U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES ACT OF 1934
ADVANCED ENGINE TECHNOLOGIES, INC.
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(Name of Small Business Issuer in Its Charter)
Colorado 84-1358194
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization Identification No.)
9909 Osuna Road, N.E., Albuquerque, New Mexico 87111
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(Address of Principal Executive Offices) (Zip Code)
(505) 323-7341
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(Issuer's Telephone Number)
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
- ------------------ ------------------------------
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of Class)
<PAGE>
PART I
Item 1. Description of Business
General
Advanced Engine Technologies, Inc. (the "Company") was formed to
commercialize the OX2 internal combustion engine, a state-of-the-art, uniquely
designed and environmental friendly. The primary focus of the Company will be on
the commercial introduction of the OX2 engine and subsequent licensing of the
OX2 engine technology to approved manufacturers.
The Company has recently entered into an exclusive license agreement
with OX2 (Distribution) Ltd. ("OX2 Ltd.") to manufacture, distribute and market
the OX2 engine in the North American Free Trade Agreement countries (presently
the United States, Canada and Mexico). OX2 is the licensee of the technology
from OX2 Intellectual Property, Inc., a foreign corporation which was assigned
the technology from the original patent holders.
Under the sub-license agreement, the Company has the exclusive
license to manufacture, distribute and market the OX2 engine which is subject to
the patent in NAFTA countries. It may be distributed outside of NAFTA upon
payment of 75% royalty. The Company is issusing 39,000,000 to OX2 (the
licensor): 20,000,000 upon signing the agreement (issued) and an additional
19,000,000 shares upon presentation of certified emission test results. In
addition the Company will pay a 15% royalty of the gross proceeds received by it
on all products manufactured in accordance with the Patent. The sub-license
agreement is for the life of the patent or a minimum of twenty years, whichever
is longer. Negotiations are ongoing regarding extending the length of the
agreement.
At the present time only a prototype of the OX2 engine has been
built. No OX2 engines have been manufactured for production use, and no
assurance can be given that the OX2 will be successfully manufactured.
On July 15, 1998, Carroll Shelby, a director of the Company,
individually and as Trustee of the Carroll Hull Shelby Trust and the Company
entered into a joint venture agreement to develop the OX2 engine for use in a
standard application for motor vehicles and to promote the OX2 engine to the
automotive industry. The agreement is to expire December 31, 2001. Shelby
received 300,000 shares of the Company and if the objective is met he will
receive an additional 250,000 shares.
Product Overview
The OX2 internal combustion engine is fuel efficient, light weight,
low emission, multi fueled, smaller, inexpensive, higher power to weight ratio
and without complex manufacture/production requirements. Preliminary statistics
have shown the OX2 engine either meets or in most cases exceeds requirements in
all area of existing internal combustion engines. The OX2 engine will be applied
from zero to multi thousand horse-power, for lawn mowers, chain saws, brush
cutters, marine inboard/outboards, generators, aircraft, automotive and
industrial engines.
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The fact that the OX2 engine has only six major components, of which
only three move, results in low set-up and production costs with a simplicity of
design that promotes a high level of quality assurance.
The major parts are as follows: (1) housing, (2) cylinder block, (3)
top piston plate, (4) lower piston plate, (5) com track, and (6) drive shaft.
The moving parts are: (1) cylinder block, (2) top piston plate, and (3) lower
piston plate.
The data given below is related to the current prototype however it
should be noted that the engine is flexible enough to allow these parameters to
change to best suit a particular application.
Number of Combustion
Chambers 8
System 4 Stroke
Diameter 12.8 inches/325 mm.
Width 10 inches/254 mm.
Weight 140 lb./63.5 kilos
Actual Cubic Capacity 66.25 c.i./ 1086 cc
Fuel Any combustible gas
or liquid.
Brief Synopsis of the OX2 Engine
Set forth is a comparison and description of the operation of the OX2
engine against a normal four stroke conventional engine (hereinafter referred to
as "4sc Engine").
The current prototype of the OX2 engine has two spark plugs, two
spark plugs leads and coils. There is no crank shaft, distributor, sump, or oil
pump and in fact there is no need for oil pressure to support bearings, however
a small amount of oil is used for cooling.
The combustion chambers are only slightly longer than the stroke,
(e.g. a 75mm. stroke requires a 87 mm. combustion chamber) and pistons need only
to be thick enough to house the rings. There are no piston skirts and the rings
are the only contact point with the bore. In other words at no time do the
pistons touch the bore and nor are they reliant on it for support. This system
eliminates loading on the sides of the combustion chambers.
Not counting seals and bearings the OX2 engine has only six major
components, and should be easier to manufacture than a cylinder head of a
conventional four cylinder engine. There are only two wearing parts, which would
wear at a rate similar to ordinary piston rings. Once the engine is set to its
operating setting it needs little or no servicing.
The current OX2 engine fires four times as often as a 4scEngine, i.e.
For every complete cycle of a 4scEngine the OX2 engine has completed four
cycles. Therefore engine capacity of the OX2 engine when compared to 4scEngine
is calculated by multiplying the actual engine capacity by four.
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Because the OX2 engine does not use a conventional crankshaft it has
been able to achieve a leverage advantage of 6.6 times over a 4scEngine which
has a similar stroke. The method used to achieve this is the subject of the
engine patent.
Further, the OX2 engine design enables the timing to be adjusted
sufficiently to produce the most effective burn of the combustible fuel being
used irrespective of the engine R.P.M. This is possible due to the extended
dwell at the top of the compression stroke. Compare this to a 4scEngine where
pre ignition occurs if the timing is advanced to far, causing combustion prior
to the top of the stroke. The result of which is resistance against the
crankshaft thus causing a loss of energy.
OX2 piston speed (which is controlled by the fuel burn rate) remains
constant throughout the entire power stroke at the leverage advantage referred
to above. The inlet and exhaust valves do not commence to open until the exhaust
and power strokes respectively have been fully completed. They then remain open
long enough to ensure maximum operating efficiency. This enables more regulated
mixture to be induced prior to firing and for exhaust gases to be expelled
efficiently.
Compare this to the combustion signature of a 4scEngine where piston
speed increases and decreases twice during the power stroke. To begin with, the
majority of the power from the firing occurs at the top of the stroke where
there is little or no leverage. By the middle of the stroke (where there is
maximum leverage) the piston is out accelerating the maximum burn rate,
resulting in a loss of torque. Towards the end of the stroke the piston is
decelerating again, the outlet port is starting to open and energy is being lost
through the exhaust. Added to this at high revs there is considerable back
pressure form exhaust gasses trying to escape out of the valves, again causing
resistance and a loss of efficiency. A significant advantage of the OX2 engine
design is that it has a capability to lengthen or shorten the piston stroke and
dwell at top dead centre during engine operation thus ensuring optimum
efficiency at all times irrespective of engine revs or load.
A further feature of the OX2 engine is that it achieves considerable
torque at all stages through its operating range. Consequently in most
applications there would be no need for the engine to operate at revs higher
than 2500 rpm. In some instances this would eliminate the need for a gear box
and would certainly reduce engine wear. However, if high engine revs is a
prerequisite for a particular application, then the OX2 engine can be easily
adapted accordingly.
Combustion Chamber & Porting
Conventional Engine
Air & fuel is taken in to the combustion chamber through the intake
port and past the intake valve which is located off to one side of the cylinder.
The valve being fully open for only a percentage of the stroke and the port size
being restricted by the combustion chambers ability to house any larger valve
while still leaving room for the exhaust valve. The valves themselves restrict
the efficient flow of gasses into and out of the combustion chamber as well as
creating turbulence as gasses attempt to flow around them again causing further
restrictions to the smooth and efficient flow of gasses.
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OX2 Engine
In the OX2 engine air and fuel is taken in to the combustion chamber
through one port located in the centre of the combustion chamber. This port
could be the size of the chamber if so desired. It is fully opened for the
entire duration of the stroke plus some additional time to allow a full chamber
of air & fuel. There is no valve restricting the flow and the chamber is convex
in shape so as to fully change the cylinder with maximum efficiency. Due to the
fact that this port is also the exhaust port a heat transfer takes place on
intake thus cooling the port and seal while maximizing fuel vaporization in the
one simple process. Added to this is the recirculation of exhaust gasses into
the combustion chamber on intake which also assists in the vaporization of the
fuel.
Conventional Engine Vacuum
To control engine power and speed the flow of air and fuel is
restricted to the combustion chamber via a carburetor or throttle body and fuel
injectors. (Less fuel and air results in less potential energy for heat
expansion and therefore less power and lower engine revs). The negative affect
of this in a conventional engine is high engine vacuum, which produces two
energy wasting affects: (1) it takes a great deal of energy for the piston to
travel down the bore under such vacuum; and (ii) on completion of the intake
stroke the combustion chamber still does not have full volume of air fuel
mixture and as you can only compress what is in the cylinder in the first place
compression will not be optimum, as a result maximum efficiency from the
potential energy will not be obtained.
OX2 Engine
The OX2 engine is designed to have exhaust gasses fed back in to the
combustion chamber, so as the throttle is backed off more exhaust gasses enter
the combustion chamber ensuring that engine pressure is only slightly below
atmospheric pressure thus eliminating the majority of the vacuum created. This
ensures that there is no waste of energy fighting vacuum and also allows for
optimum compression regardless of the air fuel delivery. This means that more
fuel is used driving the piston and less wasted pressuring the combustion
chamber. As there was little pressure differential the air fuel induced in to
the cylinder does not drop in temperature and when the heat of recalculated
exhaust gasses is added to this the fuel remains in a gaseous form thus ensuring
an efficient burn.
Marketing
The total size of the internal combustion engine industry makes the
introduction of any significant change to industry standards a complex
promotions and marketing exercise. The multi-purpose nature of the OX2 engine
should make it compatible to all market applications, providing an opportunity
from a market that is demanding change.
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The initial introduction of the OX2 engine will be to specialist
engine manufacturers who produce purpose built engines. Sub-licenses by the
Company to manufacture OX2 engines will be issued to only a limited number of
engine manufacturers, achieving a manageable and controlled market introduction.
This will ensure that all efforts are focused to the success of consolidating a
targeted market share and the development of cash flow.
It is expected that income will be generated in two ways: (1)
approved manufacturers will pay a licensing fee for the right to produce and
sell the OX2 engine, license fees will be determined by territory size and
market potential, and (ii) for each engine produced and sold a royalty payment
will be received, with royalty payments will be determined by engine capacity
and application.
Patents
The Company is the sub-license of International Patent Application.
No PCT/AU95/00815 -- in the name of Advanced Engine Technology PTY, Ltd -- Axial
Piston Rotary Engine -- filed in Australia. A patent filed in Australia is
usually in effect for a minimum of twenty years. U.S. Patent No. 5,813,372 -
Axial Piston Rotary Engine - has been granted.
Item 2. Management's Discussion and Analysis or Plan of Operation
The Company plans to continue the development of prototypes and
marketing during the 1999 fiscal year. Activities will include demonstrations to
prospective original equipment manufacturers of products using internal
combustion engines, work with its joint venture partner to develop an engine for
automobile use and developing additional joint venture partners in order to
market the engine. While prototypes of the OX2 engine exist, there can be no
assurance the Company will be successful with its marketing efforts, the
development of its joint ventures or in the ultimate development of the engine
for commercial applications.
The Company's cash flow requirements to fund these activities and the
general operations of the Company total approximately $460,000 and include
approximately $165,000 for consulting and $65,000 for equipment among other
costs. The Company expects to fund these costs with its current cash reserves of
approximately $550,000. The Company's cost estimates do not include provisions
for any contingencies or unexpected expenses that may arise or any unanticipated
increases in costs. As a result, the Company's cash reserves may not be adequate
to cover the actual costs of operations in the 1999 fiscal year.
The Company expects to sign its first contracts for the production of
small engines in fiscal year 1999 and expects as a result to begin generating
revenue. There are currently no signed contracts that will produce revenue and
there can be no assurance management will be successful in negotiating these
contracts.
In accordance with the patent license agreement with its parent, the
research and development required to bring the product to commercial production
is provided by the Company's parent. In addition, development is undertaken by
its joint venture partner as well. As a result, the Company does not expect to
carry out or fund any research and development.
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The Company does not currently have any employees other than the its
officers nor does it expect to add any in the next year.
Item 3. Description of Property
The Company does not own or lease any property. Office space in
Gardena, California is provided without charge pursuant to the joint venture
with Carroll Shelby (see Item 7).
Item 4. Security Ownership of Certain Beneficial Owners and Management
The following table sets forth information as of October 6, 1998,
with respect to all shareholders known by the Company to be beneficial owners of
more than 5% of the outstanding Common Stock, all directors, and all directors
and executive officers as a group. Except as noted below, each shareholder has
sole voting and investment power with respect to shares owned.
Number of
Name & Address Common Shares
of Beneficial Owner Beneficially Owned Percent*
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OX2 Engine (Distribution) Ltd. 13,320,420* 60.8%
Windsor House 2nd Floor
Kumel Highway
Port Vila, Vanuatu
Macro Management Group, Ltd. 1,161,820 7.4
Windsor House 2nd Floor
Kumel Highway
Port Vila, Vanuatu
Murray J. Bailey 445,975 2.0
9909 Osuna Rd. NE
Albuquerque, NM 87111
Carroll Shelby 310,000* 1.4
10862 Vicenza Way
Los Angeles, California 90077
George Hunt 82,000** 0.4
906 Holly
Sterling, Colorado 80751
- ----------------------
* Based upon 21,900,000 shares outstanding. Does not include 19,000,000 shares
that may be issued to OX2 upon successful completion of emmisssion tests and
250,000 shares that may be issued to Carroll Shelby on completion of the joint
venture.
**These shares are owned by Cecil L. Hunt, wife of George Hunt who disclaims
beneficial ownership.
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Item 5. Directors, Executive Officers, Promoters and Control Persons
Set forth below are the names and ages of all directors and executive
officers of the Company.
Name Age Position
---- --- --------
Murray J. Bailey 49 President and Director
George Hunt 69 Director
Carroll Shelby 75 Director
Murray Bailey - President
Murray J. Bailey is a New Zealand citizen with a background in
marketing. From 1991 until 1994 he was chief executive of the Economic
Development office, Western Bay of Plenty, New Zealand. Mr. Bailey moved to
Austrialia in 1994 to establish a marketing and consulting business. Mr. Bailey
assumed the Presidency of the Company in May 1997. Murray Bailey has been
appointed a director as a representative of OX2 Engine (Distribution) Ltd.
Pursuant to the License Agreement with the Company, OX2 Engine has the right to
appoint two directors to the board of directors. No other nominee has been
proposed at this time.
George Hunt - Director
George Hunt has 36 years experience in the marine industry as an
agent and supplier of all related equipment, products and service. In 1972, he
established Sterling Marine, a Colorado company, gradually building the business
to four marine sales and service locations in the United States, having been
recognized by Bayliner for multimillion dollar sales achievements. His
relationships with major marine engine manufacturers and suppliers provide
valuable inroads to the industry for Advanced Engine Technologies, Inc.
Carroll Shelby - Director
Carroll Shelby has over 50 years of successful experience in the
engine industries. Inducted into a number of automotive related Halls of Fame.
Founder/Director of:
Shelby American, Inc
Shelby American Licensing, Inc.
Shelby Technologies
Carroll Shelby Enterprises
Carroll Shelby Children's Foundation
International Chili Society
Director of Automotive Hall of Fame
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Item 6. Executive Compensation
The Company paid consulting fees to its President, who is also a
shareholder, in the amount of $128,698 from September 23, 1996 (inception) to
June 30, 1998 including $69,790 for the year ended June 30, 1998, and $58,908
for the period from September 23, 1996 (inception) to June 30, 1997. He
continues to receive consulting fees of $6,650.00 a month.
Item 7. Certain Relationships and Related Transactions
In October 1996, the Company entered into a contract with OX2
(Distributions) Ltd. (OX2) whereby the Company acquired the rights to
manufacture, distribute and market the OX2 combustion engine in the United
States, Canada and Mexico for the life of the world wide patent. As part of this
contract the Company issued 20,000,000 shares of its common stock and will issue
an additional 19,000,000 upon the successful completion of emission tests. The
Company is also to pay a royalty of 15 percent of the gross proceeds of its
revenue in its territory and 75 percent for sales outside the territory. In
addition, OX2 has the right to appoint two of the Company's three directors. As
of October 30, 1998, OX2 owned approximately 61 percent of the Company's
outstanding shares and OX2 had appointed one director who is also the Company's
President.
Also, in October 1996, the Company issued 600,000 shares of its
common stock to one of its founders and former President, David Travis, in
exchange for his services in organizing the Company. The transaction was
recorded at the estimated fair market value of the services provided ($6,000),
as this was more readily determinable.
In April 1997, the Company issued a convertible note to a former
director Ralph Eckler in the amount of $50,000. This note was repaid in
September 1997.
The Company paid administrative fees and reimbursed expenses to a
company that is owned by one of its shareholders, Greg Howland in the amount of
$18,717 from September 23, 1996 (inception) to June 30, 1998 including $15,700
for the year ended June 30, 1998, and $3,017 for the period from September 23,
1996 (inception) to June 30, 1997.
On July 15, 1998, Carroll Shelby, a director of the Company,
individually and as Trustee of the Carroll Hull Shelby Trust and the Company
entered into a joint venture agreement to develop the OX2 engine for use in a
standard application for motor vehicles and to promote the OX2 engine to the
automotive industry. The agreement is to expire December 31, 2001. Shelby
received 300,000 shares of the Company and if the objective is met he will
receive an additional 250,000 shares.
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Item 8. Description of Securities
The authorized capital stock of the Company consists of 50,000,000
shares of Common Stock, $.001 par value per share, of which 21,900,000 were
issued and outstanding at October 6, 1997.
Holders of the Common Stock are entitled to receive dividends when
and as declared by the Company's Board of Directors out of funds available
therefore. Any such dividends may be paid in cash, property or shares of the
Common Stock.
Each holder of Common Stock is entitled to one vote per share on all
matters, including the election of directors. Holders of Common Stock do not
have cumulative voting rights. The absence of cumulative voting rights means
that the holders of more than 50% of the shares voting for the election of
directors can elect all directors if they choose to do so. In such event, the
holders of the remaining shares of the Common Stock will not be entitled to
elect any director. The Board of Directors shall be elected each year to a one
year term. A majority of the shares entitled to vote, represented in person or
by proxy, constitutes a quorum at a meeting of shareholders.
Shares of the Common Stock have no preemptive or conversion rights,
no redemption or sinking fund provisions and are not liable to further call or
assessment. The outstanding shares of the Common Stock are, and any shares sold
pursuant to this offering will be, fully paid and non-assessable. Each share of
the Common Stock is entitled to share ratably in any assets available for
distribution to holders of its equity securities upon liquidation of the
Company.
PART II
Item 1. Market Price of and Dividends on Registrant's Common Equity
and Other Shareholder Matters.
Since the first quarter of 1998, the Company's Common Stock has
traded in the over-the-counter market and has been quoted on the Bulletin Board
of the NASDAQ under the symbol: AENG.
Set forth below are the range of prices by quarter since trading
commenced.
High Low
First Quarter 1998 7 1/2 1 3/4
Second Quarter 1998 29 1/4 6 1/2
Third Quarter 1998 21 7 1/2
Fourth Quarter
(through 12/1/98) 9 5/8 7 3/4
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As of December 1, 1998, the Company had 95 shareholders of record.
The Company has not paid any dividends since inception. The Company
does not anticipate paying any dividends in the future even if it were to have
earnings.
Item 2. Legal Proceedings
None
Item 3. Changes in and Disagreements with Accountants
Not Applicable
Item 4. Recent Sales of Unregistered Securities
During the period from May 22, 1997 through November 17, 1997, the
Company sold 1,000,000 shares at a price of $1.00 per share to approximately 90
persons pursuant to an offering under Rule 504 of the Securities Act of 1933,
which offering was exempt from the registration provisions. No underwriter was
involved.
See Part I, Item 7 for additional issuances to two shareholders. No
underwriter was involved and the shares were exempt from registration pursuant
to Section 4(2) of the Securities Act.
Item 5. Indemnification of Directors and Officers
A Colorado Corporation may without court order indemnify a director
if: (i) he conducted himself in good faith; (ii) he reasonably believed: (a) in
case of conduct in official capacity, that conduct was in corporation's best
interests, or (b) in all other cases, that conduct was not opposed to
corporation's best interests; and (iii) in cases of any criminal proceeding, he
had no reasonable cause to believe conduct unlawful.
Unless limited by articles, a corporation is required to indemnify
director who was wholly successful in defense of proceeding, on merits or
otherwise.
Unless limited by articles, a director may apply to court for
indemnification. Court may determine director entitled to mandatory
indemnification. Court may determine director fairly and reasonably entitled to
indemnification in view of all relevant circumstances, whether or not he met
statutory standard of conduct, and may order such indemnification as it deems
proper.
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PART F/S
FINANCIAL STATEMENTS
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
JUNE 30, 1998
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
12
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
September 30, 1998
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
13
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PART III
Exhibits
3.1 Certificate of Incorporation
3.2 By-Laws
10.1 Joint Venture with Carroll Shelby
14.1 License Agreement with Ox2 Engine
27 Financial Data Schedule
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
ADVANCED ENGINE TECHNOLOGIES, INC.
By: /s/ Murray J. Bailey
-----------------------------
Murray J. Bailey, President
Dated: December 10, 1998
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
JUNE 30, 1998
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
INDEPENDENT AUDITORS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statements of Operations 3
Statements of Stockholders' Equity 4
Statements of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
Neff & Company LLP
Independent Auditors' Report
Advanced Engine Technologies, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Advanced Engine Technologies,
Inc. (a subsidiary of OX2 Engine (Distribution) Ltd. and a development stage
company) as of June 30, 1998, and the related statements of operations,
stockholders' equity, and cash flows for the year then ended, for the period
from September 23, 1996 (inception) through June 30, 1997, and for the period
from September 23, 1996, (inception) through June 30, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Advanced Engine Technologies,
Inc. as of June 30, 1998 and the results of its operations and its cash flows
for the year then ended, for the period from September 23, 1996 (inception)
through June 30, 1997, and from September 23, 1996 (inception) to June 30, 1998,
in conformity with generally accepted accounting principles.
/s/ Neff & Company LLP
Albuquerque, New Mexico
August 28, 1998
CERTIFIED PUBLIC ACCOUNTANTS . 7001 PROESPECT PLACE NE . ALBUQUERQUE, NM 87110
(505) 883-6612 . FAX (505) 884-3409
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
June 30, 1998
ASSETS
CURRENT ASSETS
Cash $ 545,435
------------
FIXED ASSETS
Equipment and furniture 21,782
Less accumulated depreciation (1,802)
------------
Total fixed assets 19,980
------------
Total assets $ 565,415
============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 31,283
------------
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock-50,000,000 shares authorized,
21,600,000 issued and outstanding; $.0001 value 2,160
Additional paid-in capital 1,005,840
Deficit accumulated during the development stage (473,868)
------------
Total stockholders' equity 534,132
------------
Total liabilities and stockholders' equity $ 565,415
============
The Notes to the Financial Statements are an integral part of these statements.
2
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
Year Ended June 30, 1998, the period from September 23,
1996 (Inception) through June 30, 1997, and the
Period From September 23, 1996 (Inception)
Through June 30, 1998
September 23, September 23,
1996 1996
For the Year (Inception) (Inception)
Ended Through Through
June 30, June 30, June 30,
1998 1997 1998
Operating expenses (Note 3) $ 333,601 164,683 498,284
-----------------------------------------
Income (loss) from operations (333,601) (164,683) (498,284)
Interest income 23,966 450 24,416
Net loss $ (309,635) (164,233) (473,868)
=========================================
Basic net loss per share $ (.014) (.009) (.024)
=========================================
Weighted average number of common
shares outstanding 21,487,200 18,433,244 20,178,362
==========================================
The Notes to the Financial Statements are an integral part of these statements.
3
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ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Year Ended June 30, 1998, the period from September 23,
1996 (Inception) through June 30, 1997, and the
Period From September 23, 1996 (Inception)
Through June 30, 1998
Equity
(Deficit)
Accumulated
Common Stock Additional During the
----------------- Paid-in Development
Shares Amount Capital Stage Total
Issuance of common stock
to parent corporation for
license rights (Note 3) 20,000,000 $2,000 - - 2,000
Issuance of common stock
for services (Note 3) 600,000 60 5,940 - 6,000
Issuance of common stock
for cash (Note 5) 499,200 50 499,150 - 499,200
Net loss - - - (164,233) (164,233)
---------------------------------------------------
Balance, June 30, 1997 21,099,200 2,110 505,090 (164,233) 342,967
Issuance of common stock
for cash (Note 5) 500,800 50 500,750 - 500,800
Net loss - - - (309,635) (309,635)
---------------------------------------------------
Balance, June 30, 1998 21,600,000 $2,160 1,005,840 (473,868) 534,132
===================================================
The Notes to the Financial Statements are an integral part of these statements.
4
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
Year Ended June 30, 1998, the period from September 23,
1996 (Inception) through June 30, 1997, and the
Period From September 23, 1996 (Inception)
Through June 30, 1998
September 23, September 23,
1996 1996
(Inception) (Inception)
Through Through
June 30, June 30, June 30,
1998 1997 1998
Reconciliation of net losses to net
cash provided by operations:
Net loss (309,635) (164,233) (473,868)
Depreciation 1,802 - 1,802
Issuance of common stock for
services and license rights - 8,000 8,000
Changes in current assets and liabilities:
Stock subscriptions receivable 74,000 (74,000) -
Accounts payable 27,228 4,055 31,283
------------------------------------
Net cash flows applied to
operating activities (206,605) (226,178) (432,783)
------------------------------------
Cash flows from investing activities:
Equipment purchases (21,782) - (21,782)
------------------------------------
Cash flows from financing activities:
Issuance of common stock 500,800 499,200 1,000,000
Loan proceeds - 50,000 50,000
Loan payments (50,000) - (50,000)
------------------------------------
Net cash flows provided by
financing activities 450,800 549,200 1,000,000
------------------------------------
Net increase in cash 222,413 323,022 545,435
Cash at beginning of period 323,022 - -
------------------------------------
Cash at end of period $ 545,435 323,022 545,435
====================================
The Notes to the Financial Statements are an integral part of these statements.
5
<PAGE>
ADVANCED ENGINE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
June 30, 1998
NOTE 1. NATURE OF BUSINESS
Advanced Engine Technologies, Inc. (the Company), a subsidiary of OX2 Engine
(Distribution) Ltd., was incorporated under the laws of Colorado and began
operations on September 23, 1996. The Company was formed to acquire the rights
to manufacture, distribute and market an OX2 Engine combustion engine throughout
the United States, Canada and Mexico. On October 18, 1996 the Company entered
into a contract with OX2 Engine (Distribution) Ltd., (OX2) a company
incorporated in the Republic of Vanatu, whereby the Company acquired the rights
to manufacture, distribute and market the OX2 combustion engine. As part of this
contract the Company issued 20,000,000 shares of its common stock and will issue
an additional 19,000,000 upon the completion of certain tests. In addition, OX2
has the right to appoint two of the Company's three directors. As of June 30,
1998, OX2 owned approximately 62 percent of the Company's outstanding shares.
Accordingly, the accompanying financial statements represent the separate
financial statements of a subsidiary company.
As of June 30, 1998, the Company's operations consisted of obtaining capital and
marketing the OX2 combustion engine. Management does not expect to generate
significant sales revenue until fiscal year 1999. Accordingly, planned principal
operations have not commenced and the Company is a development stage enterprise.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. Cash and cash equivalents include all cash balances
and highly liquid debt instruments with an original maturity of three months or
less. The Company's cash is deposited in a Colorado financial institution and is
insured only up to $100,000 by the Federal Deposit Insurance Corporation.
Fixed Assets. Fixed assets are stated at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from 5 to 10 years.
Income Taxes. The Company accounts for its income taxes using the liability
method. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. The Company has provided a
valuation allowance to offset the benefit of any net operating loss
carryforwards or deductible temporary differences.
6
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Advertising Costs. The Company expenses advertising costs as incurred.
Advertising costs amounted to $41,808 for the year ended June 30, 1998, $46,548
for the period from September 23, 1996 (inception) to June 30, 1997, and $88,356
from September 23, 1996 (inception) to June 30, 1998.
Loss per share. Loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year and did not include the
effect of potential common stock as their effect would be antidilutive. The
numerator for the computation is the net loss and the denominator is the
weighted average shares of common stock outstanding.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3. RELATED PARTY TRANSACTIONS
In April 1996, the Company issued a convertible note to a director in the amount
of $50,000. This note was repaid in September of 1997.
The Company paid consulting fees to its President, who is also a shareholder, in
the amount of $128,698 from September 23, 1996 (inception) to June 30, 1998
including $69,790 for the year ended June 30, 1998, and $58,908 for the period
from September 23, 1996 (inception) to June 30, 1997.
The Company paid administrative fees and reimbursed expenses to a company that
is owned by one of its shareholders in the amount of $18,717 from September 23,
1996 (inception) to June 30, 1998 including $15,700 for the year ended June 30,
1998, and $3,017 for the period from September 23, 1996 (inception) to June 30,
1997.
In October 1996, the Company issued 600,000 shares of its common stock to one of
its founders in exchange for his services in organizing the Company. The
transaction was recorded at the estimated fair market value of the services
provided ($6,000), as this was more readily determinable.
7
<PAGE>
NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED)
Also in October 1996, the Company entered into a contract with OX2
(Distributions) Ltd. (OX2) whereby the Company acquired the rights to
manufacture, distribute and market the OX2 combustion engine in the United
States, Canada and Mexico for the life of the world wide patent. As part of this
contract the Company issued 20,000,000 shares of its common stock and will issue
an additional 19,000,000 upon the completion of emission tests. The Company is
also to pay a royalty of 15 percent of the gross proceeds of its revenue in its
territory and 75 percent for sales outside the territory. In addition, OX2 has
the right to appoint two of the Company's three directors. As of June 30, 1998,
OX2 owned approximately 62 percent of the Company's outstanding shares and OX2
had appointed one director who is also the Company's President.
NOTE 4. INCOME TAXES
At June 30, 1998 the Company had deferred tax assets amounting to approximately
$180,000. The deferred tax assets consist primarily of the tax benefit of net
operating loss carryforwards and are fully offset by a valuation allowance of
the same amount.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $70,000 in 1998. The net change is due primarily to
the increase in net operating loss carryforwards.
At June 30, 1998 the Company had net operating loss carryforwards of
approximately $450,000 available to offset future state and federal taxable
income. These carryforwards will expire in 2017 and 2018 for federal tax
purposes and 2002 and 2003 for state tax purposes.
8
<PAGE>
NOTE 5. COMMON STOCK
The Company offered one million shares of its common stock at the price of one
dollar per share in an offering memorandum pursuant to Rule 504 of Regulation D
of the Securities Act of 1933. The Company sold 499,200 shares as of June 30,
1997 and 500,800 during fiscal year 1998. As of June 30, 1997, the Company had
stock subscribed in the amount of $74,000 that was recorded as a receivable and
subsequently received in fiscal year 1998.
On August 6, 1998, the Company entered into a joint venture agreement with
Carroll Shelby under which the Company issued 300,000 shares of common stock in
exchange for the design and production of a street vehicle that utilizes the OX2
combustion engine. In addition, the Company will issue and additional 250,000
shares upon completion of the vehicle utilizing the OX2 combustion engine.
9
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL REPORT
SEPTEMBER 30, 1998
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
CONTENTS
Page
ACCOUNTANTS' REPORT 1
FINANCIAL STATEMENTS
Balance Sheet 2
Statement of Operations 3
Statement of Stockholders' Equity 4
Statement of Cash Flows 5
Notes to Financial Statements 6
<PAGE>
Neff & Company LLP
Accountants' Report
Advanced Engine Technologies, Inc.
(A Development Stage Company)
We have compiled the accompanying balance sheet of Advanced Engine Technologies,
Inc. (a subsidiary of OX2 Engine (Distribution) Ltd. and a development stage
company) as of September 30, 1998 and the related statements of operations,
changes in stockholders' equity and cash flows for the quarter then ended and
the period from September 23, 1996 (inception) through September 30, 1998, in
accordance with Statements on Standards for Accounting and Review Services
issued by the American Institute of Certified Public Accountants.
A compilation is limited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
/s/ Neff & Company LLP
Albuquerque, New Mexico
November 23, 1998
CERTIFIED PUBLIC ACCOUNTANTS . 7001 PROESPECT PLACE NE . ALBUQUERQUE, NM 87110
(505) 883-6612 . FAX (505) 884-3409
1
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
September 30, 1998
ASSETS
CURRENT ASSETS
Cash $ 410,905
------------
FIXED ASSETS
Equipment and furniture 22,611
Less accumulated depreciation (2,703)
------------
Total fixed assets 19,908
------------
Total assets $ 430,813
============
LIABILITIES AND STOCKHOLDERS' EQUITY
COMMITMENTS AND CONTINGENCIES (Note 3)
STOCKHOLDERS' EQUITY
Common stock-50,000,000 shares authorized,
21,600,000 issued and outstanding; $.0001 value 2,160
Additional paid-in capital 1,005,840
Deficit accumulated during the development stage (577,187)
------------
Total liabilities and stockholders' equity $ 430,813
============
See accompanying notes and accountants' report.
2
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
Quarter Ended September 30, 1998 and 1997 and the
Period From September 23, 1996 (Inception)
Through September 30, 1998
September 23,
1996
(Inception)
Through
September 30,
1998 1997 1998
Operating expenses (Note 3) $ 108,279 112,229 606,563
---------------------------------------
Income (loss) from operations (108,279) (112,229) (606,563)
Interest income 4,960 4,353 29,376
---------------------------------------
Net loss $ (103,319) (107,876) (577,187)
=======================================
Basic net loss per share $ (.005) (.005) (.028)
=======================================
Weighted average number of common
shares outstanding $ 21,600,000 21,222,534 20,356,067
=======================================
See accompanying notes and accountants' report.
3
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF STOCKHOLDERS' EQUITY
Quarter Ended September 30, 1998 and 1997 and the
Period From September 23, 1996 (Inception)
Through September 30, 1998
<TABLE>
<CAPTION>
Equity
(Deficit)
Accumulated
Additional During the
Common Stock Paid-in Development
Shares Amount Capital Stage Total
<S> <C> <C> <C> <C> <C>
Issuance of common stock
to parent corporation for
license rights (Note 3) 20,000,000 $ 2,000 - - 2,000
Issuance of common stock
for services (Note 3) 600,000 60 5,940 - 6,000
Issuance of common stock
for cash (Note 5) 499,200 50 499,150 - 499,200
Net loss - - - (164,233) (164,233)
-----------------------------------------------------
Balance, June 30, 1997 21,099,200 2,110 505,090 (164,233) 342,967
Issuance of common stock
for cash (Note 5) 500,800 50 500,750 - 500,800
Net loss - - - (309,635) (309,635)
-----------------------------------------------------
Balance, June 30, 1998 21,600,000 $ 2,160 1,005,840 (473,868) 534,132
Net loss - - - (103,319) (103,319)
-----------------------------------------------------
Balance, September 30, 1998 21,600,000 $ 2,160 1,005,840 (577,187) 430,813
=====================================================
</TABLE>
See accompanying notes and accountants' report.
4
<PAGE>
ADVANCED ENGINE TECHNOLOGIES, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
Quarter Ended September 30, 1998 and 1997 and the
Period From September 23, 1996 (Inception)
Through September 30, 1998
September 23,
1996
(Inception)
Through
September 30,
1998 1997 1998
Reconciliation of net losses to net
cash provided by operations:
Net loss $(103,319) (107,876) (577,187)
Depreciation 901 - 2,703
Issuance of common stock for
services and license rights - - 8,000
Changes in current assets and liabilities:
Stock subscriptions receivable - 50,000 -
Accounts payable (31,283) - -
---------------------------------
Net cash flows applied to
operating activities (133,701) (57,876) (566,484)
---------------------------------
Cash flows from investing activities:
Equipment purchases (829) (6,795) (22,611)
---------------------------------
Cash flows from financing activities:
Issuance of common stock - 335,208 1,000,000
Loan proceeds - - 50,000
Loan payments - - (50,000)
---------------------------------
Net cash flows provided by
financing activities - 335,208 1,000,000
---------------------------------
Net increase (decrease) in cash (134,530) 270,537 410,905
Cash at beginning of period 545,435 323,022 -
---------------------------------
Cash at end of period $ 410,905 593,559 410,905
=================================
See accompanying notes and accountants' report.
5
<PAGE>
ADVANCED ENGINE TECHNOLOGY, INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
September 30, 1998
NOTE 1. NATURE OF BUSINESS
Advanced Engine Technologies, Inc. (the Company), a subsidiary of OX2 Engine
(Distribution) Ltd., was incorporated under the laws of Colorado and began
operations on September 23, 1996. The Company was formed to acquire the rights
to manufacture, distribute and market an OX2 Engine combustion engine throughout
the United States, Canada and Mexico. On October 18, 1996 the Company entered
into a contract with OX2 Engine (Distribution) Ltd., (OX2) a company
incorporated in the Republic of Vanatu, whereby the Company acquired the rights
to manufacture, distribute and market the OX2 combustion engine. As part of this
contract the Company issued 20,000,000 shares of its common stock and will issue
an additional 19,000,000 upon the completion of certain tests. In addition, OX2
has the right to appoint two of the Company's three directors. As of September
30, 1998, OX2 owned approximately 62 percent of the Company's outstanding
shares. Accordingly, the accompanying financial statements represent the
separate financial statements of a subsidiary company.
As of September 30, 1998, the Company's operations consisted of obtaining
capital and marketing the OX2 combustion engine. Management does not expect to
generate significant sales revenue until 1999. Accordingly, planned principal
operations have not commenced and the Company is a development stage enterprise.
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Cash and Cash Equivalents. Cash and cash equivalents include all cash balances
and highly liquid debt instruments with an original maturity of three months or
less. The Company's cash is deposited in a Colorado financial institution and is
insured only up to $100,000 by the Federal Deposit Insurance Corporation.
Fixed Assets. Fixed assets are stated at cost. Depreciation expense is
calculated using the straight-line method over the estimated useful lives of the
assets, which range from 5 to 10 years.
Income Taxes. The Company accounts for its income taxes using the liability
method. Under this method, deferred tax liabilities and assets are determined
based on the difference between the financial statement carrying amounts and tax
basis of assets and liabilities using enacted tax rates in effect in the years
in which the differences are expected to reverse. The Company has provided a
valuation allowance to offset the benefit of any net operating loss
carryforwards or deductible temporary differences.
6
<PAGE>
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Advertising Costs. The Company expenses advertising costs as incurred.
Advertising costs amounted to $199 and $13,834 for the quarter ended September
30, 1998 and 1997, respectively, and $88,555 from September 23, 1996 (inception)
to September 30, 1998.
Loss per share. Loss per share is computed on the basis of the weighted average
number of common shares outstanding during the year and did not include the
effect of potential common stock as their effect would be antidilutive. The
numerator for the computation is the net loss and the denominator is the
weighted average shares of common stock outstanding.
Use of Estimates. The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
NOTE 3. RELATED PARTY TRANSACTIONS
In April 1996, the Company issued a convertible note to a director in the amount
of $50,000. This note was repaid in September of 1997.
The Company paid consulting fees to its President, who is also a shareholder, in
the amount of $148,198 from September 23, 1996 (inception) to September 30, 1998
including $19,500 and $29,950 for the quarter ended September 30, 1998 and 1997,
respectively.
The Company paid administrative fees and reimbursed expenses to a company that
is owned by one of its shareholders in the amount of $24,823 from September 23,
1996 (inception) to September 30, 1998 including $6,106 and $1,313 for the
quarter ended September 30, 1998 and 1997, respectively.
In October 1996, the Company issued 600,000 shares of its common stock to one of
its founders in exchange for his services in organizing the Company. The
transaction was recorded at the estimated fair market value of the services
provided ($6,000), as this was more readily determinable.
7
<PAGE>
NOTE 3. RELATED PARTY TRANSACTIONS (CONTINUED)
Also in October 1996, the Company entered into a contract with OX2
(Distributions) Ltd. (OX2) whereby the Company acquired the rights to
manufacture, distribute and market the OX2 combustion engine in the United
States, Canada and Mexico for the life of the world wide patent. As part of this
contract the Company issued 20,000,000 shares of its common stock and will issue
an additional 19,000,000 upon the completion of emission tests. The Company is
also to pay a royalty of 15 percent of the gross proceeds of its revenue in its
territory and 75 percent for sales outside the territory. In addition, OX2 has
the right to appoint two of the Company's three directors. As of September 30,
1998, OX2 owned approximately 62 percent of the Company's outstanding shares and
OX2 had appointed one director who is also the Company's President.
NOTE 4. INCOME TAXES
At September 30, 1998 the Company had deferred tax assets amounting to
approximately $220,000. The deferred tax assets consist primarily of the tax
benefit of net operating loss carryforwards and are fully offset by a valuation
allowance of the same amount.
The net change in the valuation allowance for deferred tax assets was an
increase of approximately $40,000 for the quarters ending September 30, 1998 and
1997. The net change is due primarily to the increase in net operating loss
carryforwards.
At June 30, 1998 the Company had net operating loss carryforwards of
approximately $550,000 available to offset future state and federal taxable
income. These carryforwards will expire in 2017 to 2019 for federal tax purposes
and 2002 to 2004 for state tax purposes.
NOTE 5. COMMON STOCK
The Company offered one million shares of its common stock at the price of one
dollar per share in an offering memorandum pursuant to Rule 504 of Regulation D
of the Securities Act of 1933. The Company sold one million shares on this
offering.
On August 6, 1998, the Company entered into a joint venture agreement with
Carroll Shelby under which the Company is to issue 300,000 shares of common
stock in exchange for the design and production of a street vehicle that
utilizes the OX2 combustion engine. In addition, the Company will issue an
additional 250,000 shares upon completion of the vehicle utilizing the OX2
combustion engine.
Mail to: Secretary of State
Corporations Section
1560 Broadway, Suite 200
Denver, CO 80202
(303) 894-2251
Fax (303) 894-2242
ARTICLES OF INCORPORATION
Name: ADVANCED ENGINE TECHNOLOGIES, INC.
-------------------------------------------------------------------------
Principal Street Address: 9959 East Peakview Ave., M202, Engelwood, CO 80111
-----------------------------------------------------
Cumulative voting shares of stock is authorized. Yes No /X/
If duration is less than perpetual enter number of years --
-------------
Preemptive rights are granted to shareholders Yes No /X/
Stock information: (If additional space is needed, continue on a separate sheet
of paper.)
Stock Class: Common Stock Authorized Shares: 50,000,000 Par Value $.001
-------------- -------------- ------
The name of the initial registered agent and the address of the registered
office is: (Corporations use last name space)
Last Name: Svalberg First & Middle Name: Thomas L.
--------------- -------------------------------
Street Address: 7008 East Dartmouth Ave., Denver, CO 80224
---------------------------------------------------------------
Signature of Registered Agent /s/ Thomas L. Svalberg
-------------------------------------------------
These articles are to have a delayed effective date of: --
-----------------------
Incorporators: Names and addresses: (If more than two, continue on a separate
sheet of paper)
Name: Address:
Gerald A. Kaufman 33 Walt Whitman Rd. Huntington Station, NY 11746
- ----------------------- ----------------------------------------------------
Incorporation who are natural persons must be 18 years or more. The undersigned,
acting as Incorporators(s) of a corporation under the Colorado Business
Corporation Act, adopt these Articles of Incorporation
Signature /s/ Gerald A. Kaufman Seal: Advanced Engine Technologies, Inc.
--------------------- 1996
Colorado Seal
BY-LAWS
OF
Advanced Engine Technologies, Inc.
ARTICLE I - OFFICES
The principal office of the corporation in the State of Colorado shall be
located in the State of Colorado. The corporation may have such other offices,
either within or without the State of incorporation as the board of directors
may designate or as the business of the corporation may from time to time
require.
ARTICLE II - STOCKHOLDERS
1. ANNUAL MEETING
The annual meeting of the stockholders shall be held on first day of
April in each year, beginning with the year 1997 at the hour of 10 o'clock A.M.,
for the purpose of electing directors and for the transaction of such other
business as may come before the meeting. If the day fixed for the annual meeting
shall be a legal holiday such meeting shall be held on the next succeeding
business day.
2. SPECIAL MEETINGS
Special meetings of the stockholders, for any purpose or purposes,
unless otherwise prescribed by statute, may be called by the president or by the
directors, and shall be called by the president at the request of the holders of
not less than 25 per cent of all the outstanding shares of the corporation
entitled to vote at the meeting.
3. PLACE OF MEETING
The directors may designate any place, either within or without the
State unless otherwise prescribed by statute, as the place of meeting for any
annual meeting or for any special meeting called by the directors. A waiver of
notice signed by all stockholders entitled to vote at a meeting may designate
any place, either within or without the state unless otherwise prescribed by
statute, as the place for holding such meeting. If no designation is made, or if
a special meeting be otherwise called, the place of meeting shall be the
principal office of the corporation.
4. NOTICE OF MEETING
Written or printed notice stating the place, day and hour of the
meeting and, in case of a special meeting, the purpose or purposes for which the
meeting is called, shall be delivered not less than 10 (ten) nor more than 50
(fifty) days before the date of the meeting, either personally or by mail, by or
at the direction of the president, or the secretary, or the officer or persons
calling the meeting, to each stockholder 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 stockholder at his address as it
appears on the stock transfer books of the corporation, with postage thereon
prepaid.
<PAGE>
5. CLOSING OF TRANSFER BOOKS OR FIXING OF RECORD DATE
For the purpose of determining stockholders entitled to notice of or to
vote at any meeting of stockholders or any adjournment thereof, or stockholders
entitled to receive payment of any dividend, or in order to make a determination
of stockholders for any other proper purpose, the directors of the corporation
may provide that the stock transfer books shall be closed for a stated period
but not to exceed, in any case, 50 days. If the stock transfer books shall be
closed for the purpose of determining stockholders entitled to notice of or to
vote at a meeting of stockholders, such books shall be closed for at least 10
days immediately preceding such meeting. In lieu of closing the stock transfer
books, the directors may fix in advance a date as the record date for any such
determination of stockholders, such date in any case to be not more than 50 days
and, in case of a meeting of stockholders, not less than 10 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. If the stock transfer books are not closed and no record date is
fixed for the determination of stockholders entitled to notice of or to vote at
a meeting of stockholders, or stockholders entitled to receive payment of a
dividend, the date on which notice of the meeting is mailed or the date on which
the resolution of the directors declaring such dividend is adopted, as the case
may be, shall be the record date for such determination of stockholders. When a
determination of stockholders entitled to vote at any meeting of stockholders
has been made as provided in this section, such determination shall apply to any
adjournment thereof.
6. VOTING LISTS
The officer or agent having charge of the stock transfer books for
shares of the corporation shall make, at least 10 days before each meeting of
stockholders, a complete list of the stockholders entitled to vote at such
meeting, or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of 10
days prior to such meeting, shall be kept on file at the principal office of the
corporation and shall be subject to inspection by any stockholder at any time
during usual business hours. Such list shall also be produced and kept open at
the time and place of the meeting and shall be subject to the inspection of any
stockholder during the whole time of the meeting. The original stock transfer
book shall be prima facie evidence as to who are the stockholders entitled to
examine such list or transfer books or to vote at the meeting of stockholders.
7. QUORUM
At any meeting of stockholders 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 stockholders. If less than said number 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
such adjourned meeting at which a quorum shall be present or represented, any
business may be transacted which might have been transacted at the meeting as
originally notified. The stockholders present at a duly organized meeting may
continue to transact business until adjournment, notwithstanding the withdrawal
of enough stockholders to leave less than a quorum.
<PAGE>
8. PROXIES
At all meetings of stockholders, a stockholder may vote by proxy
executed in writing by the stockholder 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.
9. VOTING
Each stockholder entitled to vote in accordance with the terms and
provisions of the certificate of incorporation and these by-laws shall be
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholders. Upon the demand of any stockholder, the vote for
directors and upon any question before the meeting shall be by ballot. All
elections for directors shall be decided by plurality vote; all other questions
shall be decided by majority vote except as otherwise provided by the
Certificate of Incorporation or the laws of this State.
10. ORDER OF BUSINESS
The order of business at all meetings of the stockholders, shall be as
follows:
1. Roll Call
2. Proof of notice of meeting or waiver of notice
3. Reading of minutes of preceding meeting
4. Reports of Officers
5. Reports of Committees
6. Election of Directors
7. Unfinished Business
8. New Business
11. INFORMAL ACTION BY STOCKHOLDERS
Unless otherwise provided by law, any action required to be taken at a
meeting of the shareholders, or any other action which may be taken at a meeting
of the shareholders, may be taken without a meeting if a consent in writing,
setting forth the action so taken1 shall be signed by all 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 director. The directors shall in all cases act as a board, and they may
adopt such rules and regulations for the conduct of their meetings and the
management of the corporation, as they may deem proper, not inconsistent with
these by-laws and the laws of this State.
<PAGE>
2. NUMBER, TENURE AND QUALIFICATIONS
The number of directors of the corporation shall be three. Each
director shall hold office until the next annual meeting of stockholders and
until his successor shall have been elected and qualified.
3. REGULAR MEETINGS
A regular meeting of the directors, shall be held without other notice
than this by-law immediately after, and at the same place as, the annual meeting
of stockholders. The directors may provide, by resolution, the time and place
for the holding of additional regular meetings without other notice than such
resolution.
4. SPECIAL MEETINGS
Special meetings of the directors may be called by or at the request of
the president or any two directors. The person or persons authorized to call
special meetings of the directors may fix the place for holding any special
meeting of the directors called by them.
5. NOTICE
Notice of any special meeting shall be given at least Two days
previously thereto by written notice delivered personally, or by telegram or
mailed to each director at his business address. If mailed, such notice shall be
deemed to be delivered when deposited in the United States mail so addressed,
with postage thereon prepaid. If notices were given by telegram, such notice
shall be deemed to be delivered when the telegram is delivered to the Telegraph
Company. The attendance of a director at a meeting shall constitute a waiver of
notice of such meeting, except where a director attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting is not lawfully called or convened.
6. QUORUM
At any meeting of the directors a majority shall constitute a quorum
for the transaction of business, but if less than said number is present at a
meeting, a majority of the directors present may adjourn the meeting from time
to time without further notice.
7. MANNER OF ACTING
The act of the majority of the directors present at a meeting at which
a quorum is present shall be the act of the directors. (See also #14)
8. NEWLY CREATED DIRECTORSHIPS AND VACANCIES
Newly created directorships resulting from an increase in the number of
directors and vacancies occurring in the board for any reason except the removal
of directors without cause may be filled by a vote of a majority of the
directors then in office, although less than a quorum exists. Vacancies
occurring by reason of the removal of directors without cause shall be filled by
vote of the stockholders. A director elected to fill a vacancy caused by
resignation, death or removal shall be elected to hold office for the unexpired
term of his predecessor.
<PAGE>
9. REMOVAL OF DIRECTORS
Any or all of the directors may be removed for cause by vote of the
stockholders or by action of the board. Directors may be removed without cause
only by vote of the stockholders.
10. RESIGNATION
A director may resign at any time by giving written notice to the
board, the president or the secretary of the corporation. Unless otherwise
specified in the notice, the resignation shall take effect upon receipt thereof
by the board or such officer, and the acceptance of the resignation shall not be
necessary to make it effective.
11. COMPENSATION
No compensation shall be paid to directors, as such, for their
services, but by resolution of the board a fixed sum and expenses for actual
attendance at each regular or special meeting of the board may be authorized.
Nothing herein contained shall be construed to preclude any director from
serving the corporation in any other capacity and receiving compensation
therefor.
12. PRESUMPTION OF ASSENT
A director of the corporation who is present at a meeting of the
directors at which action on any corporate matter is taken shall be presumed to
have assented to the action taken unless his dissent shall be entered 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.
13. EXECUTIVE AND OTHER COMMITTEES
The board, by resolution, may designate from among its members an
executive committee and other committees, each consisting of three or more
directors. Each such committee shall serve at the pleasure of the board.
14. MANNER OF ACTING
(a) Any action authorized, in writing, by all of the directors entitled
to vote thereon and filed with the minutes of the Corporation shall be the act
of the Board with the same force and effect as if the same had been passed by
unanimous vote at a duly called meeting of the board.
(b) Participation of any one or more members of the Board by means of a
conference telephone or similar communications equipment1 allowing all persons
participating in the meeting to hear each other at the same time, shall
constitute presence in person at any such meeting.
<PAGE>
ARTICLE IV - OFFICERS
1. NUMBER
The officers of the corporation shall be a president, a vice-president,
a secretary and a treasurer, each of whom shall be elected by the directors.
Such other officers and assistant officers as may be deemed necessary may be
elected or appointed by the directors.
2. ELECTION AND TERM OF OFFICE
The officers of the corporation to be elected by the directors shall be
elected annually at the first meeting of the directors held after each annual
meeting of the stockholders. 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. REMOVAL
Any officer or agent elected or appointed by the directors may be
removed by the directors whenever in their judgment the best interests of the
corporation would be served thereby, but such removal shall be without prejudice
to the contract rights, if any, of the person so removed.
4. VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, may be filled by the directors for the unexpired
portion of the term.
5. PRESIDENT
The president shall be the principal executive officer of the
corporation and, subject to the control of the directors, shall in general
supervise and control all of the business and affairs of the corporation. He
shall, when present, preside at all meetings of the stockholders and of the
directors. He may sign, with the secretary or any other proper officer of the
corporation thereunto authorized by the directors, certificates for shares of
the corporation, any deeds, mortgages, bonds, contracts, or other instruments
which the directors have authorized to be executed, except in cases where the
signing and execution thereof shall be expressly delegated by the directors or
by these by-laws to some other officer or agent of the corporation, or shall be
required bylaw to be otherwise signed or executed; and in general shall perform
all duties incident to the office of president and such other duties as may be
prescribed by the directors from time to time.
6. VICE-PRESIDENT
In the absence of the president or in event of his death, inability or
refusal to act, the vice-president shall perform the duties of the president,
and when so acting1 shall have all the powers of and be subject to all the
restrictions upon the president. The vice-president shall perform such other
duties as from time to time may be assigned to him by the President or by the
directors.
<PAGE>
7. SECRETARY
The secretary shall keep the minutes of the stockholders' and of the
directors' meetings in one or more books provided for that purpose, see that all
notices are duly given in accordance with the provisions of these by-laws or as
required, be custodian of the corporate records and of the seal of the
corporation and keep a register of the post office address of each stockholder
which shall be furnished to the secretary by such stockholder, have general
charge of the stock transfer books of the corporation and in general perform all
duties incident to the office of secretary and such other duties as from time to
time may be assigned to him by the president or by the directors.
8. TREASURER
If required by the directors, the treasurer shall give a bond for the
faithful discharge of his duties in such sum and with such surety or sureties as
the directors shall determine. He shall have charge and custody of and be
responsible for all funds and securities of the corporation; receive and give
receipts for moneys due and payable to the corporation from any source
whatsoever, and deposit all such moneys in the name of the corporation in such
banks, trust companies or other depositories as shall be selected in accordance
with these by-laws and in general perform all of the duties incident to the
office of treasurer and such other duties as from time to time may be assigned
to him by the president or by the directors.
9. SALARIES
The salaries of the officers shall be fixed from time to time by the
directors and no officer shall be prevented from receiving such salary by reason
of the fact that he is also a director of the corporation.
ARTICLE V - CONTRACTS, LOANS, CHECKS AND DEPOSITS
1. CONTRACTS
The 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 loans shall be contracted on behalf of the corporation and no
evidences of indebtedness shall be issued in its name unless authorized by a
resolution of the directors. Such authority may be general or confined to
specific instances.
3. CHECKS, DRAFTS, ETC.
All checks, drafts or other orders for the payment of money, notes or
other evidences of indebtedness issued in the name of the corporation, shall be
signed by such officer or officers, agent or agents of the corporation and in
such manner as shall from time to time be determined by resolution of the
directors.
<PAGE>
4. 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 depositaries as the directors may select.
ARTICLE VI - CERTIFICATES FOR SHARES AND THEIR TRANSFER
1. CERTIFICATES FOR SHARES
Certificates representing shares of the corporation shall be in such
form as shall be determined by the directors. Such certificates shall be signed
by the president and by the secretary or by such other officers authorized by
law and by the directors. All certificates for shares shall be consecutively
numbered or otherwise identified. The name and address of the stockholders, 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 and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
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 directors may prescribe.
2. TRANSFERS OF SHARES
(a) Upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation to issue a new certificate to the person entitled
thereto, and cancel the old certificate; every such transfer shall be entered on
the transfer book of the corporation which shall be kept at its principal
office.
(b) The corporation shall be entitled to treat the holder of record of
any share as the holder in fact thereof, and, accordingly, shall not be bound to
recognize any equitable or other claim to or interest in such share on the part
of any other person whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of this state.
ARTICLE VII - FISCAL YEAR
The fiscal year of the corporation shall begin on the day of July 1 in each
year.
<PAGE>
ARTICLE VIII - DIVIDENDS
The directors may from time to time declare, and the corporation may
pay, dividends on its outstanding shares in the manner and upon the terms and
conditions provided by law.
ARTICLE IX - SEAL
The directors shall provide a corporate seal which shall be circular in
form and shall have inscribed thereon the name of the corporation, the state of
incorporation, year of incorporation and the words, "Corporate Seal".
ARTICLE X - WAIVER OF NOTICE
Unless otherwise provided by law, whenever any notice required to be
given to any stockholder or director of the corporation under the provisions of
these by-laws or under the provisions of the articles of incorporation, 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.
ARTICLE XI - AMENDMENTS
These by-laws may be altered, amended or repealed arid new by-laws may
be adopted by a vote of the stockholders representing a majority of all the
shares issued and outstanding, at any annual stockholders* meeting or at any
special stockholders' meeting when the proposed amendment has been set out in
the notice of such meeting.
JOINT VENTURE AGREEEMENT
This Joint Venture Agreement ("Agreement") dated and effective as of
July 15,1998 is entered INTO by and between Carroll Shelby, individually, and as
Trustee of the Carroll Hall Shelby Trust dated March 28, 1985, (hereinafter
"SHELBY"); and Advanced Engine Technologies, Inc., a Colorado corporation,
(hereinafter "AET"); (collectively referred to as the "Parties" and separately
as "Party").
WHEREAS, AET has developed and has ownership of, and the rights to the
OX2 Engine, a state-of-the-art, uniquely designed, internal combustion (OX2
engine), and AET was established to effect the commercial introduction of the
0X2 Engine, including licensing of the OX2 Engine technology to approved
manufacturers;
WHEREAS, Carroll Shelby is a world-renowned designer and manufacturer
of motor vehicles and engines for use in motor vehicles with an emphasis on high
performance, such as the Shelby Cobra and the Shelby Series 1, and his companies
are involved in the cutting-edge design and manufacture of state-of-the art
motor vehicles and engines, and Shelby has an outstanding reputation and
personal contacts within the automotive industry, which he has established
through over forty years of success in the industry;
WHEREAS, the Parties previously executed a 'Letter of Intent' wherein
the Parties state that it is the intention of AET and Shelby to form a Joint
Venture for the purpose of developing the OX2 Engine for use in a standard
application for motor vehicles and to promote the OX2 Engine to and within the
automotive industry (Joint Venture); and
NOW, THEREFORE, it is hereby agreed as follows:
1) The Parties will work together under this Agreement for the purpose
of developing the 0X2 engine for use in a specific application for motor
vehicles and to promote the OX2 Engine to and within the automotive industry.
The Parties will agree on which motor vehicle(s) will be selected for
development of such a standard application, ("Nominated Vehicle") with the
objective of this Joint Venture being the development of a Nominated Vehicle
utilizing the 0X2 Engine that is capable of being operated on a public street
('Objective"). Shelby will arrange for the development and testing of the 0X2
Engine for use in a Nominated Vehicle and the construction and development of a
minimum of two prototype vehicles of the first Nominated Vehicle Category,
Shelby will also use his personal relationships and contacts within the
automotive industry to promote the commercial development of the 0X2 Engine for
use in a standard application for motor vehicles.
2) AET will provide all technical, (including engineering and design)
knowledge and assistance to Shelby as Is reasonably necessary for Shelby to
accomplish the Objective set forth in paragraph 1 above.
3) AET shall, immediately upon execution of this Agreement, assign,
transfer, and convey to Shelby, three hundred thousand (300,000) restricted
shares of the currently issued and outstanding stock of AET, and, furthermore,
upon completion of the Objective of this Agreement, AET shall forthwith assign,
transfer, and convey to Shelby, or his designated assignee, an additional two
hundred and fifty thousand (250,000) restricted shares of the currency issued
and outstanding stock of AET. Shelby shall subsequently notify AET in writing of
the appropriate Parties or designees to whom the 250,000 shares shall be
conveyed.
4) AET will approve in writing, all technical or engineering
developments of the O)(2 Engine developed during this Joint Venture, and all
material decisions of the Joint Venture will be mutually agreed upon in writing
by the Parties, All amendments or modifications to the 0X2 Engine developed
during the term of the Joint Venture agreement, whether patentable or not, will
be owned exclusively by AET or its nominee.
5) On or before December 31, 1998, Shelby will complete his review and
analysis of the 0X2 Engine technology, and make his own independent
determination as to its suitability and feasibility for use in a Nominated
Vehicle. During this period of time, Shelby will endeavor to build at least one
prototype engine for testing purposes only (Review Phase). Upon completion of
this Review Phase, Shelby, the Parties shall have a period of two years from
January 1,1999 through and including January 1, 2002 to develop, build, and
adapt the 0X2 Engine for use in a motor vehicle, unless such time period is
extended by mutual agreement of the Parties. Progress reviews will be scheduled
and carried out every six (6) months. Shelby's obligations under this Agreement
cease once the Objective is reached and AET's obligations cease once all shares
of stock are assigned, transferred, and conveyed to Shelby pursuant to paragraph
3, above.
6) Should extensions of time be reasonably necessary for the Parties to
accomplish the Objective of this Agreement, the Parties agree that their consent
to such extensions shall not be unreasonably withheld. Any claims, differences,
or disputes arising out of or in connection with this Agreement shall be settled
by an amicable effort on the part of the Parties. An attempt to arrive at a
settlement shall be deemed to have failed as soon as one of the Parties notifies
the other Party in writing If an attempt at settlement has failed, any dispute
shall be finally settled under the California Arbitration Act and shall be
conducted by the American Arbitration Association, or qualified alternative
dispute resolution entity, whose decision shall be final. The place of
arbitration shall be Los Angeles County, State of California. The arbitration
award shall be substantiated in writing. The arbitrator(s) shall also decide on
the matter of costs of the arbitration and on the allocation of expenditures
among the respective Parties to the arbitration proceedings. This agreement
shall be governed under the Laws of the State of California.
7) Upon the termination of this Joint Venture Agreement, for any
reason, all amendments to or developments of the 0X2 Engine technology will be
owned by AET, at no additional cost to AET.
8) In the event Shelby is incapacitated for any reason for a period
longer than four consecutive weeks, the management of the Joint Venture shall be
carried out by AET until such time as Shelby is no longer incapacitated. During
any such period of Shelby's incapacitation, the nominated legal representative
of Shelby is to have full access to the books and records of the Joint Venture
and is to be kept fully informed in writing, of any and all material decisions
by AET which may effect the Joint Venture
1
<PAGE>
(9) This Agreement shall not be construed as granting any type of
license or permission for the use, for any purpose, by AET, of trademarks,
tradenames, or trade dress of Carroll Shelby, without prior written permission.
(10) Among and between themselves, each Party shall be liable solely
for the agreed upon share of the work and contributions necessary to meet the
Objective of this Agreement. In the case of third-Party claims, the Party
responsible for the event causing the claim shall be solely liable to such
third-Party and shall indemnify and hold the other Party harmless against such
third-Party claims.
(11) It is expected that the Parties will exchange confidential trade
secret technical information in connection with their performance under this
Agreement. The Parties shall use all business and technical information received
from other Parties in connection with this Agreement, and which is expressly
stated or understood to be confidential or of a confidential nature, or which
can be assumed to be confidential on the basis of the circumstances of its
disclosure or its contents, solely for the purposes for which it was provided to
further the Objective of this Agreement, shall treat such information in the
same way as their own trade secrets ("Confidential Information"), and shall not
use or disclose such Confidential Information to any third-Party without the
prior written consent of the disclosing Party. Confidential Information, as used
herein, is defined not to include information that is (i) generally available
from public sources or in the public domain; (ii) is received at any time from
any third-Party without nondisclosure obligation to the disclosing Party; or
(iii) is shown to have been developed independently by the receiving Party
without reliance on the disclosing Party's confidential Information or to have
been known to the receiving Party prior to its disclosure by the disclosing
Party.
(12) This agreement shall be wound up when production of a Nominated
Vehicle adapted to the 0X2 Engine operates on a public street.
(13) Any written notices, reports or other communications sent or
delivered under or pursuant to this Agreement shall be addressed to the Party at
its address set forth below and/or at any alternative or additional address as
provided by that Party of such notice:
Mr. Carroll Shelby Advanced Engine Technologies, Inc.
Shelby American, Inc. Attn: Chief Executive Officer
19021 Figueroa Street 9909 Osuna Road NE
Gardena, CA 90248 Albuquerque, NM 87111
Phone: (310) 538-1974 Phone: (505) 323-7341
Fax: (310) 538-O419 Fax: (505) 323-7342
cc: M. Neil Cummings, Esq.
1800 Avenue of the Stars, #1000
Los Angeles, CA 90067
<PAGE>
In Witness whereof, the Parties hereby have caused this Agreement to be
executed by their duly authorized representatives on the dates set forth below.
By: /s/ Caroll Hall Shelby
-------------------------------------
Carroll Hall Shelby, Individually &
as Trustee of the Carroll Hall Shelby
Trust
Date: 8/6/98
----------------------
Advanced Engine Technologies, Inc.
By: /s/ M. Bailey
-------------------------------------
M. Bailey
Title: CEO/Chairman
--------------------
Date: 8/6/98
--------------------
2
page 1
PATENT SUB-LICENSE AGREEMENT
THIS AGREEMENT is made the 18th day of October l996.
BETWEEN: 0X2 ENGINE (DISTRIBUTION) LTD a company incorporated in Vanuatu under
the International Companies Act 1992 having its registered office at
2nd Floor, Windsor House, Kumul Highway, Port Vila, Republic of
Vanuatu ('the grantor') of the first part.
AND: ADVANCED ENGINE TECHNOLOGIES, INC a company incorporated in the United
States of America having its registered office in Colorado.
('the sub-licensee') of the second part.
RECITALS
A. By a license a copy of which is set out in Schedule I ('the head license')
dated [18th October 1996] and made between 0X2 INTELLECTUAL PROPERTY INC as
licenser and the grantor as licensee the said 0X2 INTELLECTUAL PROPERTY INC
granted to the grantor an exclusive license to manufacture, distribute and
market the 0X2 combustion engine as defined in International Patent
Application No, PCT/AU95/00815 for the life of the Patent throughout the
world subject to the terms and conditions of the head license.
B. The grantor in accordance with CL 2.1.2 of the head license has agreed to
grant to the sub-licensee a sub-license to manufacture, distribute and market
the OX2 combustion engine the subject of the Patent in the territory
specified in Schedule 2 on the following terms and conditions.
NOW THE PARTIES AGREE as follows--
Article 1 Sub-license
1.1 The grantor agrees to grant the sub-licensee, a exclusive license to
manufacture, distribute and market the 0X2 combustion engine the subject of
the Patent in the territory specified in Schedule 2 during the subsistence
of the head license.
1.2 In the event that the product the subject of the Patent is manufactured in
the territory but is distributed in a country outside the territory then the
sub licensee is to pay to the sub license holder for the country of
distribution an amount equivalent to 75% of the base royalty payable on the
product so distributed.
<PAGE>
page 2
Article 2 Consideration
2.1 The sub-licensee shall issue thirty nine million (39,000,000) of its common
shares to the grantor or his nominee as follows--
2.1.1. On the date of execution of this agreement twenty million shares
(20,000,000)
2.1.2 upon the presentation of emission test result verified by a
recognized independent testing authority - nineteen million shares
(19,000,000)
Article 3 Royalties
3.1 The sub-licensee shall during the continuance of the sub-license hereby
granted pay to the grantor a royalty of 15% of the gross proceeds (net of
payments made in accordance with CL 1.2) received by the sub-licensee on all
products manufactured in accordance with the Patent and sold leased used or
otherwise disposed of by the sub-licensee (including any agent thereof).
3.2 The royalty shall be computed at the end of each quarter which, for the
purpose of this agreement shall end on the last day of the month of March,
June, September and December.
3.3 If this agreement is terminated for any reason during a quarter then, for
the purpose of this clause, the date of termination shall be the end of that
current quarter.
3.4 Subject to sub-CL 3.6 below the sub-licensee shall pay the royalty for each
quarter free of all taxes or charges within 30 days of the end of the
quarter.
3.5 Each payment provided for in sub-CL 3.1 shall be paid in United States
Dollars and the rate of exchange shall be that prevailing on the last day of
the relevant quarter.
3.6 The sub-licensee shall notify the grantor with each quarterly adjustment of
the royalty of--
3.6.1 the number of products distributed during the quarter;
3.6.2 the detailed profit and loss statement of the sub-licensee for the
quarter;
and such notification shall, if required by the grantor, be certified as
correct by the auditor of the sub-licensee, or if the sub-licensee does not
have an auditor, by a person approved by the grantor for this purpose.
3.7 The sub-licensee shall maintain for a period of seven (7) years in a manner
approved by the grantor separate and accurate records and accounts in
sufficient detail to provide the information required to be notified under
this clause and any other information reasonably required by the grantor.
Such separate and accurate records and accounts shall be in sufficient
detail so that the grantor need not refer to the other records and accounts
of the sub-licensee.
<PAGE>
page 3
3.8 The sub-licensee shall permit an accountant or auditor of the grantor from
time to time during ordinary business hours to inspect and verify all or any
records required to be maintained by the sub-licensee under this clause and
the sub-licensee shall give all assistance necessary to such accountant or
auditor to carry out such inspection and verification and permit such
accountant or auditor to take copies of any such records.
Article 4 Grant
4.1 In consideration for the payment of the license fee and royalty set out in
CL 2 and 3 the grantor hereby grants to the sub-licensee the following--
4.1.1 an exclusive license for the territory for the term to manufacture
distributes and markets the product;
4.1.2 the right to grant sub-licenses of any rights referred to in the
preceding paragraph on condition that the sub-licensee first obtain
the written consent of the grantor to each and every sub-license
which consent shall not be unreasonably or arbitrarily withheld.
Article 5 Covenants in head license to be observed
5.1 The sub-licensee shall during the continuance of this sub-license perform
and observe the terms and conditions contained in the head license in so far
as the same are consistent with this sub-license. In particular the sub -
licensee shall perform and observe those terms and conditions as set out
Articles 5, 7, 8, 9,10.1.5 and 11 of the head license.
Article 6 Appointments to Board of Directors of Sub-Licensee
6.1 The grantor has the right to appoint two nominees at its sole discretion to
the Board of Directors of the Sub-licensee.
Article 7 Assignment of license
7.1 The sub-license hereby granted is personal to the sub-licensee and the
sub-licensee shall not assign mortgage charge or grant any sub-licenses in
respect of the sub-license without the previous written consent of the
grantor.
Article 8 General
8.1 Waiver. Any waiver or forbearance in regard to the performance of this
agreement shall operate only if in writing and shall apply only to the
specified instance, and shall not affect the existence and continued
applicability of the terms of it thereafter.
<PAGE>
page 4
8.2 Entire agreement This agreement embodies all the terms binding between the
parties and replaces all previous representations or proposals not embodied
therein.
8.3 Assignment
8.3.1 the sub-licensee shall not assign all or any of its rights hereunder
without the prior written consent of the grantor, which consent shall
not be unreasonably or arbitrarily withheld;
8.3.2 the grantor may at its discretion assign all or any of its rights
hereunder.
8.4 Applicable law. This agreement shall be governed by and construed in
accordance with the laws of Vanuatu but all questions relating to the scope
validity or interpretation of any patent and/or trade mark licensed
hereunder shall be determined according to the laws of the country of the
patent and/or trade mark hereby licensed the subject of such question.
8.5 Jurisdiction, Each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of Vanuatu and each waives any
immunity or any objection it may have to any action in those courts and to a
claim that any action has been brought in an inconvenient forum or to those
courts not having jurisdiction. The parties agree that any judgment, order
or determination of such courts may be registered and/or enforced in the
courts of any State or jurisdiction where the sub-licensee has assets.
8.6 Amendments. This agreement may not be varied except in writing signed by the
parties.
8.7 Severability. If any provision of this agreement is held by a court to be
unlawful, invalid, unenforceable or in conflict with any rule of law,
statute, ordinance or regulation the validity and enforceability of the
remaining provisions shall not be thereby affected.
8.8 Notices. All notices shall be in writing and shall be given by any one of
the following means--
8.8.1 by delivering it to the address of the party on a business day during
normal business hours;
8.8.2 by sending it to the address of the party by pre-paid airmail post or
if airmail post is not available by ordinary post; or
8.8.3 by sending it by facsimile transmission to the facsimile number of
the party and on the next business day giving it by either of the
means set forth in sub-CL 8.8.1 or 8.8.2 above.
8.9 A notice shall be deemed to be given and received--
<PAGE>
page 5
8.9.1 if given in accordance with CL 8.8.1 on the next business day after
the day of delivery in the place of delivery;
8.9.2 if given in accordance with CL 8.8.2 five (5) clear business days
after the day of posting in the place of delivery;
8.9.3 if given in accordance with CL 8.8.3 on the next business day after
transmission in the place of delivery.
8.10 The address and facsimile numbers referred to in CL 8.8 shall in the
absence of notice to the contrary be as set out below:
Grantor:
Address: P0 Box 257, Port Vila, Republic of Vanuatu
Facsimile: +678-23836
Sub-licensee:
Address:
Facsimile:
8.11 Further agreements. Each party shall execute such agreements, deeds and
documents and do or cause to be executed or done all such acts and things
as shall be necessary to give effect to this agreement.
<PAGE>
page 6
8.12 Charges. All stamp duties and governmental charges arising out of or
incidental to this agreement shall be the responsibility of and payable by
the sub-licensee.
EXECUTED as a deed.
Schedule 1
[Head license]
Patent License Agreement
THIS AGREEMENT is made the l8 day of October 1996
BETWEEN: 0X2 INTELLCTUAL PROPERTY, INC a company incorporated in Vanuatu under
the International Companies Act 1992 having its registered office at
2nd Floor, Windsor House, Kumul Highway, Port Vila, Republic of
Vanuatu ('the licenser') of the first part
AND: 0X2 ENGINE (DISTRIBUTION) LTD a company incorporated in Vanuatu under
the Internationa1 Companies Act 1992 having its registered office at
2nd Floor, Windsor House, Kumul Highway, Port Vila, Republic of
Vanuatu ('the licensee') of the second part.
RECITALS
A. By an agreement for sale by way of assignment dated [27th February 1996]
between ZEROPRIZE LTD as seller and the licenser as purchaser ('the
assignment agreement'), the licenser has acquired or is entitled to acquire
with effect from the payment of the license fee all right, title and interest
in and to International Patent Application No. PCT/AAU95/008l5 including the
right to apply for or obtain corresponding letters patent in any country in
the world, relating to an invention known as the 0X2 combustion engine upon
the terms set out in the assignment.
B. The licensee desires to manufacture, distribute and market the 0X2 combustion
engine and has sought license for that purpose.
C. The licenser has agreed to grant the license sought on the following terms
and conditions.
NOW THE PARTIES AGREE as follows--
Article 1 Interpretation
'License fee' US$40,000,000 such sum to be paid progressively from and
to be a first charge on the net revenue until paid in full. The license
fee must be paid as to US$10,000,000 from each of the 4 scheduled
territories, namely--
European Union
NAFTA
Asia
Rest of the World.
'Licensee's improvements' means all technical information (including
patentable inventions and trade secrets insofar as they originate with
licensee or are acquired by licensee before licenser knows them)
relating to the development, manufacture, distribution or marketing of
the product developed or acquired by the licensee during the term of
this agreement.
'Licenser's improvements' means all technical information including
patentable inventions, trade secrets and copy rights insofar as they
originate with or are acquired by licenser before licensee knows them
relating to the development, manufacture, distribution or marketing of
the product developed or acquired by the licenser during the term of
this agreement.
Net revenue' means the revenue of the licensee from all sources,
including income and the sale of capital items and sublicenses, after
making such provision for taxation including corporation tax and any
other present or future statutory charge or levy whether against
capital or income and whether imposed directly by any Government or
indirectly through any organ of government or local or other public
authority in any relevant jurisdiction) rents rates insurance's
interest and other usual or recurring charges expenses or outgoing and
for depreciation.
<PAGE>
page 7
'Patents' means all present and future patents and applications filed
in any jurisdiction in the territory insofar as they relate to the
product and all divisions, continuation, continuation in part,
supplemental disclosure and reissues thereof and thereto.
'Product' means the 0X2-combustion engine as defined in International
Patent Application No. PCT/AU95/00815
'Royalty' means 5% of the net revenue of the licensee for each calendar
year.
'Term' means the period from the date of this agreement for until the
day on which the last of the patents expires, whichever is the later.
'Territory'
EUROPEAN UNION
Belgium Greece Netherlands
Denmark Ireland, Republic of Portugal
France Italy Spain
Germany Luxembourg United Kingdom
NAFTA
Canada Mexico United States of America
ASIA
All countries of continental Asia (excluding Russia, Thailand and
Indonesia)
REST OF THE WORLD
All countries, territories and jurisdictions not comprised in the above
3 categories.
'Trade secrets' means all secret processes, formulae and technical
information relating to the product now possessed or developed or
acquired by the licenser or the licensee prior to or during the term of
this agreement.
1.1 A reference to person shall include corporations; words including
singular number shall include plural number and vice versa; words
including a gender shall include all other genders.
1.2 A reference in this agreement to a Statute or a section of a statute
includes all amendments to that statute or section passed in
substitution for the statute or section referred to or incorporating
any of its provisions.
1.3 Clause headings have been inserted for the purpose of guidance only,
and shall not be part of this agreement
Article 2 Grant
2.1 In consideration for the payment of the license and royalty set out in CL 3
the licenser hereby grants to the licensee the following--
2.1.1 an exclusive license for the territory for the term to manufacture,
distribute and market the product,
2.1.2 the right to grant sub-licenses of any rights referred to in the
preceding paragraph on condition that the licensee first obtains the
written consent of the licenser to each and every sub-license, and the
consenting licenser may include as a condition of such consent that
the sub-license include provision--
2.1.2.1 the sub-licensee shall maintain for a period of seven (7)
years in a manner approved by the licenser separate and
accurate records and accounts of the distribution of the
products, the net sale price at which the products are sold
and any other information reasonably required by the licenser
relevant to the products distributed and marketed and the
determination of net sales price. Such separate and accurate
records and accounts shall be in sufficient detail so that the
licenser need not refer to the other records and accounts of
the sub-licensee;
<PAGE>
page 8
2.1.2.2 the sub-licensee shall permit an accountant or auditor of the
license from time to time during ordinary business hours to
inspect and verify all or any records required to be
maintained by the sub-licensee under this clause and the
sub-licensee shall give all assistance necessary to such
accountant or auditor to carry out such inspection and
verification and permit such accountant or auditor to take
copies of any such records.
2.1.2.3 as contained in Article 5, Article 8, Article 9, Article
14.4.1.
Article 3 License Fee & Royalty
3.1 In consideration of the licenses granted in CL 2 the licensee shall pay the
license fee and royalty to the licenser.
3.2 The license fee and royalty shall be computed at the end of each quarter
which, for the purpose of this agreement shall end on the last day of the
month of March, June, September and December.
3.3 If this agreement is terminated for any reason during a quarter then, for
the purpose of this clause, the date of termination shall be the end of that
current quarter.
3.4 Subject to sub-CL 3,6 below the licensee shall pay the license fee and
royalty for each quarter free of all taxes or charges within 30 days of the
end of the quarter.
3.5 Each payment provided for in sub-CL 3.1 shall be paid in United States
Dollars and the rate of exchange shall be that prevailing on the last day of
the relevant quarter.
3.6 The licensee shall notify the licenser with each quarterly adjustment of the
license fee and royalty of--
3.6.1 the number of products manufactured and distributed during the
quarter;
3.6.2 the number of sub-licenses granted during the quarter and the
consideration received for such sub-licenses;
3.6.3 the detailed profit and loss statement of the licensee for the
quarter;
and such notification shall, if required by the licenser, be certified as
correct by the auditor of the licensee, or if the licensee does not have an
auditor, by a person approved by the licenser for this purpose.
3.7 The licensee shall maintain for a period of seven (7) years in a manner
approved by the licenser separate and accurate records and accounts in
sufficient detail to provide the information required to be notified under
this clause and any other information reasonably required by the licenser.
Such separate and accurate records and accounts shall be in sufficient
detail so that the licenser need not refer to the other records and accounts
of the licensee.
3.8 The licensee shall permit an accountant or auditor of the licenser from time
to time during ordinary business hours to inspect and verity all or any
records required to be maintained by the licensee under this clause and the
licensee shall give all assistance necessary' to such accountant or auditor
to carry out such inspection and verification and permit such accountant or
auditor to take copies of any such records.
3.9 The obligations in this clause on the licensee to account to the licenser
and maintain relevant records in respect of royalty shall apply to any
amounts due to the licenser from the licensee pursuant to the terms on which
the licenser provides his consent to a sub-license under CL 2.1.2 above.
Article 4 Registration
4.1 The licensee may at any time during the currency of this agreement request
the licenser to grant to the licensee formal licenses in respect of any of
the patents in a form that complies with the requirements of law and public
authorities in such part of the territory as the licenser approves to enable
the licensee at its expense, to become duly registered as the licensee under
the patents.
4.2 The licensee hereby undertakes to bear all costs and expenses incurred in
the grant, registration and maintenance of formal licenses and of any formal
sub-licenses granted under CL 2.1.2 in respect of the patents to the license
pursuant to CL 5.1.
<PAGE>
page 9
Article 5 Grant back - 1icensee's improvements
5.1 The licensee by this agreement agrees to transfer to the licenser or its
nominee all intellectual property in the licensee's improvements in any
jurisdiction throughout the world for the life of the licensee's
improvements.
5.2 Promptly and periodically me licensee shall disclose to licenser information
and technical data then available to the licensee to enable the licenser to
fully exploit the licensee's improvements.
Article 6 Assistance to Licensee
6.1 For the term of this agreement the licenser shall in good faith promptly and
regularly supply to the licensee and all of me licensee's sub-licensees'
assistance, within fourteen (14) days of a reasonable request for same
including(but without limitation)--
6.1.1 advice on the technical characteristics of the product;
6.1.2 operating manuals for the product;
6.1.3 all details of all improvements to the product which come to the
licenser's knowledge and other developments in trade Secrets which
hereafter become known to or owned by the licenser including (but
without limitation) general information concerning the use of the
trade secrets and all changes in trade secrets previously supplied as
they relate to the product.
6.2 Nothing in this clause shall be deemed to require either party to furnish
information or technical data which is not suitable for commercial use or
for which it does not have the right (but only to the extent that it does
not have the right) to disclose for use within the territory.
Article 7 Exploitation of license
7.1 The licensee at its expense shall use its best endeavors to commercialize
patents, trade secrets, improvements and to manufacture, distribute and
market the product or to appoint sub-licensees for the purpose of such
commercialization.
Article 8 Product Liability
8.1 The licensee shall not manufacture, distribute or market any product which
fails to meet the requirements and specifications of the minimum standards
of the licenser and any applicable standards set forth by the country in the
territory where the particular product is to be distributed
8.2 The licensee shall keep the licenser indemnified against all damages, costs
or expenses, including legal costs, in respect of all claims, demands,
actions, proceedings or prosecutions which may be brought, commenced or
prosecuted against the licenser in consequence or relating to or arising out
of the manufacture, distribution or commercial utilization of the product
where such claims, demands actions or prosecutions arise for a reason other
than defective design.
8.3 The licensee shall at all times maintain and keep current in respect of its
manufacture and distribution of the product, product liability insurance
obtained from a reputable insurer in an amount and upon terms approved by
the licenser and shall make available to the licenser such policy for
inspection upon request by the licenser.
8.4 The licensee shall permit the licenser by its servant or agents (which shall
not be competitors of the licensee) from time to time on reasonable notice
in writing to enter the licensee's premises or the premises of any
sub-licensee' for the purpose of inspecting the product, to verify the use
or non-use of the patents, licenser's improvements or trade secrets.
Article 9 Secrecy obligations
9.1 The licensee shall--
9.1.1 keep confidential all trade secrets and disclosures in the patents
(other than issued patents included with the patents) licensed under
this agreement and all other information and technical data disclosed
by the licenser to the licensee, provided that the licensee shall
have the right to disclose such information to its employees who
first sign an employee confidentiality agreement in terms approved by
the licenser insofar as it is necessary for them to know the
information for the use of the liicenses granted herein, and to
representatives of potential or actual sub-licensees after execution
by each such representative of a confidentiality agreement acceptable
to the licenser; and
<PAGE>
page 10
9.1.2 not use any trade secrets, disclosures or other information technical
data, except for the purposes of the licenses granted herein and en
the terms of this agreement;
9.1.3 the licensee shall remain liable to the licenser for all breaches of
confidentiality by any of the licensee's employees notwithstanding
the signing of an employee confidentiality agreement.
9.2 The licenser shall keep confidential all matters relating to their
licensee's improvements and any other information of a confidential nature
supplied by the licensee to the licenser for the purposes of this agreement,
including but not limited to financial data and royalties.
9.3 Notwithstanding the provisions of sub-CL 9.1 and 9,2, the licensee and
licenser may disclose information if and to the extent that--
9.3.1 such disclosure is fored by laws, regulations or orders;
9.3.2 the information is generally available in the public domain except
Where that is a result of a disclosure in breach of this agreement;
and
9.3.3 a party can prove that it knew the information before it was
disclosed to it by the other party.
Article 1O Licenser's warranties
10.1 The licenser hereby represents, warrants and undertakes to the licensee
that--
10.1.1 neither the execution of this agreement nor the performance by the
licenser of its obligations will cause it to be in breach of any
agreement to which it is party or is subject;
10.1.2 the licenser has and for the duration of this agreement will
continue to have the rights to the patents and the trade secrets the
subject of this agreement;
10.1.3 the patents include all patents or applications for a patent
material to the product or any of the trade secrets;
10.1.4 all designs, specifications, plus, drawings and other trade Secrets
supplied to the licensee by the licenser will be to the best of the
knowledge and belief of the licenser true, accurate, reliable and
up-to-date;
10.1.5 the licenser will use its best endeavors to procure the patent
applicant to obtain the grant of a patent pursuant to each
application made at the date of this agreement and made in respect
of any of the patents or any patentable licenser's improvement to
the product in any jurisdiction in the territory, and (without
prejudice to the foregoing) will at the licensee's expense--
10.1.5.1 procure publication thereof.
10.1.5.2 to the extent that it has not already done so, cause
requests to be made to the patent office in the prescribed
form for a preliminary examination and search and pay the
prescribed fee,
10.1.5.3 cause requests to be made to the patent office to make a
substantive examination and pay the prescribed fee,
10.1.5.4 so far as may be required make observations and cause the
application to be amended;
10.1.5.5 in respect of the patents pay all renewal fees necessary to
keep such patents in force, each such payment to be
effected not later than seven days before the last date
thereof and upon demand produce to the licensee each
renewal certificate in respect thereof. Such renewal fees
are to be reimbursed to the licenser by the licensee; and
10.1.5.6 notify the licensee forthwith of any withdrawal of or
amendment to any application and if any application is
treated as refused.
10.2 the licenser will indemnify and at all times hereafter hold the licensee
fully and effectively indemnified against any losses, costs, actions,
claims, demands, expenses, judgments, court orders or other liabilities
arising directly or indirectly out of or in connection with--
<PAGE>
page 11
10.2.1 any breach by the licenser of any of the representations, warranties
or undertakings contained in clause 10.1;
10.2.2 any claim or action against the licensee by any sub-licensee of the
licensee resulting from any breach of this agreement by the
licenser.
Article 11 Patent infringement
11.1 The licenser appoints and constitutes the licensee its agent and attorney
during the term of this agreement, to assert from time to time in the name
of the patent holder and/or licenser and for the account of the licenser
but for the benefit of and at the expense of the licensee whatever claims
and rights the patent holder and/or licenser may have arising from any
actual or apparent infringement of the patents within the territory or
unauthorized use of any of the trade secrets, and it is a fundamental
condition of this agreement that the licensee shall promptly assert and
enforce all such claim and rights and institute and prosecute an action
against any infringement which comes to its notice.
11.2 In the event the licensee asserts a claim or institutes an action as a
result of an actual or apparent infringement of the patents or unauthorized
use of any of the trade secrets, the licensee shall immediately notify the
licenser.
11.3 The licenser shall, if required by the licensee and if necessary for the
purposes of sub-CL 11.1, lend its name and shall otherwise do all acts and
things the licensee may reasonably require to assist in performing its
obligations under sub-CL 11.1.
11.4 The licensee shall keep the licenser indemnified from and against all loss
costs and damage suffered or incurred by the licenser arising out of the
licensee exercising its powers and performing its obligations under this
clause.
11.5 The proceeds from any judgment or settlement made by the licensee in any
action brought by it pursuant to sub-CL 11.1 shall be used to reimburse the
licenser for all expenses incurred by it in assisting the licensee in
prosecuting the action, and to pay the licensee's costs and expenses
incurred in such prosecution and the remainder shall be the licensee's.
11.6 The licenser shall execute all documents and do all things reasonably
necessary to aid and co-operate In the prosecution of any action brought by
the licensee pursuant to sub-CL 11.1,
Article 12 Termination
12.1 The licenser may at any time immediately terminate this agreement upon the
happening of any of the following events--
12.1.1 if an order is made or a resolution passed for the winding up or the
dissolution without winding up of the licensee, provided always that
default shall not be deemed to have occurred where the winding up is
for the purpose of reconstruction or amalgamation and the scheme for
reconstruction or amalgamation has the licenser's prior written
consent (which consent shall not be unreasonably withheld);
12.1.2 if the licensee suspends payment of its debts or becomes insolvent
within the meaning of any relevant legislation or law;
12.1.3 if without the licenser's prior written consent the licensee enters
into an arrangement reconstruction or composition with its creditors
or any of them;
12.1.4 if a receiver is appointed to the licensee;
12.1.5 if pursuant to the provisions of any relevant legislation or the
licensee is placed under official management or an inspector is
appointed to investigate the affairs of the licensee,
12.1.6 if without the licenser's prior written consent the licensee signs,
transfers or parts with possession of any material undertaking or
assets otherwise than in the ordinary course of business of the
licensee,
12.1.7 if default is made by the licensee in payment of royalty, and such
default is not remedied within 30 days after notice specifying such
default and requiring the licensee to remedy the same has been given
by the licenser to the licensee.
12.l.8 if default is made by the licensee in performance or observance of
any provision of this agreement other than those provisions referred
to in sub-CL 12.1.7 and where such default is capable of remedy such
default is not remedied within 30 days after notice, specifying such
default and requiring the licensee to remedy the same has been given
by the licenser to the licensee; or
<PAGE>
page 12
12.1.9 there is a change in control of the licensee without the prior
'written consent of the licenser.
12.2 For the purposes of sub-CL 12.1.9 a change in control of the licensee means
that there is such a change in the shareholders of the licensee, or such a
change in the composition of the board of directors of the licensee which,
in the opinion reasonably held of the licenser, has the effect of taking
control of the licensee away from its existing board of directors or puts
the licensee under the control, direct or indirect, of persons or companies
different from those in control at the latter of the date hereof and the
date on which the licenser last consented in writing to particular changes
in the shareholders or board of directors of the licensee.
12.3 The licensee may at any time terminate this agreement by notice upon the
happening if any of the following events-
12.3.1 if an order is made or a resollution passed for the winding up of
the licenser other than for the purpose of amalgamation or
reconstruction;
12.3.2 if the licenser suspends payment of its debts or becomes insolvent
within the meaning of any relevant legislation or law; or
12.3.3 if substantial default is made by the licenser in the performance or
observance of any provisions of this agreement, and where such
default is capable of remedy such default is not remedied within 30
days after notice specifying such default and requiring the licenser
to remedy the same has been given by the licensee to the licenser,
Article 13 Effects of termination
13.1 Upon termination of this agreement for any reason whatsoever--
13.1.1 the licensee shall deliver up to licenser all technical manuals,
advertising materials and brochures in respect of the patents, trade
secrets, licenser's improvements and the products in its possession
or under its control, or in the possession or under the control of
its servants or agents;
13.1.2 subject to sub-CL 13.1.3 below the licensee shall have no further
rights to manufacture, distribute or market the products, the
patents, or the trade secrets whether under common or other law,
statute or otherwise and, at the licensee's expense, it shall
execute and deliver to the licenser such instruments and take all
other action as the licenser deems reasonably necessary to ensure
the termination of any such rights which the licensee might
otherwise have, and to vest in the licenser every interest therein;
13.1.3 this clause, CL 14, CL 9 and the provisions of CL 3.7 and CL 8.2
shall continue to bind the parties;
13.1.4 the provisions of CL 3.3' CL 3.4 and CL 3.6 shall continue to bind
the parties until the licenser is satisfied that all royalties
payable under this agreement are paid.
13.2 The termination of this agreemennt shall not affect any right of action
which may have accrued to either party in respect of any breach prior to
the date of such termination.
13.3 Upon the termination of this agreement pursuant to CL 12.3 the licensee
shall be entitled to complete all contracts already entered into for
manufacture & distribution of products and to the extent necessary use the
patents and trade secrets and licenser's improvements.
Article 14 General
14.1 Sub licenses. The licensee shall deliver to the licenser copies of any
sub-licensing agreement entered into in accordance with CL 2 and amendments
thereto within thirty (30) days of execution.
14.2 Waiver. Any waiver or forbearance in regard to the performance of this
agreement shall operate only if in writing and shall apply only to the
specified instance, and shall not affect the existence and continued
applicability of the terms of it thereafter.
14.3 Entire agreement. This agreement embodies all the terms binding between the
parties and replaces all previous representations or proposals not embodied
therein.
<PAGE>
page 13
14.4 Assignment
14.4.1 the licensee shall not assign all or any of its rights hereunder
without the prior written consent of the licenser, which consent the
licenser may grant or not in its absolute discretion;
14.4.2 the licenser may at its discretion assign all or any of its rights
hereunder.
14.5 Applicable law. This agreement shall be governed by and construed in
accordance with the laws of Vanuatu but a]l questions relating to the scope
validity or interpretation of any patent and/or trade mark licensed
hereunder shall be determined according to the laws of the country of the
patent and/or trade mark hereby licensed the subject of such question.
14.6 Jurisdiction. Each party irrevocably and unconditionally submits to the
non-exclusive jurisdiction of the courts of Vanuatu and each waives any
immunity or any objection it may have to any action in those courts and to
a claim that any action has been brought in an inconvenient forum or to
those courts not having jurisdiction. The parties agree that any judgment,
order or determination of such courts may be registered and/or enforced in
the courts of any State or jurisdiction where the licensee has assets.
14.7 Amendments. This agreement may not be varied except in writing signed by
the parties.
14.8 Severability. If any provision of this agreement is held by a court to be
unlawful, invalid, and unenforceable or in conflict with any rule of law,
statute, ordinance or regulation the validity and enforceability of the
remaining provisions shall not be thereby affected.
14.9 Notices, All notices shall be in writing and shall be given by any one of
the following means--
14.9.1 by delivering it to the address of the party on a business day
during normal business hours;
14.9.2 by sending it to the address of the party by pre-paid airmail post
or if airmail post is not available by ordinary post; or
14.9.3 by sending it by facsimile transmission to the facsimile number of
the party and on the next business day giving it by either of the
means set forth in sub-CL 14.9.1 or 14.9.2 above.
14.10 A notice shall be deemed to be given and received--
14.10.1 if given in accordance with CL 14.9.1 on the next business day
after the delivery in the place of delivery;
14.10.2 if given in accordance with CL 14.9.2 five (5) clear business days
after the day of posting in the place of delivery;
14.10.3 if given in accordance with CL 14.9.3 on the next business day
after transmission in the place of delivery.
14.11 The address and facsimile numbers referred to in CL 14.9 shall in the
absence of notice to the contrary be asset out below:
Licenser:
Address: P0 Box 257, Port Vila, Republic of Vanuatu
Facsimile: +678-23836
Licensee:
Address: P0 Box 257, Port Vila, Republic of Vanuatu
Facsimile: +678-23836
14.12 Further agreements. Each party shall execute such agreements, deeds and
documents and do or cause to be executed or done all such acts and things
as shall be necessary to give effect to this agreement.
14.13 Charges. All stamp duties and governmental charges arising out of or
incidental to this agreement shall be the responsibility of and payable by
the licensee.
EXECUTED as a deed.
<PAGE>
page 14
THE COMMON SEAL OF Common Seal SOUTHPAC NOMINEES LIMITED
OX2 INTELLECTUAL PROPERTY, INC. OX2 Intellectual by its duly authorised
was hereunto affixed in accordance Property Inc. Officer:
with its constitution and in the
presence of
EQUITY HOLDINGS LIMITED /s/
by its duly authorised -------------------------
Officer: Director
/s/
- --------------------------------
Director
THE COMMON SEAL OF Common Seal SOUTHPAC NOMINEES LIMITED
OX2 ENGINE (DISTRIBUTION)LTD . OX2 Engine by its duly authorised
was hereunto affixed in accordance (Distribution) Officer:
with its constitution and in the Limitied
presence of
EQUITY HOLDINGS LIMITED /s/
by its duly authorised -------------------------
Officer: Director
/s/
- --------------------------------
Director
Schedule 2
(Territory)
NAFTA
Canada Mexico United States of America
THE COMMON SEAL OF Common Seal SOUTHPAC NOMINEES LIMITED
OX2 ENGINE (DISTRIBUTION)LTD . OX2 Engine by its duly authorised
was hereunto affixed in accordance (Distribution) Officer:
with its constitution and in the Limitied
presence of
EQUITY HOLDINGS LIMITED /s/
by its duly authorised -------------------------
Officer: Director
/s/
- --------------------------------
Director
THE COMMON SEAL of ADVANCED
ENGINE TECHNOLOGY INC.
was hereunto affixed in accordance with
it articles of association and in the
presence of
/s/ /s/ M. Bailey
- -------------------------------- --------------------------
Director Director/Secretary
<TABLE> <S> <C>
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE JUNE 30,
1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> Advanced Engine Technologies Inc.
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<PERIOD-START> JUL-01-1997
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<COMMON> 2,160
<OTHER-SE> 536,292
<TOTAL-LIABILITY-AND-EQUITY> 565,415
<SALES> 0
<TOTAL-REVENUES> 23,966
<CGS> 0
<TOTAL-COSTS> 333,601
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (309,635)
<INCOME-TAX> 0
<INCOME-CONTINUING> (309,635)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (309,635)
<EPS-PRIMARY> (.014)
<EPS-DILUTED> (.014)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1998 FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0001043225
<NAME> Advanced Engine Technologies Inc.
<MULTIPLIER> 1
<CURRENCY> US Dollars
<S> <C>
<PERIOD-TYPE> 3-mos
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 410,905
<SECURITIES> 00
<RECEIVABLES> 00
<ALLOWANCES> 00
<INVENTORY> 00
<CURRENT-ASSETS> 410,905
<PP&E> 22,611
<DEPRECIATION> 2,703
<TOTAL-ASSETS> 430,813
<CURRENT-LIABILITIES> 0
<BONDS> 0
0
0
<COMMON> 2,160
<OTHER-SE> 428,653
<TOTAL-LIABILITY-AND-EQUITY> 430,813
<SALES> 0
<TOTAL-REVENUES> 4,960
<CGS> 0
<TOTAL-COSTS> 108,279
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (103,319)
<INCOME-TAX> 0
<INCOME-CONTINUING> (103,319)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (103,319)
<EPS-PRIMARY> (.005)
<EPS-DILUTED> (.005)
</TABLE>
