SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
POWER DIRECT, INC.,
A Delaware corporation (Exact name of
registrant as specified in its charter)
DELAWARE 52-2132622
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
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(Address of registrant's principal executive offices) (Zip Code)
604.664.0484
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of Each Exchange on which
to be so registered: each class is to be registered:
None None
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Securities to be registered under Section 12(g) of the Act:
Common Stock, Par value $.0001
(Title of Class)
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
Attorneys-at-Law
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile 949.660.9010
Power Direct, Inc., a Delaware corporation
Index to Form 10-SB Registration Statement
Item Number and Caption Page
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1. Description of Business 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
3. Description of Property 15
4. Security Ownership of Certain Beneficial Owners and Management 15
5. Directors, Executive Officers, Promoters and Control Persons 16
6. Executive Compensation - Remuneration of Directors and Officers 17
7. Certain Relationships and Related Transactions 17
8. Legal Proceedings 18
9. Market For Common Equity and Related Shareholder Matters 19
10. Recent Sales of Unregistered Securities 19
11. Description of Securities 19
12. Indemnification of Officers and Directors 20
13. Financial Statements 21
14. Changes in and Disagreements with Accountants 21
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15. Financial Statements and Exhibits
15(a) Index to Financial Statements 21
Financial Statements F-1 through F-3
15(b) Index to Exhibits 21
Exhibits E-1 through E-48
Signatures 23
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Item 1. Description of Business.
Power Direct, Inc. (the "Company") was incorporated in the State of Delaware on September 13, 1993, and maintains its principal executive offices at 1288 Alberni Street, Suite 806, Vancouver, BC V6E 4N5. The Company's offices in the United States are located at 4291 Meridian Street, Suite 29, Bellingham, WA 98226. The Company's primary business is the acquisition and development of oil and natural gas producing properties; however the Company recently invested funds to acquire an ownership interest in LANSource Technologies, Inc., a Canadian company ("LANSource"), which develops facsimile and data communications software. The Company's ownership interest in LANSource is contingent upon the Company making payments to LANSource in specific installments, and there is presently a dispute between the Company and LANSource regarding the Company's acquisition of that ownership interest. The Company's ownership interest in LANSource is also contingent upon the issuance, by the Company, of certain shares of its common stock to Marc Bisnaire, President of LANSource, which shares have not been issued. The Company is taking and will continue to take, the action it believes is appropriate to resolve its dispute with LANSource.
For purposes of clarification, anytime that "US$" appears in this Registration Statement, it means the currency of the United States of America, unless otherwise stated. Anytime that "CDN$" appears, it means the currency of Canada, in Canadian dollars.
The Company was inactive from January 1, 1996, through November 1, 1998. In November, 1998 the Company began the process of identifying available interests in oil and natural gas producing properties. On January 15, 1999, the Company entered into a letter of intent with Rising Phoenix Development Group Ltd., a Canadian corporation, located in Vancouver, British Columbia, Canada ("Rising Phoenix"), to acquire all the assets of Rising Phoenix, including that corporation's interest in the oil and natural gas rights on 6,360 acres located in the Powder River Basin of eastern Wyoming (the "Wyoming Property"). That letter of intent specifies that the Company must, among other things, pay Rising Phoenix seventy-five thousand dollars (US$75,000) and, further, issue 3,800,000 shares of its common stock to Rising Phoenix to complete the acquisition of the assets of Rising Phoenix. The letter of intent also provides that the Company will appoint no more than three directors from Rising Phoenix's board of directors to the Company's board of directors. The Company paid Rising Phoenix a prepayment advance of Twenty-Five Thousand Dollars (US$25,000) on January 27, 1999. On or about February 24, 1999, the Company made a second prepayment advance to Rising Phoenix of Ten Thousand Dollars (US$10,000). The Company has not transferred any of its common stock to Rising Phoenix to complete this transaction. According to the letter of intent, the Company is to assume all of Rising Phoenix's financial obligations pertaining to the Wyoming Property as of January 31, 1999. In return, Rising Phoenix agreed to deliver the Wyoming Property in good title and assign to the Company its joint venture agreement with Derek Resources Corporation ("Derek Resources"). Pursuant to that joint venture agreement, Derek Resources agreed to provide up to a maximum of Three Million Five Hundred Thousand Dollars (US$3,500,000) of improvements on the Wyoming Property.
On January 26, 1999, the Company signed a letter of agreement with I.T.A. Enterprises, Inc. ("I.T.A."), a Canadian company, to acquire and own a 37.8% working interest in a natural gas project in west central Alberta (the "Alberta Property"). This letter of agreement requires the Company to provide 42% of the costs for the three phase project, which are estimated in the letter of agreement to be Two Hundred Thousand Dollars (CDN$200,000). The working interest acquired will be subject to a 10% gross overriding royalty (that is, 3.78% of the 37.8% working interest shall be payable directly to Nicholas Baiton, the royalty holder). To date, the
Company has paid a deposit of Eight Thousand Four Hundred Dollars (CDN$8,400) to I.T.A. pursuant to the terms of that agreement. It was agreed between I.T.A. and the Company that the $8,400 deposit would be used for prospect fees, and that the Company will receive a refund of any unused portion of that deposit. Within ten (10) days of I.T.A. providing the Company with an "Authority for Expenditures" and a cash call for Phases I and II of the development of the Alberta Property, the Company will be required to advance Seventy Five Thousand Six Hundred Dollars (CDN$75,600) to I.T.A., representing the balance of the Company's 42% of the estimated costs. There can be no assurance that the Company will have sufficient funds available to meet this obligation in the time frame required by the letter of agreement.
On or about April 28, 1999, the Company entered into a licensing agreement ("Licensing Agreement") with Compte De Sierge Accomodative Corp. doing business as E-Card Gaming Systems, Inc., a corporation incorporated in Panama City, Panama ("E-Card") which provides, among other things, that the Company will have the worldwide right to utilize and commercially exploit certain gaming software systems and related proprietary technology relating to the operation of the Greeting Card Lotto, a virtual lottery conducted over the Internet. The Company anticipates that its subsidiary, PDTech.com will acquire the rights, title and interest under the Licensing Agreement. In the alternative, the Licensing Agreement provides that the Company may grant sublicenses to third parties with new terms agreeable to E-Card in respect to the proprietary technology. PDTech.com may become such a third party licensee.
The Licensing Agreement also provides that three equal cash payments of CDN$100,000 are to be paid to E-Card by the Company as partial consideration pursuant to the Licensing Agreement. The first such payment is due upon execution of the Licensing Agreement; the second payment is due upon completion of the first phase of testing; and the third payment is due upon completion of the second phase of testing. The Licensing Agreement also provides that the Company shall issue 6,000,000 shares of its common restricted stock with a one-year hold period in two equal installments, the first issuance to be made upon execution of the Licensing Agreement, and the second issuance to be made upon the commencement of the Greeting Card Lotto, as specified in the Licensing Agreement. As of May 13, 1999, the Company had paid a total of CDN$69,445 toward satisfying its financial obligations under the Licensing Agreement. There can be no assurance that either the Company or PDTech.com will have the ability to make further payments due pursuant to the Licensing Agreement in a timely manner, or at all.
Business of Company's Subsidiary. On February 19, 1999, the Company caused PDTech.com, a Nevada corporation, to be formed, and will always own at least 51% of this issued and outstanding common stock of PDTech.com. The Company anticipates that PDTech.com will invest in Internet companies and related technology, and further anticipates that the Company's interest in LANSource, when and if acquired, as specified below, will be transferred to PDTech.com. The Company further anticipates that its interest in the Licensing Agreement with E-Card will eventually be transferred to PDTech.com.
On February 15, 1999, the Company signed a letter of intent to acquire and own up to a 51% ownership interest in LANSource. LANSource is a developer of fax and data communications software. LANSource's primary products are WINport, a modem-sharing application and FAXport, a group of software products which allows users to send and receive faxes from their desktop computer or through their e-mail system. WINport, FAXport, and other LANSource products are distributed through Tech Data US, Tech Data Canada, Ingram Micro Canada, Ingram USA, Ingram UK, Ingram Italy, EMJ Date Systems Canada, EMJ USA, Merisel US and Micro Central. WINport is currently available in 12 languages and is distributed worldwide. In order to purchase the first 12.5% ownership interest in LANSource, the Company was required to make, on or before March 1, 1999, a total non-refundable deposit of Three Hundred Thousand Dollars (CDN$300,000), which payment was timely made to LANSource by the Company.
The letter of intent contemplated that, on or before March 31, 1999, the Company and LANSource would enter into a formal Purchase and Sale Agreement. Upon the execution of that agreement, the Company would be required to make an additional non-refundable deposit of Two Hundred Thousand Dollars (CDN$200,000). The letter of intent also specifies that in the event that the parties, for whatever reason, were unable to finalize the Purchase and Sale Agreement by March 31, 1999, than the transaction between the Company and LANSource would be considered null and void and LANSource would be entitled to retain all deposits. Because of delays by LANSource in preparing the formal Purchase and Sale Agreement, as of April 8, 1999, the Company and LANSource have not finalized a formal agreement. The Company is taking appropriate action to resolve this dispute with LANSource.
Pursuant to the letter of intent with LANSource, LANSource and the Company agreed to sign a definitive agreement and close the subject transaction no later than March 31, 1999. LANSource undertook to cause that agreement to be prepared. Counsel for LANSource did not provide a complete copy of that agreement to the Company and its counsel until March 26, 1999. Moreover, the agreement delivered by LANSource's counsel was incomplete and not capable of being entered into by the Company on or before March 31, 1999. Because the counsel for the Company did not receive a complete copy of the unfinished definitive agreement until March 26, 1999, such counsel could not offer effective comments to that agreement in time for the March 31, 1999, deadline. As a result, that agreement was not entered into by LANSource and the Company on March 31, 1999. As a result, LANSource has attempted to repudiate that agreement. The Company has indicated to LANSource that the Company believes that LANSource was negotiating in bad faith and, as a result, the Company has sued
LANSource to seek enforcement of that agreement.
In the event this dispute is resolved, and a formal Purchase and Sale Agreement is finalized, then, on or before April 30, 1999, the Company is required to make an additional non-refundable deposit of Five Hundred Thousand Dollars (CDN$500,000) Thereafter, on or before May 31, 1999, the Company is required to provide an additional deposit of One Million Dollars (CDN$1,000,000). There is no assurance that the Company can meet those financial obligations.
Should the Company meet the aforementioned financial obligations, the Company will have the option to purchase an additional 12.5% interest in LANSource for Three Million Dollars (CDN$3,000,000) by delivering such funds to LANSource on or before September 30, 1999. Should the Company successfully acquire 25% of LANSource, it will then have the option to purchase an additional 26% ownership interest by delivering Twenty Million Dollars (CDN$20,000,000) to LANSource on or before September 30, 2000. Moreover, the letter of intent provided that the Company would issue 1,200,000 restricted shares of common stock to Marc Bisnaire, the President of LANSource, on the signing of the letter of intent. Those shares have not yet been issued. In addition, the Company is required to deliver to Mr. Bisnaire an additional 1,200,000 restricted shares of its common stock should it elect to purchase the additional 12.5% interest in LANSource.
Competition and Technological Changes. Competition in the oil and natural gas production industry is intense. The Company will encounter intense competition from other companies and entities in virtually all phases of the oil and gas industry. The Company will compete to identify and acquire both existing producing wells and undeveloped leases as acquisition candidates. If the Company produces oil and gas in commercial quantities, it will encounter significant competition in the sale of its oil and gas production. Many of these competitors have greater financial and other resources, and more experience in the oil and gas industry, than the Company. The Company competes directly with other companies and businesses that have developed, and are in the process of developing, exploration and drilling technologies which may provide those competitors with an advantage over the Company.
The Company believes it will encounter competition from other oil and natural gas companies in all areas of its operations, including the acquisition of exploratory prospects and proven properties. The Company's competitors include major integrated oil and natural gas companies and numerous independent oil and natural gas companies, individuals, and drilling and income programs. Many of its competitors are large, well-established companies with substantially larger operating staffs and greater capital resources than those of the Company and which, in many instances, have been engaged in the oil and natural gas business for a much longer time than the Company. Such companies may be able to pay more for exploratory prospects and productive oil and natural gas properties and may be able to identify, evaluate, bid for and purchase a greater number of properties and prospects than the Company's financial or human resources permit. In addition, such companies may be able to expend greater resources on the existing and changing technologies that the Company believes are and will be increasingly important to the current and future success of oil and natural gas companies. The Company's ability to explore for oil and natural gas prospects and to acquire additional properties in the future will be dependent upon its ability to conduct its operations, to evaluate and select suitable properties and to consummate transactions in this highly competitive environment.
The oil and gas industry is characterized by rapid and significant technological advancements and introductions of new products and services utilizing new technologies. As others use or develop new technologies, the Company may be placed at a competitive disadvantage, and competition may force the
Company to implement such new technologies at substantial cost. In addition, other oil and gas companies may have greater financial, technical and personnel resources that allow them to enjoy technological advantages and may in the future allow them to implement new technologies before the Company. There can be no assurance that the Company will be able to respond to such competitive pressures and implement such technologies on a timely basis or at an acceptable cost. One or more of the technologies currently utilized by the Company or implemented in the future may become obsolete. In such case, the Company's business, financial condition and results of operations could be materially adversely affected. If the Company is unable to utilize the most advanced commercially available technology, the Company's business, financial condition and results of operations could be materially and adversely affected.
Competition in the gambling industry is intense. Certain of the Company's competitors have more experienced management and greater name recognition, marketing capabilities and financial resources than the Company or its subsidiary. The Company or its subsidiary may also face increasing competition from the new and existing sports betting operations developed and promoted both by casinos and by Internet gaming industry companies in other jurisdictions throughout the United States and abroad. The Company or its subsidiary also faces indirect competition from other forms of lawful gambling, such as state-sponsored lotteries and video lottery terminals, pari-mutuel betting on horse and dog racing and bingo parlors, as well as from other forms of entertainment. It is possible that increased competition could have a material adverse effect on the Company or its subsidiary. Many of these competitors have greater financial and other resources, and more experience in the gambling industry, than the Company or its subsidiary. There can be no assurance that competitors have not or will not succeed in developing technologies that are more effective than any which have been or are being developed by the Company or its subsidiary or which would render the gaming operations of the Company or its subsidiary obsolete and noncompetitive.
The Company or its subsidiary faces competition from hundreds of Internet gambling companies, including companies that specialize in Internet lotteries. Lotteries have become a $100 billion per year industry. GTECH, traded on the New York Stock Exchange under the trading symbol "GTK", is reputedly the world's leading supplier of computerized online lottery products and services, and supplies or operates approximately 29 United States lottery systems and 51 foreign lottery systems. GTECH announced a contract in February, 1999 to provide online lottery products and services to the Idaho State Lottery, including the central system hardware, software and terminals. In March, 1999, GTECH announced that it had signed a new contract to provide online lottery products and services to Loteria Electronica de Puerto Rico. Another competitor, Plus Lotto, was one of the first operating gaming sites on the Internet. It is an Internet lottery run by the Liechtenstein Foundation, and donates 25% of its profits to the International Red Cross. Games available include conventional weekly and hourly lotteries as well as instant and interactive games such as Bingo and Scratch-Offs.
The Company or its subsidiary also face competition from other types of online gambling by well-established companies. The approximately 55 offshore gaming operators who comprise the IGC are all direct competitors. Inland Entertainment is a publicly-traded company based in San Diego, California and was previously a leader in the Native American gaming industry. The company has since diversified by launching several online casinos, including Casino Australia, The Good Luck Club, and the Kenny Rogers Casino. You Bet! International is a Los Angeles-based interactive technology company that provides horse players instant access to live racing, information and wagering on a secure, proprietary private network. The service is multilingual and multicurrency. American Wagering, Inc., traded on Nasdaq under the trading symbol "BETM" has a gambling license in Nevada and has begun accepting wagers over the Internet from its Australian website, having received approval and licensing by Australian regulatory authorities.
Competition for the Company's Subsidiary. Competition in the computer software industry is also intense, and there can be no assurance that the Company's subsidiary will be able to effectively compete with other companies in that industry, which companies may have significantly greater financial and other resources. Moreover, the computer software industry, and Internet applications thereof, may be subject to various forms of government regulation. There can be no assurance that the Company, or its subsidiary, will complete the acquisition of ownership interest in LANSource contemplated by the letter of intent referenced above. If the Company's interest in the Licensing Agreement is transferred to the Company's subsidiary, the subsidiary will face the same competitive pressures described above regarding Internet gambling.
Employees. The Company currently has 2 part-time employees and 1 full-time employee.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
Liquidity and Capital Resources. The Company had cash resources of US$2,246.00 at December 21, 1998. The cash and equivalents constitute the Company's present internal sources of liquidity. Because neither the Company nor its subsidiaries are generating any significant royalty revenues, the Company's only external source of liquidity is the sale of its capital stock. On or about December 31, 1998, the Company commenced an offering of shares of its common stock in reliance on an exemption from registration pursuant to Section 3(b) of the Securities Act of 1933 and Rule 504 of Regulation D promulgated pursuant thereto by the Securities and Exchange Commission. Through March 15, 1999, the Company had sold a total of 7,127,500 shares of its common stock pursuant to that offering. Gross proceeds from the offering were $US1,000,000.
Results of Operations. The Company has not yet realized any significant revenue from operations, nor does it expect to in the foreseeable future. Loss from operations increased from $0.00 in 1997 to US$10,796.99 in 1998 due to the Company's renewed activities in locating and evaluating suitable gas and oil leases and the general, selling, and administrative amortization of organization costs.
Marketing. The Company anticipates any future production will be marketed to third parties consistent with industry practices. Typically, oil is sold at the wellhead at field-posted prices plus a bonus and natural gas is sold by contract at a negotiated price based upon factors normally considered in the industry, such as distance from the well to the pipeline, well pressure, estimated reserves, quality of natural gas and prevailing supply/demand conditions. The Company's marketing objective is to receive the highest possible wellhead price for its product.
There are a variety of factors which affect the market for oil and natural gas, including the extent of domestic production and imports of oil and natural gas, the proximity and capacity of natural gas pipelines and other transportation facilities, demand for oil and natural gas, the marketing of competitive fuels and the effects of state and federal regulations on oil and natural gas production and sales. The Company does not anticipate
significant difficulties in marketing the oil and natural gas it eventually produces. The oil and natural gas industry also competes with other industries in supplying the energy and fuel requirements of industrial, commercial and individual customers. The availability of a ready market for the Company's oil and natural gas production depends on the proximity of reserves to, and the capacity of, oil and natural gas gathering systems, pipelines and trucking or terminal facilities. The Company anticipates that it will deliver natural gas through gas gathering systems and gas pipelines that it does not own. Federal and state regulation of natural gas and oil production and transportation, tax and energy policies, changes in supply and demand and general economic conditions all could adversely affect the Company's ability to produce and market its oil and natural gas.
The Company anticipates it will take the necessary steps to attempt to control price risk. Even if the Company takes the proper steps, it will remain subject to price fluctuations for natural gas sold in the spot market due primarily to seasonality of demand and other factors beyond the Company's control. Domestic oil prices generally follow worldwide oil prices, which are subject to price fluctuations resulting from changes in world supply and demand. The Company believes that it will be able to reduce these risks by entering into, and expects to enter into, hedge transactions in future years.
Oil and Gas Regulation in the United States. The Company's operations are subject to various types of regulation by federal, state and local agencies. Such regulations impose a comprehensive statutory and regulatory scheme with respect to oil and natural gas operations. Among other things, these regulations provide for (i) new well permits and well registration requirements, procedures and fees; (ii) minimum well spacing requirements; (iii) restrictions on well locations and underground gas storage; (iv) certain well site restoration, groundwater protection and safety measures; (v) landowner notification requirements; (vi) certain bonding or other security measures; (vii) various production reporting requirements; (viii) well plugging standards and procedures; (ix) broad state regulatory enforcement powers; (x) limitations on the rate of allowable oil and gas production; (xi) the method of drilling and casing wells; (xii) the surface use and restoration of properties upon which wells are drilled; (xiii) the plugging and abandoning of wells; and (xiv) the disposal of fluids used in connection with operations.
The availability of a ready market for oil and gas production depends upon numerous factors beyond the Company's control. These factors include regulation of oil and natural gas production, federal and state regulations governing environmental quality and pollution control, state limits on allowable rates of production by well or proration unit, the amount of oil and natural gas available for sale, the availability of adequate pipeline and other transportation and processing facilities and the marketing of competitive fuels. For example, a productive natural gas well may be "shut-in" because of an oversupply of natural gas or lack of an available natural gas pipeline in the areas in which the Company may conduct operations. State and federal regulations generally are intended to prevent waste of oil and natural gas, protect rights to produce oil and natural gas between owners in a common reservoir, control the amount of oil and natural gas produced by assigning allowable rates of production and control contamination of the environment. Pipelines are subject to the jurisdiction of various federal, state and local agencies. The Company is also subject to changing and extensive tax laws, the effects of which cannot be predicted.
The following discussion summarizes the regulation of the United States oil and gas industry. The Company believes that it is in substantial compliance with the various statutes, rules, regulations and governmental orders to which the Company's operations may be subject, although there can be no assurance that this is or will remain the case. Moreover, such statutes, rules, regulations and government orders may be changed or reinterpreted from time to time in response to economic or political conditions, and there can be no assurance
that such changes or reinterpretations will not materially adversely affect the Company's results of operations and financial condition. The following discussion is not intended to constitute a complete discussion of the various statutes, rules, regulations and governmental orders to which the Company's operations may be subject.
Regulation of Oil and Natural Gas Exploration and Production. The Company's operations are subject to various conservation laws and regulations. These include the regulation of the size of drilling and spacing units or proration units and the density of wells that may be drilled; and the pooling of oil and gas properties. In this regard, some states allow the forced pooling or integration of tracts to facilitate exploration while other states rely primarily or exclusively on voluntary pooling of lands and leases. In areas where pooling is voluntary, it may be more difficult to form units, and, therefore, more difficult to develop a project if the operator owns less than 100% of the leasehold. In addition, state conservation laws establish maximum rates of production from oil and natural gas wells, generally prohibit the venting or flaring of natural gas and impose certain requirements regarding the ratability of production. The effect of these regulations may limit the amount of oil and natural gas the Company will be able to produce from its wells and may limit the number of wells or the locations at which the Company can drill. The regulatory burden on the oil and gas industry increases the Company's costs of doing business and, consequently, affects its profitability. Inasmuch as such laws and regulations are frequently expanded, amended and reinterpreted, the Company is unable to predict the future cost or impact of complying with such regulations.
Regulation of Sales and Transportation of Natural Gas. Federal legislation and regulatory controls have historically affected the price of natural gas produced by the Company and the manner in which such production is transported and marketed. Under the Natural Gas Act of 1938, the Federal Energy Regulatory Commission (the "FERC") regulates the interstate transportation and sale in interstate commerce of natural gas. The FERC's jurisdiction over interstate natural gas sales was substantially modified by the Natural Gas Policy Act, pursuant to which the FERC continued to regulate the maximum selling prices of certain categories of gas sold in "first sales" in interstate and intrastate commerce. Effective January 1, 1993, however, the Natural Gas Wellhead Decontrol Act (the "Decontrol Act") deregulated natural gas prices for all "first sales" of natural gas, including all sales by the Company of its own production. As a result, all of the Company's domestically produced natural gas may now be sold at market prices, subject to the terms of any private contracts which may be in effect. The FERC's jurisdiction over natural gas transportation was not affected by the Decontrol Act.
The Company's natural gas sales are affected by intrastate and interstate gas transportation regulation. Beginning in 1985, the FERC adopted regulatory changes that have significantly altered the transportation and marketing of natural gas. These changes were intended by the FERC to foster competition by, among other things, transforming the role of interstate pipeline companies from wholesaler marketers of gas to the primary role of gas transporters. All gas marketing by the pipelines was required to be divested to a marketing affiliate, which operates separately from the transporter and in direct competition with all other merchants. As a result of the various omnibus rule making proceedings in the late 1980s and the individual pipeline restructuring proceedings of the early to mid-1990s, the interstate pipelines are now required to provide open and nondiscriminatory transportation and transportation-related services to all producers, gas marketing companies, local distribution companies, industrial end users and other customers seeking service. Through similar orders affecting intrastate pipelines that provide similar interstate services, the FERC expanded the impact of open access regulations to intrastate commerce. More recently, the FERC has pursued other policy initiatives that have affected natural gas marketing. Most notable are (i) the large-scale divestiture of interstate pipeline-owned gas gathering facilities to affiliated or non-affiliated companies, (ii) further development of rules governing the relationship of the pipelines with their marketing affiliates, (iii) the publication of standards relating to the use
of electronic bulletin boards and electronic data exchange by the pipelines to make available transportation information on a timely basis and to enable transactions to occur on a purely electronic basis, (iv) further review of the role of the secondary market for released pipeline capacity and its relationship to open access service in the primary market and (v) development of policy and promulgation of orders pertaining to its authorization of market-based rates (rather than traditional cost-of-service based rates) for transportation or transportation-related services upon the pipeline's demonstration of lack of market control in the relevant service market. It remains to be seen what effect the FERC's other activities will have on access to markets, the fostering of competition and the cost of doing business.
As a result of these changes, sellers and buyers of natural gas have gained direct access to the particular pipeline services they need and are better able to conduct business with a larger number of counter-parties. The Company believes these changes generally have improved the Company's access to markets while, at the same time, substantially increasing competition in the natural gas marketplace. The Company cannot predict what new or different regulations the FERC and other regulatory agencies may adopt, or what effect subsequent regulations may have on the Company's activities.
In the past, Congress has been very active in the area of natural gas regulation. However, as discussed above, the more recent trend has been in favor of deregulation and the promotion of competition in the natural gas industry. Thus, in addition to "first sale" deregulation, Congress also repealed incremental pricing requirements and previous gas use restraints. There are other legislative proposals pending in the federal and state legislatures which, if enacted, would significantly affect the petroleum industry. At the present time, it is impossible to predict what proposals, if any, might actually be enacted by Congress or the various state legislatures and what effect, if any, such proposals might have on the Company. Similarly, and despite the trend toward federal deregulation of the natural gas industry, whether or to what extent that trend will continue, or what the ultimate effect will be on the Company's sales of gas, cannot be predicted.
Alberta Regulation. The Alberta Ministry of Energy ("Ministry") is responsible for regulating the production, transportation and sale of Alberta's oil, natural gas, coal, electricity, and mineral resources. The Ministry operates through two distinct organizations, the Alberta Department of Energy and the Alberta Energy and Utilities Board.
The Ministry is constantly promulgating rules and regulations, and revising existing rules and regulations, relating to the oil and natural gas industry in Alberta. For example, amendments to Section 24 of the Natural Gas Royalty Regulation ("Regulation") specify the various monthly and annual reports required under the Regulation and provide new penalty rules for non-compliance, effective January 1, 1999.
Alberta is one of the world's top oil and natural gas producers. 51% of the natural gas produced in Alberta is now sold into the United States. Alberta's share of the U.S. natural gas market increased to 11.6% in 1997. Gas Alberta, formerly a part of the Rural Utilities Branch of the Alberta Transportation and Utilities, was privatized on July 1, 1998. The new entity, Gas Alberta, Inc., has exclusive supply rights to rural gas cooperatives for a two year period. Moreover, the Alberta electricity market is in the process of being deregulated, and electricity direct sales could become available as early as 2001. Direct sellers of gas to core consumers (which might include small producers such as the Company) are regulated by the Alberta government under the Natural Gas Direct Marketing Regulation, and might require registration and bonding for producers dealing with core consumers. All of these regulatory factors could have a significant effect on the price of natural gas and oil in the Alberta market.
Oil Price Controls and Transportation Rates. Effective as of January 1, 1995, the FERC implemented regulations generally grandfathering all previously approved interstate transportation rates and establishing an indexing system for those rates by which adjustments are made annually based on the rate of inflation, subject to certain conditions and limitations. These regulations may tend to increase the cost of transporting oil and natural gas liquids by interstate pipeline, although the annual adjustments may result in decreased rates in a given year. These regulations have generally been approved on judicial review. The Company is not able at this time to predict the effects of these regulations, if any, on the transportation costs associated with oil production from the Company's oil producing operations.
Environmental Regulations. The Company's operations are subject to numerous federal, state and local laws and regulations governing the discharge of materials into the environment or otherwise relating to environmental protection. These laws and regulations may require the acquisition of a permit before drilling commences, restrict the types, quantities and concentration of various substances that can be released into the environment in connection with drilling and production activities, limit or prohibit drilling activities on certain lands within wilderness, wetlands and other protected areas, require remedial measures to mitigate pollution from former operations, such as pit closure and plugging abandoned wells, and impose substantial liabilities for pollution resulting from production and drilling operations. Public interest in the protection of the environment has increased dramatically in recent years. The trend of more expansive and stricter environmental legislation and regulations applied to the oil and natural gas industry could continue, resulting in increased costs of doing business and consequently affecting profitability. To the extent laws are enacted or other governmental action is taken that restricts drilling or imposes more stringent and costly waste handling, disposal and cleanup requirements, the business and prospects of the Company could be adversely affected.
The Company anticipates that it will generate waste that may be subject to the federal Resource Conservation and Recovery Act ("RCRA") and comparable state statutes. The U.S. Environmental Protection Agency ("EPA") and various state agencies have limited the approved methods of disposal for certain hazardous and non-hazardous wastes. Furthermore, certain wastes generated by the Company's oil and natural gas operations that are currently exempt from treatment as "hazardous wastes" may in the future be designated as "hazardous wastes," and therefore be subject to more rigorous and costly operating and disposal requirements.
The Company believes that it may eventually own or lease properties that have been previously used for the exploration and production of oil and gas. Although the Company's goal is to implement good operating and waste disposal practices, prior owners and operators of these properties may not have used similar practices, and hydrocarbons or other wastes may have been disposed of or released on or under the properties owned or leased by the Company or on or under locations where such wastes have been taken for disposal. In addition, these properties will likely have been operated by third parties whose treatment and disposal or release of hydrocarbons or other wastes was not under the Company's control. These properties and the wastes disposed thereon may be subject to the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), RCRA and analogous state laws as well as state laws governing the management of oil and gas wastes. Under such laws, the Company could be required to remove or remediate previously disposed wastes (including wastes disposed of or released by prior owners or operators) or property contamination (including groundwater contamination) or to perform remedial plugging operations to prevent future contamination.
The Company's operations may be subject to the Clean Air Act ("CAA") and comparable state and local requirements. Amendments to the CAA were adopted in 1990 and contain provisions that may result in the
gradual imposition of certain pollution control requirements with respect to air emissions from the operations of the Company. The EPA and states have been developing regulations to implement these requirements. The Company may be required to incur certain capital expenditures in the next several years for air pollution control equipment in connection with maintaining or obtaining operating permits and approvals addressing other air emission-related issues. However, the Company does not believe its operations will be materially adversely affected by any such requirements.
Federal regulations require certain owners or operators of facilities that store or otherwise handle oil, such as the Company, to prepare and implement spill prevention, control, countermeasure ("SPCC") and response plans relating to the possible discharge of oil into surface waters. The Company believes that it will be able to develop and implement the necessary plans to meet such federal requirements.
The Oil Pollution Act of 1990, ("OPA") contains numerous requirements relating to the prevention of and response to oil spills into waters of the United States. The OPA subjects owners of facilities to strict joint and several liability for all containment and cleanup costs and certain other damages arising from a spill, including, but not limited to, the costs of responding to a release of oil to surface waters. The OPA also requires owners and operators of offshore facilities that could be the source of an oil spill into federal or state waters, including wetlands, to post a bond, letter of credit or other form of financial assurance in amounts ranging from $10 million in specified state waters to $35 million in federal outer continental shelf waters to cover costs that could be incurred by governmental authorities in responding to an oil spill. Such financial assurances may be increased by as much as $150 million if a formal risk assessment indicates that the increase is warranted. Noncompliance with OPA may result in varying civil and criminal penalties and liabilities. Future operations of the Company may also be subject to the federal Clean Water Act ("CWA") and analogous state laws. Pursuant to the requirements of the CWA, the EPA has adopted regulations concerning discharges of storm water runoff. This program requires covered facilities to obtain individual permits, participate in a group permit or seek coverage under an EPA general permit. If the Company owns properties that require permits for discharges of storm water runoff, the Company believes that it will be able to obtain, or be included under, such permits, where necessary. Like OPA, the CWA and analogous state laws relating to the control of water pollution provide varying civil and criminal penalties and liabilities for releases of petroleum or its derivatives into surface waters or into the ground.
CERCLA, also known as the "Superfund" law, and similar state laws impose liability, without regard to fault or the legality of the original conduct, on certain classes of persons that are considered to have contributed to the release of a "hazardous substance" into the environment. These persons include the owner or operator of the disposal site or sites where the release occurred and companies that disposed or arranged for the disposal of the hazardous substances found at the site. Persons who are or were responsible for releases of hazardous substances under CERCLA may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies, and it is not uncommon for neighboring landowners and other third parties to file claims for personal injury and property damage allegedly caused by the hazardous substances released into the environment.
The Company also anticipates being subject to a variety of federal, state and local permitting and registration requirements relating to protection of the environment. Management believes that the Company will be able to maintain substantial compliance with current applicable environmental laws and regulations and that continued compliance with existing requirements will not have a material adverse effect on the Company.
Operating Hazards and Insurance. The oil and natural gas business involves a variety of operating hazards and risks such as well blowouts, craterings, pipe failures, casing collapse, explosions, uncontrollable flows of oil, natural gas or well fluids, fires, formations with abnormal pressures, pipeline ruptures or spills, pollution, releases of toxic gas and other environmental hazards and risks. These hazards and risks could result in substantial losses to the Company from, among other things, injury or loss of life, severe damage to or destruction of property, natural resources and equipment, pollution or other environmental damage, cleanup responsibilities, regulatory investigation and penalties and suspension of operations. In addition, the Company may be liable for environmental damages caused by previous owners of property purchased and leased by the Company. As a result, substantial liabilities to third parties or governmental entities may be incurred, the payment of which could reduce or eliminate the funds available for exploration, development or acquisitions or result in the loss of the Company's properties. In accordance with customary industry practices, the Company expects that it will maintain insurance against some, but not all, of such risks and losses. There can be no assurance that any insurance obtained by the Company will be adequate to cover any losses or liabilities. The Company cannot predict the availability of insurance or the availability of insurance at premium levels that justify its purchase. The occurrence of a significant event not fully insured or indemnified against could materially and adversely affect the Company's financial condition and operations. The Company may elect to self-insure if management believes that the cost of insurance, although available, is excessive relative to the risks presented. In addition, pollution and environmental risks generally are not fully insurable. The occurrence of an event not fully covered by insurance could have a material adverse effect on the financial condition and results of operations of the Company.
Title to Properties; Acquisition Risks. The Company believes that it will be able to secure satisfactory title to all of its producing properties in accordance with standards generally accepted in the oil and natural gas industry. The Company anticipates that properties purchased in the future will be subject to customary royalty interests, liens incident to operating agreements, liens for current taxes and other burdens which the Company believes will not materially interfere with the use of or affect the value of such properties. As is customary in the industry in the case of undeveloped properties, little investigation of record title is made at the time of acquisition (other than a preliminary review of local records). Investigations, including a title opinion of local counsel, are generally made before commencement of drilling operations.
The successful acquisition of producing properties requires an assessment of recoverable reserves, future oil and natural gas prices, operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact and the accuracy inherently uncertain. In connection with such an assessment, the Company performs a review of the subject properties that it believes to be generally consistent with industry practices, which generally includes on-site inspections and the review of reports filed with various regulatory entities. Such a review, however, will not reveal all existing or potential problems nor will it permit a buyer to become sufficiently familiar with the properties to fully assess their deficiencies and capabilities. Inspections may not always be performed on every well, and structural and environmental problems are not necessarily observable even when an inspection is undertaken. Even when problems are identified, the seller may be unwilling or unable to provide effective contractual protection against all or part of such problems. There can be no assurances that any acquisition of property interests by the Company will be successful and, if unsuccessful, that such failure will not have an adverse effect on the Company's future results of operations and financial condition.
Uncertainty of Pricing of Oil and Gas. There is currently significant uncertainty concerning the pricing of oil and natural gas worldwide. The Organization of Oil Producing Countries ("OPEC") has historically taken unilateral pricing actions which may have an adverse effect on the Company's pricing strategies for the
Company's future oil and gas production or which may, in the alternative, prove beneficial to the Company. For example, OPEC has recently imposed a 1.7-million-barrels-per-day cutback in member states' production which, as of April 13, 1999, has driven up the price of gas in the United States. During the late 1980's, and up to the present, oil and gas prices have been highly volatile. Wellhead prices for oil and natural gas drop significantly from time to time because of a surplus supply of oil and natural gas, and cycles of price erosion and recovery occur regularly in the oil and natural gas markets. Significant future price erosions will have a material adverse impact on the net revenues of the Company. The availability of a market for the company's oil and natural gas production, if any, will depend upon factors largely beyond the control of the Company, including the activities of OPEC, fluctuations in climate, the availability and proximity of adequate pipeline or other transportation facilities, the amount of domestic oil and natural gas production, foreign imports of oil and natural gas, the marketing of competitive fuels, governmental regulations, and the availability of oil and natural gas from other sources.
Securities Exchange Act Industry Guide 2. The Securities Exchange Act Industry Guide 2 requires certain information be provided by small business issuers engaged in the oil and gas industry including estimates of oil and natural gas reserves.
There are numerous uncertainties inherent in estimating oil and natural gas reserves and their estimated values, including many factors beyond the control of the producer. Reservoir engineering is a subjective process of estimating underground accumulations of oil and natural gas that cannot be measured in an exact manner. Estimates of economically recoverable oil and natural gas reserves and of future net cash flows necessarily depend upon a number of variable factors and assumptions, such as historical production from the area compared with production from other producing areas, the assumed effects of regulations by governmental agencies and assumptions concerning future oil and natural gas prices, future operating costs, severance and excise taxes, development costs and workover and remedial costs, all of which may in fact vary considerably from actual results. For these reasons, estimates of the economically recoverable quantities of oil and natural gas attributable to any particular group of properties, classifications of such reserves based on risk of recovery, and estimates of the future net cash flows expected therefrom prepared by different engineers or by the same engineers but at different times may vary substantially and such reserve estimates may be subject to downward or upward adjustment based upon such factors. Actual production, revenues and expenditures with respect to the Company's reserves will likely vary from estimates, when and if made, and such variances may be material. In addition, the 10% discount factor, which is required by the Securities Exchange Commission to be used in calculating discounted future net cash flows for reporting purposes, is not necessarily the most appropriate discount factor based on interest rates in effect from time to time and risks associated with the Company or the oil and natural gas industry in general.
In general, the volume of production from oil and natural gas properties declines as reserves are depleted, with the rate of decline depending on reservoir characteristics. Except to the extent the Company conducts successful exploration and development activities or acquires properties containing proved reserves, or both, the proved reserves of the Company will decline as reserves are produced. The Company's future oil and natural gas production is, therefore, highly dependent upon its level of success in finding or acquiring additional reserves. The business of exploring for, developing or acquiring reserves is capital intensive. To the extent cash flow from operations is reduced and external sources of capital become limited or unavailable, the Company's ability to make the necessary capital investment to maintain or expand its asset base of oil and natural gas reserves would be impaired. The failure of an operator of the Company's wells to adequately perform operations, or such
operator's breach of the applicable agreements, could adversely impact the Company. In addition, there can be no assurance that the Company's future exploration, development and acquisition activities will result in additional proved reserves or that the Company will be able to drill productive wells at acceptable costs. Furthermore, although the Company's revenues could increase if prevailing prices for oil and natural gas increase significantly, the Company's finding and development costs could also increase.
The Wyoming Property is currently undeveloped and as such there are no records as to average sales price, production costs, total gross and net productive wells, drilling activities or delivery commitments. The Company has not performed its own examination as to the net oil or gas reserves existing on the Wyoming Property. The total amount of undeveloped acreage is 6,360 acres.
According to I.T.A., the Alberta Property currently contains one existing deep abandoned natural gas well. Also according to I.T.A., during the drilling of the existing well, a gas flow was encountered from an uphole zone. The amount of undeveloped acreage on the Alberta Property is 1,120 acres. The Company anticipates that it will re-enter the existing well and plans to drill up to 3 new wells. There are no present activities on the land with no current delivery commitments. The Company has not performed its own examination as to the net oil or gas reserves existing on the Alberta Property.
The Online Gambling Industry. Internet gambling sites will generate an estimated $651 million in revenue in 1999 according to economist Sebastian Sinclair of the New York firm Christiansen, Cummings and Associates. Such figures are prompting the National Collegiate Athletic Association, the National Football League, and various state attorneys general to campaign to block online wagering. Illegal bookmaking is an $80 billion to $100 billion a year industry in the United States, the Nevada Gaming Commission estimates. Law-enforcement officials estimate that $2.5 billion was illegally bet on the 1996 NCAA men's basketball championship game alone.
The Interactive Gaming Council ("IGC") is a trade association for the international, interactive gaming industry, comprised of a group of Internet gambling operators who are attempting to establish industry guidelines that could become the international standard for Internet gambling operations. Its members operate or supply services to many of the 280 interactive gaming and wagering sites on the World Wide Web. The IGC is considering a common database to share fraudulent account information. IGC representatives have discussed practical applications with the NCAA. For example, by developing a database of college athletes, the IGC could prevent those athletes from opening accounts with IGC members. The system, however, would not prevent someone from using a third party's credit card or betting through unaffiliated website.
Moreover, with Australia, England, Germany, New Zealand and South Africa starting to sanction Internet gambling operations, it seems unlikely that the United States, standing alone, will be able to control Internet gambling. For example, currently a United States resident can wager on horse racing in Germany or place a bet in Australia or Antigua without any appreciable regulatory risk because it is impossible for state and federal regulators to monitor every home computer.
Even the Nevada Gaming Commission, which opposes Internet gambling, has licensed a slot-machine manufacturer to test a system that allows Nevada residents to make sports bets from home computers. The system traces phone calls so operators know exactly where those calls originated. Before entering the Internet, whose dial-up access is restricted to subscribers, customers have to go to a Nevada sports book and open an account.
Possible Adverse Legislation. Approximately 25 countries are currently regulating, and taxing, Internet gambling operations. The regulation of Internet gambling operations in the United States is currently uncertain. On August 3, 1996, President Clinton signed a bill creating a nine-member National Gambling Impact Study Commission to study the economic and social impact of gambling and report its findings to Congress and the President. The Commission could recommend changes in state or federal gaming policies. The President, House Speaker and Senate Majority Leader each selected three of the Commission's members. Additional federal regulation of the gaming industry could occur as a result of investigations or hearings by the committee, which could have a material adverse effect on the Company or its subsidiary. The Commission last met in Washington, D.C. on April 27 and April 28, 1999 and continued its deliberations regarding its Final Report which is presently scheduled to be released to the President, Congress, state governors, Native American tribal leaders, and the public on June 18, 1999.
Senator Jon Kyl (R-Ariz.), Congress' foremost opponent of online betting, is reintroducing a revised measure to amend the federal Wire Communications Act of 1961 ("Wire Act") prohibitions on interstate sports gambling conducted by telephone or wire to cover newer technological transmissions, including the Internet. The bill would extend the law to prohibit some newer forms of gambling, including those offered by an estimated 300 sports betting and "cybercasinos" that now exist in cyberspace. The new Internet Gambling Prohibition Act allows for the continuation of all forms of gambling that are currently legal and also limits the liability of Internet access providers. Such providers do not have to do anything that is "technologically infeasible" or "unduly burdensome" to restrict such Internet gambling sites. Kyl believes that more than a billion dollars will be gambled over the Internet in 1999. Kyl also believes that Internet gambling is addictive, accessible to minors, subject to fraud and other criminal use, evasive of state gambling laws and already illegal at the federal level in many cases. Kyl's bill outlaws most types of online gambling on a federal level, and calls for three months in prison and $1,500 in fines, or three times the amount of the wager, for bettors caught in the act. Last year's version of Kyl's bill, which passed the Senate 90-10 but died in the House, did not make any exceptions for Native American tribal betting operations. Kyl predicts that Internet-based gambling receipts will reach an estimated $100 billion by 2006.
Reps. Bob Goodlatte, R-Va., and Frank LoBiondo, R-N.J., are resurrecting their online gambling bill in the House of Representatives from the previous Congressional session, but the bill will not mirror Kyl's senate measure. The House bill will not take on the issue of fantasy sports, merely games of chance; moreover, it will not totally prohibit online gambling on a federal level. Instead, the bill will allow states to decide their own online gambling policies.
Possible Adverse Litigation. Several state court lawsuits might result in case law adverse to the Company or its subsidiary's continued operations. In March, 1999, Cynthia Haines, a California woman who gambled away more than $70,000 on the Internet to more than 50 cybercasinos sued her credit issuer, Providian National Bank, in Marin County Superior Court. She alleged that credit card companies are engaging in unfair business practices and aiding and abetting a crime by giving online wager house merchant accounts to process bets for customers who live where such betting activity is illegal.
Possible Law Enforcement Action. Alan Kesner, Wisconsin's assistant attorney general and the chairman of the Internet Gambling Committee for the National Association of Attorneys General, recognized the difficulty of eliminating Internet gambling, but many state attorneys general continue to challenge the legality of Internet gambling within the borders of their respective states. For example, the Attorney General for the State of Minnesota has claimed that, because gambling is illegal in Minnesota, users there cannot place bets through a server located elsewhere (in one case, the web page advertiser was located in Nevada and the server processing the bet was located in Belize).
In March, 1998 the Federal Bureau of Investigation's Computer Crisis squad charged Jay Cohen and 19 other owners and managers of offshore companies with illegally using interstate telephone lines to take online wagers and accept money from United States customers in violation of the Wire Act, a law designed to stop organized crime's illegal bookmaking activities. To date, Cohen and one other person have been indicted, three have agreed to plea bargains, and four refused to return to the United States. For the rest, indictments are pending. Cohen's website was started in Antigua in 1996, where such gambling is legal.
Taxes and Fees. Gaming companies are typically subject to significant taxes and fees in addition to normal federal and state corporate income taxes, and such taxes and fees are subject to increase at any time. Additionally, from time to time, certain federal legislators have proposed the imposition of a federal tax on gaming revenues. Any such federal tax or any material increase in existing taxes or fees would adversely affect the Company or its subsidiary.
Lack of Internet Gaming Experience. The Company's subsidiary currently has no management with Internet Gaming experience. However, the Company recently announced the appointment of Michael R. Wright as Chairman of the Board of Directors of the Company. Mr. Wright has significant experience in the gaming industry. He specialized in the design, manufacture, distribution and operation of slot machines for Bally Gaming. He resided in Prague, Czech Republic, where he operated the National TV Bingo Lottery. As President and Chief Executive Officer of Border Capital, a Canadian public company, Mr. Wright directed the development of the software and design of television game shows for the global lottery industry. There can be no assurance that the Company or its subsidiary will benefit, directly or indirectly, from Mr. Wright's experience in the gaming industry.
Business Interruption; Reliance on Computer and Telecommunications Infrastructure. The Company or its subsidiary's success will be dependent in large part on its continued investment in sophisticated telecommunications and computer systems and computer software. The Company and/or its subsidiary anticipates making significant investments in the acquisition, development, and maintenance of such technologies in an effort to remain competitive and anticipates that such expenditures will be necessary on an on-going basis. Moreover, computer and telecommunication technologies are evolving rapidly and are characterized by short product lifecycles, which requires the Company to anticipate technological developments. There can be no assurance that the Company or its subsidiary will be successful in anticipating, managing or adopting such technological changes on a timely basis or that the Company or its subsidiary will have the capital resources available to invest in new technologies. In addition, the Internet Gaming business is highly dependent on computer and telecommunications equipment and software systems, the temporary or permanent loss of which, through physical damage or operating malfunction, could have a material adverse effect on the either the Company or its subsidiary's business. While neither the Company nor any of its Affiliates anticipates any problems with their computer software relating to the year 2000, operating malfunctions in the software systems of financial institutions and other parties might have an adverse affect on the operations of the Company or its subsidiary. The Internet Gaming business is materially dependent on service provided by various local and long distance telephone companies. A significant increase in the cost of telephone services that is not recoverable through an increase in the price of the Company or its subsidiary's services, or any significant interruption in telephone services, could have a material adverse effect on the Company or its subsidiary.
Impact of the Year 2000. The Company anticipates that the Year 2000 (commonly referred to as "Y2K") could adversely impact the business of the Company. Many business software applications use only the last two digits to indicate the applicable year. Unless these programs are modified, computers running time- sensitive software may be unable to distinguish between the year 1900 and the year 2000, which would result in system failures, miscalculations, and general disruption of operations, including, among other things, a temporary inability to process transactions or to engage in other normal business activities. Many Y2K problems might not be readily apparent when they first occur, but instead could imperceptibly degrade technology systems and corrupt information stored in computerized databases, in some cases before January 1, 2000.
The Company anticipates the completion of a preliminary assessment of each of its operations and their Y2K readiness and feels that the appropriate actions will be taken. The Company does not believe the Y2K issue will pose significant problems for the Company's computer systems. The Company anticipates that its Year 2000 remediation efforts for information technology systems, consisting primarily of software upgrades, will continue through 1999, and anticipates incurring less than $10,000 in connection with these efforts. The Company recognizes, however, that the Y2K issue could have a material impact on the operations of the Company. There is no guarantee that the systems of other companies on which the Company's systems rely will be timely readied for the Year 2000. Moreover, there can be no guarantee that the Company's suppliers, customers, or other parties with whom the Company does business will not experience significant Y2K problems, which might result in an adverse effect on the Company's operations. The Company's computer system currently runs several programs which may be affected by Y2K. The Company anticipates taking the necessary steps to determine whether the programs are Y2K compliant and, if not, what steps need to be taken to reduce the effect of Y2K.
The Company's assessment of its Year 2000 issues involves many assumptions. There can be no assurance that the Company's assumptions will prove accurate, and actual results could differ significantly from the assumptions. In conducting its Year 2000 compliance efforts, the Company has relied primarily on vendor representations with respect to its internal computerized systems and representations from third parties with
which the Company has business relationships and has not independently verified these representations. There can be no assurance that these representations will prove to be accurate. A Year 2000 failure could result in a business disruption that adversely affects the Company's business, financial condition or results of operations. Although it is not currently aware of any likely business disruption, the Company anticipates developing contingency plans to address Year 2000 failures and expects this work to continue through 1999.
Item 3. Description of Property
Property held by the Company. As of the dates specified in the following table, the Company held the following property in the following amounts:
================================================================================
Property December 31, 1998 December 31,1997
--------------------------------------------------------------------------------
Cash and equivalents US$2,246.00 $0.00
--------------------------------------------------------------------------------
|
The Company defines cash equivalents as all highly liquid investments with a maturity of 3 months or less when purchased. The Company does not presently own any interests in real estate. The Company does not presently own any inventory or equipment.
Item 4. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners. The following are persons, other than directors and officers, who are beneficial owners of 5% or more of the Company's issued and outstanding common stock:
Name and Address Amount of Percent of
Title of Class of Beneficial Owner Beneficial Owner Class
-------------- ------------------- ---------------- -----
Warrants to YENN Asset Management 1,100,000 12.2%
purchase Common Stock Buckingham Square/The Penthouse
Seven Mile Reach/West Bay Road
Warrant to J & S Overseas Holding Ltd. 800,000 8.9%
purchase Common Stock
|
(b) Security Ownership of Management. As of March 15, 1999, the directors and principal executive officers of the Company beneficially owned, in the aggregate, 600,000 shares of the Company's common stock, or approximately 4.80% of the issued and outstanding shares, as set forth on the following table:
Title of Class Name and Address Amount and Percent of
of Beneficial Owner Nature of Class
Beneficial Owner
Common Shares Jack Sha 300,000 shares 2.40%
5550 Cambie Street
Suite 306 Vancouver, B.C.
V5Z 3A2 President and Director
Common Shares Ferdinand Marehard 300,000 shares 2.40%
1270 Robson Street
Suite 406 Vancouver, B.C.
V6E 3Z6 Secretary/Treasurer
and Director
|
Changes in Control. Management of the Company is not aware of any arrangements which may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The directors and principal executive officers of the Company are as specified on the following table:
================================================================================ Name Age Position -------------------------------------------------------------------------------- Jack Sha 48 President and a Director 5550 Cambie Street, Suite 306 Vancouver, B.C. V5Z 3A2 -------------------------------------------------------------------------------- Ferdinand Marehard 70 Secretary, Treasurer and a Director 1270 Robson Street Suite 406 Vancouver, B.C. V6E 3Z6 -------------------------------------------------------------------------------- Michael R. Wright 50 Chairman of the Board of Directors 890 Regan Way Fremont, CA 94539 ================================================================================ |
Jack Sha is the President and a Director of the Company. Mr. Sha was the president of Tokyo Trading Ltd. from 1990 through 1994, during which time he was involved in the decision making process for various investment opportunities ranging from golf course developments to mining properties. In 1991, Mr. Sha acquired, on behalf of the Tokyo Trading Ltd., the rights to develop and market a unique essence for skin care products. In 1994, Mr. Sha underwent major surgery and was inactive until 1998.
Ferdinand Marehard is the Secretary, Treasurer and a Director of the Company. Mr. Marehard was the president of West-Mar Resources Ltd. ("West-Mar") from 1984 through 1994, during which time he managed West-Mar's participation in various foreign and domestic gas and oil leases. In 1985, Mr. Marehard managed West-Mar's participation in the development of six gas wells in Indiana, and also participated in negotiations for the acquisition of a 1,200,000 acre oil concession in Liberia, West Africa. In 1986 he acquired, on behalf of West-Mar, a 5% working interest on 40,000 acres in Adams County, Indiana. From 1990 through 1994 he participated in drilling and developing a horizontal well and in waterflood oil production in Texas. He also acquired, on behalf of West-Mar, 17,000 acres of gas and oil leases in the state of Washington. From 1975 through 1981 Mr. Marehard was the president of Hesca Resources Corp., Ltd.; from 1982 through 1984 he was the president of Demus Petro Corporation; and from 1979 through 1984 he was the president of Mar-Gold Resources, Ltd. These entities participated in the oil and gas industry and the mining industry. During this period, Mr. Marehard had a broad range of management duties for these companies, including oversight of drilling and production of oil wells in Kentucky, Texas and Utah. He also negotiated the acquisition of several properties in the Greenwood-Grandforks gold camp and negotiated financing for the various company operations.
Mr. Marehard has experience in prospecting, including examination of property in the field. He has supervised placer gold leases in the Yukon and has identified and negotiated for silver, lead, zinc and copper bearing property on Vancouver Island, British Columbia. He has experience in mining and exploration for precious and base metals in British Columbia, the Yukon, the Northwest Territories and the United States.
Michael Wright has extensive experience in the amusement game industry, commercial real estate sales and development as well as the gaming and lottery industries. Mr. Wright operated, sold and marketed amusement video games for Bally Manufacturing. He was an executive vice-president of Exidy where he manufactured and sold video games. Mr. Wright was involved with international sales and marketing with Taito Corporation in Japan. He was also the president of Simutrak, a company specializing in laser disc technology for coin operated video games. Mr. Wright's real estate experience involves the development and sale of commercial and single family real estate in Northern California. Mr. Wright was involved with the design, manufacture, distribution and operation of slot machines for Bally Gaming. Mr. Wright operated the National Television Bingo Lottery in Prague. He also was the president of OnPoint, a San Diego based company where he was involved in the manufacture and sale of vending machines for the lottery and transportation industries. Mr. Wright was the president and CEO of Border Capital, a Canadian public company involved in the software and design of television game shows for the global lottery industry. Mr. Wright attended the University of Portland where he majored in Mass Communications. Mr. Wright is currently the Chairman of the Company's Board of Directors.
None of the above listed persons share any familial relationship. Other than the persons listed above, there are no significant employees expected by the Company to make a significant contribution to the business of the Company. All directors of the Company serve until the next annual meeting of stockholders. The Company's executive officers are appointed by the Company's Board of Directors and serve at the discretion of the Board of Directors.
Robert Klein, President of Rising Phoenix, recently resigned from the Company's Board of Directors. It is anticipated that Mr. Klein will return to the Company's Board of Directors upon the Company's acquisition of Rising Phoenix's interest in the LAK Ranch oil recovery project.
There are no orders, judgments, or decrees of any governmental agency or administrator, or of any court of competent jurisdiction, revoking or suspending for cause any license, permit or other authority to engage in the securities business or in the sale of a particular security or temporarily or permanently restraining Mr. Sha, Mr. Marehard or Mr. Wright from engaging in or continuing any conduct, practice or employment in connection with the purchase or sale of securities, or convicting such person of any felony or misdemeanor involving a security, or any aspect of the securities business or of theft, nor are Mr. Sha, Mr. Marehard or Mr. Wright the officers or directors of any corporation or entity so enjoined.
Item 6. Executive Compensation - Remuneration of Directors and Officers.
Specified below, in tabular form, is the aggregate annual remuneration of the Company's Chief Executive Officer and the four (4) most highly compensated executive officers other than the Chief Executive Officer who were serving as executive officers at the end of the Company's last completed fiscal year. The officers and directors of the Company received no direct compensation from the Company during the Company's most recent fiscal year. The officers and directors of the Company are reimbursed for expenses incurred on behalf of the Company.
================================================================================ Name of individual or Capacities in which Aggregate Identity of Group remuneration was received remuneration -------------------------------------------------------------------------------- Executive Officers None None ================================================================================ |
As of December 31, 1998, no compensation has been paid to any of the officers or directors of the Company. The Company anticipates compensating Jack Sha for accrued salary in an amount yet to be determined by the Company's Board of Directors.
Item 7. Certain Relationships and Related Transactions
Agreement to Purchase Rising Phoenix Development Group Ltd.'s Corporate Assets Was Not the Result of Arms-Length Negotiations. As specified above, on January 15, 1999, the Company signed a letter of intent to acquire all of the corporate assets of Rising Phoenix Development Group, Ltd. (previously defined
as "Rising Phoenix") in exchange for 3,800,000 shares of the Company's common stock and seventy-five thousand dollars (US$75,000). The president of Rising Phoenix, Robert Klein, was on the Company's Board of Directors from February 1, 1999 through early in March, 1999, at which time Mr. Klein resigned from the Company's Board of Directors. It is anticipated that Mr. Klein will rejoin the Company's Board of Directors and, therefore, the agreement regarding the intended purchase of Rising Phoenix's assets is not the result of arm's-length negotiations between disinterested parties.
Transactions with Promoters. Holm Investments Ltd. is a promoter of the Company and has received 600,000 shares of common stock of the Company for promotional services provided to the Company.
Item 8. Legal Proceedings
On or about April 15, 1999, a Statement of Claim, on behalf of the Company as Plaintiff, was issued by the Ontario Court, General Division. Also on or about April 15, 1999, that Statement of Claim was served on Defendant LANSource. As described in Item 1, LANSource and the Company entered into a letter agreement whereby the Company was to purchase a 12.5% interest in LANSource with an option to purchase an additional 38.5% interest. A formal agreement was to be finalized on or before March 31, 1999. The letter agreement provided that in the event a formal agreement was not consummated by March 31, 1999, the letter agreement would be null and void and LANSource would be permitted to retain all deposits made by the Company. The Company alleges that LANSource agreed that its counsel would draft the final agreement in an expeditious manner. The Company further alleges that counsel for LANSource did not produce an agreement for review by the Company until March 25, 1999. Moreover, the Company alleges that, prior to its receipt of the proposed final agreement from counsel for LANSource, the proposed agreement had not been read or approved by LANSource, the agreement was incomplete and in need of substantial revisions, and that LANSource failed and neglected to provide the essential information necessary for a meaningful review of the proposed final agreement.
The Company has alleged that it has been damaged in the amount of $1,000,000 in that LANSource breached its agreement with the Company, breached its fiduciary duty to the Company and breached its duty of good faith. In the alternative, the Company has asked that the Court either: (i) compel LANSource to perform its obligations under the agreement; (ii) order LANSource to pay into the Court a total of $300,000 representing the deposit money paid to LANSource by the Company, declare that the agreement between the Company and LANSource is rescinded and return the deposit amount to the Company; declare that LANSource has breached the agreement and proceed to trial to determine the Company's damages; or issue an order requiring LANSource to disgorge to the Company any and all profits earned by LANSource as a result of its breach. Moreover, the Company has alleged punitive damages in the amount of $100,000.
While the action is pending, the Company has asked the Ontario Court to enjoin LANSource from: (i) transferring or disposing of, in any manner, its assets; (ii) borrowing funds except in the usual course of business; (iii) granting any license, franchise or similar arrangement to any person relating to its intellectual property or potential intellectual property; (iv) issuing, distributing or transferring in any way shares, warrants, options or other securities; (v) redeeming or purchasing any of the company's shares; (vi) taking or instituting proceedings to alter its corporate structure in any way; (vii) amending its Bylaws, Articles or any material agreements; or (viii) taking action to materially change the nature of its business in any way.
The Company plans to vigorously prosecute its claim against LANSource.
Item 9. Market For Common Equity and Related Stockholder Matters
The Company participates in the OTC Bulletin Board, Electronic Quotation System maintained by the National Association of Securities Dealers, Inc., under the trading symbol "PWDR". The Company's common stock has closed at a low of US$0.23 and a high of US$0.75 for the 52 week period ending March 12, 1999 and closed at $US0.32 on that date. As of May 13, 1999, there were one million nine hundred thousand (1,900,000) warrants outstanding, each of which represents the right purchase from the Company one share of its $.0001 par value common stock at a price of $.30 per share. YENN Asset Management is the holder of 1,100,000 of the aforementioned warrants. J & S Overseas Holdings Ltd. is the holder of 800,000 of those warrants. All 1,900,000 warrants expire by their own terms on October 31, 2000. There have been no cash dividends declared on the Company's common stock since the Company's inception. The Company has not yet adopted any policy regarding payment of dividends.
Item 10. Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three
(3) years which would be required to be disclosed pursuant to Item 701 of
Regulation S-B, except for the following:
On or about December 31, 1998, the Company commenced an offering of shares of its common stock in reliance on an exemption from the registration requirements of the Securities Act of 1933 ("Act") specified by the provisions of Section 3(b) of the Act and Rule 504 of Regulation D promulgated by the Securities and Exchange Commission pursuant to Section 3(b). Through April 14, 1999, the Company had sold a total of 7,127,500 shares of its common stock pursuant to that offering. Gross proceeds from the offering were US$1,000,000 in cash, as follows:
3,000,000 shares at US$.08 per share (total US$240,000) 1,000,000 shares at US$.10 per share (total US$100,000) 1,562,500 shares at US$.22 per share (total US$343,750) 500,000 shares at US$.15 per share (total US$75,000) 500,000 shares at US$.20 per share (total US$100,000) 565,000 shares at US$.25 per share (total US$141,250)
The offering price for the Company's shares of common stock was arbitrarily established by the Company and had no relationship to assets, book value, revenues or other established criteria of value. Proceeds from the 504 offering were used for, among other purposes, working capital, including legal fees; office equipment and office expenses; and to finance the Company's various acquisition contracts.
Item 11. Description of Securities
The Company is authorized to issue 100,000,000 shares of common stock, $.0001 par value, each share of common stock having equal rights and preferences, including voting privileges. As of March 15, 1999, 12,515,000 shares of the Company's common stock were issued and outstanding, with 1,200,000 shares subject to certain restrictions and 11,315,000 unrestricted shares.
The shares of $.0001 par value common stock of the Company constitute equity interests in the Company entitling each shareholder to a pro rata share of cash distributions made to shareholders, including dividend payments. The holders of the Company's common stock are entitled to one vote for each share of record on all
matters to be voted on by shareholders. There is no cumulative voting with respect to the election of directors of the Company or any other matter, with the result that the holders of more than 50% of the shares voted for the election of those directors can elect all of the Directors. The holders of the Company's common stock are entitled to receive dividends when, as and if declared by the Company's Board of Directors from funds legally available therefor; provided, however, that cash dividends are at the sole discretion of the Company's Board of Directors. In the event of liquidation, dissolution or winding up of the Company, the holders of common stock are entitled to share ratably in all assets remaining available for distribution to them after payment of liabilities of the Company and after provision has been made for each class of stock, if any, having preference in relation to the Company's common stock. Holders of the shares of Company's common stock have no conversion, preemptive or other subscription rights, and there are no redemption provisions applicable to the Company's common stock. All of the outstanding shares of the Company's common stock are duly authorized, validly issued, fully paid and non-assessable.
Item 12. Indemnification of Directors and Officers
Article VII of the Company's Bylaws provides that no officer or director of the Company shall be personally liable for obligations of the Company or for any duties or obligations arising out of any acts or conduct of such an officer or director performed for on behalf of the Company. That Article VII also provides that the Company shall indemnify each officer and director from and against any and all claims, judgments and liabilities by reason of any action taken or omitted to have been taken by him or her as a director or officer, and also provides that the Company shall reimburse each officer and director for all legal and other expenses reasonably incurred in connection with such a claim or liability; provided, however, that such officers and directors shall not be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of such a person's own negligence or willful misconduct.
Moreover, Article Fifth of the Company's Restated and Amended Certificate of Incorporation filed January 13, 1999 with the Delaware Secretary of State provides, in pertinent part, that the directors of the Company shall not be personally liable to the Company or its stockholders for breach of fiduciary duty as a director, except for (1) breach of such director's duty of loyalty to the Company or its stockholders, (2) for acts or omissions not in good faith which involve intentional misconduct or a knowing violation of law, (3) for transactions in which such director derived improper personal benefit, or (4) pursuant to the provisions of Section 174 of the General Corporation Law.
The Company anticipates that it will enter into indemnification agreements with each of its officers and directors pursuant to which the Company agrees to indemnify each such officer and director for all expenses and liabilities, including criminal monetary judgments, penalties and fines, incurred by such officer and director in connection with any criminal or civil action brought or threatened against such officer or director by reason of such officer or director being or having been an officer or director of the Company. In order to be entitled to indemnification by the Company, such officer or director must have acted in good faith and in a manner such person believed to be in the best interests of the Company and, with respect to criminal actions, such officer or director must have had no reasonable cause to believe his or her conduct was unlawful.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC POLICY AND, THEREFORE, UNENFORCEABLE.
Item 13. Financial Statements.
Copies of the Company's Financial Statements specified in Regulation
228.310 (Item 310) are filed with this Registration Statement, Form 10-SB (see
Item 15 below).
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with the Company's accountants since the formation of the Company required to be disclosed pursuant to Item 304 of Regulation S-B.
Item 15. Financial Statements and Exhibits
(a) Index to Financial Statements. Page
----------------------------------- ----
Independent Auditor's Report F-1
Balance Sheets as of December 31, 1998 F-2
Statement of Operations for the periods ending December 31, 1998,
1997 and 1996 and the period ending December 31, 1998 F-3
Statement of Shareholders' Equity for the period ending
December 31, 1998 F-4
Statement of Cash Flows for the period ending
December 31, 1998 F-5
Notes to Financial Statements F-6 through F-7
(b) Index to Exhibits.
Copies of the following documents are filed with this Registration
Statement, Form 10-SB as exhibits:
Index to Exhibits Page
----------------- ----
1 Certificate of Incorporation E-1
of Power Direct, Inc.
2 Certificate of Amendment E-2
of Certificate of Incorporation of
Power Direct, Inc.
3 Amended and Restated Certificate of E-3 through E-9
Incorporation of Power Direct, Inc.
(Charter document)
|
4 Bylaws of Power Direct, Inc. E-10 through E-20
(Instrument defining the rights of
Security holders)
5 Letter of Agreement Between E-21 through E-24
I.T.A. Enterprises, Inc. and
Power Direct, Inc.
6 Letter of Intent Between Rising E-25 through E-26
Phoenix Development Group Ltd. and
Power Direct, Inc.
7 Letter of Intent Between LANSource E-27 through E-29
Technologies, Inc. and Power Direct, Inc.
8 License Agreement Between the Company and E-30 through E-48
Compte De Sierge Accomodative Corp.
|
SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange Act of 1934, Power Direct, Inc. has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Vancouver, British Columbia, on May 12, 1999.
Power Direct, Inc., a Delaware corporation
By: /s/ Jack Sha
---------------
Jack Sha
Its: President
|
INDEPENDENT AUDITORS' REPORT
Board of Directors March 8, 1999 Power Direct, Inc. (the Company)
I have audited the Balance Sheet of Power Direct, Inc. (A Development State Company), as of December 31, 1998, December 31, 1997, and December 31, 1996 and the related Statements of Operations, Stockholders' Equity and Cash Flows for the period January 1, 1998 to December 31, 1998, and the two years ended December 31, 1997 and December 31, 1996. These financial statements are the responsibility of the Company's management. My responsibility is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis evidence supporting the amounts and disclosures in the financial statement presentation. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Power Direct, Inc., (A Development State Company), at December 31, 1998, December 31, 1997 and December 31, 1996, and the results of its operations and cash flows for the period January 1, 1998 to December 31, 1998, and the two years ended December 31, 1997, and December 31, 1996, in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 3 to the financial statements, The Company has had limited operations and has not established a long term source of revenue. This raises substantial doubt about its ability to continue as a going concern. Management's plan in regard to these matters are also described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ JAMES E. SLAYTON James E. Slayton, CPA Ohio License ID# 04-1-15582 |
Power Direct, Inc.
(A Development Stage Company)
BALANCE SHEET
AS AT
December 31, 1998
December December December
31, 1998 31, 1997 31, 1996
ASSETS
Current Asset
Cash in Bank 2246.00 0.00 0.00
Other Current Assets 0.00 0.00 0.00
--------- --------- ---------
Total Current Assets 2246.00 0.00 0.00
OTHER ASSETS
Organization Costs net of Amortization 0.00 0.00 0.00
TOTAL ASSETS 2246.00 0.00 0.00
========= ========= =========
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable 13042.99 0.00
EQUITY
Capital Stock 600.00 100.00 100.00
Additional paid in capital 400.00 900.00 900.00
Retained Earnings -11796.99 -1000.00 -1000.00
--------- --------- ---------
Total Stockholders' Equity -10796.99 0.00 0.00
--------- --------- ---------
TOTAL LIABILITIES & OWNER'S EQUITY 2246.00 0.00 0.00
========= ========= =========
|
See accompany notes to financial statements & audit report
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR PERIOD
January 1, 1998 to December 31, 1998
December December December
31, 1998 31, 1997 31, 1996
--------- --------- ---------
REVENUE
Services 0.00 0.00 0.00
COSTS AND EXPENSES
Selling, General and Administrative 10796.99 0.00 0.00
Amortization of Organization Costs
Total Costs and Expenses 10796.99 0.00 0.00
--------- --------- ---------
Net Ordinary Income or (Loss) -10796.99 0.00 0.00
========= ========= =========
Weighted average
number of common
shares outstanding 6,000,000 2,000,000 2,000,000
Net Loss
Per Share -0.0018 0 0
|
See accompany notes to financial statements & audit report
Power Direct, Inc. A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR PERIOD
January 1, 1998 to December 31, 1998
Deficit
accumulated
Additional during
Common Stock paid-in development
Shares Amount capital stage
------ ------ --------- -----------
Balance
December 31, 1995 10,000 100.00 900.00 -1000.00
Net loss year ended
December 31, 1996 0.00
Net loss year ended 0.00
December 31, 1997
July 30, 1998
changed form $.01
par value to $.0001
par value (Note 1) (99.00) 99.00
July 30, 1998
forward stock split
200:1 (Note 1) 1,990,000 199 -199
October 21, 1998
forward stock split
3:1 Note 1 4,000,000 400 -400
Net loss
January 1,1998
December 31, 1998 (10,796.99)
--------- ------- ------- -----------
Balance
December 31, 1998 6,000,000 $600.00 $400.00 ($11,796.99)
========= ======= ======= ===========
|
See accompany notes to financial statements & audit report
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR PERIOD
January 1,1998 to December 31, 1998
December December December
31, 1998 31, 1997 31, 1996
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss from operations -10796.99 0.00 0.00
Net Cash provided by Operating Activities -10796.99 0.00 0.00
Increase in current assets 0.00 0.00 0.00
Increase in other assets 0.00 0.00 0.00
Increase in current liabilities 13042.99 0.00 0.00
--------- ------ ------
Cash provided by Operating Activities 2246.00 0.00 0.00
--------- ------ ------
Net cash flow provided by operating activities 2246.00 0.00 0.00
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit on Asset Purchase Agreement
Net cash used by investing activities 0.00 0.00 0.00
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Capital Stock
Net cash provided by financing activities 0.00 0.00 0.00
Net increase (decrease) in cash 2246.00 0.00 0.00
Cash and cash equivalents, December 31, 1998 0.00 0.00 0.00
Cash and cash equivalents, end of year 2246.00 0.00 0.00
|
See accompany notes to financial statements & audit report
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized September 13, 1993, under the laws of the State of Delaware, as Power Direct, Inc. The Company currently has no operations and in accordance with SFAS #7, the Company is considered a development stage company.
On September 30, 1993, the company issued 10,000 Shares of its .01 par value common stock for cash of $1,000.00.
On July 30, 1998, the State of Delaware approved the Company's restated Articles of Incorporation, which increased its capitalization from 10,000 common shares to 25,000,000 common shares. The par value was changed from $.0l par value to $0.000l.
On July 30, 1998, the Company forward split its common stock 200:1, thus increasing the number of outstanding common stock shares from 10,000 to 2,000,000 shares.
On October 21, 1998. the Company forward split its common stock 3:1, thus increasing the number of outstanding common stock shares from 2,000,000 to 6,000,000 shares.
On December 16, 1998, the Company increased its capitalization from 25,000,000 common shares to 100,000,000 common shares. The par value remained at $0.0001.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Accounting polices and procedures have not been determined except as follows:
1. The Company uses the accrual method of accounting.
2. Earnings per share is computed using the weighted average number of shares of common stock outstanding.
4. The Company has not yet adopted any policy regarding payment of dividends. No dividends have been paid since inception.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company has no current source of revenue. Without realization of additional capital or revenues, it would be unlikely for the Company to continue as a going concern. It is management's plan to seek additional capital through a merger with an existing operating company.
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 4 - RELATED PARTY TRANSACTION
The Company neither owns or leases any real or personal property. Office services are provided without charge by a director. Such costs are immaterial to the financial statements and, accordingly, have not been reflected therein. The officers and directors of the Company are involved in other business activities and may, in the future, become involved in other business opportunities. If a specific business opportunity becomes available, such persons may face a conflict in selecting between the Company and their other business interests. The Company has not formulated a policy for the resolution of such conflicts.
NOTE 5 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional shares of common stock.
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/13/1993
763256035 -- 2350791
CERTIFICATE OF INCORPORATION
OF
Power Direct, Inc.
A CLOSE CORPORATION
FIRST: The name of this corporation is Power Direct, Inc.
SECOND: Its registered office in the State of Delaware is to be located at Three Christina Centre, 201 N. Walnut Street, Wilmington DE 19801, County of New Castle. The registered agent in charge thereof is The Company Corporation, address same as above.
THIRD: The nature of the business and the objects and purposes proposed to be transacted, promoted and carried on, are to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.
FOURTH: The amount of total authorized shares of stock of this corporation is 10,000 shares of $.O1 par value.
FIFTH: The name and mailing address of the incorporator is
Vanessa Foster, Three Christina Centre, 201 N. Walnut Street, Wilmington DE 19801
SIXTH: The powers of the incorporator are to terminate upon filing of the certificate of incorporation. All of the corporation's issued stock, exclusive of treasury shares, shall be held of record by not more than thirty (30) persons.
SEVENTH: All of the issued stock of all classes shall be subject to one or more of the restrictions on transfer permitted by Section 202 of the General Corporation Law.
EIGHTH: The corporation shall make no offering of any of its stock of any class which would constitute a "public offering" within the meaning of the United States Securities Act of 1933, as it may be amended from time to time.
NINTH: Directors of the corporation shall not be liable to either the corporation or its stockholders for monetary damages for a breach of fiduciary duties unless the breach involves: (1) a director's duty of loyalty to the corporation or its stockholders; (2) acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law; (3) liability for unlawful payments of dividends or unlawful stock purchases or redemption by the corporation; or (4) a transaction from which the director derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a corporation under the laws of the State of Delaware, do make, file and record this Certificate and do certify that the facts herein are true, and I have accordingly hereunto set my hand.
DATED: September 13, 1993 /S/ Vanessa Foster
------------------------
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CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
POWER DIRECT, INC.
Power Direct, Inc., a corporation organized and existing under and by virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
That at a meeting of the Board of Directors of Power Direct, Inc. on September 30, 1994 resolutions were duly adopted setting forth the proposed amendments of the Certificate of Incorporation of the corporation, declaring said corporation for consideration thereof. The resolutions setting forth the proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be amended by changing the corporation to an "open" corporation and deleting "a close corporation" from the header.
RESOLVED, that the Article thereof number "FOURTH" so that, as amended, said Article shall be and read as follows:
"The amount of total authorized shares of stock of this corporation is 25,000,000 shares of $.000l par value."
RESOLVED, that the corporation delete Articles Six through Eight from the original Articles dated September 13, 1993, and renumber Article Nine as number Six.
That thereafter, pursuant to resolution of its Board of Directors, a special meeting of the stockholders of said corporation was duly called and held upon notice in accordance with Section 222 of the General Corporation Law of the State of Delaware at which meeting the necessary number of shares as required by statute were voted in favor of the amendment.
That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
That the capital of the corporation shall not be reduced under or by reason of said amendments.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to be signed by Maria Contreras, Secretary of the corporation this 3Oth day of September, 1994.
[SEAL] /s/ Maria Contreras
-------------------------------
Maria Contreras, Secretary
|
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/30/1998
981299289 - 2350791
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/13/1999
991015390 -- 2350791
RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION OF
POWER DIRECT, INC.
a Delaware corporation
The present name of the corporation (hereinafter called this "corporation") is Power Direct, Inc. which is the pursuant to which this corporation was originally incorporated; the date of filing the original certificate of incorporation of this corporation with the Secretary of Stare of Delaware is September 13, 1993. The amendments and restatement of the restated Certificate of Incorporation herein certified have been duly adopted by the stockholders in accordance with the provisions of Section 242 and of Section 245 of the General Corporation Law of the State of Delaware.
By unanimous written consent of the members of the Board of Directors of this corporation, dated December 16, 1998, the members of the Board of Directors of this corporation approved and adopted resolutions approving the amendment and restatement of the Certificate of Incorporation of this corporation to specify as follows:
FIRST. The name of this corporation is Power Direct, Inc.
SECOND. The purpose of this corporation is to engage in any lawful act or activity for which corporations may be organized pursuant to the General Corporation Law of the State of Delaware.
THIRD. The name and address of the corporation's registered agent is The Company Corporation, 1013 Centre Road, Wilmington, County of New Castle, Delaware 19805.
FOURTH. The total number of shares of stock which this corporation shall have authority to issue is one hundred million (10O,000,000) with a par value of $.0001 per share with a total authorized capitalization of $100,000.00. Those shares are Common Stock. Each share of Common Stock shall entitle the holder thereof to one vote, in person or by proxy, on any matter on which action of the stockholders of this corporation is sought.
FIFTH. Each director of this corporation shall not be personally liable to this corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (I) for any breach of such director's duty of loyalty to this corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) pursuant to Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which such director derived any improper personal benefit. In the event that the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limited
the personal liability of directors of this corporation, then the liability of each director of this corporation shall be eliminated or limited to the fullest and most complete extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of this article by the stockholders of this corporation shall not affect adversely any right or protection of any director of this corporation existing at the time of such repeal or modification.
SIXTH. This corporation reserves the right at any time, and from time to time, to amend, alter, change or repeal any provision specified in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at any such time then in force may be added or inserted, in the manner now or hereafter prescribed by law; and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by and pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the rights reserved in this article.
SEVENTH. (a) The number of directors constituting the entire Board of Directors of this corporation shall be not less than two (2) nor more than as fixed from time to time by vote of a majority of the entire Board of Directors of this corporation; provided, however, that the number of directors shall not be reduced so as to shorten the term of any director at the time in office, and; provided, further, that the number of directors constituting the entire Board of Directors of this corporation shall be two (2), until otherwise fixed by a majority of the entire Board of Directors of this corporation.
(b) At all times as there are three (3) or more members of the Board of Directors of this corporation, the Board of Directors of this corporation shall be divided into three (3) classes, as nearly equal in numbers as the then total number of directors constituting the entire Board of Directors permits, with the term of office of one class expiring each year. At the first annual meeting of stockholders of this corporation directors of the first class shall be elected to hold office for a term expiring at the next succeeding annual meeting of those stockholders, directors of the second class shall be elected to hold office for a term expiring at the second succeeding annual meeting, and directors of the third class shall be elected to hold office for a term expiring at the third succeeding annual meeting of those stockholders. Any vacancies in the Board of Directors for any reason, and any directorships resulting from any increase in the number of directors, may be filled by the Board of Directors, acting by a majority of the directors then in office, although less than a quorum, and any directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Subject to the foregoing, at each annual meeting of stockholders the successors to the class of directors whose terms shall then expire shall be elected to hold office for a term expiring at the third succeeding annual meeting of stockholders.
(c)Notwithstanding any other provisions of this Certificate of Incorporation or the bylaws of this corporation (and notwithstanding the fact that some lesser percentage may be specified by law, this Certificate of Incorporation or the bylaws of this corporation), any director or the entire Board of Directors of this corporation may be removed at any time, but only for cause and only by the affirmative vote of the holders of seventy-five percent (75%) or more of the outstanding shares of common Stock of this corporation entitled to vote generally in the election of directors (considered for this purpose as one class) cast at a meeting of the stockholders of this corporation called for that purpose.
EIGHTH. The affirmative vote of at least two-thirds (2/3) of the outstanding shares of Common Stock held by stockholders of this corporation other than the "related person" (as defined later in this Certificate of Incorporation), shall be required for the approval or authorization of any "business combination" (as defined later in this Certificate of Incorporation) of this corporation with any related person; provided, however, that such voting requirement shall not be applicable if:
(1) The business combination was approved by the Board of Directors of this corporation either (A) prior to the acquisition by such related person of the beneficial ownership of twenty percent (20%) or requisition the outstanding shares of the Common Stock of this corporation, or (B) after such acquisition, but only during such time as such related person has sought and obtained the unanimous approval by the Board of Directors of this corporation of such acquisition of more than 20% of the Common Stock prior to such acquisition being consummated; or
(2) The business combination is solely between this corporation and another corporation, fifty percent (50%) or more of the voting stock of which is owned by a related person; provided, however, that each stockholder of this corporation receives the same type of consideration in such transaction in proportion to his or her stock holdings; or
(3) All of the following conditions are satisfied:
(A) The cash or fair market value of the property, securities or other consideration to be received per share by holders of Common Stock of this corporation in the business combination is not less than the higher of (I) the highest per share price (including brokerage commissions, soliciting dealers fees, dealer-management compensation, and other expenses, including, but not limited to costs of newspaper advertisements, printing expenses and attorneys' fees) paid by such related person in acquiring any of its holdings of this corporation's Common Stock or (ii) an amount which has the same or a greater percentage relationship to the market price of this corporation's Common Stock immediately prior to the commencement of acquisition of this corporation's Common Stock by such related person, but in no event in
excess of two (2) times the highest per share price determined in clause (I), above; and
(B) After becoming a related person and prior to the consummation of such business combination, (I) such related person shall not have acquired any newly issued shares of capita] stock, directly or indirectly, from this corporation (except upon conversion of convertible securities acquired by it prior to becoming a related person or upon compliance with the provision of this article or as a result of a pro rata stock dividend or stock split) and (ii) such related person shall not have received the benefit, directly or indirectly, (except proportionately as a stockholder) of any loans, advances, guarantees, pledges or other financial assistance or tax credits provided by this corporation, or made any major changes in this corporation's business or equity capital structure; and
(c) A proxy statement complying with the requirements of the Securities Exchange Act of 1934, whether or not this corporation is then subject to such requirements, shall be mailed to the public stockholders of this corporation for the purpose of soliciting stockholder approval of such business combination and shall contain at the front thereof, in a prominent place (I) any recommendations as to the advisability (or inadvisability) of the business combination which the continuing directors, or any outside directors, may determine to specify, and (ii) the opinion of a reputable national investment banking firm as to the fairness (or not) of the terms of such business combination, from the point of view of the remaining public stockholders of this corporation (such investment banking firm to be engaged solely on behalf of the remaining public stockholders, to be paid a reasonable fee for its services by this corporation upon receipt of such opinion, to be a reputable national investment banking firm which has not previously been associated with such related person and, if there are at the time any such directors, to be selected by a majority of the continuing directors and outside directors).
For purposes of this article:
(1) The term "business combination" shall be defined as and mean (a) any merger or consolidation of this corporation with or into a related person; (b) any sale, lease, exchange, transfer or other disposition, including, without limitation, a mortgage or any other security device, of all or any substantial part of the assets of this corporation, including, without limitation, any voting securities of a subsidiary, or of a subsidiary, to a related person; (c) any merger or consolidation of a related person with or into this
corporation or a subsidiary of this corporation; (d) any sale, lease exchange, transfer or other disposition of all or any substantial part of the assets of a related person to this corporation or a subsidiary of this corporation; (e) the issuance of any securities of this corporation or a subsidiary of this corporation to a related person; (f) the acquisition by this corporation or a subsidiary of this corporation of any securities of a related person; (g) any reclassification of Common Stock of this corporation, or any recapitalization involving Common Stock of this corporation, consummated within five (5) years after a related person becomes a related person, and (h) any agreement, contract or other arrangement providing for any of the transactions described in this definition of business combination,
(2) The term "related person" shall be defined as and mean and include any individual, corporation, trust, association, partnership or other person or entity which, together with their "affiliates" and "associates" (defined later in this Certificate of Incorporation), "beneficially" owns (as this term is defined in Rule 13d-3 of the General Rules and Regulations pursuant to the Securities Exchange Act of 1934), in the aggregate 20% or more of the outstanding shares of the Common Stock of this corporation, and any "affiliate" or "associate" (as those terms are defined in Rule 12b-2 pursuant to the Securities Exchange Act of 1934) of any such individual, corporation, trust, association, partnership or other person or entity;
(3) The term "substantial part" shall be defined as and mean more than ten percent (10%) of the total assets of the corporation in question, as of the end of its most recent fiscal year ending prior to the time the determination is being made;
(4) Without limitation, any shares of Common Stock of this corporation which any related person has the right to acquire pursuant to any agreement, or upon exercise of conversion rights, warrants or options, or otherwise, shall be deemed beneficially owned by such related person;
(5) For the purposes of this article, the term "other consideration to be received" shall include, without limitation, Common Stock of this corporation retained by its existing public stockholders in the event of a business combination with such related person pursuant to which this corporation is the surviving corporation; and
(6) With respect to any proposed business combination, the term "continuing director" shall be defined as and mean a director who was a member of the Board of Directors of this corporation immediately prior to the time that any related person involved in the proposed business combination acquired twenty percent (20%) or more of the outstanding shares of Common Stock of this corporation, and the term "outside director" shall be defined as and mean a director who is not (a) an officer or employee of this corporation
or any relative of an officer or employee, (b) a related person or an officer, director employee, associate or affiliate of a related person, or a relative of any of the foregoing, or (c) a person having a direct or indirect material business relationship with this corporation.
NINTH. No special meeting of the stockholders of this corporation may be called by any of the stockholders of this corporation, and the power of stockholders of this corporation to call such a meeting is specifically denied.
TENTH. All of the powers of this corporation, insofar as the same may be lawfully vested by this Certificate of Incorporation in the Board of Directors, are hereby conferred upon the Board of Directors of this corporation. In furtherance and not in limitation of that power, the Board of Directors shall have the power to make, adopt, alter, amend and repeal from time to time bylaws of this corporation, subject to the right of the shareholders entitled to vote with respect thereto to adopt, alter, amend and repeal bylaws made by the Board of Directors; provided, however, that bylaws shall not be adopted, altered, amended or repealed by the stockholders of this corporation, except by the vote of the holders of not less than two thirds (2/3) of the outstanding shares of stock entitled to vote upon the election of directors.
Thereafter, pursuant to a resolution of the members of the Board of Directors, by unanimous written consent dated December 16, 1998, there was submitted to the shareholders of this corporation, for approval, the amendment and restatement of the Certificate of Incorporation of this corporation, as specified above. A majority of the issued and outstanding common stock of this corporation entitled to vote on that amendment and restatement duly approved that amendment and restatement pursuant to the provisions of Section 242 of the Delaware General Corporation Law.
IN WETNESS WHEREOF, the undersigned, Jack Sha, being the president of this corporation, executes this Restated and Amended Certificate of Incorporation and verifies, subject to penalties of perjury that the information specified herein is true and correct; dated December 29, 1998
/s/ Jack Sha ------------------------- Jack Sha, President |
State of Delaware
Office of the Secretary of State PAGE 1
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"POWER DIRECT, INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF JANUARY,
A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL]
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9526661
DATE: 01-19-99
2350791 8100
991015390
|
BYLAWS
OF
POWER DIRECT, INC.
(the "Corporation")
Article I.
Office
The Board of Directors shall designate and the Corporation shall maintain a principal office. The location of the principal office may be changed by the Board of Directors. The Corporation also may have offices in such other places as the Board may from time to time designate. The location of the initial principal office of the Corporation shall be designated by resolution.
Article II.
Shareholders Meetings
1. Annual Meetings
The annual meeting of the shareholders of the Corporation shall be held at such place within or without the State of Nevada as shall be set forth in compliance with these Bylaws. The meeting shall be held on the 31st of December of each year. If such day is a legal holiday, the meeting shall be on the next business day. This meeting shall be for the election of Directors and for the transaction of such other business as may properly come before it.
2. Special Meetings
Special meetings of shareholders, other than those regulated by statute, may be called by the President upon written request of the holders of 50% or more of the outstanding shares entitled to vote at such special meeting. Written notice of such meeting stating the place, the date and hour of the meeting, the purpose or purposes for which it is called, and the name of the person by whom or at whose direction the meeting is called shall be given.
3. Notice of Shareholders Meetings
The Secretary shall give written notice stating the place, day, and hour of the meeting, and in the case of a special meeting, the purpose or purposes for which the meeting is called, which shall be delivered not less than ten or more than fifty days before the date of the meeting, either personally or by mail to each shareholder of record entitled to vote at such meeting. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail, addressed to the shareholder at his address as it appears
on the books of the Corporation, with postage thereon prepaid. Attendance at the meeting shall constitute a waiver of notice thereof.
4. Place of Meeting
The Board of Directors may designate any place, either within or without the State of Nevada, as the place of meeting for any annual meeting or for any special meeting called by the Board of Directors. A waiver of notice signed by all shareholders entitled to vote at a meeting may designate any place, either within or without the State of Nevada, as the place for the holding of such meeting. If no designation is made, or if a special meeting is otherwise called, the place of meeting shall be the principal office of the Corporation.
5. Record Date
The Board of Directors may fix a date not less than ten nor more than sixty days prior to any meeting as the record date for the purpose of determining shareholders entitled to notice of and to vote at such meetings of the shareholders. The transfer books may be closed by the Board of Directors for a stated period not to exceed fifty days for the purpose of determining shareholders entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other purpose.
6. Quorum
A majority of the outstanding shares of the Corporation entitled to vote, represented in person or by proxy, shall constitute a quorum at a meeting of shareholders. If less than a majority of the outstanding shares are represented at a meeting, a majority of the shares so represented may adjourn the meeting from time to time without further notice. At a meeting resumed after any such adjournment at which a quorum shall be present or represented, any business may be transacted, which might have been transacted at the meeting as originally noticed.
7. Voting
A holder of an outstanding share, entitled to vote at a meeting, may vote at such meeting in person or by proxy. Except as may otherwise be provided in the currently filed Articles of incorporation, every shareholder shall be entitled to one vote for each share standing in his name on the record of shareholders. Except as herein or in the currently filed Articles of Incorporation otherwise provided, all corporate action shall be determined by a majority of the vote's cast at a meeting of shareholders by the holders of shares entitled to vote thereon.
8. Proxies
At all meetings of shareholders, a shareholder may vote in person or by proxy executed in writing by the shareholder or by his duly authorized attorney-in-fact. Such proxy shall be filed with the Secretary of the Corporation before or at the time of the meeting. No proxy shall be valid after six months from the date of its execution.
9. Informal Action by Shareholders
Any action required to be taken at a meeting of the shareholders, may be taken without a meeting if a consent in writing, setting forth the action so taken, shall be signed by a majority of the shareholders entitled to vote with respect to the subject matter thereof.
Article III.
Board Of Directors
1. General Powers
The business and affairs of the Corporation shall be managed by its Board of Directors. The Board of Directors may adopt such rules and regulations for the conduct of their meetings and the management of the Corporation as they appropriate under the circumstances. The Board shall have authority to authorize changes in the Corporation's capital structure.
2. Number, Tenure and Qualification
The number of Directors of the Corporation shall be a number between one and five, as the Directors may by resolution determine from time to time. Each of the Directors shall hold office until the next annual meeting of shareholders and until his successor shall have been elected and qualified.
3. Regular Meetings
A regular meeting of the Board of Directors shall be held without other notice than by this Bylaw, immediately after and, at the same place as the annual meeting of shareholders. The Board of Directors may provide, by resolution, the time and place for the holding of additional regular meetings without other notice than this resolution.
4. Special Meetings
Special meetings of the Board of Directors may be called by order of the Chairman of the Board or the President. The Secretary shall give notice of the time, place and purpose or purposes of each special meeting by mailing the same at least two days before the meeting or by telephone, telegraphing or telecopying the same at least one day before the meeting to each Director. Meeting of the Board of Directors may be held by telephone conference call.
5. Quorum
A majority of the members of the Board of Directors shall constitute a quorum for the transaction of business, but less than a quorum may adjourn any meeting from time to time until a quorum shall be present, whereupon the meeting may be held, as adjourned, without further
notice. At any meeting at which every Director shall be present, even though without any formal notice, any business may be transacted.
6. Manner of Acting
At all meetings of the Board of Directors, each Director shall have one vote. The act of a majority of Directors present at a meeting shall be the act of the full Board of Directors, provided that a quorum is present.
7. Vacancies
A vacancy in the Board of Directors shall be deemed to exist in the case of death, resignation, or removal of any Director, or if the authorized number of Directors is increased, or if the shareholders fail, at any meeting of the shareholders, at which any Director is to be elected, to elect the full authorized number of Director to be elected at that meeting.
8. Removals
Directors may be removed, at any time, by a vote of the shareholders holding a majority of the shares outstanding and entitled to vote. Such vacancy shall be filled by the Directors then in office, though less than a quorum, to hold office until the next annual meeting or until his successor is duly elected and qualified, except that any directorship to be filled by election by the shareholders at the meeting at which the Director is removed. No reduction of the authorized number of Directors shall have the effect of removing any Director prior to the expiration of his term of office.
9. Resignation
A Director may resign at any time by delivering written notification thereof to the President or Secretary of the Corporation. A resignation shall become effective upon its acceptance by the Board of Directors; provided, however, that if the Board of Directors has not acted thereon within ten days from the date of its delivery, the resignation shall be deemed accepted.
10. Presumption of Assent
A Director of the Corporation who is present at a meeting of the Board of Directors at which action on any corporate matter is taken shall be presumed to have assented to the action(s) taken unless his dissent shall be placed in the minutes of the meeting or unless he shall file his written dissent to such action with the person acting as the secretary of the meeting before the adjournment thereof or shall forward such dissent by registered mail to the Secretary of the Corporation immediately after the adjournment of the meeting. Such right to dissent shall not apply to a Director who voted in favor of such action.
11. Compensation
By resolution of the Board of Directors, the Directors may be paid their expenses, if any, of attendance at each meeting of the Board of Directors or a stated salary as Director. No such payment shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor.
12. Emergency Power
When, due to a national disaster or death, a majority of the Directors are incapacitated or otherwise unable to attend the meetings and function as Directors, the remaining members of the Board of Directors shall have all the powers necessary to function as a complete Board, and for the purpose of doing business and filling vacancies shall constitute a quorum, until such time as all Directors can attend or vacancies can be filled pursuant to these Bylaws.
13. Chairman
The Board of Directors may elect from its own number a Chairman of the Board, who shall preside at all meetings of the Board of Directors, and shall perform such other duties as may be prescribed from time to time by the Board of Directors. The Chairman may by appointment fill any vacancies on the Board of Directors.
Article IV.
Officers
1. Number
The Officers of the Corporation shall be a President, one or more Vice Presidents, and a Secretary Treasurer, each of whom shall be elected by a majority of the Board of Directors. Such other Officers and assistant Officers as may be deemed necessary may be elected or appointed by the Board of Directors. In its discretion, the Board of Directors may leave unfilled for any such period as it may determine any office except those of President and Secretary. Any two or more offices may be held by the same person. Officers may or may not be Directors or shareholders of the Corporation.
2. Election and Term of Office
The Officers of the Corporation to be elected by the Board of Directors shall be elected annually by the Board of Directors at the first meeting of the Board of Directors held after each annual meeting of the shareholders. If the election of Officers shall not be held at such meeting, such election shall be held as soon thereafter as convenient. Each Officer shall hold office until his successor shall have been duly elected and shall have qualified or until his death or until he shall resign or shall have been removed in the manner hereinafter provided.
3. Resignations
Any Officer may resign at any time by delivering a written resignation either to the President or to the Secretary. Unless otherwise specified therein, such resignation shall take effect upon delivery.
4. Removal
Any Officer or agent may be removed by the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Election or appointment of an Officer or agent shall not of itself create contract rights. Any such removal shall require a majority vote of the Board of Directors, exclusive of the Officer in question if he is also a Director.
5. Vacancies
A vacancy in any office because of death, resignation, removal, disqualification or otherwise, or if a new office shall be created, may be filled by the Board of Directors for the un-expired portion of the term.
6. President
The President shall be the chief executive and administrative Officer of the Corporation. He shall preside at all meetings of the stockholders and, in the absence of the Chairman of the Board, at meetings of the Board of Directors. He shall exercise such duties as customarily pertain to the office of President and shall have general and active supervision over the property, business, and affairs of the Corporation and over its several Officers, agents, or employees other than those appointed by the Board of Directors. He may sign, execute and deliver in the name of the Corporation powers of attorney, contracts, bonds and other obligations, and shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the Bylaws.
7. Vice President
The Vice President shall have such powers and perform such duties as may be assigned to him by the Board of Directors or the President. In the absence or disability of the President, the Vice President designated by the Board or the President shall perform the duties and exercise the powers of the President. A Vice President may sign and execute contracts and other obligations pertaining to the regular course of his duties.
8. Secretary
The Secretary shall keep the minutes of all meetings of the stockholders and of the Board of Directors and, to the extent ordered by the Board of Directors or the President, the minutes of meetings of all committees. He shall cause notice to be given of meetings of stockholders, of the
Board of Directors, and of any committee appointed by the Board. He shall have custody of the corporate seal and general charge of the records, documents and papers of the Corporation not pertaining to the performance of the duties vested in other Officers, which shall at all reasonable times be open to the examination of any Directors. He may sign or execute contracts with the President or a Vice President thereunto authorized in the name of the Corporation and affix the seal of the Corporation thereto. He shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the Bylaws.
9. Treasurer
The Treasurer shall have general custody of the collection and disbursement of funds of the Corporation. He shall endorse on behalf of the Corporation for collection checks, notes and other obligations, and shall deposit the same to the credit accounts to any Director of the Corporation upon application at the office of the Corporation during business hours; and, whenever required by the Board of Directors or the President, shall render a statement of his accounts. He shall perform such other duties as may be prescribed from time to time by the Board of Directors or by the Bylaws.
10. Other Officers
Other Officers shall perform such duties and shall have such powers as may be assigned to them by the Board of Directors.
11. Salaries
The salaries or other compensation of the Officers of the Corporation shall be fixed from time to time by the Board of Directors, except that the Board of Directors may delegate to any person or group of persons the power to fix the salaries or other compensation of any subordinate Officers or agents. No Officer shall be prevented from receiving any such salary or compensation by reason of the fact that he is also a Director of the Corporation.
12. Surety Bonds
In case the Board of Directors shall so require, any Officer or agent of the Corporation shall execute to the Corporation a bond in such sums and with such surety or sureties as the Board of Directors may direct, conditioned upon the faithful performance of his duties to the Corporation, including responsibility for negligence and for the accounting for all property, moneys or securities of the Corporation, which may come into his hands.
Article V.
Contracts, Loans, Checks And Deposits
1. Contracts
The Board of Directors may authorize any Officer or Officers, agent or agents, to enter into any contract or execute and deliver any instrument in the name of and on behalf of the Corporation and such authority may be general or confined to specific instances.
2. Loans
No loan or advance shall be contracted on behalf of the Corporation, no negotiable paper or other evidence of its obligation under any loan or advance shall be issued in its name, and no property of the Corporation shall be mortgaged, pledged, hypothecated or transferred as security for the payment of any loan, advance, indebtedness or liability of the Corporation unless and except as authorized by the Board of Directors. Any such authorization may be general or confined to specific instances.
3. Deposits
All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositories as the Board of Directors may select, or as may be selected by an Officer or agent of the Corporation authorized to do so by the Board of Directors.
4. Checks and Drafts
All notes, drafts, acceptances, checks, endorsements and evidence of indebtedness of the Corporation shall be signed by such Officer or Officers or such agent or agents of the Corporation and in such manner as the Board of Directors from time to time may determine. Endorsements for deposits to the credit of the Corporation in any of its duly authorized depositories shall be made in such manner as the Board of Directors may from time to time determine.
5. Bonds and Debentures
Every bond or debenture issued by the Corporation shall be in the form of an appropriate legal writing, which shall be signed by the President or Vice President and by the Treasurer or by the Secretary, and sealed with the seal of the Corporation. The seal may be facsimile, engraved or printed. Where such bond or debenture is authenticated with the manual signature of an authorized Officer of the Corporation or other trustee designated by the indenture of trust or other agreement under which such security is issued, the signature of any of the Corporation's Officers named thereon may be facsimile. In case any Officer who signed, or whose facsimile signature has been used on any such bond or debenture, shall cease to be an Officer of the Corporation for any reason before the same has been delivered by the Corporation, such bond or
debenture may nevertheless be adopted by the Corporation and issued and delivered as though the person who signed it or whose facsimile signature has been used thereon had not ceased to be such Officer.
Article VII
Capital Stock
1. Certificate of Share
The shares of the Corporation shall be represented by certificates prepared by the Board of Directors and signed by the President. The signatures of such Officers upon a certificate may be facsimiles if the certificate is countersigned by a transfer agent or registered by a registrar other than the Corporation itself or one of its employees. All certificates for shares shall be consecutively numbered or otherwise identified. The name and address of the person to whom the shares represented thereby are issued, with the number of shares and date of issue, shall be entered on the stock transfer books of the Corporation. All certificates surrendered to the Corporation for transfer shall be canceled except that in case of a lost, destroyed or mutilated certificate, a new one may be issued therefor upon such terms and indemnity to the Corporation as the Board of Directors may prescribe.
2. Transfer of Shares
Transfer of shares of the Corporation shall be made only on the stock transfer books of the Corporation by the holder of record thereof or by his legal representative, who shall furnish proper evidence of authority to transfer, or by his attorney thereunto authorized by power of attorney duly executed and filed with the Secretary of the Corporation, and on surrender for cancellation of the certificate for such shares. The person in whose name shares stand on the books of the Corporation shall be deemed by the Corporation to be the owner thereof for all purposes.
3. Transfer Agent and Registrar
The Board of Directors of shall have the power to appoint one or more transfer agents and registrars for the transfer and registration of certificates of stock of any class, and may require that stock certificates shall be countersigned and registered by one or more of such transfer agents and registrars.
4. Lost or Destroyed Certificates
The Corporation may issue a new certificate to replace any certificate theretofore issued by it alleged to have been lost or destroyed. The Board of Directors may require the owner of such a certificate or his legal representative to give the Corporation a bond in such sum and with such sureties as the Board of Directors may direct to indemnify the Corporation as transfer agents and
registrars, if any, against claims that may be made on account of the issuance of such new certificates. A new certificate may be issued without requiring any bond.
5. Consideration for Shares
The capital stock of the Corporation shall be issued for such consideration as shall be fixed from time to time by the Board of Directors. In the absence of fraud, the determination of the Board of Directors as to the value of any property or services received in full or partial payment of shares shall be conclusive.
6. Registered Shareholders
The Corporation shall be entitled to treat the holder of record of any share or shares of stock as the holder thereof, in fact, and shall not be bound to recognize any equitable or other claim to or on behalf of this Corporation to any and all of the rights and powers incident to the ownership of such stock at any such meeting, and shall have power and authority to execute and deliver proxies and consents on behalf of this Corporation in connection with the exercise by this Corporation of the rights and powers incident to the ownership of such stock. The Board of Directors, from time to time, may confer like powers upon any other person or persons
Article VII.
Indemnification
No Officer or Director shall be personally liable for any obligations of the Corporation or for any duties or obligations arising out of any acts or conduct of said Officer or Director performed for or on behalf of the Corporation. The Corporation shall and does hereby indemnify and hold harmless each person and his heirs and administrators who shall serve at any time hereafter as a Director or Officer of the Corporation from and against any and all claims, judgments and liabilities to which such persons shall become subject by reason of his having heretofore or hereafter been a Director or Officer of the Corporation, or by reason of any action alleged to have heretofore or hereafter taken or omitted to have been taken by him as such Director or Officer, and shall reimburse each such person for all legal and other expenses reasonably incurred by him in connection with any such claim or liability, including power to defend such persons from all suits or claims as provided for under the provisions of the Nevada Revised Statutes; provided, however, that no such persons shall be indemnified against, or be reimbursed for, any expense incurred in connection with any claim or liability arising out of his own negligence or willful misconduct. The rights accruing to any person under the foregoing provisions of this section shall not exclude any other right to which he may lawfully be entitled, nor shall anything herein contained restrict the right of the Corporation to indemnify or reimburse such person in any proper case, even though not specifically herein provided for. The Corporation, its Directors, Officers, employees and agents shall be fully protected in taking any action or making any payment, or in refusing so to do in reliance upon the advice of counsel.
Article VIII.
Notice
Whenever any notice is required to be given to any shareholder or Director of the Corporation under the provisions of the Articles of Incorporation, or under the provisions of the Delaware statutes, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before or after the time stated therein, shall be deemed equivalent to the giving of such notice. Attendance at any meeting shall constitute a waiver of notice of such meetings, except where attendance is for the express purpose of objecting to the holding of that meeting.
Article IX.
Amendments
These Bylaws may be altered, amended, repealed, or new Bylaws adopted by a majority of the entire Board of Directors at any regular or special meeting. Any Bylaw adopted by the Board may be repealed or changed by the action of the shareholders.
Article X.
Fiscal Year
The fiscal year of the Corporation shall be fixed and may be varied by resolution of the Board of Directors.
Article Xl.
Dividends
The Board of Directors may at any regular or special meeting, as they deem advisable, declare dividends payable out of the surplus of the Corporation.
Article XII.
Corporate Seal
The seal of the Corporation shall be in the form of a circle and shall bear the name of the Corporation and the year of incorporation per sample affixed hereto.
Date: September 30, 1993 /s/ Maria Conterars --------------------------- Maria Conterars, Secretary |
LETTER OF AGREEMENT
Re: ENTWISTLE COAL METHANE GAS PROJECT
This LETTER OF AGREEMENT made as of January 26, 1999 between POWER DIRECT INC., a body corporate having an office in the Province of British Columbia (hereinafter referred to as "Power");
OF THE FIRST PART
-and-
I.T.A. ENTERPRISES INC., a body corporate having an office in the Province of
Alberta; (hereinafter referred to as ("ITA");
OF THE SECOND PART
AND WHEREAS:
ITA wishes to undertake the acquisition, exploration, development and operation of a Coal Methane Gas Project in the Entwistle Area of west central Alberta, hereinafter referred to as "The ECMG Project";
AND WHEREAS:
Power wishes to participate as a working interest owner in The ECMG Project;
THEREFORE;
The terms and conditions stipulated below shall be in effect;
1. Power shall acquire and own a 37.8% working interest in The ECMG Project by providing a 42% share of the acquisition, exploration and development costs for The ECMG Project. The costs for Phases I, II and III of The ECMG Project are estimated to be Cdn. $500,000 (Five Hundred Thousand Dollars) of which the Power 42% share of costs is estimated at Cdn. $210,000 (Two Hundred Ten Thousand Dollars). The working interest will be subject to a 10% gross overriding royalty (3.78% on the 37.8% working interest of Power) payable to Nicholas Baiton.
2. The costs for Phases I and II of The ECMG Project are estimated at Cdn. $200,000 (Two Hundred Thousand Dollars) of which the Power 42% share is estimated at Cdn. $84,000 (Eighty Four Thousand Dollars). Upon execution of this LETTER OF AGREEMENT, Power shall advance to ITA, Cdn. $8,400 (Eight Thousand Four Hundred Dollars) representing 10% of Power share of costs. This cash advance shall be non-refundable should Power chose not to continue its obligations under this LETTER OF
LETTER OF AGREEMENT-ECMG PROJECT Cont'd
AGREEMENT. ITA shall provide Power with an "Authority For Expenditures" (AFE) and a cash call for Phases I and II of The ECMG Project. Within 10 days, Power shall advance to ITA, Cdn. $75,600 (Seventy Five Thousand, Six Hundred Dollars) representing the balance of its 42% share of the estimated costs. Actual costs for the acquisition, exploration and development of the lands shall be used to determine the exact costs attributable to Power and an adjustment shall be made for any difference in the funds provided by Power in the cash call and the actual costs. Power shall make an election to continue with Phase III after Phases I and II are completed.
3. Power shall sign a Confidentiality Agreement provided by ITA and Power shall adhere to all the conditions stipulated in the Confidentiality Agreement.
4. "Schedule B" is a map showing the area of mutual interest (AMI) in which The ECMG Project lands are located. The lands being considered for the project are either held by others, freehold or crown leases. The project is contingent on acquiring these lands; therefor it is mandatory that strict confidentiality be maintained during the land negotiations.
5. ITA will not be the legal operator of the project but will act as an Agent Manager for The ECMG Project on behalf of the Working Interest Owners. The Working Interest owners shall execute a formal Joint Acquisition Exploration Development and Operating agreement which shall include provisions of the 1990 CAPL OPERATING PROCEDURE and the 1991 PASC ACCOUNTING PROCEDURE as attachments These documents shall be executed following approval of this LETTER OF AGREEMENT by the working interest owners.
6. Time is of the essence as it is intended to proceed with the acquisition and posting of lands commencing in early 1999.
AGREED ON THIS 26th DAY OF January, 1999.
Power Direct, Inc.
Company I.T.A. ENTERPRISES INC.
/s/ Jack Sha /s/ N. Baiton
--------------------- ---------------------
Signature Signature
Jack Sha, President N. Baiton, President
Title Title
|
CONFIDENTIALLY AGREEMENT
This Confidentially Agreement, made this 22nd day of January, 1999, is between I.T.A. Enterprises Inc., a body corporate with offices in the City of Calgary, (the "Company") in the Province of Alberta, and Power Direct, Inc. (the "Recipient") of the Confidential Information.
The Recipient of the Confidential Information hereby agrees on behalf of its Employees, Directors, Agents, Consultants and Advisors as follows:
1. All Confidential Information shall be kept in strict confidence and shall not be disclosed to any person other than the Employees, Directors, Agents, Consultants and Advisors and such person(s) shall be informed at the time of disclosure of the confidential nature of the Confidential Information and any such person(s) shall be required to execute a Secrecy Agreement as provided in Paragraph 6 hereof.
2. In the event that an Employee, Director, Agent, Consultant or Advisor of the "Recipient" visits the property, any technical or confidential information derived from visual inspection or discussions shall be deemed to be part of the Confidential Information and the confidentiality and use restrictions of this agreement shall be observed.
3. Confidential Information shall not include information which:
(a) at the time of disclosure or thereafter generally available to the public other than as a result of disclosure by the Company.
(b) was at the time of disclosure already in the possession of the Recipient on a lawful basis.
(c) is lawfully acquired by the Recipient, its Employees, Directors, Agents, Consultants and Advisors from a third party under no obligation of confidence to the Company.
4. The Recipient shall not acquire any right or interest in the Confidential Information by virtue of the disclosure by the Company to the Recipient as contemplated in this agreement. At any time at the request of the Company, the Recipient shall upon request, destroy or have destroyed all memoranda, notes, reports and documents prepare by or in its possession of the Recipient or its Employees, Directors, Agents, Consultants, Advisors or Representatives in connection with the Recipient's review of the Confidential Information; or, return or cause to be returned the Confidential Information to the Company and shall not retain any copies, other productions or extracts thereof.
CONFIDENTIALITY AGREEMENT cont'd...
5. The Recipient agrees that it shall not disclose to any person any of the terms, conditions or other facts with respect to any possible transaction concerning the Confidential Information and shall direct such of its Employees, Directors, Agents, Consultants and Advisors not to disclose to any person any terms, conditions or other facts with respect to the Confidential Information.
6. The Recipient shall require each of its Agents, Consultants and Advisors, together with their respective Employees, to execute and deliver to the Recipient, a Secrecy Agreement in the Form of Schedule "A" attached hereto before disclosing any Confidential Information to such Agent, Consultant or Advisor or Employee thereof, and the Recipient shall take all such other steps as are necessary to ensure that the terms and conditions of this agreement are binding upon such persons.
7. The Recipient acknowledges that neither the Company nor any of its Representatives makes any representation of warranty, express or implied, as to the accuracy or completeness of the Confidentiality Information.
8. The Recipient agrees that neither the Company nor anyone representing the Company shall have any liability to the Recipient or to any of the Recipient's Representatives as a result of the use of the Confidential Information by the Recipient or its Representatives.
9. Without limitation and in addition to any rights of the Company against the Recipient arising by any reason of any breach hereof, the Recipient agrees to indemnify and hold harmless, the Company against all claims resulting from injury to or death of any persons, or from damage to or destruction of any Property arising out of or in any way connected with the Recipient's evaluation and inspection of the Property.
10. This agreement shall be in full force commencing on the date hereof for a period of one year or until such a time as the Company and the Recipient mutually choose to terminate the agreement.
AGREED TO ON THIS 22ND DAY OF JANUARY, 1999.
I.T.A. Enterprises Inc. Power Direct, Inc. ---------------------------- ------------------------------ Company Recipient /s/ N. Baiton P.ENG. /s/ Jack Sha ---------------------------- ------------------------------ Signature Signature N. Baiton, President Jack Sha, President ---------------------------- ------------------------------ Print Name and Title Print Name and Title |
[LETTERHEAD]
January 15, 1999
Rising Phoenix Development Group Ltd.
409 Granville Street, Suite 304
Vancouver, B.C. V6C 1T2
Attn: Mr. Robert Klein, President
Dear Sirs:
Re: LAK Ranch oil recovery project in Newcastle, Wyoming
This letter will serve as a letter of intent between Power Direct, Inc. (PWDR) and Rising Phoenix Development Group Ltd. (RISE) regarding the above referred to property.
PWDR agrees to the following:
1) To acquire all the assets of RISE for three million eight hundred thousand
(3,800,000) shares of PWDR and seventy five thousand (U.S. $75,000.00)
dollars cash in U.S. Funds.
2) Will inherit all RISE's financial obligations pertaining to the LAK Ranch property up to and including 31 January 1999.
3) Appoint up to three directors from RISE's Board of Directors to PWDR's Board of Directors.
4) Cover its own legal costs to this transaction.
RISE agrees to the following:
1) Deliver the LAK Ranch project in good title within its joint agreement with Derek Resources.
Letter of Agreement
Between Power Direct, Inc. and Rising Phoenix Development Group Ltd.
January 15, 1999
2) Make available to PWDR all contacts and information pertaining to LAK Ranch project.
3) Release PWDR from any liabilities that RISE may have outside of the LAK Ranch.
4) Cover its own legal costs to this transaction.
Final agreement to be completed within thirty (30) days.
Yours truly,
/s/ Jack Sha ---------------------------- Jack Sha President |
Rising Phoenix Development Group Ltd.
[ILLEGIBLE] [ILLEGIBLE] ---------------------------- ------------------------------- Authorized Signature Authorized Signature |
February 15, 1999
LANSource Technologies Inc.
21 Randolph Avenue
Toronto, Ontario
M6P 3L8
Attn: Mr. Marc Bisnaire ("Bisnaire"), President
Dear Mr. Bisnaire;
This will confirm that Power Direct Inc. ("Power") has agreed to acquire upto a Fifty-One (51%) Per cent ownership interest from you in LANSource Technologies Inc. ("LANSource"), upon the following terms and conditions:
1. On the signing of this Letter of Intent (the "Letter"), Power shall deliver to you an initial non-refundable deposit of $100,000.00. You shall be entitled to retain this deposit as your absolute property regardless of whether this transaction is completed, it being understood that this non-refundable payment being made is in recognition of you withdrawing LanSource from its dealings with other potential purchasers at this time.
2. On or before March 1, 1999, Power shall provide you with an additional non-refundable deposit of $200,000.00, which deposit shall be treated in like manner as the initial deposit.
3. On or before March 31, 1999, Power, LanSource and Bisnaire shall enter into a formal Agreement of Purchase and Sale (the "Agreement") with respect to this transaction, which Agreement shall contain the terms set out in this Letter, together with such other commercial reasonable terms and provisions as are ordinarily found in a transaction of this nature and which are completely acceptable to the parties hereto. At the time of execution of the Agreement, Power shall deliver to LanSource an additional non-refundable deposit of $200,000.00, which deposit shall be treated in like manner as the previous deposits. In the event that the parties for whatever reason are unable to finalize the Agreement by March 31, 1999, then the within transaction shall be considered null and void and you shall be entitled to retain all deposits hereinbefore referred to.
4. On or before April 30, 1999, Power shall provide you with an additional non-refundable deposit of $500,000.00, which deposit shall be treated in like manner to the previous deposits.
5. On or before May 31, 1999, Power shall provide you with the sum of ($1,000,000.00), whereupon you shall deliver a 12.5% ownership interest in LanSource to Power.
6. Provided Power has completed its initial 12.5% ownership acquisition in LanSource, Power shall have the right to purchase an additional Twelve and One Half (12.5%) Per Cent ownership interest from you in LanSource for the sum of Three Million ($3,000,000.00) Dollars, by delivering to the aforementioned funds to you by no later than September 30, 1999, failing which Power shall have no further purchase rights in LanSource. It is understood that Power will own Twenty-Five (25%) Per Cent of LanSource, should it complete the aforementioned right to purchase.
7. All of the proceeds received by you pursuant to Paragraph 1, through Paragraph 6, hereof inclusive (less any fees owing thereon and deducted therefrom) shall be deemed to be the absolute property of LanSource and shall remain in LanSource as working capital.
8. Provided Power has acquired a 25% ownership acquisition in LanSource in the manner hereinbefore set out, Power shall have the right to purchase an additional Twenty Six (26%) Per Cent ownership interest from you in LanSource by delivering the sum of Twenty Million ($20,000,000.00) to you on or before September 30, 2000. Any monies received by you pursuant to this Paragraph shall remain the sole and absolute property of Bisnaire, it being understood that Power will own Fifty-One (51%) Per Cent of LanSource, should it complete the purchase set out in this Paragraph.
9. In the event that you elect to sell any portion of your ownership interest in LanSource which is not the subject matter of this Letter to an arm's length third party prior to September 30, 2000, then, provided that Power has made all of the payments set out in Paragraph 1, through Paragraph 6, inclusive in the manner therein set out, Power shall have the ongoing right to purchase such ownership interest from you on the exact terms and conditions as you were prepared to accept from any such third party. The right of first refusal contained in this Paragraph shall only apply to you should you elect to sell more than 10% of your remaining interest in LanSource in any single transaction.
9. On the signing of this Letter, you shall receive 1,200,000 shares of Power, which shares shall be subject to a one year hold pursuant to S.E.C. Rule 144. The aforementioned shares on delivery shall become the absolute property of Bisnaire.
10. On the completion by Power of the 12.5% purchase pursuant to Paragraph 6, hereof, Bisnair shall receive 1,200,000 shares of Power, subject to a one year hold pursuant to S.E.C. Rule 144. The aforementioned shares shall on delivery become the absolute property of Bisnaire.
11. This Letter shall constitute the entire agreement between the parties and the parties shall be not be bound by any representations, warranties, promises, agreements or inducements not embodied in this Letter. In the event that Power fails to make any of the payments contained in this Letter within the time prescribed or should Power be in default of any of the other provisions of this, then all of the uncompleted rights of Power as may be contained in this Letter shall immediately terminate and LanSource shall be deemed to have been released from any further obligations in this matter and this paragraph shall constitute Power's full and final release to LanSource in this matter.
12. All monetary references in this Letter shall be in certified funds and shall be deemed to have been expressed in Canadian Dollars. This Letter may not to be assigned, transferred to, or relied upon by any third parties. Time shall be of the essence in all respects. Communication and acceptance of this Letter may be made by telefax and shall be binding on the parties in such event. This transaction shall be governed by the Laws of the Province of Ontario.
In the event that the foregoing proposal is acceptable, then we require that you sign this Letter in the space provided by no later than midnight eastern standard time today.
We look forward to a successful business relationship.
Power Direct Inc.
/s/ Jack Sha per JACK SHA I have authority to bind the Corporation |
Agreed and accepted to this 15th day of February, 1999
LanSource Technologies Inc.
per
I have authority to bind the Corporation
/s/ Marc Bisnaire ------------------- Marc Bisnaire |
GREETING CARD LOTTO(TM)
PROPRIETARY TECHNOLOGY USAGE
LICENSE AGREEMENT
PREAMBLE
This Agreement made effective the 28th day of April, 1999, is made and entered into by and between POWER DIRECT, INC., a corporation incorporated in the State of Delaware, USA, having an office at 4291 Meridian Street, Bellingham, WA 98226 ("Power") and COMPTE DE SIERGE ACCOMODATIVE CORP, doing business as E-CARD GAMING SYSTEMS, INC., a corporation incorporated in Panama City, Panama ("E-Card") whereby E-Card at the direction of its directors shall license Power to utilize certain Proprietary Technology in connection with a Greeting Card Lotto(TM).
ARTICLE 1 TITLE
This Proprietary Technology Usage License Agreement for providing the Greeting Card Lotto(TM) operated by Power may hereinafter be referred to as the "License Agreement" or "Agreement".
ARTICLE 2 RECITALS
A. WHEREAS, Power (Power Direct, Inc.) is a public company participating on the OTC Bulletin Board with its primary business in investment and joint ventures; and,
B. WHEREAS, E-Card (E-Card Gaming Systems, Inc.) is a private company specializing in designing gaming software systems for the Greeting Card Lotto(TM) to be operated on the Internet; and,
C. WHEREAS, Power will have a worldwide exclusive license in perpetuity to operate the said Greeting Card Lotto(TM), however with no legal right to any sub license, unless with consent of E-Card and on similar terms and conditions to the terms and conditions contained in this agreement, and;
D. WHEREAS, E-Card is ready, willing and able to license the Greeting Card Lotto(TM) to Power, upon the basis that E-Card will be providing the Proprietary Technology to operate the Greeting Card Lotto(TM); and,
E. WHEREAS, Power has had the opportunity to evaluate the potential of the methods and apparatus for a Greeting Card Lotto(TM), along with having had the opportunity to evaluate the potential for meeting the profit objectives of the Greeting Card Lotto(TM), desires a
Greeting Card Lotto(TM) License Agreement - Page 2 of 19
license be granted by E-Card.
NOW THEREFORE, in consideration of the premises, other good and valuable consideration, the receipt and sufficiency is hereby acknowledged by the parties, and the mutual covenants and agreements recited hereinafter, the parties hereto agree as follows:
Section 2.1 Definitions
In this Agreement, the Preamble, Recitals, this Section and the Schedules hereto, unless the context otherwise requires:
1. "Agreement" means this License Agreement and all Schedules attached hereto,
2. "Power" means Power Direct Inc., a publicly traded corporation formed in the State of Delaware, USA, their successors and assigns:
3. "E-Card" means COMPTE DE SIERGE ACCOMODATIVE CORP doing business as E-Card Gaming Systems Inc., a corporation formed in Panama City, Panama;
4 "Business Day" means a day other than a Saturday, Sunday, statutory holiday or day that is declared by any governmental authority to be a civic holiday in the jurisdiction in which an event contemplated hereby is to take place;
5 "Greeting Card Lotto(TM)" means the proprietary software and systems owned and operated by E-Card;
6. "License Fee" means the portion of gross sale revenue, defined as five percent (5%) of the gross revenue of the lotto paid to E-Card by Power as licensee of the said Greeting Card Lotto(TM).
7. "External Audit" means the annual audit to be conducted by an independent Certified Public Accountant firm selected by Power at its expense;
8. "Lotto," means Greeting Card Lotto(TM), including, without limitation, the following:
(a) production and communication of the Greeting Card Lotto(TM) utilizing all or any portion of the Proprietary Technology;
(b) organization of secure accounting of virtual lottery tickets, processing of lottery winners;
(c) the development, planning and operation of one or more lotteries to be operated and such other business opportunities as may arise pursuant to
Greeting Card Lotto(TM) License Agreement - Page 3 of 19
the Proprietary Technology in accordance with this Agreement;
(d) all other permitted lottery activities pursuant to applicable law and permits and licenses derived thereunder for each jurisdiction;
9. "Country of Domicile" means Panama including all geographical territory under the control of the Sovereignty of the country of Panama or any other suitable alternatives.
10. "Lottery Parameters" shall refer to Lotto design and procedures which establish and define the prize structure, lottery rules and other parameters for the Lotto;
11. "Gross Revenue" shall mean any and all gross revenue from the Lotto due and/or paid, from whatever source derived, to E-Card without duplication, which can be attributed in any manner to some portion of the Proprietary Technology, i.e, the Proprietary Technology forms at least a part of the consideration, whether expressly recited or not, for the revenue paid.
Specific examples of Gross Revenue, without intending to limit the scope of its definition, include the gross ticket (Lotto) dollar volume. etc.
12. "Internal Audit" means the quarterly audit to be conducted by a auditor appointed by E-Card at its expense;
13. "Startup Budget" means the approved startup budget with respect to the Lotto as Attached in Schedule"A" hereunder;
l4. "Person" means any individual, partnership, limited partnership, syndicate, sole proprietorship, company or corporation with or without share capital, unincorporated association, trust trustee, executor, administrator or other legal personal representative, regulatory body or agency, government or governmental agency, authority or entity however designated or constituted.
15. "Proprietary System(s)" shall by definition, and by agreement of the parties hereto, also include
1. the Greeting Card Lotto(TM) Software as described in this Agreement dated effective the 28th day of April, 1999, between Power and E-Card;
2. any device, system, system component, method or process that may be used for purchasing Greeting Card Lotto(TM).
16. "Proprietary Technology" means all technology and confidential information considered by Power/E-Card to be proprietary technology (including without limitation, Proprietary Systems) and all other information and/or know how of any kind whatsoever, however
Greeting Card Lotto(TM) License Agreement - Page 4 of 19
developed, acquired or used by Power and/or the E-Card used to operate the Lotto excluding any information already known to the public and in the public domain.
17. "Greeting Card Lotto(TM)" is the U.S. trademark in application to be granted to E-Card in reference to the Proprietary Technology;
18. "Operation Center" means the Lottery command and control center located in the appropriate location to be determined.
19. "$" means currency of the United States of America.
Section 2.2 Capitalized Terms.
Subsequent capitalized terms not defined heretofore are defined in the specific sections in which they are referenced.
Section 2.3 Interpretation.
The captions and the emphasis of the defined terms have been inserted for convenience and do not define the scope of any provision.
Section 2.4 Compliance with Laws.
The parties shall conduct their affairs in strict accordance with all applicable laws and regulations and that such policies will govern their conduct with respect to the transaction contemplated by this Agreement in all respects.
Section 2.5 Time of the Essence of the Agreement.
Unless otherwise specifically provided in this Agreement, time will be of the essence of this Agreement and of the transactions contemplated by this Agreement.
Greeting Card Lotto(TM) License Agreement - Page 5 of 19
ARTICLE 3 REPRESENTATIONS AND WARRANTIES AND GRANT OF LICENSE FOR GREETING CARD
LOTTO AND GRANT OF RIGHT OF FIRST REFUSAL:
Section 3.1 Representations and Warranties of POWER.
POWER warrants and represents to E-Card, and acknowledges that in reliance thereon Power may warrant and represent to E-Card and/or their Related Entities the following:
1. POWER is a corporation in good standing under the laws of USA;
2. POWER has final authority and capacity to execute this Agreement:
3. POWER is authorized to enter into this Agreement and carry out its terms to the full extent required.
Section 3.2 Representations and Warranties of E-Card.
E-Card warrants and represents to Power as follows:
1. E-Card has the power and capacity to provide the Proprietary Technology for the Greeting Card Lotto(TM) as contemplated herein;
2. E-Card is authorized to enter into and execute this Agreement on behalf of itself;
3. E-Card is authorized to carry out the terms of this Agreement to the full extent in respect to the granting of license rights herein;
4. Neither the execution and delivery of this Agreement, nor granting of exclusive license rights contemplated herein will violate any of the terms and provisions of the memorandum or bylaws or articles of incorporation of E-Card, or its Related Entities, or any order, decree, statute, by-law, regulation, covenant, and agreement;
5. E-Card and its employees shall at all times conduct Greeting Card Lotto(TM) development in accordance with all applicable laws worldwide.
Greeting Card Lotto(TM) License Agreement - Page 6 of 19
Section 3.3 GRANT OF LICENSE FOR GREETING CARD LOTTO(TM).
Section 3.4 Grant of Exclusive Licenses.
Subject to the terms and conditions of this Agreement, E-Card grants an exclusive use only license, in perpetuity, worldwide, to Power to the extent necessary to conduct the Greeting Card Lotto(TM).
Section 3.5 Grant of Exclusive Sub-Licenses.
Subject to the terms and conditions of this Agreement, Power may with the consent of E-Card grants sub license to third parties with new terms agreeable to E-Card in respect to the Proprietary Technology, to the extent necessary to conduct a Greeting Card Lotto(TM) in accordance with the Lotto Parameters.
Section 3.6 Proprietary Technology.
Save and except for the technology associated with Greeting Cart Lotto(TM) that is and shall remain proprietary to E-Card, to the extent that E-Card, will expend time, effort, money to make enhancements to the Proprietary Technology, that involve the use or enhancement of the Proprietary Technology resulting in new technology, the parties hereby acknowledge that such new technology shall not extinguish or derogate from the original Proprietary Technology of E-card and that all proprietary right, title and interest in and to the new technology and enhanced Proprietary Technology shall be the properties of E-Card.
Section 3.7 Preservation of Data.
All data complied in connection with the Proprietary Technology will be copied or otherwise preserved and archived on storable media by E-Card to ensure that all Proprietary Technology in the form of data is backed up in the case of any loss or damage to the original data for the benefit of the parties and delivered from time to time upon written request by any party.
Section 3.8 Grant of Right of First Refusal to Acquire Proprietary Technology.
E-Card shall not sell, assign, transfer, convey, encumber or other
hypothecate the Proprietary Technology to any Person except as specified in this
Section 3.8. In the event E-Card desires to sell, assign, transfer, convey,
encumber or otherwise hypothecate the Proprietary Technology, or any portion
thereof, to any Person, E-Card shall give first to Power notice (hereinafter
described) of E-Card's desire to sell, assign, transfer, convey, encumber or
otherwise hypothecate the Proprietary Technology, or any part thereof, and Power
shall have the right to purchase such Proprietary Technology, on the terms and
subject to the terms and subject to the conditions specified in this Section
3.8.
Greeting Card Lotto(TM) License Agreement - Page 7 of 19
1. Notice shall be given by E-Card to Power and shall consist of an offer to sell to Power the Proprietary Technology, or portion thereof, that E-Card then desires to sell, assign, transfer, convey, encumber or otherwise hypothecate, to which shall be attached a statement of intention to sell, assign, transfer, convey, encumber or otherwise hypothecate, as the case may be, the name and address of any prospective purchaser, assignee, transferee, or mortgagee, as the case may be; and the terms and conditions of such sale, assignment, transfer, conveyance, encumbrance, or other hypothecation ("Notice").
2. Power shall have the option for sixty (60) days after receipt of the Notice to purchase all or any portion of the Proprietary Technology that E-Card then desires to sell, assign, transfer, convey, encumber or other hypothecate, at the price and on the terms and subject to the conditions specified in the Notice. Within twenty (20) business days after receipt of Notice, Power shall deliver to E-Card a written election to purchase such Proprietary Technology.
3. The purchase price of the Proprietary Technology that E-Card desires to sell, assign, transfer, convey, encumber or otherwise hypothecate shall be the lesser of (i) that purchase price specified in the Notice or (ii) the purchase price as specified in Paragraph (6) of this Section 3.8.
4. In the event the Proprietary Technology which E-Card desires to sell,
assign, transfer, convey, encumber or otherwise hypothecate is not
purchased by Power pursuant to the option specified in Paragraph (2) of
this Section 3.8, E-Card shall have no obligation to sell any of the
Proprietary Technology to Power, but, rather E-Card of such Proprietary
Technology in any lawful manner on the same terms and conditions as
specified in the Notice; provided, however, E-Card shall not sell, assign,
transfer, convey, encumber or otherwise hypothecate any Proprietary
Technology to any other person or on terms and conditions different than
those specified in the Notice without first giving Power the option for
that period specified in Paragraph (2) of this Section 31.8 to purchase the
Proprietary Technology, on the terms and conditions specified in this
Section 3.8.
5. The closing of any purchase and sale of the Proprietary Technology pursuant to the provisions of this Section 3.8 shall take placed at the principal office of Power at such date designated by Power, which date shall not be later than the last day of the sixty (60) day option period described in Paragraph (2) of this Section 3.8.
6. Purchase Price.
(a) The purchase price for the Proprietary Technology sold pursuant to this Agreement shall be it "fair market value" as determined pursuant to this Paragraph (6) as of the date of the event causing the purchase and sale.
(b) The "fair market value" of the Proprietary Technology shall be determined
Greeting Card Lotto(TM) License Agreement - Page 8 of 19
by an independent appraiser selected jointly by the parties. The determination of fair market value by that appraiser shall obligate, and be conclusive for, all parties to this Agreement.
(c) If the parties are unable to agree on the selection of an appraiser
within thirty (30) days after the event causing purchase and sale,
each party shall select an independent appraiser within twenty (20)
days after expiration of that thirty (30) day period. The two (2)
appraisers so selected shall each independently appraise the
Proprietary Technology and, if the difference in those two (2)
appraisals does not exceed five percent (5%) of the lower of those two
(2) appraisals, the fair market value shall be conclusively deemed to
equal the average of those (2) appraisals. If either party fails to
select an independent appraiser within the time required by this
Paragraph (6), the fair market value of the Proprietary Technology
shall be conclusively deemed to equal the appraisal of the appraiser
timely selected by the other party.
(d) If the difference between the two (2) appraisals referred to above exceeds five percent (5%) of the lower of those two (2) appraisals, the two (2) appraisers selected shall select a third (3rd) appraiser who shall also independently appraise the Proprietary Technology and whose appraisal shall be conclusively deemed to be the fair market value of the Proprietary Technology.
(e) The parties shall share and pay equally the fees and expenses of any appraiser named jointly, but each party shall be responsible for the fees and expenses of any appraiser named solely by that party. Each party shall bear and pay that party's expenses in presenting evidence to the appraisers.
(f) In determining that purchase price, the appraisers appointed pursuant to this Agreement shall consider all opinions and relevant evidence submitted to them by the parties, or otherwise obtained by them, and shall specify their determination in writing together with their opinions and the considerations on which the opinions are based, with a signed counterpart to each party, within sixty (60) days after commencing appraisal.
Section 3.9 Bankruptcy or Insolvency of E-Card.
In the event E-Card files for bankruptcy or similar protection pursuant to the bankruptcy laws of the United States of America or any other jurisdiction, not withstanding the provisions of Paragraph 7.1 of this Agreement, such event shall be considered conclusively by all parties as the deliver by E-Card to Power of the Notice, and in which event Power shall have the right to purchase the Proprietary Technology on the terms and subject to the conditions specified by the provisions of Section 3.8.
Greeting Card Lotto(TM) License Agreement - Page 9 of 19
ARTICLE 4 REVENUE STREAM
Section 4.1 Revenue Stream.
The parties agree that in partial consideration for the forgoing licenses Power shall agree that a non-refundable running License Fee shall be payable by E-Card directly to Power on the basis of a Revenue Stream from the Greeting Card Lotto(TM) Operations.
An amount of five percent (5%) Gross Revenue shall be paid to E-Card, including, without limitation, revenue derived from any and all things of value (paid directly or indirectly), for the right to support, sponsor or play the Lotto, and for the right to use in any way Proprietary Systems or any other portion of the Proprietary Technology.
Section 4.2 Payment Terms.
The parties agree that the applicable amount payable shall be tendered to
E-Card in successive weekly payments by close of business within the next five
(5) Business Days (excluding any statutory holiday) of each and every week in
which payment is being calculated and received in the Power bank account, and
remitted to such bank designated by E-Card in accordance with E-Card's
instructions and in U.S. Dollars at the bank information to be specified by
written notice.
Section 4.3 Statement of Ticket Sales.
Each remittance shall be Accompanied by a weekly statement of Gross Revenue and Gross Receipts for each Lottery which shall be subject to verification by Power's designated accountants and which statement shall disclose the total Gross Revenue and total Net Revenue, the method used to calculate the ticket sales, other non-gaming revenue and payment, and the amount due Power. All such statements shall be in a form determined in accordance with generally accepted accounting principles and acceptable to E-Card (See also Comprehensive Audit and Accounting, Procedures in Article 11 below).
ARTICLE 5 NO ABATEMENT
Section 5.1 No Abatement.
The parties hereto agree that there shall be no abatement or reduction of the monies due from the Power from E-Card for any reason.
Section 5.2 Access to Business and Records.
Greeting Card Lotto(TM) License Agreement - Page 10 of 19
At all times during the subsistence of this Agreement the duly authorized representatives of Power shall, at their sole risk and expense and at reasonable intervals and times, have access to Power and to all records and other data and information relating to the Lotto which is in the possession of the Power.
Section 5.3 Notice of Disputes.
Either party shall provide the other party with written notice of any material dispute or matter as between Power or E-Card.
Section 5.4 Non-disclosure Except as Required by Law.
All information and data concerning or derived from the Operation of the Lotto shall be kept confidential and, except to the extent required by law or by regulation or policy of any securities commission, stock exchange or other regulatory body, shall not be disclosed to any person in strict confidence without the prior consent of both parties, which consent shall not unreasonably be withheld.
ARTICLE 6 ACQUISITION OF REVENUE STREAM
Section 6.1 Cash Payments
1. A cash payment in total Canadian Currency of $300,000.00 is to be paid to E-Card by Power as part al payment for the purchase of a license.
2. These payments are to be made in three equal installments with the timing as shown herein:
First Payment Upon Signing this document. Second Payment Upon completion of Alpha Testing. Third Payment Upon completion of Beta Testing. |
Section 6.2 Stock Payments.
A stock payment of 6,000,000 Shares (Six Million Shares) of Power common restricted stock with a one year hold period in two equal installments with 3,000,000 shares to be paid upon signing of this agreement, and the remaining 3,000,000 shares to be paid upon commencing operations.
Greeting Card Lotto(TM) License Agreement - Page 11 of 19
ARTICLE 7 TERMINATION AND RELATED MATTERS
Section 7.1 Termination for Insolvency.
Any entry by Power into an agreement and/or general assignment for the benefit of creditors, voluntary or involuntary, or, in the event Power does not exercise its option to purchase the Proprietary Technology granted by the provisions of Section 3.8 of this Agreement, any petition by E-Card for reorganization or other relief under the bankruptcy laws of the United States of America, or any other jurisdiction, shall result in an immediate termination of all rights granted, licensed or assigned hereunder, from E-Card to Power without cost to or further consideration from Power.
Section 7.2 Termination for Material Default.
Subject to Section 13.1 (FORCE MAJEUR), a non-defaulting party may terminate this Agreement upon the occurrence of any material default or breach by the defaulting party of any as follows:
1. the non-defaulting party will notify the defaulting party in writing of the occurrence of a material default of this Agreement;
2. the defaulting party will have a period of ten (10) days from delivery of the written notice in which to either:
(a) correct or remedy the material default of this Agreement in a manner satisfactory to the non-defaulting party acting reasonably;
(b) provide to the non-defaulting party a plan in writing to remedy or correct the default of this Agreement which is acceptable to the non-defaulting party acting reasonably;
Section 7.3 Right to Cure Material Default.
Subject to Article 18 (Arbitration) below, if the defaulting party fails to correct or remedy the material default of this Agreement or provide the non-defaulting party with an acceptable plan for the remedy or the correction of the material default of this Agreement, the non-defaulting party may terminate this Agreement upon ten (10) days written notice to the defaulting party.
Section 7.4 Surrender in Case of Termination
Should a termination take effect, Power shall within Twenty (20) Business Days promptly return to E-Card all documents and other material containing or in any way relating to
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Proprietary Technology.
Section 7.5 Survival of Obligations.
In the event of any termination, all obligations of the parties existing prior to termination and all obligations, whether known or unknown at the time of termination, stemming from the act or omissions of a given party while this Agreement was in force and effect, shall remain an obligation of the given party until discharged.
ARTICLE 8 SUBLICENSING/ASSIGNMENT/LIENS/ENCUMBRANCES
Section 8.1 No Charge or Encumbrance.
Power agrees not to, or not to purport to, assign, pledge, cause any lien, encumbrance or more generally any cloud of title whatsoever to affect all or any part of the Proprietary Technology. The parties hereto agree and understand that the purpose of this clause is to insure that in case of any termination of rights licensed hereunder, as provided herein, title to the licensed rights respecting the Proprietary Technology will be free and clear of any cloud on title.
ARTICLE 9 REPORTING / ACCOUNTING / AUDIT / PAYMENTS
Section 9.l Monthly Reporting.
Power shall make daily online and monthly written reports, as provided herein, available to E-Card stating as to each period including but not limited to the amount of Gross Revenue. and the amount due to E-Card for the License Fee under the terms of this Agreement,
Section 9.2 Audit and Records.
Power and shall keep true and accurate records and books of account, in sufficient detail to enable the fees payable to Power hereunder to be determined, showing the annual audited summary of Gross Revenue including a summary of amounts paid pursuant to Article 4 hereof during the course of this Agreement, which records and books of account shall be open for inspection and independent audit by the other parties, or a duly appointed agent of a party upon reasonable advance notice and during Power's usual business hours. In the event a party has such independent audit performed and it reveals that Power has underpaid E-Card by at least $10,000 (Ten Thousand Dollars), then Power shall reimburse the party that undertook such audit for the reasonable costs of such audit.
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Section 9.3 Certification of Reports.
Each monthly report contemplated herein shall be accompanied by a written certification from an authorized officer of Power as to the accuracy of the report.
Section 9.4 Nil Report.
Should no sums be due a report shall nevertheless be rendered to document the facts and circumstances surrounding the no sums due situation.
Section 9 Report Due Date.
All monthly reports due hereunder shall be filed within 20 days after the close of each month.
ARTICLE 10 TERM
Section 10.1 Term.
Unless earlier terminated according to the provisions herein, this agreement shall continue in force and effect in perpetuity.
ARTICLE 11 CONFIDENTIALITY
Section 11.1 Non-disclosure.
All information disclosed or furnished by one party to the other, whether orally or in writing, in connection with the transaction contemplated hereunder shall be deemed to be proprietary and confidential information of the disclosing party, save and except to the extent that such confidential information must be disclosed by law. The receiving party agrees that for the term of this Agreement plus a period of seven (7) years after the date of earlier termination of this Agreement, it shall not disclose any proprietary and confidential information to any third party nor use the information for any purpose other than acting in the best interest of and to protect the interest of each party hereto.
Section 11.2 Permitted disclosure.
The provisions of Section 12.1 notwithstanding, the receiving party may disclose any such information without the prior written consent of the other party, if such disclosure is required lawfully by any governmental agency, court of competent jurisdiction or is otherwise required to be disclosed by law, but only to the extent of such requirement; provided, however; that before making any such disclosure, such party will provide to the other party prior written notice of such
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contemplated disclosure and an adequate opportunity to interpose objections to such disclosure or to take such other action as is necessary to assure the confidential nature of such information.
ARTICLE 12 ARBITRATION/CONSTRUCTION/APPLICABLE LAW
Section 12.1 AAA
Any controversy or claim arising out of or relating to this Agreement or breach thereof, shall be settled by arbitration in accordance with the International Arbitration Rules of the American Arbitration Association, in Seattle, Washington, or such other jurisdiction neutral to both parties within the United States that the parties shall in writing agree, and judgment upon the award rendered by the arbitrator may be entered in any court having jurisdiction thereof.
Section 12.2 Attornment.
By the execution of this Agreement each of the parties irrevocably and unconditionally, with respect to any matter or thing arising out of or pertaining to this Agreement; hereby attorns and submits to the jurisdiction of the arbitration hearing to be conducted under the International Arbitration Rules of the American Arbitration Association in Seattle, Washington, by this reference thereto,
Section 12.3 Selection of Arbitrators.
The arbitration shall be before three neutral arbitrators all of whom shall be of the State Bar of Washington, actively engaged in the practice of law for a 1east ten ( 10) years to be selected in accordance with the International Arbitration Rules of the American Arbitration Association and shall proceed under the expedited procedures of the said Rules, irrespective of the amount in dispute.
Section 12.4 Choice of Law and Attornment.
The parties further agree to be bound by the laws of the State of Washington, but are hereby deemed to have submitted to the said jurisdiction of the American Arbitration Association in Seattle, Washington, by this reference thereto, which shall apply the laws of the State of Washington in the interpretation of this Agreement.
Section 12.5 Remedies.
3. Authority
The arbitrators shall have the authority to award any remedy or relief that a court
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of the State of Washington could order or grant, including, without limitation, specific performance of any obligation created under the Agreement, the awarding of punitive damages, the issuance of an injunction, or the imposition of sanctions for abuse or frustration of the arbitration process.
4. Damages Inadequate.
Each of the parties confirm that damages at law may be an inadequate remedy for a breach or threatened breach of this Agreement and agrees that in the event of a breach or threatened breach of any provision the respective rights and obligations hereunder shall be enforceable by specific performance, injunction pending an arbitration hearing, or other equitable remedy that may be granted pending an arbitration hearing to maintain the status quo.
5. Escrow
Pending the outcome of the arbitration, the parties shal1 place in escrow with the American Arbitration Association as escrow agent the monies or subject matter in dispute. The escrow agent shall be entitled to release such monies or subject matter in dispute as directed by the arbitrators in the award, unless the parties agree otherwise in writing.
ARTICLE 13 FORCE MAJEURE
Section 13.1 Force Majeure
Each party shall be excused from any breach or default with respect to this Agreement to the extent that the party was prevented from performance by reason of anything beyond the party's control and not reasonably avoidable such as a strike or other labor disturbance, act of any governmental authority or agency, fire, flood, wind, storm or any act of God or the act or omission of any party not controlled by that party. No party shall be liable to the other party for any delay in or failure of performance under this Agreement due to a Force Majeure. Any such delay in or failure of performance shall not constitute default or give rise to any liability for damages. The existence of such causes of delay or failure shall extend the period of performance to such extent as is mutually determined by the parties to be necessary to enable complete performance by a party if reasonable diligence is exercised after the causes or delay or failure have been removed.
ARTICLE 14 NOTICES
Section 14.1 Notice Requirements.
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6. All notices for the purpose of this Agreement shall be deemed to be properly served when in writing and sent by tele-copier or facsimile, to the other party at the address set forth in the opening paragraph of this Agreement, or to such substitute address as such party may from time to time designate in writing to the other.
7. Each party shall cause all notices which may in any way affect the obligations and responsibilities of the other party to be directed or forwarded to that other party as the case may be and agrees to forward all notices effecting the Proprietary Technology that may be received from third parties to the other party.
8. An accidental omission in the giving of, or failure to give, a notice required by this Agreement will not invalidate or affect in any way the legality of any meeting or other proceeding in respect of which such notice was or was intended to be given.
9. A party may change its address by giving written notice of such change to the other.
10. A document sent by telex or facsimile will be deemed to be received on the first Business Day after valid transmission.
ARTICLE 15 INDEMNITY FOR MATERIAL BREACH
Section 15.1 Mutual Indemnities.
Each party shall indemnify defend and hold the other harmless from and against all claims, demands, losses, costs, expenses, obligations, liabilities, damages, recoveries and deficiencies including interest, penalties and reasonable attorney's fees, that the other may incur as a result of any material breach by other of any terms, representations or warranties hereof.
ARTICLE 16 NON-WAIVER
Section 16.1 No Waiver.
The failure by either party to enforce at any time any of the provisions of this Agreement, or any rights in respect thereto, or to exercise any election herein provided, shall in no way be considered to be a waiver of such provisions, rights or elections, or in any way to affect the validity of this Agreement. The exercise by a party of any of its rights herein or any of its elections under the terms of covenants herein shall not preclude or prejudice that party from exercising the same or any other right it may have under this Agreement or law, irrespective of any previous action or proceeding taken by that party hereunder.
ARTICLE 17 INVALIDITY/ILLEGALITY OF PART AGREEMENT
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Section 17.1 Entire Agreement/Written Modification.
This Agreement sets forth the entire intent of and understanding between the parties hereto with respect to the subject matter hereof, supersedes all prior discussions, negotiations and Agreements between them, and may be amended only by a written agreement signed by all parties.
Section 17.2 Partial Invalidity/Severability.
If any provision of this Agreement or any part of any provision (in this section call the "Offending Provision") is declared or becomes unenforceable, invalid or illegal for any reason whatsoever including, without limiting the generality of the foregoing, a decision by any competent courts, legislation, statutes, bylaws or regulations or any other requirements having the force of law, then the remainder of this Agreement will remain in full force and effect as if this Agency Agreement has been executed without the Offending Provision, but amended so as to be capable of being interpreted in a manner that is most consistent with the original intention of the parties as stated herein.
ARTICLE 18 FURTHER ASSURANCES
Section 18.1 Further Assurances.
The parties hereby covenant and agree to do the things, to attend the meetings and to execute the further documents, Agreements, and assurances that may be deemed necessary or advisable from time to time in order to carry out the terms and conditions of this Agreement in accordance with their true intent.
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ARTICLE 19 INTERPRETATION
Section 19.1 Interpretation of Agreement.
For all purposes of this Agreement except as otherwise expressly provided or as the context otherwise requires:
1. the headings will be considered as provided for convenience only and as not forming a part of this Agreement, and will not be used to interpret, define or limit the scope, extent or intent of this Agreement or any of its provisions:
2. the word "including", when following any general term or statement, is not to be construed as limiting the general term or statement to the specific items or matters set forth or to similar items or matters but rather as referring to all other items or matters that could reasonably fall within the broadest possible scope of the general term or statement;
3. accounting terms, not otherwise defined have the meanings assigned to them in accordance with generally accepted U.S. GAAP;
4. a reference to a statute includes every regulation made pursuant thereto, all amendments to the statute or to any such regulation in force from time to time, and any statute or regulation which supplements or supersedes such statutes or any such regulation;
5. a reference to an entity includes any entity that is a successor to such entity;
6. words importing the masculine gender include the feminine or neuter, words in the singular include the plural, and for greater certainty, End Users includes all its Related Entities formed at the relevant time, and vice versa.
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ARTICLE 20 EXECUTION
Section 20.1 Counterparts.
This Agreement may be executed in one or more counterparts and/or via one document exchanged between the parties and/or their attorneys, Federal Express or facsimile machine. Each part or facsimile shall for all purposes be deemed an original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed at Bermuda, British Columbia and California effective as of the date first written above.
COMPTE DE SIERGE ACCOMODATIVE CORP
doing business as E-CARD GAMING SYSTEMS, INC.
By /s/ Conrado Beckerman
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Conrado Beckerman, Director
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POWER DIRECT, INC.,
By /s/ Jack Sha
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Jack Sha, President
By /s/ Michael Wright
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Michael Wright, Chairman
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