to this transfer, a loan of
$226,000 was made from the brokerage account to another entity controlled by DDC
which loan was payable with 15% interest on December 31, l995. Although no
formal agreements were signed, DDC indicated its intent to reimburse the Company
for any loss resulting from the settlement of the financial instruments and
indebtedness from the related party. The acceptance of the consideration
received and subsequent loan were authorized by Daniel Dror in his capacity as
Chairman of the Company's investment committee prior to formal review by the
Board of Directors.
The Board of Directors subsequently reviewed the consideration tendered under
the amended Agreement and determined that it would be in the best interests of
the Company to accept payment from Elk with securities less likely to experience
significant fluctuations in value. On November 8, l994 the Company executed a
second amendment to the Agreement dated October l6, l994 with DDC whereby the
transactions under the previous amendment were effectively rescinded and the
Company agreed to issue and sell 668,725 shares to Elk as designees of DDC, for
the aggregate purchase price of $1,337,449 (or $2.00 per share) on or before
December 3l, l994.
In payment of the purchase price under the second amendment to the Agreement,
the Company accepted assignment of a promissory note payable to Elk from a
limited partnership in the aggregate amount of $1,444,444 payable on December
3l, l995. The face amount of the promissory note includes the purchase price of
$1,337,449 plus $106,995, representing interest on the purchase price at an
interest rate of 8% per annum for the period commencing on December 3l, l994
through December 3l, l995. At a board meeting held in December 1995 the Company
agreed to accept $250,000 to extend the note to December 15, 1996 and $100,000
as prepaid interest for the extension period. The $350,000 was recognized as
income in l996 over the extension period of the note. As a result of this
agreement the Board extended the option period of the remaining 90,000 Elk
warrants for two years. Payment of the promissory note was secured by escrowed
shares of another public company and the shares issued to Elk were being held in
escrow and were to be delivered to Elk when the promissory note had been fully
satisfied.
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In June 1996, Elk was given the right to make alternative cash payment to the
Company for the stock subscription through December 15, 1996 releasing shares
from escrow at the price of $2.00 per share, and to receive a corresponding
assignment of proceeds from the promissory note when collected. Elk made
payments against the stock subscription aggregating $380,000 through November
14, 1996, releasing 190,000 shares of common stock from the escrow.
On November 15, 1996, the Company and Elk entered into an agreement pursuant to
which Elk received (i) an option exercisable for a period of three years to
purchase 500,000 shares of Common Stock at an exercise price of $2.375 per
share, (ii) the extension of an outstanding warrant to purchase 90,000 shares of
Common Stock for three years, and (iii) the return to Elk of the $1,444,444
promissory note. In exchange for the foregoing, the remaining shares held in
escrow by the Company and the subscription right were canceled. The costs of
this settlement totaling $807,000, including the valuation of the option grant
of $700,000, was recorded in the fourth quarter of 1996.
Also on November 15, 1996 Mr. Dror resigned as Chairman and Chief Executive
Officer of the Company in anticipation of the pending merger with XIT. Mr. Jack
Talan, a director of the Company, was appointed interim Chairman and Chief
Executive Officer until consummation of the transaction.
Upon his resignation, Mr. Dror (or his designee) received as a severance award
for past service: (a) 350,000 shares of the Company's common stock; (b) an
extension of the exercise period to November 14, 1999 on options he currently
holds to purchase 25,000 shares of the Company's common stock; and (c) options
to purchase 250,000 shares of the Company's common stock at a price of $2.375
per share. The latter options are excercisable for a period of 5 years, but only
after Mr. Dror repays a certain indebtedness to the Company of approximately
$211,000, which amount is due in 5 annual installments and which may be repaid
by surrendering the options for value equivalent to the lesser of the future
appreciation of the Company's common stock over the exercise price or $.50 per
option. On December 3, 1996, it was mutually agreed between the Company and Mr.
Dror to substitute an option to acquire 300,000 shares of common stock at an
exercise price of $.01 per share for 300,000 shares of the previous award and on
December 23, 1996, these options were exercised. The compensation expense
associated with this grant of $560,000, as well as the value of the 50,000
shares awarded of $119,000 and other costs totaling $82,000 related to the
immediate vesting of previous stock based deferred compensation to Mr. Dror and
the settlement of certain amounts due the Company by Mr. Dror, were recognized
in the fourth quarter of 1996. |
