<PAGE> 1
As filed with the Securities and Exchange Commission on April 26, 1999
Registration No. _______________
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UNITED STATES 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 (g) of the Securities Exchange Act of 1934
NATEX CORPORATION
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(Name of Small Business Issuer in its Charter)
Utah 84-1431425
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
48 West 300 South, Suite 2303 North, Salt Lake City, Utah 84101
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (801) 595-1193
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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
N/A N/A
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Securities to be registered under Section 12(g) of the Act:
Common Stock, par value $0.001 per share
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(Title of Class)
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NATEX CORPORATION
FORM 10-SB
TABLE OF CONTENTS
PART 1 Page
Item 1. Description of Business ..................................... 3
Item 2. Management's Discussion and Analysis or Plan of Operation ... 9
Item 3. Description of Property...................................... 11
Item 4. Security Ownership of Certain Beneficial Owners
and Management.............................................. 12
Item 5. Directors, Executive Officers, Promoters
and Control Persons......................................... 13
Item 6. Executive Compensation....................................... 13
Item 7. Certain Relationships and Related Transactions............... 15
Item 8. Description of Securities.................................... 15
PART II
Item 1. Market Price of and Dividends on the Registrant's
Common Equity and Other Shareholder Matters................. 16
Item 2. Legal Proceedings............................................ 16
Item 3. Changes in and Disagreements with Accountants................ 16
Item 4. Recent Sales of Unregistered Securities...................... 17
Item 5. Indemnification of Directors and Officers.................... 17
PART F/S
Financial Statements......................................... 19
PART III
Item 1. Signatures................................................... 31
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
History and Organization
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Natex Corporation (hereinafter the "Company" or "Registrant") was
incorporated on July 9, 1997 under the laws of the State of Utah for the
purpose of raising capital to invest in a joint venture with Powerball
Industries, Inc., a Utah corporation ("Powerball Industries"). Powerball
Industries is wholly owned by Jed Checketts ("Checketts")and is the licensee
of certain Hydrogen Generation System and Fuel Pellet technology relating to
the production of hydrogen (the "Technology"). Checketts is the inventor of
the Technology and licensed the Technology (the "License")to Powerball
Industries in exchange for a royalty. In December, 1997, the Company and
Powerball Industries formed a joint venture named Powerball Technologies, LLC
(the "JV").
The JV is managed by a two person management committee consisting of one
person designated as a manager by the Company (Robert Ipson) and one person
designated as a manager by Powerball Industries (Checketts).
Powerball Industries and the Company, as the owners of the Joint Venture,
have entered into an Operating Agreement which governs their respective rights
and which sets forth their agreement as to various issues such as management,
meetings, voting, tax matters, termination and transfer of interests. The
Operating Agreement provides that neither owner may assign or transfer his or
its ownership in the Joint Venture unless the other owner consents to such
transfer.
Use of Hydrogen and the Technology in General
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Currently hydrogen is mainly utilized as a chemical component for
industrial uses. In addition, the market for hydrogen gas as a fuel source
has increased as a result of many factors, including environmental concerns
related to cost and environmental concerns surrounding the use of fossil
fuels, increased research and development of alternative fuel sources in
general, and the development of hydrogen fuel cells. The Technology, as it has
currently been developed, and continues to be developed, is an attempt to
provide an efficient, cost effective and safe method of producing hydrogen gas
for commercial and industrial use.
There are essentially three ways of providing a hydrogen supply: (i)
storing compressed hydrogen gas in a storage device until needed; (ii) storing
liquid hydrogen gas in a storage device until needed; and (iii) producing
hydrogen on demand from water or hydrocarbon fuels as the hydrogen gas is
needed. Compressed gas and liquid hydrogen storage methods of creating a
hydrogen supply can be expensive and can create health and safety problems.
Hydrogen stored as hydrogen gas or in liquid gas storage systems must be
stored under extreme pressure and can be dangerous. The costs of transporting
and storing compressed hydrogen gas and hydrogen liquids until needed, are
significant. Hydrogen delivery tanker trucks are expensive and have limited
capacity for transporting hydrogen in comparison to their weight and cost. In
order for a hydrogen customer to obtain a bulk shipment of either hydrogen gas
or liquid hydrogen, it must expend a significant amount of money to construct
a hydrogen storage facility on site.
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The JV's approach to supplying hydrogen to users will be to eliminate
the costs and risks of transporting and storing a bulk supply of hydrogen in
either a compressed gas or liquid form by producing hydrogen on site as
needed. The JV expects to be able to demonstrate that the Technology can
produce hydrogen gas on an as needed basis by the user (i.e., "Hydrogen On
Demand") in a manner that management believes will be safer and more cost
effective than existing methods.
The Hydrogen Generation System
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The Technology relates to the production of hydrogen gas in a Hydrogen
Generation System. The Hydrogen Generation System is designed to produce
hydrogen gas as needed to be used for whatever purpose it was intended. The
hydrogen is produced in the Hydrogen Generation System through a chemical
reaction of sodium hydride with water. Key components of the Hydrogen
Generation System include a tank called a Hydrogen on Demand Generator (the
"Tank") and fuel pellets which are made of sodium hydride (the "Powerballs").
Each Powerball is a sodium hydride sphere which is approximately 1.2 inches
in diameter, covered by a polyethylene cover.
The Hydrogen Generation System generally works as follows: ordinary
water and Powerballs are deposited into the Tank. After being deposited into
the Tank, the Powerballs remain inert or inactive and do not produce hydrogen
until needed. Another key component of the Hydrogen Generation System is a
cutting device which, when activated, cuts the Powerball in half, exposing it
to the water contained in the Tank. When hydrogen is needed by the user, the
Powerball is inserted into the cutting device and cut or opened. After being
opened, the sodium hydride core of the Powerball is exposed directly to the
water and reacts with the water to produce hydrogen gas. The Tank's metering
system can detect when additional hydrogen is required, and when required,
another Powerball moves in to the cutting device, and the process of creating
hydrogen is repeated.
As hydrogen is used from the Tank, the mechanism removes Powerballs
stored in the Tank and cuts them one at a time to produce additional hydrogen.
The process can continue until the last Powerball in the Tank is used. The
polyethylene skins that cover the Powerballs remain in the Tank during the
operation. When all the Powerballs have been utilized, the waste material must
be properly removed along with the polyethylene skins. After a Tank is
emptied, it can immediately be refilled with water and new Powerballs. The
used polyethylene skins may be recycled into new Powerballs.
The management of Powerball Industries believes that the Technology is a
safe and easy method of producing hydrogen which can be commercially viable.
The Technology was developed to provide incremental, isolated production and
use of hydrogen fuel thereby providing the user with a consistent and
economically viable power supply.
Supplies
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The sodium hydride that is used in the manufacturing of the Powerballs
has been readily available, and it is anticipated that it will continue to be
readily available. The cost of sodium hydride depends upon the quantity in
which it is purchased. The managers of the JV believe that the economics of
producing hydrogen through the Technology will be dependent upon many factors
including the purchase price of sodium hydride and the price of hydrogen as
supplied by alternative suppliers.
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Potential Products
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If the JV is able to demonstrate that the Technology will permit the cost
effective and safe production of hydrogen, the JV intends to manufacture, or
have manufactured, and ultimately market, three products:
Splitting Mechanisms These are the mechanisms installed in the Tanks
which are used to split the Powerballs, one at a time, as needed to generate
hydrogen.
Tanks The Tank is a stand alone hydrogen generator where the hydrogen
is actually produced. The JV has already manufactured 5 Tanks with the funds
invested in the JV by the Company. The Tank is constructed of lightweight and
strong Kevlar composite material. Steel, stainless steel and other materials
can also be used to construct the Tank. The end caps are mounted securely
using stainless steel tie rods. High density polyethylene is used for the end
cap material along with special strengthening ribs. The pneumatic/hydraulic
combination cylinder used to power the Splitting Mechanism is precision
machined from honed cylinder material and is rated for 5 million cycles. The
blade is made of a special stainless alloy designed to resist corrosion and
remain sharp for millions of cycles. Pressure sensing mechanisms, valves,
fittings, and static pressure refill ports are made of stainless steel or
specially coated brass designed to resist NaOH corrosion. Each has been
equipped with a pressure gauge, pressure relief valve and a regulator which
converts pressure.
If the JV is successful in obtaining market acceptance of the Technology
and the products derived therefrom, it intends to market Tanks to various
users including Original Equipment Manufacturer's ("OEM's"). Inasmuch as the
Tanks have not been manufactured by the JV on a mass basis, the cost of
manufacturing the Tanks and the willingness of users to pay a particular price
for the Tanks has not been determined with certainty at this time.
Powerballs The Powerballs are polyethylene coated pellets of sodium
hydride. The components of the Powerballs are readily available from a variety
of sources. Initially, the JV will not market Powerballs as a separate
product, but will use Powerballs in connection with the generation of
hydrogen to be sold to purchasers of hydrogen gas. If initial marketing
efforts are successful, the JV will attempt to market Powerballs with its
Tanks.
Powerballs are small solid balls or pellets (1.2 inches in diameter) of
sodium hydride that are coated with a waterproof plastic coating or skin.
Powerballs are stored directly in water. They can remain in water for months
with little or no change to the coatings. When a Powerball is cut in half
under water, the sodium hydride inside reacts with the water to produce
hydrogen. A Powerball will react to completion in approximately 10 seconds.
The Splitting Mechanism, Tanks, and Powerballs will initially be
manufactured by the JV. Necessary components will be supplied by a variety of
outside contractors and suppliers, including fabrication, machining, laser
cutting, vending suppliers, chemical, etc.
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Recycling Plant
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An important aspect of the JV's initial plan is the development of a
Powerball Recycling Plant (the "Plant"). The Plant will be used to recycle
the polyethylene Powerball shells and the spent sodium hydroxide solution
(NaOH). An additional benefit of the Plant will be that sodium may be
recovered from the spent sodium hydroxide solution on what management believes
may be a commercially viable basis for resale to industrial and commercial
users.
In order to generate hydrogen on a cost effective basis using the
Technology, there must be an economical source of Powerballs. After the
Powerballs are split in the Tanks, there remain the polyethylene shells and
other components of the sodium hydride pellets. The costs of generating
hydrogen using the Technology will be reduced if these remains are recycled.
There is not an existing recycling Plant and the Plant to be constructed
by the Joint Venture will be a proto type plant. The construction and
operation of the Plant will involve additional research and development
efforts and will likely require fine tuning even if it is successfully placed
in operation.
As currently planned, the Recycling Plant will consist of a variety of
components including two hydroxide water evaporators, a furnace, heat
exchangers, a sodium reactor and various control systems. It is anticipated
that the Recycling Plant will require approximately 2,000 square feet of floor
space. As of February 1999, engineering plans for the Plant have been
completed which will allow it to be built in the existing facility currently
leased by the JV. The Plant will be constructed by the JV under the direction
of Checketts.
Initial Marketing Plan
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The JV will initially direct its marketing efforts to the industrial
hydrogen users market. There are currently four standard methods for providing
hydrogen to industrial users: (1) hydrogen liquefaction; (2) compressed
hydrogen gas; (3) on site reformation from natural gas; and (4) by-product
hydrogen produced from nearby chemical plants.
The Technology is not expected to be competitive as an alternative to
hydrogen produced from on-site reformation or as a by-product from chemical
plants. The business plan of the JV is to attempt to demonstrate that the
Technology is a viable commercial alternative for either the bulk shipment of
liquid hydrogen or the bulk shipment of compressed hydrogen gas. The JV will
also attempt to market hydrogen and its hydrogen generating products to oil
refineries, power plants and welding operations as part of its initial
marketing efforts.
The long-term business plan of the JV is to manufacture and market
hydrogen generation products (i.e., Tanks, Powerballs and Plants). However,
due to the limited capital available to the Joint Venture, management intends
to attempt to prove the commercial viability of the Technology by generating
and selling hydrogen generated from the JV's products and Technology to a
limited number of industrial users. However, there can be no assurance that
the JV will be able to produce and market hydrogen for a price which is less
than prices charged by other hydrogen producers.
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A projected area of growth in the hydrogen market is as a fuel source in
proton exchange membrane (PEM) fuel cells. The hydrogen combines with oxygen
in the fuel cells to produce electricity. General Motors, Ford, Chrysler,
Daimler-Benz, BMW, Volkswagen, Volvo, Renault, Peugeot, Siemens, Toyota,
Honda, Toshiba, Mitsubishi, Fuji, and Sanyo all have fuel cell development
programs in an attempt to develop and market hydrogen powered automobiles.
Fuel cells can be used for many other purposes. Without hydrogen, fuel cells
cannot function. A fuel cell works by reacting hydrogen gas with oxygen to
produce water.
As a result of the increase in fuel cell research and development
activities, the demand for hydrogen required in the fuel cell is expected to
increase significantly. In addition to the demand for hydrogen in the
developing fuel cell industry, the non-fuel cell industrial market for
hydrogen has continued to expand.
The business plan of the JV is to ultimately provide hydrogen generating
products or technology for a variety of uses. As of this date no specific
marketing plan for uses has been developed. It is anticipated that a long-
term marketing plan will be developed when there has been sufficient
acceptance of the Technology and the economics of the Technology, in the
market.
No formal marketing studies have been conducted relating to the
production of hydrogen through the Technology. As stated above, a detailed,
long-term marketing plan has not been developed. The initial marketing
efforts will be directed to trade shows and by direct marketing to end users
or OEM's. As the Technology is further refined and accepted in the market as
a commercially viable alternative to hydrogen generation, the JV will develop
a long-term marketing plan.
Research and Development
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The JV will be required to continue to engage in research and development
in order to reduce the cost of hydrogen generation from the Powerball
Technology. Initially, much of the research and development efforts will
relate to the construction and fine tuning of the Plant. At such time as the
Technology has found commercial acceptance in initial marketing areas, the JV
will attempt to obtain additional capital with which to develop other
commercial uses of the Technology.
Competition
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The JV will engage in the business of providing hydrogen generation
products to end users and OEM's. Initially, the JV will compete with other
companies supplying hydrogen to industrial and commercial users. Generally,
such competitors will be supplying their customers with compressed hydrogen
gas or liquid hydrogen. The JV will also compete with any other companies
which may offer technologies and products for hydrogen on demand production.
In a global sense, the JV will be also be competing with the suppliers of all
other fuels including natural gas suppliers, gasoline suppliers, and other
similar suppliers.
Nationally, there is significant research and development being conducted
in the area of hydrogen fuel generation. The U.S. Government and numerous
multinational corporations have and are funding various research projects.
There is great interest and demand for the development of hydrogen technology
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and products. This interest and demand will cause many additional companies
and individuals to participate in the hydrogen industry. The Company believes
that most of the competitors and future competitors of the JV will have
significantly greater assets, resources, experience, research and development
talent and managerial capabilities than the Company. Although the JV's
managements believes that the Technology has competitive advantages over other
technologies, there can be no assurance that the JV will be able to fund the
further development and marketing of Technology and related products, that the
Technology will be accepted in the market place or that the Technology will be
able to provide hydrogen generating capacity or products on a mass commercial
basis.
Intellectual Property Rights
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The JV has been assigned the License for the Technology from Powerball
Industries as its capital contribution to the JV. Powerball Industries
acquired an Exclusive License for the Technology from Checketts, the owner of
the Technology.
Checketts has been issued United States patents for two primary
inventions: (i) a Hydrogen Generation System; and (ii) a Hydrogen Generation
Pelletized Fuel (e.g., the Powerball). The fuel pellet is used in the
Hydrogen Generation System and is comprised of an alkali metal selected from
the group consisting of sodium and calcium or metal hydride selected from the
group consisting of NaH, CaH2, NaA1H4, and LiA1H4 core; and a coating of water
impervious material applied over the entire surface of said core rendering the
core impervious to water.
The License with Checketts provides for the payment to Checketts of a
royalty of one per cent (1%) of the net selling price for all retail and
wholesale of units and/or fuel pellets sold by the licensee or any sub-
licensee. The License has annual minimum production requirements commencing
September 18, 1998. The minimum production requirements for the second and
third license year is of 50 units (hydrogen generation systems) and 250,000
pounds of fuel pellets (Powerballs) for each. The minimum production
requirements for the fourth year 150 Units and 500,000 pounds of Powerballs.
Commencing the fifth license year, the minimum production requirements are 250
units and 5,000,000 pounds of fuel pellets for each license year.
The License extends for the longer of five years or the life of the
licensed patents, subject to earlier termination without cause by the Licensee
(or its assign) or with cause by Checketts.
Patent Applications for the Technology have been filed in the United
States but have not been filed in any other country. The principals of
Powerball Industries have disclosed certain information about the Technology
on the Internet. As a result of such disclosures, the ability of the
technology owner, Checketts, to obtain a patent in foreign countries has been
significantly diminished if not entirely eliminated. There can be no
assurance that any foreign patents will ever issue. The failure to obtain
patent protection in foreign countries will have an adverse effect on the
prospects of the Company and the JV. The possibility exists that without
patent protection, numerous competitors could use the Technology in competing
products and ventures. The possibility exists that such competitors would
have the financial resources necessary to bring products using the technology
to market earlier than the JV.
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Personnel
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The Company does not anticipate that it will be required to hire any
full-time or part-time employees during the next year. The Company's primary
operation will be an investment in the JV. The Company's President will
provide services to the Company on an as needed basis without cash
compensation for the foreseeable future. In the event that part-time or full
time employees are needed, the Company anticipates it will be able to hire
qualified persons.
The JV has hired Checketts and one other employee on a full-time basis to
perform the necessary Technology management, research and development and
marketing efforts of the Company. The JV will also hire such additional part-
time employees and independent contractors as may be required to in its
initial efforts to construct the Plant and commercialize the Technology. The
JV pays Checketts a salary of $4,000 per month.
Facilities
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The Company has entered into an oral arrangement with Robert K. Ipson,
its president, providing for the use of his residence as its office until such
time as the Company needs additional facilities. The Company has not paid Mr.
Ipson for the use of his residence.
The JV will initially conduct its technical operations in a 2,500 sq.
foot facility located at 2095 West 2200 South, Salt Lake City, Utah. The
facility is leased from TSP Enterprises, an unaffiliated entity, by JC
Industries, a machine shop owned and operated owned by Checketts, and
Powerball Industries, an entity owned by Checketts. The term of the lease is
for a period of three (3) years beginning July 1996 and expiring June 1999.
The current monthly lease payment is $937. These facilities will be leased
until such time as additional facilities may be required. The JV currently
makes the monthly lease payment.
Item 2. Management's Discussion and Analysis or Plan of Operation
Overview
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Cautionary Statement Regarding Forward-looking Statements
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This report may contain "forward-looking" statements. The Company is
including this cautionary statement for the express purpose of availing itself
of the protections of the safe harbor provided by the Private Securities
Litigation Reform Act of 1995 with respect to all such forward-looking
statements. Examples of forward-looking statements include, but are not
limited to: (a) projections of revenues, capital expenditures, growth,
prospects, dividends, capital structure and other financial matters; (b)
statements of plans and objectives of the Company or its management or Board
of Directors; (c) statements of future economic performance; (d) statements of
assumptions underlying other statements and statements about the Company and
its business relating to the future; and (e) any statements using the words
"anticipate," "expect," "may," "project," "intend" or similar expressions.
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Year 2000 Disclosure
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The Company is working to resolve the potential impact of the year 2000
on the ability of the Company's computerized information systems to accurately
process information that may be date-sensitive. Any of the Company's programs
that recognize a date using "00" as the year 1900 rather than the year 2000
could result in errors or system failures. The Company utilizes a minimum
number of computer programs in its operations. The Company has not completed
its assessment, but currently believes that costs of addressing this issue
will not have a material adverse impact on the Company's financial position.
However, if the Company and third parties upon which it relies are unable to
address this issue in a timely manner, it could result in a material financial
risk to the Company. In order to assure that this does not occur, the Company
plans to devote all resources required to resolve any significant year 2000
issues in a timely manner.
Plan of Operations
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Revenues. The Company's revenues will be generated primarily through its
investment in the JV. The Company had no revenues for the year ended December
31, 1998 or for the three month period ended March 31, 1999, and has had no
revenues since July 9, 1997 ("Inception").
Operating Expenses. For the year ended December 31, 1998, total
operating expenses were $22,891, resulting in a loss from operations of
$22,891. Total operating expenses for the three month period ended March 31,
1999 were $1,171 and total operating expenses from inception have been
$24,910, resulting in a loss from operations of $24,910 since Inception.
Other Expense. Other expense for the year ended December 31, 1998 was a
net $49,875, of which all was represented by loss on the Company's investment
in the JV. Other expense for the three month period ended March 31, 1999 was
a net $18,144, of which all was represented by loss on the Company's
investment in the JV. The Company's loss on its investment in the JV is
$94,506 since the Company's Inception.
The Company experienced a net loss of $72,866 for the year ended December
31, 1998 and a net loss of $19,415 for the three month period ended March 31,
1999. The Company net loss since inception has been $118,316. The basic loss
per share for the year ended December 31, 1998 was $0.1214, based on the
weighted average number of shares outstanding of 600,000 shares. The basic
loss per share for the three months ended March 31, 1999 and since Inception
was $0.0209 and $0.1347, respectively, based on the weighted average number of
shares outstanding for the respective periods.
Liquidity and Capital Resources
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In connection with the Company's organization the founding shareholders
acquired 200,000 shares of the Company's common stock for $40,000 cash.
Thereafter, in December 1997, the Company completed a public offering of
400,000 shares of common stock at a price of $1.00 per share for aggregate
offering proceeds of $400,000.
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The issuances of common stock have been utilized for working capital,
payment of professional services, the initial capital investment in the JV;
the loan of additional working capital to JV, and for the continued
development activities of the Company.
In December 1997, the Company entered into the JV with Powerball
Industries wherein the Company contributed $250,000 cash. In addition to the
original $250,000 capital contribution to the JV made by the Company, the
Company has agreed to loan additional capital to the JV, up to $100,000, for
the purpose of (i) further development of the Technology; (ii) construction of
the Plant; (iii) the manufacture of Tanks; (iv) demonstrate the commercial
viability of the Technology; (v) develop commercial markets for the
Technology; and(vi) meet the JV's ongoing working capital requirements. As of
March 31, 1999, the Company had loan the JV $69,000.
At December 31, 1998, the Company had current assets of $109,664 and no
no current liabilities for working capital of $109,664. At March 31, 1999,
the Company had current assets of $248,780, consisting mostly of cash, and no
liabilities for working capital of $248,780. Cash used in operations for the
year ended December 31, 1998 and March 31, 1999 was $(71,627) and $(18,485),
respectively, while cash used in operations since inception is $(134,725) and
has been funded primarily by cash received from capital contributions and the
issuance of common stock for cash.
In connection with the expenditures of the JV, all major financial
decisions of the JV, including the expenditure of $5,000 or more, must be
approved by both of the managers. The managers determine whether any
distributions of cash will be made to the owners. Cash distributions will not
be made until and unless the JV operates at a profit and thereafter, only if
the managers jointly agree to such distributions. It is not anticipated that
cash distributions will be made to the owners in the foreseeable future. If
the JV generates profits, of which there can be no assurance, it is likely
that most of such profits will be retained by the JV to fund additional
research and development, to fund additional marketing efforts, to acquire
additional inventory and for working capital.
The Company anticipate that within the next year additional funds will
also be needed to allow the JV to enter into other markets for hydrogen
technology. Future funding may involve the sale of additional ownership
interests in the JV. In such event, the percentage ownership interests of the
Company and Powerball Industries in the JV will be reduced. There can be no
assurance that any additional required funding will be available to the JV.
It is expected that during the next year the primary expenditure of the
JV will relate to the construction of the Plant. Additional JV funds will be
used for general overhead and to manufacture additional Tanks. If the Plant is
constructed and operates as intended, and if a demand for the Technology and
related products arises, additional plants may be needed to handle increased
capacity demands. In such event, the JV would require additional capital or
would be required to license or sell additional Plants.
ITEM 3. DESCRIPTION OF PROPERTY
The information required by this Item 3 is not applicable to this Form
10SB due to the fact that the Registrant does not own or control any material
property.
<PAGE> 12
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of April 21, 1999 the name and address
and the number of shares of the Company's Common Stock, par value $0.001 per
share, held of record or beneficially by each person who held of record, or
was known by the Company to own beneficially, more than 5% of the 950,000
shares of Common Stock issued and outstanding, and the name and shareholdings
of each director and of all officers and directors as a group.
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
Name and Address Number of Shares Nature of Ownership % of Class
- ---------------- ---------------- ------------------- ----------
Robert K. Ipson (1) 121,000 Direct 12.74
48 West 300 South, # 2303 71,300 Indirect (2) 7.51
Salt Lake City, UT 84101
Shorland Hunsaker 130,000 Direct 13.68
2751 East Rubidoux Road
Salt Lake City, UT 84093
Paul N. Davis 50,000 Direct 5.26
2351 Mintze Drive
Salt Lake City, UT 84124
Securities Ownership of Management
- ----------------------------------
Robert K. Ipson (1) 121,000 Direct 12.74
President and Director 71,300 Indirect (2) 7.51
Shorland Hunsaker 130,000 Direct 13.68
Vice President and Director
Phillip L. McStotts 12,500 Direct 2.08
Secretary/Treasurer and Director
Officers and Directors
As a Group (3 persons) 283,500 Direct 29.84
71,300 Indirect 7.51
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Total 354,800 37.35
======= =====
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1) Mr. Ipson also owns an option to purchase 100,000 shares of the Company's
common stock at $1.00 per share.
2) Represents 70,000 shares held of record by Linda L. Ipson, the spouse of
Robert K. Ipson; 800 shares held of record by the Robert K. Ipson, IRA; and
500 shares held of record by the Linda Lou Ipson, IRA.
<PAGE>
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ITEM 5. Directors, Executive Officers, Promoters and Control Persons
The names and ages of the Registrant's executive officers and directors
and the positions held by each of them are set forth below:
Name Age Position
--------------------- --- ----------------------
Robert K. Ipson 58 President/Director
Shorland G. Hunsaker 68 Vice President/Director
Phillip L. McStotts 39 Secretary/Treasurer/Director
All directors of the Company will hold office until the next Annual
Meeting of Shareholders and until their successors have been elected and
qualified.
Robert K. Ipson. Mr. Ipson is, and has been since 1973, president of
M.S.J. & Associates, Inc., a family-held company. M.S.J. & Associates was the
operator of the Bonneville Raceway in Salt Lake City, Utah until 1986. Since
that date it has managed its own investments.
Shorland G. Hunsaker. Mr. Hunsaker was a teacher for 28 years with the
Murray City Schools in Murray, Utah. Mr. Hunsaker retired from his position
with the Murray City School District in June 1987. Mr. Hunsaker received a
Master's Degree in Economics in 1959 from the University of Florida, received
a Bachelor's Degree in Economics from Utah State in 1957, and received a
teaching certificate in 1958 from the University of Utah.
Phillip L. McStotts Mr. McStotts is a founder of ZEVEX International,
Inc. (NASDAQ/NMS:"ZVXI"), and serves as the Chief Financial Officer and
Director of the Company. ZEVEX, based in Salt Lake City, Utah, is a company
that designs and manufactures advanced medical devices, including surgical
systems, device components, and sensors for medical technology companies.
ZEVEX also designs, manufactures and markets its own medical devices using its
proprietary technology. ZEVEX currently has 93 employees and has been in
business since 1986. Mr. McStotts is a CPA with fifteen years of experience.
Mr. McStotts received his BS Degree in Accounting from Westminster College,
Salt Lake City, UT and an MBA in Taxation from Golden Gate University. Mr.
McStotts has served for the last seven years, including the last two, as
President and Past President of the Community Foundation for the Disabled,
Inc.
ITEM 6. EXECUTIVE COMPENSATION
No compensation has been paid or accrued to any officer or director of
the Company. Currently, there is no plan to pay cash compensation to the
Company's officers and directors for services rendered. The Company may issue
shares of Common Stock to management for services rendered valued at
competitive rates. In the event any shares are issued for services rendered
by management, they shall be issued in such an amount as the Board of
Directors deems fair and reasonable to the Company and its public shareholders
and in compliance with management's fiduciary duties under state law.
Officers and directors will be reimbursed for actual out-of-pocket expenses
incurred on behalf of the Company as approved by the Board of Directors.
<PAGE> 14
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Registrant's last two completed
fiscal years (since inception in July 1997) to the Registrant's chief
executive officer and each of its other executive officers that received
compensation in excess of $100,000 during such period (as determined at
December 31, 1998, the end of the Registrant's last completed fiscal year):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert K. Ipson 1998 $ -0- -0- -0- -0- -0- -0- -0-
President 1997 $ -0- -0- -0- -0- -0- -0- -0-
</TABLE>
Options/SAR Grants in Last Fiscal Year
- --------------------------------------
None.
Bonuses and Deferred Compensation
- ---------------------------------
It is expected that the Company's President, Robert K. Ipson, will
primarily be responsible for the day-to-day operations of the Company and will
be appointed as the Company's designate as manager of the Joint Venture. As
an incentive for such services to the Company, the Company has granted Mr.
Ipson an option to purchase 100,000 shares of the Company's common stock at a
price of $1.00 per share. The option vests as follows: (i) 50,000 shares on
January 31, 1998; and (ii) 50,000 shares on March 31, 1998. Each option is
exercisable for a period of four (4) years from the date of vesting. The
shares issuable upon the exercise of the Option carry registration rights
which entitle Mr. Ipson to require the Company to register such shares with
the Securities and Exchange Commission and with, to the extent necessary,
appropriate state securities regulators.
Compensation for Management of JV
- ---------------------------------
The JV is managed by two managers, one appointed by the Company and one
appointed by Powerball Industries. The Company has appointed Robert K. Ipson,
its president as its management representative. Powerball Industries has
appointed Checketts to serve as its representative as manager. The JV will
not compensate Mr. Checketts for his services as a manager, but it has hired
him as an employee at a salary of $4,000 per month. The JV will compensate
Mr. Ipson at the rate of $25.00 per hour for services rendered to the JV. The
rate of compensation is subject to adjustment in the future based upon factors
such as the financial condition of the JV, the amount of time devoted by Mr.
Ipson to the JV and the success of the JV.
<PAGE> 15
Key Employee of the JV
- ----------------------
Jed Checketts, age 30, is the owner of Powerball Industries, Inc., a Utah
corporation and JC Industries, a Utah based sole proprietorship. Mr.
Checketts has owned and operated JC Industries, a precision machining
operation, since 1993. Mr. Checketts has studied Manufacturing Engineering
Technology at Brigham Young University and Chemical Engineering at the
University of Utah.
Compensation Pursuant to Plans
- ------------------------------
None.
Pension Table
- -------------
Not Applicable.
Other Compensation
- ------------------
None.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In 1997, in connection the organization of the Company, the Company
issued a total of 200,000 shares of its common stock for $40,000 cash and
issued an option to purchase an additional 100,000 shares of common stock to
Robert K. Ipson, one of its founding shareholders.
The Company presently utilizes the residence of its president, Robert K.
Ipson, as its office at no cost to the Company.
The JV has hired Jed Checketts, the owner of Powerball Industries, the
Company's Joint Venture partner, who is paid a monthly salary of $4,000.
ITEM 8. DESCRIPTION OF SECURITIES
Common Stock
- ------------
The Company is authorized to issue 25,000,000 shares of $0.001 par value
Common Stock. At April 21, 1999, 950,000 shares were issued and outstanding.
The holders of the Company's Common Stock are entitled to one vote per share
on each matter submitted to vote at any meeting of shareholders. Shares of
Common Stock do not carry cumulative voting rights.
Shareholders of the Company have no pre-emptive rights to acquire
additional shares of Common Stock or other securities. The Common Stock is
not subject to redemption and carries no subscription or conversion rights.
In the event of liquidation of the Company, the shares of Common Stock are
entitled to share equally in corporate assets after satisfaction of all
liabilities. The shares of Common Stock, when issued, will be validly issued,
fully paid, and nonassessable.
<PAGE> 16
Holders of Common Stock are entitled to receive such dividends as the
Board of Directors may from time to time declare out of funds legally
available for the payment of dividends. The Company seeks growth and
expansion of its business through the reinvestment of profits, if any, and
does not anticipate that it will pay cash dividends in the foreseeable future.
PART II
ITEM 1. Market Price of and Dividends on the Registrant's Common Equity and
Other Shareholder Matters
The following table sets forth, for the respective periods indicated,
the prices of the Company's Common Stock in the over the counter market as
reported by a market maker on the NASD'S OTC Bulletin Board. Such over the
counter market quotations are based on inter-dealer bid prices, without
markup, markdown or commission, and may not necessarily represent actual
transactions.
Bid Quotation
-------------
Fiscal Year 1999 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 3/31/99 $2.50 $1.12
Fiscal Year 1998 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 3/31/98 $5.81 $1.12
Quarter ended 6/30/98 $5.87 $1.62
Quarter ended 9/30/98 $4.50 $0.94
Quarter ended 12/31/98 $3.50 $1.25
To the best knowledge of management of the Company, prior to January 1
1998, there was no reported bid or ask prices for the Company's Common Stock
and there was no trading of the Company's Common Stock during its fiscal years
ended December 31, 1997.
The number of shareholders of record of the Company's Common Stock as of
April 21, 1999, was approximately 75.
The Company has not paid any cash dividends to date and does not
anticipate paying dividends in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS
The Company is not a party to any pending legal proceedings and no such
action by or against it, to the best of its knowledge, has been threatened.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
The Registrant has not changed nor had any disagreements with its
independent certified accountants.
<PAGE>
<PAGE> 17
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In July 1997, the Company issued 200,000 shares of its Common Stock to
its founding shareholders at $0.20 per share. These shares are "restricted
securities" as that term is defined in Rule 144 promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), and were issued to
the founders of the Company pursuant to an exemption available under section
3(b) and/or section 4(2) of the Securities Act. Under Rule 144, restricted
securities may not be sold in market transactions until such shares have been
held for not less than one year and may only be resold thereafter if the
seller complies with all of the terms and conditions of Rule 144 and if such
resale is in compliance with applicable state securities laws.
In December 1997, the Company issued 400,000 shares of its Common Stock
in a public offering in Utah and New York at a price of $1.00 per share. The
offering was made under the registration by qualification provisions of
section 61-1-10, of the securities laws of the State of Utah and was deemed to
be exempt from registration under federal law pursuant to section 3(b) and/or
Regulation D, Rule 504 of the Securities Act. In addition, the securities
were registered with the Colorado Securities Division pursuant to section 11-
51-304 of the Colorado Revised Statutes, however, no securities were sold to
residents of the State of Colorado. Further, in connection with sales made to
residents of the State of New York, the Company filed an Issuer's Statement on
Form M-11 with the New York Department of Law, together with other
documentation and information required by the State of New York. The
securities sold in the above offering were sold by Alpine Securities
Corporation, the Underwriter, as the Company's exclusive agent on a "best
efforts, all or none" basis to the public. All subscription payments were
placed in escrow pending the completion of the sale of the 400,000 shares.
The Underwriter was paid a Underwriting Commission of $40,000 or 10% of the
total offering proceeds.
During March and April 1999, the Company sold an aggregate of 350,000
Units in a private placement to accredited investors for cash at a price of
$0.50 per Unit, each Unit consisting of one share of restricted Common Stock
and one warrant to purchase one share of Common Stock at an exercise price of
$1.00 per share, exercisable over a term of three years. No underwriter or
placement agent was used by the Company and no commissions were paid. The
securities issued in the foregoing transaction were issued in reliance on the
exemptions from registration and the prospectus delivery requirements of the
Securities Act set forth in Rule 506 of Regulation D and/or section 4(2) of
the Securities Act. All of the purchasers represented that they were
"accredited investors" as that term is defined under Rule 501 of Regulation D.
Of the Units purchased, current officers and directors of the Company
purchased an aggregate of 210,000 Units. No general advertising or
solicitation was used in connection with the sale of the Units by the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Sections 16-10a-901 through 909 of the Utah Revised Business Corporation Act
provides in relevant parts as follows:
(1) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative (other than an action by or in the right of
the corporation) by reason of the fact that he is or was a director, officer,
employee, or agent of the corporation, or is or was serving at the request of
<PAGE> 18
the corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise, against
expenses (including attorneys' fees), judgments, fines, and amounts paid in
settlement actually and reasonably incurred by him in connection with such
action, suit, or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit, or proceeding by judgment, order, settlement, conviction, or on
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had
reasonable cause to believe that his conduct was unlawful.
(2) A corporation shall have power to indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending, or
completed action or suit by or in the right of the corporation to procure a
judgment in its favor by reason of the feet that he is or was a director,
officer, employee, or agent of the corporation, or is or was serving at the
request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise
against expenses (including attorneys' fees) actually and reasonably incurred
by him in connection with the defense or settlement of such action or suit if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and except that no
indemnification shall be made in respect of any claim, issue, or matter as to
which such person shall have been adjudged to be liable for negligence or
misconduct in the performance of his duty to the corporation unless and only
to the extent that the court in which such action or suit was brought shall
determine on application that, despite the adjudication of liability but in
view of all circumstances of the case, such person is fairly and reasonably
entitled to indemnity for such expenses which such court shall deem proper.
(3) To the extent that a director, officer, employee, or agent of a
corporation has been successful on the merits or otherwise in defense of any
action, suit, or proceeding referred to in 1) or (2) of this subsection, or in
defense of any claim, issue or matter therein, he shall be indemnified against
expenses (including attorneys' fees) actually and reasonably incurred by him
in connection therewith.
(4) The indemnification provided by this section shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled under any bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to
a person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of such
a person.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to the above
discussed sections of the Utah Revised Business Corporation Act.
The Registrant's certificate of incorporation and bylaws provide that the
Registrant "may indemnify" to the full extent of its power to do so, all
directors, officers, employees, and/or agents. It is anticipated that the
Registrant will indemnify its officers and directors to the full extent
permitted by the above-quoted statute.
<PAGE> 19
Insofar as indemnification by the Registrant for liabilities arising
under the Securities Act may be permitted to officers and directors of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant
is aware that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's balance sheets at December 31, 1998 and 1997, and the
related statements of operations, stockholders' equity and cash flows for the
year ended December 31, 1998 and the period from July 9, 1997 (date of
inception) to December 31, 1998, have been examined to the extent indicated in
their report by Daines and Rasmussen, a profession corporation of certified
public accountants, and have been prepared in accordance with generally
accepted accounting principles and are attached hereto and incorporated herein
by this reference.
The unaudited balance sheet of the Company as of March 31, 1999; the
related unaudited statements of operations and cash flows for the three months
ended March 31, 1999 and from July 9, 1997 (inception) through March 31, 1997;
are attached hereto and incorporated herein by this reference.
<PAGE>
<PAGE> 20
DAINES AND RASMUSSEN
A PROFESSIONAL CORPORATION
CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
NATEX CORPORATION
(A Development Stage Company)
Salt Lake City, Utah
Independent Auditors' Report
----------------------------
We have audited the accompanying balance sheet of NATEX CORPORATION (A
Development Stage Company) as of December 31, 1998 and 1997, and the related
statements of operations, stockholders' equity and cash flows for the years
ended December 31, 1998 and the period from July 9, 1997, (date of inception)
to December 31, 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 audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial 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 NATEX CORPORATION (A
Development Stage Company) as of December 31, 1998 and 1997, and the results
of its operations and its cash flows for the period then ended, in conformity
with generally accepted accounting principles.
/s/Daines and Rasmussen
Salt Lake City, Utah
February 5, 1999
495 EAST 4500 SOUTH, SUITE 202
SALT LAKE CITY, UTAH 84107
TELEPHONE (801) 266-1500<PAGE>
<PAGE> 21
NATEX CORPORATION
(A Development Stage Company)
BALANCE SHEETS
December 31, 1998 and 1997
ASSETS
1998 1997
----------- -----------
Current Assets
Cash $ 65,664 $ 86,574
Receivable - related entity 44,000 44,000
----------- -----------
TOTAL CURRENT ASSETS 109,664 130,574
----------- -----------
Organization costs, net of amortization of $1,239
and none 17,339 18,578
Investments in limited liability company, at cost
less shares of losses 174,096 224,813
----------- -----------
TOTAL ASSETS $ 301,099 $ 373,965
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Accounts Payable $ 0 $ 0
----------- -----------
TOTAL CURRENT LIABILITIES 0 0
----------- -----------
Stockholders' Equity
Common stock, $.001 par value;
Authorized 25,000,000 shares;
Issued and outstanding 600,000 shares 600 600
Additional paid in capital 399,400 399,400
(Deficit) accumulated during the development
stage (98,901) (26,035)
----------- -----------
Total Stockholders' Equity 301,099 373,965
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 301,099 $ 373,965
=========== ===========
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE>
<PAGE> 22
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
Year ended December 31, 1998 and the Period from
July 9, 1997 (Date of Inception) to December 31, 1998
July 9,
Year ended 1997 (Inception)
December 31, to December
1998 31, 1997
------------- ----------------
REVENUE $ 0 $ 0
Operating expenses:
Office expense 748 766
Professional fees 4,967 5,797
Amortization expense 1,239 1,239
Dues and subscriptions 2,190 2,190
Filing fees 12,436 12,436
Travel 1,301 1,301
Taxes and licenses 10 10
------------- ----------------
TOTAL OPERATING EXPENSES 22,891 23,739
------------- ----------------
OPERATING (LOSS) (22,891) (23,739)
Other income and expenses:
(Loss) from partnership (50,717) (75,904)
Interest Income 842 842
------------- ----------------
(Loss) before provision for income taxes (72,766) (98,801)
Provision for income taxes 100 100
------------- ----------------
NET INCOME (LOSS) $ (72,866) $ (98,901)
============= ================
Net (loss) per common share $ (.1214) $ (.2076)
============= ================
Weighted average number of common shares 600,000 476,420
============= ================
The accompanying notes are an integral part of this financial statement. See
accountant's report.<PAGE>
<PAGE> 23
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
Period from July 9, 1997 (Date of Inception) to December 31, 1998
<TABLE>
<CAPTION>
Retained
(Deficit)
Accumulated
Additional During the Total
Common Stock Paid in Development Stockholders'
Shares Amount Capital Stage Equity
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at July 9, 1997 0 $ 0 $ 0 $ 0 $ 0
Issuance of common stock for cash 200,000 200 39,800 0 40,000
Issuance of common stock to the public
net of offering costs of $40,000 400,000 400 359,600 0 360,000
Net (loss) for the period July 9, 1997
to December 31, 1997 0 0 0 (26,035) (26,035)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1997 600,000 600 399,400 (26,035) 373,965
Net (loss) for year ended
December 31, 1998 0 0 0 (72,866) (72,866)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1998 600,000 $ 600 $ 399,400 $ (98,901) $ 301,099
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE> 24
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Year ended December 31, 1998, and the Period from
July 9, 1997 (Date of Inception) to December 31, 1998
July 9, 1997
Year ended (Inception)
December 31, to December
1998 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIES: ------------- ----------------
Net (loss) $ (72,866) $ (98,901)
Adjustments to reconcile net (loss) to - 200
net cash provided by operating activities
Amortization 1,293 1,239
Increase in organization costs 0 (18,578)
------------- ----------------
Net cash (used) by operating activities (71,627) (116,240)
------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Related party loans 0 (44,000)
Investment in limited liability company 0 (250,000)
Decrease in investment in limited
liability company 50,717 75,904
------------- ----------------
Net cash provided (used) by investing
activities 50,717 (218,096)
------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 0 400,000
------------- ----------------
Net cash provided by financing activities 0 400,000
------------- ----------------
Increase (decrease) in cash (20,910) 65,664
Cash and cash equivalents - beginning
of period 86,574 0
------------- ----------------
Cash and cash equivalents - end of period $ 65,664 $ 65,664
============= ================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Interest paid during the period $ 0 $ 0
============= ================
Income taxes paid during the period $ 100 $ 0
============= ================
The accompanying notes are an integral part of this financial statement. See
accountant's report.
<PAGE>
<PAGE> 25
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
From Inception on July 9, 1997 to December 31, 1998
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. Organization
------------
The Company was incorporated on July 9, 1997 under the laws of the State of
Utah. At the present time, the Company is in the development stage. The
Company was formed for the purpose of raising capital to invest in a joint
venture which will acquire a license for certain technology relating to the
production of hydrogen, to generate hydrogen for sale, and to market hydrogen
generating equipment and products. The Company will, through its investment in
a joint venture, be involved in research and development efforts of
commercializing the technology.
b. Investment in Limited Liability Company
---------------------------------------
The Company will account for its investment in the Limited Liability Comapny
using the equity method of accounting.
c. Amortization of Organization Costs
----------------------------------
The Company is amortizing the organization cost over a 60 month period using
the straight-line method.
d. Income Taxes
------------
The Company provides for income taxes based on the liability method, which
requires recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and
liabilities measured using enacted tax rates and laws that are expected to be
in effect when the differences are expected to reverse.
e. 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.
f. Cash and Cash Equivalent
------------------------
For purposes of the statement of cash flows, the Company considers all
investment instruments purchased with a maturity of three months or less to be
cash equivalents.
g. Net Income (Loss) Per Common Share
----------------------------------
Primary earnings (loss) per common share is calculated by dividing net income
(loss) for the period by the weighted average number of the Company's common
shares outstanding and dilutive common equivalent shares from stock options
and warrants, as calculated using the treasury stock method.
<PAGE> 26
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (continued)
From Inception on July 9, 1997 to December 31, 1998
g. Net Income (Loss) Per Common Share (Continued)
Fully diluted earnings (loss) per common share reflect the calculation of the
number of common equivalent shares based on the stock price at the end of the
period. Fully diluted per common share amounts are not reported because the
difference is not material from primary earnings per common share. The fully
diluted (loss) per common share was $(.12) for the year ended December 31,
1998 and $(.21) for the period July 9, 1997 (date of inception) to December
31, 1998. The weighted average number of common shares outstanding used in the
fully diluted calculation was $600,000 and $176, 420, respectively.
h. New Accounting Pronouncements
-----------------------------
In 1997 the FASB issued SFAS No. 128, Earnings Per Share, SFAS No. 130,
Reporting Comprehensive Income, and SFAS No. 131, Disclosures about Segments
of an Enterprise and Related Information. The Company believes the new
standards will not have a material impact on the Company's financial
statements presented herein or in the future.
(2) EXECUTIVE STOCK OPTION PLAN
The Company's president has agreed to perform services on behalf of the
Company for no compensation. To provide incentive for such services, the Board
of Directors agreed on August 1, 1997 to grant an option to purchase 100,000
shares of the Company's common stock at $1 per share. No options have been
exercised as of December 31, 1998.
(3) RECEIVABLE - RELATED PARTY
The receivable from related entity is an unsecured non-interest bearing loan
which has no repayment terms. Th Company has agreed to loan up to a maximum of
$100,000.
The receivable is due from Powerball Technologies, LLC (A Development Stage
Company). Natex Corporatin is a 50% owner of Powerball Technologies, LLC.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used by the Company in estimating
its fair value disclosures for financial instruments:
Cash and cash Equivalents. The carrying amount reported in the balance sheet
for cash and cash equivalents approximates its fair value.
The carrying amounts and fair values of the Company's financial instruments
are as follows:
December 31, December 31,
1998 1997
------------------- ---------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- --------- --------- ----------
Cash and Cash Equivalents $ 65,664 $ 65,664 $ 86,574 $ 86,574
======== ========= ========= ==========
<PAGE> 27
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - (continued)
From Inception on July 9, 1997 to December 31, 1998
(5) INVESTMENT IN LIMITED LIABILITY COMPANY
The Company and Powerball Industries, Inc. have agreed to form a limited
liability company (the "Joint Venture") to license the Technology; to further
develop the Technology; to build a sodium hydride pellet recycling plant; to
manufacture tanks in which hydrogen is generated; to demonstrate the
commercial viability of the Technology; and to commercialize the Technology.
Powerball Industries, Inc. will assign the Technology License to the Joint
Venture, or will sub-license the Technology to the Joint Venture for a 50%
ownership interest in the Joint Venture. The Company invested $250,000 in the
Joint Venture for a 50% ownership interest in the Limited Liability Company
Powerball Technologies, LLC (A Developmental Stage Company). The Company has
also agreed to loan up to $100,000 to the Joint Venture if such funds are
required for the Joint Venture's operations (See Note 3).
(6) STOCK OFFERING
On December 31, 1997, the Company successfully completed a public offering of
400,000 shares of its $.001 par value common stock for $400,000 less offering
costs of $40,000.
(7) INCOME TAXES
At December 31, 1998, the Company has a net operating loss carryforward of
approximately $98,900 which will begin to expire in the year 2012.
<PAGE>
<PAGE> 28
NATEX CORPORATION
(A Development Stage Company)
Balance Sheet
March 31, 1999
(Unaudited)
--------------
ASSETS
CURRENT ASSETS
Cash $ 179,781
Receivable - related party 69,000
--------------
TOTAL CURRENT ASSETS 248,781
--------------
Organization costs, net of amortization of $2,167 16,410
Investment in limited liability company, at cost
less share of losses 155,494
--------------
TOTAL OTHER ASSETS 171,904
--------------
TOTAL ASSETS $ 420,685
==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 0
--------------
TOTAL CURRENT LIABILITIES $ 0
--------------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value;
Authorized 25,000,000 shares;
Issued and outstanding 878,000 shares 878
Additional paid in capital 538,122
(Deficit) accumulated during the development stage (118,315)
--------------
TOTAL STOCKHOLDERS' EQUITY 420,685
--------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 420,685
==============
<PAGE>
<PAGE> 29
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF OPERATIONS
Three months ended March 31, 1999 and the Period from
July 9, 1997 (Date of Inception) to March 31, 1999
Three months July 9,
ended 1997 (Inception)
March 31, to March 31,
1999 1999
(Unaudited) (Unaudited)
------------- -------------
REVENUE $ 0 $ 0
Operating expenses:
Office expenses 0 766
Professional fees 0 5,797
Amortization expense 929 2,168
Dues and subscriptions 0 2,190
Filing fees 0 12,436
Travel 0 1,301
Taxes and licenses 242 252
------------- -------------
TOTAL OPERATING EXPENSES 1,171 24,910
------------- -------------
OPERATING (LOSS) (1,171) (24,910)
Other income and expenses:
(Loss) from partnership (18,602) (94,506)
Interest income 458 1,300
------------- -------------
(Loss) before provision for income taxes (19,315) (118,116)
Provision for income taxes 100 200
------------- -------------
NET (LOSS) $ (19,415) $ (118,316)
============= =============
NET (LOSS) PER COMMON SHARE $ (.0209) $ (.1347)
============= =============
Weighted average number of common shares 878,000 878,000
============= =============
<PAGE>
<PAGE> 30
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF CASH FLOWS
Three months ended March 31, 1999 and the Period from
July 9, 1997 (Date of Inception) to March 31, 1999
Three months July 9,
ended 1997 (Inception)
March 31, to March 31,
1999 1999
(Unaudited) (Unaudited)
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (19,415) $ (118,316)
Adjustments to reconcile net (loss) to
net cash provided by operating activities
Amortization 930 2,169
Increase in organization costs 0 (18,578)
------------- -------------
Net cash (used) by operating activities (18,485) (134,725)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Related party loans (25,000) (69,000)
Investment in limited liability company 0 (250,000)
Decrease in investment in limited liability
company 18,602 94,506
------------- -------------
Net cash provided (used) by investing
activities (6,398) (224,494)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 139,000 539,000
------------- -------------
Net cash provided by financing activities 139,000 539,000
------------- -------------
Increase in cash 114,117 179,781
Cash and cash equivalents - beginning of period 65,664 0
------------- -------------
Cash and cash equivalents - end of period $ 179,781 $ 179,781
============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Interest paid during the period $ 0 $ 0
============= =============
Income taxes paid during the period $ 100 $ 200
============= =============
<PAGE>
<PAGE> 31
PART III
ITEM 1. INDEX TO EXHIBITS
Copies of the following documents are included as exhibits to this Form
10SB pursuant to Item 601 of Regulation SB.
SEC
Exhibit Reference
No. No. Title of Document
- ------- --------- -----------------
1 3(i) Articles of Incorporation of the Registrant
2 3(ii) Bylaws of the Registrant
3 4.01 Specimen Stock Certificate
4 4.02 Operating Agreement for Powerball Industries, LLC
5 10.01 Exclusive License Agreement
6 10.02 Assignment of Exclusive License Agreement
7 27 Financial Data Schedule
ITEM 2. 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.
NATEX CORPORATION
DATED: APRIL 26, 1999 /S/ Robert K. Ipson, President
<PAGE> 1
Exhibit No. 3(i)
ARTICLES OF INCORPORATION
[RECEIVED
OF JUL 09 1997
Utah Div. of Corp.
NATEX CORPORATION & Comm. Code]
The undersigned, acting as Incorporator of a corporation under the Utah
Revised Business Corporation Act, adopts the following Articles of
Incorporation for such corporation:
ARTICLE I
The name of the corporation is Natex Corporation,
ARTICLE II
The corporation is organized to engage in any lawful acts, activities and
pursuits for which a corporation may be organized under the Utah Revised
Business Corporation Act.
ARTICLE III
The corporation is authorized to issue only one class of shares, to be
designated Common Stock. The total number of shares of Common Stock that this
corporation is authorized to issue is Twenty Five Million (25,000,000). The
Common Stock shall have $.001 par value per share. The Common Stock shall have
unlimited voting rights as provided in the Utah Revised Business Corporation
Act and shall be entitled to receive the net assets of the corporation upon
dissolution.
ARTICLE IV
The street address of the initial registered office of the corporation is
525 East 100 South, Fifth Floor, Salt Lake City, UT 84102. The name of the
corporation's initial registered agent at that office is A. O. Headman, Jr..
ARTICLE V
To the fullest extent permitted by the Utah Revised Business Corporation
Act or any other applicable law as now in effect or as it may hereafter be
amended, a director of this corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for any action taken or
any failure to take any action, as a director. Neither any amendment nor
appeal of this Article V, nor the adoption of any provision of these Articles
of Incorporation inconsistent with this Article V, shall eliminate or reduce
the effect of this Article V in respect of any matter occurring, or any cause
of action, suit or claim that, but for this Article V, would accrue or arise,
prior to such amendment, repeal or adoption of an inconsistent provision.
ARTICLE VI
The name and address of the incorporator is:
A. O. Headman, Jr.
525 East 100 South, Fifth Floor
Salt Lake City, UT 84102
DATED this 9th day of July 1997.
/s/A. O. Headman, Jr.
<PAGE> 2
The undersigned hereby accepts and acknowledges appointment as the
initial- registered agent of the corporation named above, and confirms that
the undersigned meets the requirements of Section 501 of the Utah Revised
Business Corporation Act.
/s/A. O. Headman, Jr.,Registered Agent
<PAGE> 1
Exhibit No. 3(ii)
BYLAWS OF NATEX CORPORATION
ARTICLE I. OFFICES
1.1. Business Office. The principal office of the corporation shall be
located at any place either within or outside the State of Utah as designated
in the Corporation's most current Annual Report filed with the Department of
Commerce of the State of Utah. The corporation may have such other offices,
either within or without the State of Utah as the Board of Directors may
designate or as the business of the corporation may require from time to time.
The corporation shall maintain at its principal office a copy of certain
records, as specified in 2.13 of Article II.
1.2. Registered Office. The registered office of the corporation,
required by 16-10a-501, Utah Code Ann., shall be located within the State of
Utah and may be, but need not be, identical with the principal office of the
corporation. The address of the registered office may be changed from time to
time.
ARTICLE II. SHAREHOLDERS
2.1. Annual Shareholder Meeting. The annual meeting of the shareholders
shall be held at such time and on such date as shall be fixed by the Board of
Directors, for the purpose of electing directors and for the transaction of
such other business as may come before the meeting.
2.2. Special Shareholder Meetings. Special meetings of the shareholders,
for any purpose or purposes, described in the notice of meeting, may be called
by the president, or by the Board of Directors or by the Chairman of the Board
of Directors, and shall be called by the President at the request of the
holders of not less than one-tenth of all outstanding votes of the corporation
entitled to be cast on any issue at the meeting.
Place of Shareholder Meeting. The Board of Directors may designate any
place, either within or outside of the State of Utah as the place of meeting
for any Annual or any Special Meeting of the Shareholders.
2.4. Notice of Shareholder Meeting.
A. Required Notice. Written notice stating the place, day and hour of any
annual or special shareholder meeting shall be delivered not less than 10 nor
more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Board of Directors, or
other persons calling the meeting, to each shareholder of record, entitled to
vote at such meeting and to any other shareholder entitled by the Utah Revised
Business Corporation Act or the Articles of Incorporation to receive notice of
the meeting. Notice shall be deemed to be effective at the earlier of: (1)
when deposited in the United States mail, addressed to the shareholder at his
address as it appears on the stock transfer books of the corporation, with
postage thereon prepaid; (2) on the date shown on the return receipt if sent
by registered or certified mail, return receipt requested, and the receipt is
signed by or on behalf of the addressee; (3) when received; or (4) 5 days
after deposit in the United States mail, if mailed postpaid and correctly
addressed to an address other than that shown in the corporation's current
record of shareholders.
B. Adjourned Meeting. If any shareholder meeting is adjourned to a
different date, time, or place, notice need not be given of the new date,
time, and place, if the new date, time, and place is announced at the meeting
<PAGE> 2
before adjournment and such new date is within thirty (30) days from the
originally scheduled meeting date. If a new record date for the adjourned
meeting is, or must be fixed then notice must be given pursuant to the
requirements of paragraph (a) of this 2.4, to those persons who are
shareholders as of the new record date.
C. Waiver of Notice. The shareholder may waive notice of the meeting (or
any notice required by the Act, Articles of Incorporation, or Bylaws), by a
writing signed by the shareholder entitled to the notice, which is delivered
to the corporation (either before or after the date and time stated in the
notice) for inclusion in the minutes or filing with the corporate records.
A shareholder's attendance at a meeting:
1. waives objection to lack of notice or defective notice of the
meeting, unless the shareholder at the beginning of the meeting objects to
holding the meeting or transacting business at the meeting;
2. waives objection to consideration of a particular matter at the
meeting that is not within the purpose or purposes described in the meeting
notice, unless the shareholder objects to considering the matter when it is
presented.
D. Contents of Notice. The notice of each special shareholder meeting
shall include a description of the purpose or purposes for which the meeting
is called. Except as provided in this 2.4(d), or as provided in the
corporation's Articles of Incorporation, or otherwise in the Utah Revised
Business Corporation Act, the notice of an Annual Shareholder Meeting need not
include a description of the purpose or purposes for which the meeting is
called.
If a purpose of any shareholder meeting is to consider either: (1) a
proposed amendment to the Articles of Incorporation (including any Restated
Articles requiring shareholder approval); (2) a plan of merger or share
exchange; (3) the sale, lease, exchange or other disposition of all, or
substantially all of the corporation's property; (4) the dissolution of the
corporation; or (5) the removal of a director, the notice must so state and be
accompanied by respectively a copy or summary of the: (1) Articles of
Amendment; (2) Plan of Merger or Share Exchange; or (3) transaction for
disposition of all the corporation's property. If the proposed corporate
action created dissenters' rights, the notice must state that shareholders
are, or may be entitled to assert dissenters' rights, and must be accompanied
by a copy of Part 13 of Utah Revised Business Corporation Act. If the
corporation issues, or authorizes the issuance of shares for promissory notes
or for promises to render services in the future, the corporation shall report
in writing to all the shareholders the number of shares authorized or issued,
and the consideration received with or before the notice of the next
shareholder meeting. Likewise, if the corporation indemnifies or advances
expenses to a director, this shall be reported to all the shareholders with or
before notice of the next shareholders' meeting.
2.5. Fixing of Record Date. For the purpose of determining shareholders
of any voting group entitled to notice of or to vote at any meeting of
shareholders, or shareholders entitled to receive payment of any distribution
or dividend, or in order to make a determination of shareholders for any other
proper purpose, the Board of Directors may fix in advance a date as the record
date. Such record date shall not be more than 70 days prior to the date on
which the meeting or the particular action, requiring such determination of
<PAGE> 3
shareholders is to be taken. If no record date is so fixed by the Board for
the determination of shareholders entitled to notice of, or to vote at a
meeting of shareholders, or shareholders entitled to receive a share dividend
or distribution, the record date for determination of such shareholders shall
be at the close of business on:
A. with respect to an Annual Shareholder Meeting or any Special
Shareholder Meeting called by the Board of Directors or any person
specifically authorized by the Board or these Bylaws to call a meeting, the
day before the first notice is delivered to shareholders;
B. with respect to a Special Shareholders' Meeting demanded by the
shareholders, the date the first shareholder signs the demand;
C. with respect to the payment of a share dividend, the date the Board
authorizes the share dividend:
D. with respect to actions taken in writing without a meeting (pursuant
to Article II, 2.11), the date the first shareholder signs a consent;
E. and with respect to a distribution to shareholders, (other than one
involving a repurchase or reacquisition of shares), the date the Board
authorizes the distribution.
When a determination of shareholders entitled to vote at any meeting of
shareholders has been made as provided in this section, such determination
shall apply to any adjournment thereof unless the Board of Directors fixes a
new record date which it must do if the meeting is adjourned to a date more
than 120 days after the date fixed for the original meeting.
2.6. Shareholder List. The officer or agent having charge of the stock
transfer books for shares of the corporation shall make a complete record of
the shareholders entitled to vote at each meeting of shareholders thereof,
arranged in alphabetical order, with the address of and the number of shares
held by each. The list must be arranged by voting group (if such exists, see
Art. II. 2.7) and within each voting group by class or series of shares. The
shareholder list must be available for inspection by any shareholder,
beginning two business days after notice of the meeting is given for which the
list was prepared and continuing through the meeting. The list shall be
available in the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting is to be held. A shareholder,
his agent, or attorney is entitled on written demand to inspect and, subject
to the requirements of 2.13 of this Article II, to copy the list during
regular business hours and at his expense, during the period it is available
for inspection. The corporation shall maintain the shareholder list in written
form or in another form capable of conversion into written form within a
reasonable time.
2.7. Shareholder Quorum and Voting Requirements. If the Articles of
Incorporation or the Utah Revised Business Corporation Act provides for voting
by a single voting group on a matter, action on that matter is taken when
voted upon by that voting group.
Shares entitled to vote as a separate voting group may take action on a
matter at a meeting only if a quorum of those shares exists with respect to
that matter. Unless the Articles of Incorporation, the Bylaws, or the Utah
Revised Business Corporation Act provide otherwise, a majority of the votes
entitled to be cast on the matter by the voting group constitutes a quorum of
that voting group for action on that matter.
<PAGE> 4
If the Articles of Incorporation or the Utah Revised Business Corporation
Act provide for voting by two or more voting groups on a matter, action on
that matter is taken only when voted upon by each of those voting groups
counted separately. Action may be taken by one voting group on a matter even
though no action is taken by another voting group entitled to vote on the
matter.
Once a share is represented for any purpose at a meeting, it is deemed
present for quorum purposes for the remainder of the meeting and for any
adjournment of that meeting unless a new record date is or must be set for
that adjourned meeting.
If a quorum exists, action on a matter (other than the election of
directors) by a voting group is approved if the votes cast within the voting
group favoring the action exceed the votes cast opposing the action.
2.8. Proxies. At all meetings of shareholders, a shareholder may vote in
person, or by a proxy which is executed in writing by the shareholder or which
is executed by his duly authorized attorney-in-fact. Such proxy shall be filed
with the Secretary of the corporation or other person authorized to tabulate
votes before or at the time of the meeting. No proxy shall be valid after 11
months from the date of its execution unless otherwise provided in the proxy.
A shareholder may appoint a proxy by transmitting or authorizing the
transmission of a telegram, teletype, telecopy or other electronic
transmission.
2.9. Voting of Shares. Unless otherwise provided in the Articles of
Incorporation, each outstanding share shall be entitled to one vote upon each
matter submitted to a vote at a meeting of shareholders.
Except as provided by specific court order, no shares held by another
corporation, if a majority of the shares entitled to vote for the election of
directors of such other corporation are held by the corporation, shall be
voted at any meeting or counted in determining the total number of outstanding
shares at any given time for purposes of any meeting. Provided, however, the
prior sentence shall not limit the power of the corporation to vote any
shares, including its own shares, held by it in a fiduciary capacity.
Redeemable shares are not entitled to vote after notice of redemption is
mailed to the holders and a sum sufficient to redeem the shares has been
deposited with a bank, trust company, or other financial institution under an
irrevocable obligation to pay the holders the redemption price on surrender of
the shares.
2.10. Corporation's Acceptance of Votes.
A. If the name signed on a vote, consent, waiver, or proxy appointment
corresponds to the name of a shareholder, the corporation if acting in good
faith, is entitled to accept the vote, consent, waiver, or proxy appointment
and give it effect as the act of the shareholder.
B. If the name signed on a vote, consent, waiver, or proxy appointment
does not correspond to the name of its shareholder, the corporation, if acting
in good faith, is nevertheless entitled to accept the vote, consent, waiver,
or proxy appointment and give it effect as the act of the shareholder if:
1. the shareholder is an entity and the name signed purports to be
that of an officer or agent of the entity;
<PAGE> 5
2.the name signed purports to be that of an administrator,
executor, guardian, or conservator representing the shareholder and, if the
corporation requests, evidence of fiduciary status acceptable to the
corporation has been presented with respect to the vote, consent, waiver, or
proxy appointment;
3. the name signed purports to be that of a receiver or trustee in
bankruptcy of the shareholder and, if the corporation requests, evidence of
this status acceptable to the corporation has been presented with respect to
the vote, consent, waiver, or proxy appointment;
4. the name signed purports to be that of a pledgee, beneficial
owner, or attorney-in-fact of the shareholder and, if the corporation
requests, evidence acceptable to the corporation of the signatory's authority
to sign for the shareholder has been presented with respect to the vote,
consent, waiver, or proxy appointment; or
5. two or more persons are the shareholder as co-tenants or
fiduciaries and the name signed purports to be the name of at lease one of the
co-owners and the person signing appears to be acting on behalf of all the
co-owners.
C. The corporation is entitled to reject a vote, consent, waiver, or
proxy appointment if the secretary or other officer or agent authorized to
tabulate votes, acting in good faith, has reasonable basis for doubt about the
validity of the signature on it or about the signatory's authority to sign for
the shareholder.
D. The corporation and its officer or agent who accepts or rejects a
vote, consent, waiver, or proxy appointment in good faith and in accordance
with the standards of this section, are not liable in damages to the
shareholder for the consequences of the acceptance or rejection.
E. Corporate action based on the acceptance or rejection of a vote,
consent, waiver, or proxy appointment under this section is valid unless a
court of competent jurisdiction determines otherwise.
2.11. Informal Action by Shareholders. Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a meeting if
one or more consents in writing, setting forth the action, shall be signed by
the holders of outstanding shares having not less than the minimum number of
votes that would be necessary to authorize or take the action at a meeting at
which all shares entitled to vote thereon were present and voted. If written
consents of less than all the shareholders have been obtained, notice of such
shareholder approval by written consent shall be given at least ten (10) days
before the consummation of the action authorized by such written consent to
those shareholders entitled to vote who have not consented in writing and to
any nonvoting shareholders. Such notice shall contain or be accompanied by the
same material that would have been required if a formal meeting had been
called to consider the action. A consent signed under this section has the
effect of a vote at a meeting and may be described as such in any document.
2.12. Voting for Directors. Unless otherwise provided in the Articles of
Incorporation, directors are elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present. Shareholders do not have a right to cumulate their votes.
2.13. Shareholders' Rights to Inspect Corporate Records.
A. Minutes and Accounting Records. The corporation shall keep as
<PAGE> 6
permanent records minutes of all meetings of its shareholders and Board of
Directors, a record of all actions taken by the shareholders or Board of
Directors without a meeting, and a record of all actions taken by a committee
of the Board of Directors. The corporation shall maintain appropriate
accounting records.
B. Absolute Inspection Rights of Records Required at Principal Of fice.
If he gives the corporation written notice of his demand at least five
business days before the date on which he wishes to inspect and copy, a
shareholder (or his agent or attorney) has the right to inspect and copy,
during regular business hours any of the following records, all of which the
corporation is required to keep at its principal office:
1. its Articles or Restated Articles of Incorporation and all
amendments to them currently in effect;
2. its Bylaws or Restated Bylaws and all amendments to them
currently in effect;
3. resolutions adopted by its Board of Directors creating one or
more classes or series of shares, and fixing their relative rights,
preferences, and limitations, if shares issued pursuant to those resolutions
are outstanding;
4. the minutes of all shareholders' meetings, and records of all
action taken by shareholders without a meeting, for the past three years;
5. all written communications to shareholders generally within the
past three years, including the financial statements furnished for the past
three years to the shareholders;
6. a list of the names and business addresses of its current
directors and officers; and
7. its most recent Annual Report delivered to the Department of
Commerce.
C. Conditional Inspection. In addition, if he gives the corporation a
written demand made in good faith and for a proper purpose at least five
business days before the date on which he wishes to inspect and copy, in which
he describes with reasonable particularity his purpose and the records he
desires to inspect, and the records are directly connected with his purpose, a
shareholder of the corporation (or his agent or attorney) is entitled to
inspect and copy, during regular business hours at a reasonable location
specified by the corporation, any of the following records of the corporation:
1. excerpts from minutes of any meeting of the Board of Directors,
records of any action of the Board of Directors or a committee of the Board of
Directors on behalf of the corporation, minutes of any meeting of the
shareholders, and records of action taken by the shareholders or Board of
Directors and without a meeting, to the extent not subject to inspection under
paragraph A of this 2.13.
2. accounting records of the corporation; and
3. the record of shareholders (compiled no earlier than the date of
the shareholder's demand).
D. Copy Costs. The right to copy records includes, if reasonable, the
<PAGE> 7
right to receive copies made by photographic, xerographic, or other means. The
corporation may impose a reasonable charge, covering the costs of labor and
material, for copies of any documents provided to the shareholder. The charge
may not exceed the estimated cost of production or reproduction of the
records.
E. Shareholder Includes Beneficial Owner. For purposes of this 2.13, the
terms "shareholder" shall include a beneficial owner whose shares are held in
a voting trust or by a nominee on his behalf.
2.14. Financial Statements Shall Be Furnished to the Shareholders. Upon
the written request of any shareholder, the corporation shall mail to him its
most recent annual or quarterly financial statements.
2.15. Dissenters' Rights. Each shareholder shall have the right to
dissent from and obtain payment for his shares when so authorized by the Utah
Revised Business Corporation Act, Articles of Incorporation, these Bylaws, or
in a resolution of the Board of Directors.
ARTICLE III. BOARD OF DIRECTORS
3.1. General Powers. All corporate powers shall be exercised by or under
the authority of, and the business and affairs of the corporation shall be
managed under the direction of the Board of Directors.
3.2. Number Tenure. and Qualifications of Directors. The number of
directors which shall constitute the whole Board of Directors shall be
determined by resolution of the stockholders or the resolution of the Board of
Directors, but in no event shall be less than three, provided, however, that
in the event the number of shareholders of the Company is less than three the
number of directors may be less than three but must be equal to or more than
the number of shareholders. The number of directors may be increased by
resolution of the shareholders or the Board of Directors. The number of
directors may be decreased at any time either by the shareholders or by a
majority of the directors then in of fice, but only to eliminate vacancies
existing by reason of the death, resignation, removal or expiration of the
term of one or more directors. Each director shall hold office until the next
annual meeting of shareholders or until removed. However, if his term expires,
he shall continue to serve until his successor shall have been elected and
qualified or until there is a decrease in the number of directors. Directors
need not be residents of the State of Utah or shareholders of the corporation.
3.3. Regular Meetings of the Board of Directors. A regular meeting of the
Board of Directors shall be held without other notice than this bylaw
immediately after, and at the same place as, the Annual Meeting of
Shareholders. The Board of Directors may provide, by resolution, the
time and place for the holding of addition regular meetings without other
notice than such resolution. Any such regular meeting may be held by
telephone.
3.4. Special Meetings of the Board of Directors. Special meetings of the
Board of Directors may be called by or at the request of the President or any
one director. The person authorized to call Special Meetings of the Board of
Directors may fix any place, (but only within the county where this
corporation has its principal office) as the place for holding any Special
Meeting of the Board of Directors, or such meeting may be held by telephone.
3.5. Notice of and Waiver of Notice for. Special Director Meeting. Notice
of any special director meeting shall be given at least two days previously
<PAGE> 8
thereto either orally or in writing. If mailed, notice of any director meeting
shall be deemed to be effective at the earlier of: (1) when received; (2) five
days after deposited in the United States mail, addressed to the director's
business of fice, with postage thereon prepaid; or (3) the date shown on the
return receipt if sent by registered or certified mail, return receipt
requested, and the receipt is signed by or on behalf of the director. Any
director may waive notice of any meeting. Except as provided in the next
sentence, the waiver must be in writing, signed by the director entitled to
the notice, and filed with the minutes or corporate records. 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 and at the beginning of the meeting (or
promptly upon his arrival) objects to holding the meeting or transacting
business at the meeting, and does not thereafter vote for or abstain to action
taken at the meeting. Unless required by the Articles of Incorporation,
neither the business to be transacted at, nor the purpose of, any Special
Meeting of the Board of Directors need be specified in the notice or waiver of
notice of such meeting.
3.6. Director Quorum. A majority of the whole Board of Directors shall
constitute a quorum at all meetings of the Board of Directors.
3.7. Directors Manner of Acting. The act of the majority of the directors
present at a meeting at which a quorum is present when the vote is taken shall
be the act of the Board of Directors.
Unless the Articles of Incorporation provide otherwise, any or all
directors may participate in a regular or special meeting by, or conduct the
meeting through the use of, any means of communication by which all directors
participating may hear each other during the meeting. A director participating
in a meeting by this means is deemed to be present in person at the meeting.
A director who is present at a meeting of the Board of Directors or a
committee of the Board of Directors when corporate action is taken is deemed
to have assented to the action taken unless: (1) he objects at the beginning
of the meeting (or promptly upon his arrival) to holding it or transacting
business at the meeting; or (2) his dissent or abstention from the action
taken is entered in the minutes of the meeting; or (3) he delivers written
notice of his dissent or abstention to the presiding officer of the meeting
before its adjournment or to the corporation immediately after adjournment of
the meeting. The right of dissent or abstention is not available to a director
who votes in favor of the action taken.
3.8. Director Action Without a Meeting. Any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee of
the Board of Directors may be taken without a meeting, if all members of the
Board of Directors or committee, as the case may be, consent to the action in
writing, and the written consents are filed with the minutes of proceedings of
the Board of Directors or committee.
3.9. Removal of Directors. The shareholders may remove one or more
directors at a meeting called for that purpose if notice has been given that a
purpose of the meeting is such removal. The removal may be with or without
cause. A director may be removed only if the number of votes cast to remove
him exceeds the number of votes cast not to remove him.
3.10. Board of Director Vacancies. If a vacancy occurs on the Board of
Directors, including a vacancy resulting from an increase in the number of
directors:
<PAGE> 9
A. the shareholders may fill the vacancy;
B. the Board of Directors may fill the vacancy; or
C. if the directors remaining in of fice constitute fewer than a quorum
of the Board, they may fill the vacancy by the affirmative vote of a majority
of all the directors remaining in office.
A vacancy that will occur at a specific later date (by reason of a
resignation effective at a later date) may be filled before the vacancy occurs
but the new director may not take office until the vacancy occurs.
The term of a director elected to fill a vacancy expires at the next
shareholders' meeting at which directors are elected. However, if his term
expires, he shall continue to serve until his successor is elected and
qualifies or until there is a decrease in the number of directors.
3.11. Director Compensation. Unless otherwise provided by resolution of
the Board of Directors, each director may be paid his expenses, if any, of
attendance at each meeting of the Board of Directors, and may be paid a stated
salary as director or a fixed sum for attendance at each meeting of the Board
of Directors or both. No such payment shall preclude any director from serving
the corporation in any capacity and receiving compensation therefor.
3.12. Director Committees.
A. Creation of Committees. The Board of Directors may create one or
more committees and appoint members of the Board of Directors to serve on
them. Each committee must have two or more members, who serve at the pleasure
of the Board of Directors.
B. Selection of Members. The creation of a committee and appointment of
members to it must be approved by a majority of all the directors in office
when the action is taken.
C. Required Procedures. Sections 3.4, 3.5, 3.6, 3.7, and 3.8 of this
Article III, which govern meetings, action without meetings, notice and waiver
of notice, quorum and voting requirements' of the Board of Directors, apply to
committees and their members.
Authority. Each committee may exercise those aspects of the authority of
the Board of Directors which the Board of Directors confers upon such
committee in the resolution creating the committee. Provided, however, a
committee may not:
1. authorize distributions;
2. approve or propose to shareholders action that the Utah Revised
Business Corporation Act requires to be approved by shareholders;
3. fill vacancies on the Board of Directors or on any of its
committees;
4. amend the Articles of Incorporation pursuant to the authority of
directors to do so granted by 16-10a-1002 of the Utah Revised Business
Corporation Act;
5. adopt, amend, or repeal Bylaws;
<PAGE> 10
6. approve a plan of merger not requiring shareholder approval;
7. authorize or approve reacquisition of shares, except according
to a formula or method prescribed by the Board of Directors; or
8. authorize or approve the issuance or sale or contract for sale
of shares or determine the designation and relative rights, preferences, and
limitations of a class or series of shares, except that the board of directors
may authorize a committee (or a senior executive officer of the corporation)
to do so within limits specifically prescribed by the Board of Directors.
ARTICLE IV. OFFICERS
4.1. Number of Officers. The officers of the corporation shall be a
President, a Secretary, and a Treasurer, each of whom shall be appointed by
the Board of Directors. Such other of ficers and assistant officers as may be
deemed necessary, including any vice-presidents, may be appointed by the Board
of Directors. If specifically authorized by the Board of Directors, an of
ficer may appoint one or more officers or assistant officers. The same
individual may simultaneously hold more than one office in the corporation.
4.2. Appointment and Term of Office. The officers of the corporation
shall be appointed by the Board of Directors for a term as determined by the
Board of Directors. (The designation of a specified term grants to the officer
no contract rights, and the Board can remove the officer at any time prior to
the termination of such term.) If no term is specified, an officer shall hold
office until he resigns, dies, or until he is removed in the manner provided
in 4.3 of this Article IV.
4.3. Removal of Officers. Any officer or agent may be removed by the
Board of Directors at any time, with or without cause. Such removal shall be
without prejudice to the contract rights, if any, of the person so removed.
Appointment of an officer or agent shall not of itself create contract rights.
4.4. President. The President shall be the principal executive of ficer
of the corporation and subject to the control of the Board of 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
shareholders and of the Board of Directors. He may sign, with the Secretary or
any other proper officer of the corporation authorized by the Board of
Directors, certificates for shares of the corporation and deeds, mortgages,
bonds, contracts, or other instruments which the Board of Directors has
authorized to be executed, except in cases where the signing and execution
thereof shall be expressly delegated by the Board of Directors or by these
Bylaws to some other officer or agent of the corporation, or shall be required
by law 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 Board of Directors from time to time.
4.5. The Vice-Presidents. If appointed, in the absence of the President
or in the event of his death, inability or refusal to act, the Vice-President
(or in the event there be more than one Vice- the Vice-Presidents in the order
designated at the time of their election, or in the absence of any
designation, then in the order of their appointment) shall perform the duties
of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President. (If there is no
Vice-President, then the Treasurer shall perform such duties of the
President.) Any Vice-President may sign, with the Secretary or an Assistant
Secretary, certificates for shares of the corporation the issuance of which
<PAGE> 11
have been authorized by resolution of the Board of Directors; and shall
perform such other duties as from time to time may be assigned to him by the
President or by the Board of Directors.
4.6. The Secretary. The Secretary shall: (a) keep the minutes of the
proceedings of the shareholders and of the Board of Directors in one or more
minute books provided for that purpose; (b) see that all notices are duly
given in accordance with the provisions of these Bylaws or as required by law;
(c) be custodian of the corporate records and of any seal of the corporation
and if there is a seal of the corporation, see that it is affixed to all
documents the execution of which on behalf of the corporation under its seal
is duly authorized; (d) when requested or required, authenticate any records
of the corporation; (e) keep a register of the post office address of each
shareholder which shall be furnished to the Secretary by such shareholder; (f)
sign with the President, or a Vice-President, certificates for shares of the
corporation, the issuance of which shall have been authorized by resolution of
the Board of Directors; (g) have general charge of the stock transfer books of
the corporation; and (h) 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 Board of Directors.
4.7. The Treasurer. The Treasurer shall: (a) have charge and custody of
and be responsible for all funds and securities of the corporation; (b)
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 depositaries as shall be
selected by the Board of Directors; and (c) in general perform all of the
duties incident to the of fice of Treasurer and such other duties as from time
to time may be assigned to him by the President or by the Board of Directors.
If required by the Board of 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 Board of Directors shall determine.
4.8. Assistant Secretaries and Assistant Treasurers. The Assistant
Secretaries, when authorized by the Board of Directors, may sign with the
President or a Vice-President certificates for shares of the corporation the
issuance of which shall have been authorized by a resolution of the Board of
Directors. The Assistant Treasurers shall respectively, if required the Board
of Directors, give bonds for the faithful discharge of their duties in such
sums and with such sureties as the Board of Directors shall determine. The
Assistant Secretaries and Assistant Treasurers, in general, shall perform such
duties as shall be assigned to them by the Secretary or the Treasurer,
respectively, or by the President or the Board of Directors.
4.9. Salaries. The salaries of the of ficers shall be fixed from time to
time by the Board of Directors.
ARTICLE V. INDEMNIFICATION OF DIRECTORS, OFFICERS, AGENTS AND EMPLOYEES
5.1. Indemnification of Directors. The corporation shall indemnify any
individual made a party to a proceeding because he is or was a director of the
corporation, against liability incurred in the proceeding, but only if the
corporation has authorized the payment in accordance with 16- of the Utah
Revised Business Corporation Act and a determination has been made in
accordance with the procedures set forth in such 16-lOa-906 that the director
met the standards of conduct in paragraphs (A), (B) and (C) below.
A. Standard of Conduct.
<PAGE> 12
The individual shall demonstrate that:
1. he conducted himself in good faith; and
2. he reasonably believed that his conduct was in, or not opposed
to, the corporation's best interests;
3. in the case of any criminal proceeding, he had no reasonable
cause to believe his conduct was unlawful.
B. No Indemnification Permitted in Certain Circumstances. The
Corporation shall not indemnify a director under this 5.1 of Article V:
1. in connection with a proceeding by or in the right of the
corporation in which the director was adjudged liable to the corporation; or
2. in connection with any other proceeding charging improper
personal benefit to him, whether or not involving action in his official
capacity, in which he was adjudged liable on the basis that personal benefit
was improperly received by him.
C. Indemnification in Derivative Actions Limited. Indemnification
permitted under this 5.1 of Article V in connection with a proceeding by or
in the right of the corporation is limited to reasonable expenses incurred in
connection with the proceeding.
5.2. Advance Expenses for Directors. If a determination is made,
following the procedures of 16-10a-906 of the Utah Revised Business
Corporation Act that the director has met the following requirements; and if
an authorization of payment is made, following the procedures and standards
set forth in 16-10a-906, then unless otherwise provided in the Articles of
Incorporation, the corporation shall pay for or reimburse the reasonable
expenses incurred by a director who is a party to a proceeding in advance of
final disposition of the proceeding if:
A. the director furnishes the corporation a written affirmation of
his good faith belief that he has met the standard of conduct described in
5.1 of this Article V;
B. the director furnishes the corporation a written undertaking,
executed personally or on his belief, to repay the advance if it is ultimately
determined that he did not meet the standard of conduct (which undertaking
must be in unlimited general obligation of the director but need not be
secured and may be accepted without reference to financial ability to make
repayment); and
C. a determination is made that the facts then known to those
making the determination would not preclude indemnification under 5.1 of this
Article V or under the Utah Revised Business Corporation Act.
5.3. Indemnification of Officers. Agents and Employees Who Are Not
Directors. Unless otherwise provided in the Articles of Incorporation, the
Board of Directors may indemnify and advance expenses to any officer,
employee, or agent of the corporation, who is not a director of the
corporation, to any extent consistent with public policy, as determined by the
general or specific action of the Board of Directors.
<PAGE> 13
ARTICLE VI. CERTIFICATE FOR SHARES AND THEIR TRANSFER
6.1. Certificates for Shares.
A. Content. Certificates representing shares of the corporation shall at
minimum, state on their face the name of the corporation and that it is formed
under the laws of Utah; the name of the person to whom issued; and the number
and class of shares and the designation of the series, if any, the certificate
represents; and be in such form as determined by the Board of Directors. Such
certificates shall be signed (either manually or by facsimile) by the
President or a Vice-President and by the Secretary or an Assistant Secretary
and may be sealed with a corporate seal or a facsimile thereof. Each
certificate for shares shall be consecutively numbered or otherwise
identified.
B. Legend as to Class or Series. If the corporation is authorized to
issue different classes of shares or different series within a class, the
designation, relative rights, preferences, and limitations applicable to each
class and the variations in rights, preferences, and limitations determined
for each series (and the authority of the Board of Directors to determine
variations for future series) must be summarized on the front or back of each
certificate. Alternatively, each certificate may state conspicuously on its
front or back that the corporation will furnish the shareholder this
information on request in writing and without charge.
C. Shareholder List. The name and address of the person to whom the
shares represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation.
D. Transferring Shares. 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 Board of Directors may prescribe.
6.2. Shares Without Certificates.
A. Issuing Shares Without Certificates. Unless the Articles of
Incorporation provide otherwise, the Board of Directors may authorize the
issue of some or all the shares of any or all of its classes or series without
certificates. The authorization does not affect shares already represented by
certificates until they are surrendered to the corporation.
B. Information Statement Required. Within a reasonable time after the
issue or transfer of shares without certificates, the corporation shall send
the shareholder a written statement containing at minimum:
1. the name of the issuing corporation and that it is organized
under the law of the State of Utah;
2. the name of the person to whom issued; and
3. the number and class of shares and the designation of the series,
if any, of the issued shares.
If the corporation is authorized to issue different classes of shares or
different series within a class, the written statement shall describe the
designations, relative rights, preferences, and limitations applicable to each
<PAGE> 14
class and the variation in rights, preferences, and limitations determined for
each series (and the authority of the Board of Directors to determine
variations for future series).
6.3. Registration of the Transfer of Shares. Registration of the transfer
of shares of the corporation shall be made only on the stock transfer books of
the corporation. In order to register a transfer, the record owner shall
surrender the shares to the corporation for cancellation, properly endorsed by
the appropriate person or persons with reasonable assurances that the
endorsements are genuine and effective. Unless the corporation has established
a procedure by which a beneficial owner of shares held by a nominee is to be
recognized by the corporation as the owner, the person in whose name the
shares stand on the books of the corporation shall be deemed by the
corporation to be the owner thereof for all purposes.
6.4. Restrictions on Transfer of Shares Permitted. The Board of Directors
(or shareholders) may impose restrictions on the transfer or registration of
transfer of shares (including any security convertible into, or carrying a
right to subscribe for or acquire shares). A restriction does not affect
shares issued before the restriction was adopted unless the holders of the
shares are parties to the restriction agreement or voted in favor of the
restriction.
A restriction on the transfer or registration of transfer of shares may
be authorized:
A. to maintain the corporation's status when it is dependent on the
number or identity of its shareholders'
B. to preserve exemptions under federal or state securities law;
C. for any other reasonable purpose.
A restriction on the transfer or registration of transfer or shares may:
A. obligate the shareholder first to offer the corporation or other
persons (separately, consecutively, or simultaneously) an opportunity to
acquire the restricted shares;
B. obligate the corporation or other persons (separately,
consecutively, or simultaneously) to acquire the restricted shares;
C. require the corporation, the holders or any class of its shares,
or another person to approve the transfer of the restricted shares, if the
requirement is not manifestly unreasonable;
D. prohibit the transfer of the restricted shares to designated
persons or classes of persons, if the prohibition is not manifestly
unreasonable.
A restriction on the transfer or resignation of transfer of shares is
valid and enforceable against the holder or a transferee of the holder if the
restriction is authorized by this section and its existence is noted
conspicuously on the front or back of the certificate or is contained in the
information statement required by 6.2 of this Article VI with regard to
shares issued without certificates. Unless so noted, a restriction is not
enforceable against a person without knowledge of the restriction.
6.5. Acquisition of Shares. The corporation may acquire its own shares
<PAGE> 15
and unless otherwise provided in the Articles of Incorporation, the shares so
acquired constitute authorized but unissued shares.
ARTICLE VII. DISTRIBUTIONS
7.1. Distributions. The Board of Directors may authorize, and the
corporation may make, distributions (including dividends on its outstanding
shares) in the manner and upon the terms and conditions provided by law and in
the corporation's Articles of Incorporation.
ARTICLE VIII. GENERAL PROVISIONS
8.1. Corporate Seal. The Board of Directors may provide for a corporate
seal which may be circular in form and have inscribed thereon any designation
including the name of the corporation, Utah as the state of incorporation, and
the words "Corporate Seal". The corporation shall not be required to have a
corporate seal.
8.2. Fiscal Year. The fiscal year of the Corporation shall be determined
by the Board of
8.3. Evidence of Authority A certificate by the Secretary, or an
Assistant Secretary, or a temporary secretary as to any action taken by the
shareholders, directors, a committee or any of ricer of representative of the
corporation shall as to all persons who rely on the certificate in good faith
be conclusive evidence of such action.
8.4. Articles of Incorporation. All references in these Bylaws to the
Articles of Incorporation shall be deemed to refer to the Articles of
Incorporation of the Corporation, as amended and in effect from time to time.
8.5. Pronouns. All pronouns used in these Bylaws shall be deemed to refer
to the masculine, feminine or neuter, singular or plural, as the identity of
the person or persons may require.
ARTICLE IX. EMERGENCY BYLAWS
9.1. Emergency Bylaws. Unless the Articles of Incorporation provide
otherwise, the following provisions of this Article IX, 9.1 "Emergency
Bylaws" shall be effective during an emergency which is defined as when a
quorum of the corporation's directors cannot be readily assembled because of
some catastrophic event. During such emergency:
A. Notice of Board Meetings. Any one member of the Board of Directors or
any one of the following officers; President, any Vice-President, Secretary,
or Treasurer, may call a meeting of the Board of Directors. Notice of such
meeting need be given only to those directors whom it is practicable to reach,
and may be given in any practical manner, including by publication and radio.
Such notice shall be given at least six hours prior to commencement of the
meeting.
B. Temporary Directors and Quorum. One or more officers of the
corporation present at the emergency board meeting, may be deemed to de
directors for the meeting, in order of rank and within the same rank in order
of seniority as is necessary to achieve a quorum. In the event that less than
quorum (as determined by Article III, 3.6) of the directors are present
(including any officers who are to serve as directors for the meeting), those
directors present (including the officers serving as directors) shall
constitute a quorum.
<PAGE> 16
C. Actions Permitted to Be Taken. The board as constituted in paragraph
(b), and after notice as set forth in paragraph (a) may:
1. Officers' Powers. Prescribe emergency powers to any officer of
the corporation;
2. Delegation of Any Power. Delegate to any officer or director,
any of the powers of the Board of Directors;
3. Lines of Succession. Designate lines of succession of officers
and agents, the event that any of them are unable to discharge their duties;
4. Relocate Principal Place of Business. Relocate the principal
place of business, or designate successive or simultaneous principal places of
business;
5. All Other Action. Take any other action, convenient, helpful,
or necessary to carry on the business of the corporation.
ARTICLE X. AMENDMENTS
10.1. Amendments. The corporation's Board of Directors may amend or
repeal the corporation's Bylaws unless:
A. the Articles of Incorporation or the Utah Revised Business Corporation
Act reserve this power exclusively to the shareholders in whole or part; or
B. the shareholders in adopting, amending or repealing a particular Bylaw
provide expressly that the Board of Directors may not amend or repeal that
Bylaw; or
The corporation's shareholders may amend or repeal the corporation's
Bylaws even though the Bylaws may also be amended or repealed by its Board of
Directors.
ADOPTED THIS 1st day of August, 1997.
/s/Robert K. Ipson
ATTEST
/s/Phillip McStotts, Secretary
<PAGE>
<PAGE> 17
CERTIFICATE OF SECRETARY
KNOW ALL MEN BY THESE PRESENTS: That the undersigned does hereby certify
that the undersigned is the secretary of the aforesaid Corporation, duly
organized and existing under and by virtue of the laws of the State of Utah;
that the above and foregoing Bylaws of said Corporation were duly and
regularly adopted as such by the board of directors of said Corporation.
DATED this 1st day of August, 1997.
/s/Phillip McStotts, Secretary
<PAGE>
Exhibit No. 4.01 - SPECIMEN STOCK CERTIFICATE
INCORPORATED UNDER THE LAWS
UTAH
No. XXXX Shares XXX
NATEX CORPORATION
COMMON STOCK
THIS CERTIFIES THAT [SPECIMEN] IS THE OWNER OF
***VOID*** Shares of $.001 PAR VALUE each of the Capital Stock of
NATEX CORPORATION
transferable on the books of the Corporation by the holder hereof in person or
by Attorney upon surrender of this Certificate properly endorsed.
In Witness Whereof, the said Corporation has caused this Certificate to
be signed by its duly authorized officers and to be sealed with the Seal of
the Corporation
this ___________ day of ___________ A.D. 19___
[Corporate Seal]
/s/------VOID--------------- /s/-----VOID---------------
Secretary President
Shares $.001 PAR VALUE Each
<PAGE> 1
Exhibit No. 4.02
OPERATING AGREEMENT
OF
POWERBALL TECHNOLOGIES, L.L.C.
This Operating Agreement ("Agreement") is made and entered into as of
this XX day of XXX, 1997, by and between Powerball Industries, Inc., a Utah
corporation, and Natex Corporation, a Utah corporation. The parties to this
Agreement are sometimes referred to herein individually as a "Member" and
collectively as "Members."
EXPLANATORY STATEMENT
The parties hereto have agreed to organize a limited liability company in
accordance with the terms and subject to the conditions set forth in this
Agreement.
NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE I
Defined Terms
The following capitalized terms shall have the respective meanings
specified in this Article I. Capitalized terms not defined in this Agreement
shall have the meaning specified in the Act.
"Act" means the Utah Limited Liability Company Act, as amended from time
to time.
"Adjusted Capital Account Deficit" means, with respect to any Interest
Holder, the deficit balance, if any, in the Interest Holder's Capital Account
as of the end of the relevant taxable year, after giving effect to the
following adjustments:
(i) the deficit shall be decreased by the amounts to which the
Interest Holder is obligated to restore pursuant to Regulation Sections
1.704-l(b) (2) (ii) (c), 1.704-2(g), and 1.704-2(i) (5); and
(ii) the deficit shall be increased by the items described in
Regulation Sections 1.704-l(b) (2) (ii) (d)(4), (5), and (6)
"Affiliate" means, (a) a Person directly or indirectly controlling,
controlled by, or under common control with another Person; (b) a Person
owning or controlling 10% or more of the outstanding voting securities or
beneficial interests of another Person; (c) an officer, director, partner, or
member of the immediate family of an officer, director or partner, of another
Person; and/or (d) any affiliate of any such Person.
"Agreement" means this Operating Agreement, as amended from time to time
including each exhibit hereto.
"Assignee" means the Person who has acquired an Economic Interest in the
Company but is not a Member.
"Board" means the management board established pursuant to paragraph 5. 1.
"Board Member(s)" means those representatives appointed by Members who
are responsible for the overall management of the Company as referenced in
paragraph 5.1.
<PAGE> 2
"Capital Account" means the account to be maintained by the Company for
each Interest Holder in accordance with the following provisions:
(i) an Interest Holder's Capital Account shall be credited with the
amount of money and the fair market value of any property contributed to the
Company (net of liabilities secured by such property that the Company either
assumes or to which such property is subject) the amount of any Company
unsecured liabilities assumed by the Interest Holder, and the Interest
Holder's distributive share of Profit and any item in the nature of income or
gain specially allocated to the Interest Holder pursuant to the provisions of
paragraph 4.3 (other than paragraph 4.3.3); and
(ii) an Interest Holder's Capital Account shall be debited with the
amount of money and the fair market value of any Company property distributed
to the Interest Holder (net of liabilities secured by such distributed
property that the Interest Holder either assumes or to which such property is
subject), the amount of any unsecured liabilities of the Interest Holder
assumed by the Company, end the Interest Holder's distributive share of Loss
and any item in the nature of expenses or losses specially allocated to the
Interest Holder pursuant to the provisions of paragraph 4.3 (other than
paragraph 4.3.3).
If any Interest is transferred pursuant to the terms of this Agreement,
the transferee shall succeed to the Capital Account of the transferor to the
extent the Capital Account is attributable to the transferred Interest. If the
book value of Company property is adjusted pursuant to paragraph 4.3.3, the
Capital Account of each Interest Holder shall be adjusted to reflect the
aggregate adjustment in the same manner as if the Company had recognized gain
or loss equal to the amount of such aggregate adjustment. It is intended that
the Capital Accounts of all Interest Holders shall be maintained in compliance
with the provisions of Regulation Section 1.704-1 (b), and all provisions of
this Agreement relating to the maintenance of Capital Accounts shall be
interpreted and applied in a manner consistent with that Regulation.
"Cash Flow" means all cash derived from operations of the Company
(including interest received on reserves), without reduction for any non-cash
charges, but less cash used to pay current operating expenses and to pay or
establish reasonable reserves for future expenses, debt payments, capital
improvements, and replacements as determined by the President.
"Code" means the Internal Revenue Code of 1986, as amended, or any
corresponding provision of any succeeding revenue law.
"Company" means the limited liability company formed in accordance with
this Agreement.
"Contribution" means any money, property, or services rendered, or a
promissory note or other binding obligation to contribute money or property,
or to render services as permitted in this title, which a Member contributes
to the Company as capital in that Member's capacity as a Member pursuant to an
agreement between the Members, including an agreement as to value.
"Distribution" means any money or other property distributed to an
Interest Holder pursuant to paragraph 4.2.
"Economic Interest" means a Person's right to share in the income, gains,
Losses, deductions, credit, or similar items of, and to receive Distributions
from, the Company, but does not include any other rights of a Member
<PAGE> 3
including, without limitation, the right to vote or to participate in
management, or any right to information concerning the business and affairs of
the Company.
"Interest" means any Member Interest and/or Economic Interest as defined
herein.
"Interest Holder" means any Person who holds an Economic Interest, whether
as a Member or as an Assignee of a Member.
"Involuntary Withdrawal" means, with respect to any Member, the occurrence
of any of the following events:
(i) the Member makes an assignment for the benefit of creditors;
(ii) the Member is bankrupt;
(iii) the Member files a petition seeking for the Member any
reorganization, arrangement, composition, readjustment, liquidation,
dissolution, or similar relief under any state law;
(iv) the Member seeks, consents to, or acquiesces in the appointment
of a trustee for, receiver for, or liquidation of the Member or of all or any
substantial part of the Member's properties;
(v) if the Member is an individual, the Member's death or
adjudication by a court of competent jurisdiction as incompetent to manage the
Member's person or property;
(vi) if the Member is acting as a Member by virtue of being a
trustee of a trust, the termination of the trust;
(vii) if the Member is a partnership or limited liability company,
the dissolution and commencement of winding up of the partnership or limited
liability company;
(viii) if the Member is a corporation, the dissolution of the
corporation or the revocation of its charter;
(ix) if the Member is a partnership, limited liability company or
corporation, a change in control of such entity;
(x) if the Member is an estate, the distribution by the fiduciary of
the estate's entire interest in the Company; or
(xi) if the Member files an action seeking a decree of judicial
dissolution of the Company.
"Member" or "Members" means any person who executes a counterpart of this
Agreement as a Member and any Person who subsequently is admitted as a Member
of the Company.
"Member Loan Nonrecourse Deductions" means any Company deductions that
would be Nonrecourse Deductions if they were not attributable to a loan made
or guaranteed by a Member within the meaning of Regulation Section 1.704-2(i).
"Member Nonrecourse Debt Minimum Gain" has the meaning set forth in
Regulation Section 1.704-2 (i) (2) (determined by substituting "Member" or
"Interest Holder" for "partner").
<PAGE> 4
"Member Interest" means a Member's rights in the Company collectively,
including the Member's Economic Interest, right to vote or participate in
management, and any right to information concerning the business and affairs
of the Company.
"Minimum Gain" has the meaning set forth in Regulation 1.704-2(d).
Minimum Gain shall be computed separately for each Interest Holder in a manner
consistent with the Regulations under Code Section 704(b).
"Negative Capital Account" means a Capital Account with a balance of less
than zero.
"Net Cash Flow" means cash flow after the payment of all expenses and any
reserves agreed to by the Board.
"Nonrecourse Deductions" has the meaning set forth in Regulation Section
1 .704-2(b) ( l ). The amount of Nonrecourse Deductions for a taxable year of
the Company equals the net increase, if any, in the amount of Minimum Gain
during that taxable year, determined according to the provisions of Regulation
Section 1.704-2(c).
"Nonrecourse Liability" has the meaning set forth in Regulation Section
1.704-2(b)(3).
"Percentage" means, as to a Member, the percentage set forth after the
Member's name on Exhibit A, as amended from time to time, and as to an
Interest Holder who is not a Member, the Percentage or part of the Percentage
that corresponds to the portion of a Member's Economic Interest that the
Interest Holder has acquired, to the extent the Interest Holder has succeeded
to that Member's Interest.
"Person" means and includes an individual, corporation, partnership,
association, limited liability company, trust, estate, or other entity.
"President" means the Person designated as such in Article V.
"Profit" and "Loss" means for each taxable year of the Company (or other
period for which Profit or Loss must be computed), the Company's taxable
income or loss determined in accordance with Code Section 703(a), with the
following adjustments:
(i) all items of income, gain, loss, deduction, or credit required
to be stated separately pursuant to Code Section 703(a)(1) shall be included
in computed taxable income or loss;
(ii) any tax-exempt income of the Company, not otherwise taken into
account in computing Profit or Loss, shall be included in computing taxable
income or loss;
(iii) any expenditures of the Company described in Code Section 705
(a)(2) (B) (or treated as such pursuant to Regulation Section 1.704-1 (b) (2)
(iv) (i)) and not otherwise taken into account in computing Profit or Loss,
shall be subtracted from taxable income or loss;
(iv) gain or loss resulting from any taxable disposition of Company
property shall be computed by reference to the book value as adjusted under
Regulation Section 1.704-l(b) ("adjusted book value") of the property disposed
of, notwithstanding the fact that the adjusted book value differs from the
adjusted basis of the property for federal income tax purposes;
<PAGE> 5
(v) in lieu of the depreciation, amortization, or cost recovery
deductions allowable in computing taxable income or loss, there shall be taken
into account the depreciation computed based upon the adjusted book value of
the asset; and
(vi) notwithstanding any other provision of this definition, any
items which are specially allocated pursuant to paragraph 4.3 shall not be
taken into account in computing Profit or Loss.
"Regulation" means the income tax regulations, including any temporary
regulations, from time to time promulgated under the Code.
"Transfer" or "Voluntary Transfer" means, when used as a noun, any sale,
hypothecation, pledge, assignment, attachment, or other transfer; and when
used as a verb, to sell, hypothecate, pledge, assign, or to otherwise
transfer.
"Voluntary Withdrawal" means a Member's disassociation from the Company
by means other than a Transfer or an Involuntary Withdrawal.
ARTICLE II
Formation and Name; Office; Purpose; Term
2.1. Organization. The parties hereby organize a limited liability
company pursuant to the Act and the provisions of this Agreement. The Company
has or shall cause Articles of Organization to be prepared, executed, and
filed with the State of Utah, Department of Commerce, Division of
Corporations.
2.2. Name of the Company. The name of the Company is "Powerball
Technologies, L.L.C."
2.3. Purpose. The Company is organized for the primary purpose of
developing, manufacturing and marketing hydrogen technologies and products,
and any other activity which is permitted by law and to do any and all things
necessary, convenient, or incidental to that purpose.
2.4. Term. The Company shall continue in existence until December 31,
2027, unless sooner dissolved as provided by this Agreement or the Act.
2.5. Principal Place of Business. The Company's principal place of
business shall be located at 48 West 300 South, Suite 2303 North, Salt Lake
City, Utah 84101 or at any other place within the State of Utah which the
Board selects.
2.6. Resident Agent. The name and address of the Company's resident agent
in the State of Utah is A. O. Headman, Jr., 525 East 100 South, Fifth Floor,
Salt Lake City, UT 84102.
2.7. Members. The name, present mailing address, taxpayer identification
number, and percentage ownership of each Member are set forth on Exhibit A. No
person may become a Member unless all existing Members agree thereto.
ARTICLE III
Members; Capital; Capital Accounts
3.1. Initial Contributions. Upon the execution of this Agreement, the
Members shall make capital contributions to the Company in the form of cash or
property, as set forth on Exhibit A. The Contributions, whether by way of
<PAGE> 6
money, property, services, or an obligation to provide same, shall be
represented by Member Interest.
3.2. No Additional Contributions. No Member shall be required to
contribute any additional capital to the Company, and no Member shall have
personal liability for any obligation of the Company except as expressly
provided by law.
3.3. No Interest on Contributions. Neither Members nor Interest Holders
shall be paid interest with respect to Contributions.
3.4. Return of Contributions. Except as otherwise provided in this
Agreement, no Member nor Interest Holder shall have the right to receive the
return of any Contribution or withdraw from the Company, except upon the
dissolution of the Company.
3.5. Form of Return of Capital. If a Member or an Interest Holder is
entitled to receive the return of a Contribution, the Company may distribute
in lieu of money, notes, or other, property having a value equal to the amount
of money distributable to such Person.
3.6. Capital Accounts. A separate Capital Account shall be maintained for
each Member and Interest Holder.
3.7. Loans and Other Business Transactions. Any Member may, at any time,
make or cause a loan to be made to the Company in any amount and on those
terms upon which the Company and the Member agree. Members may also transact
other business with the Company and, in doing so, they shall have the same
rights and be subject to the same obligations arising out of any such business
transaction as would be enjoyed by the imposed upon any Person, not a Member
engaged in a similar business transaction with the Company. Natex Corporation
agrees to loan up to $100,000 to the Company in addition to its initial
capital contribution. Such $100,000 amount shall be reduced by any loans that
Natex made to Powerball Industries, Inc. prior to the formation of the
Company.
ARTICLE IV
Profit, Loss, and Distribution
4.1. Allocation of Profit or Loss. After giving effect to the special
allocations set forth in paragraph 4.3, for any taxable year of the Company,
Profit or Loss shall be allocated to the Interest Holders in proportion to
their Percentages.
4.2 Distributions.
4.2.1 . Distributions of Net Cash Flow. Provided any loans to
Members have been repaid to the extent then due, the Net Cash Flow for each
taxable year of the Company shall be distributed to the Interest Holders in
proportion to their Percentages. Distributions of Net Cash Flow shall be made
no less frequently than annually and shall be made within thirty (30) days of
the end of each year.
4.2.2. Dissolution and Liquidation. If the Company is liquidated,
the assets of the Company shall be distributed to the Members in accordance
with the positive balances in their respective Capital Accounts, after giving
effect to all Contributions, Distributions, and allocation for all periods.
Distribution to the Members pursuant to this paragraph 4.2. shall be made in
accordance with Treasury Regulation Section 1.704-l(b)(2)(ii)(b)(2). No Member
<PAGE> 7
shall be obligated to make any capital contribution to the Company to restore
a negative Capital Account balance, and a negative balance in a Member's
Capital Account shall not be considered a debt owed by the Member to the
Company or to any other Person for any purpose whatsoever.
4.2.3. Distribution in Kind. The Company shall not distribute assets
in kind unless the Board of Managers concurs. Subject to the foregoing, if any
assets of the Company are distributed in kind to a Member, those assets shall
be valued on the basis of their fair market value, and any Member entitled to
any interest in those assets shall receive that interest as a tenant-in-common
with all other Members so entitled. Unless the Members otherwise agree, assets
distributed in kind shall be distributed pro rata to all Members and the fair
market value of the assets shall be determined by an independent appraiser who
shall be selected by the Board of Managers. The Profit or Loss for each unsold
asset shall be determined as if the asset had been sold at its fair market
value, and the Profit or Loss shall be allocated as provided in paragraph 4.1
and shall be properly credited or charged to the Capital Accounts of the
Members prior to the Distribution of the assets in liquidation pursuant to
paragraph 4.2.
4.3. Regulatory Allocations.
4.3.1. Impermissible Deficit and Qualified Income Offset. No
Interest Holder shall be allocated Losses or deductions if the allocation
causes the Interest Holder to have an Adjusted Capital Account Deficit;
instead, such items shall be allocated to the other Interest Holders. If an
Interest Holder for any reason (whether or not expected) receives (1) an
allocation of Loss or deduction (or item thereof) or (2) any Distribution,
which causes the Interest Holder to have an Adjusted Capital Account Deficit
at the end of any taxable year, then all items of income and gain of the
Company (consisting of a pro rata portion of each item of Company income,
including gross income and gain) for that taxable year shall be allocated to
that Interest Holder, before any other allocation is made of Company items for
that taxable year (other than an allocation under paragraph 4.3.2), in the
amount and in proportions required to eliminate the excess as quickly as
possible. This paragraph 4.3.1 is intended to comply with, and shall be
interpreted consistently with, the "alternate test for economic effect" and
"qualified income offset" provisions of the Regulations promulgated under Code
Section 704(b).
4.3.2. Minimum Gain Chargebacks. In order to comply with the
"minimum gain chargeback" requirements of Regulation Sections 1.704-2 (f) (1)
and 1.704-2(i)(4), and notwithstanding any other provision of this Agreement
to the contrary, in the event there is a net decrease in an Interest Holder's
share of Minimum Gain and/or Member Nonrecourse Debt Minimum Gain during a
Company's taxable year, such Interest Holder shall be allocated items of
income and gain for that year (and if necessary, other years) as required by
and in accordance with Regulation Sections 1.704-2(f) (1) and 1.704-2(i)(4)
before any other allocation is made. It is the intent of the parties hereto
that any allocation pursuant to this paragraph 4.3.2 shall constitute a
"minimum gain chargeback" under Regulation Sections 1.704-2(f) and
1.704-2(i)(4).
4.3.3. Contributed Property and Book-Ups. In accordance with Code
Section 704(c) and the Regulations thereunder, including Regulation Section
1.704-l(b)(2)(iv)(d)(3), income, gain, loss, and deduction with respect to any
property contributed (or deemed contributed) to the Company shall, solely for
tax purposes, be allocated among the Interest Holders so as to take account of
any variation between the adjusted basis of the property to the Company for
federal income tax purposes and its fair market value at the date of
<PAGE> 8
Contribution (or deemed Contribution). If the adjusted book value of any
Company asset is adjusted under Regulation Section 1.7041 (b)(2)(iv)(f),
subsequent allocations of income, gain, loss, and deduction with respect to
the asset shall take account any variation between the adjusted basis of the
asset for federal income tax purposes and its adjusted book value in the
manner required under Code Section 704(c) and the Regulations thereunder. The
parties hereto agree to use the traditional method with curative allocations,
as described in Regulation Section 1.704-3(c), for making Code Section 704(c)
allocations.
4.3.4. Code Section 754 Adjustment. To the extent an adjustment to
the tax basis of any Company asset pursuant to Code Section 734 (b) or Code
Section743(b) is required, pursuant to Regulation 1.704-l(b) (2) (iv) (m), to
be taken into account in determining Capital Accounts, the amount of the
adjustment to the Capital Accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the adjustment
decreases basis), and the gain or loss shall be specially allocated to the
Interest Holders in a manner consistent with the manner in which their Capital
Accounts are required to be adjusted pursuant to that section of the
Regulations.
4.3.5. Nonrecourse Deductions. Nonrecourse Deductions for a taxable
year or other period shall be specially allocated among the Interest Holders
in proportion to their Percentages.
4.3.6. Member Loan Nonrecourse Deductions. Any Member Loan
Nonrecourse Deduction for any taxable year or other period shall be specially
allocated to the Interest Holder who bears the risk of loss with respect to
the loan to which the Member Loan Nonrecourse Deduction is attributable in
accordance with Regulation Section 1.704-2(i).
4.3.7. Guaranteed Payments. To the extent any compensation paid to
any Interest Holder by the Company, including any fees payable to any Interest
Holder pursuant to paragraph 5.3 hereof, is determined by the Internal Revenue
Service not to be guaranteed payment under Code Section 707(c) or is not paid
to the Interest Holder other than in the Person's capacity as a partner
(Interest Holder) within the meaning of Code Section 707(a), the Interest
Holder shall be paid specially allocated gross income of the Company in an
amount equal to the amount of that compensation, and the Interest Holder's
Capital Account shall be adjusted to reflect the payment of that compensation.
4.3.8. Recapture. Any item of the Company taxable as ordinary income
for federal income tax purposes under Code Section 1245 or similar recapture
provisions shall be specially allocated, to the extent possible without
increasing the total gain to the Company or to any Interest Holder, among the
Interest Holders in proportion to the deductions (or basis reductions treated
as deductions) giving rise to such recapture.
4.3.9. Withholding. All amounts required to be withheld pursuant to
Code Section 1446 or any other provision of federal, state, or local tax law
shall be treated as amounts actually distributed to the affected Interest
Holders for all purposes under this Agreement.
4.3.10. Nonrecourse Liabilities. Solely for purposes of determining
an Interest Holder's proportionate share of "excess nonrecourse liabilities"
of the Company within the meaning of Regulation Section 1.752-3(a)(3), the
Interest Holders' interest in Company profits shall be based on their
respective Percentages.
<PAGE> 9
4.3.11.Income Tax Provisions. The Members are aware of the income
tax consequences of this Paragraph 4.3 and agree to be bound by these
provisions in reporting their shares of Profit, Loss, and other items for
federal and state income tax purposes.
4.3.12. Curative Allocations. If an allocation is made pursuant to
paragraph 4.3.1, 4.3.2 or 4.3.6 to an Interest Holder, items of income,
expense, loss and gain shall be allocated, in the current and future taxable
years to the extent practicable, the effect of such allocation.
4.3.13. Allocations on Sale or Liquidation. In the taxable year in
which the Company sells all, or substantially all, of its assets, and in the
taxable year in which the Company dissolves, all items of income, expense,
loss and gain shall be allocated to cause the Interest Holders' Capital
Account balances to be in proportion to their Percentages.
4.4. General.
4.4.1. All Profit and Loss shall be allocated to the Persons shown
on the records of the Company to have been Interest Holders as of the last day
of the taxable year for which the allocations is to be made. Notwithstanding
the foregoing, unless the taxable year of the Company is separated into
segments, if there is a change in Member Interests during the taxable year,
the profit and Loss shall be allocated between the original Member and the
successor on the basis of the number of days each was a Member during the
taxable year.
4.4.2. The Board of Managers is hereby authorized, upon the advice of
tax counsel of the Company, to amend paragraph 4.3 as necessary to comply with
the Code and the Treasury Regulations promulgated under Code Sections 704(b)
and 704(c), provided that any such amendment may not materially affect the
Distributions to any Member of Assignee.
ARTICLE V
Management: Rights, Power, and Duties
5.1 Management - Management Board. The overall operation of the Company
shall be managed by a management board (the "Board") which shall be composed
of two (2) persons. Each of the Members of the Company shall be entitled to
appoint one representative to serve on the Board. The initial members of the
Board shall be as follows: Jed Checketts - appointed by Powerball Industries,
Inc.; and Robert K. Ipson - appointed by Natex Corporation.
5.1.1. Board Authority Notwithstanding any other provision of this
Agreement to the contrary, neither the Company nor the President may undertake
any of the following actions without the prior approval of both Members of the
Board:
(i) any action which would require the Company to expend, or
incur any obligation which exceeds, the amount of $5,000;
(ii) Company; the appointment to, or removal from, office of
the President of the Company;
(iii) any decision to liquidate, dissolve, or sell
substantially all of the assets of the Company.
(iv) a decision to continue the business of the Company after
dissolution of the Company;
<PAGE> 10
(v) approval by the Company to purchase a Transferring Member's
Interest in accordance with Section 6.1 of this Agreement; and
(vi) an amendment to the Articles of Organization or this
Agreement.
(vii) any other action which the President is required or
desires to submit to the Board for its approval or as required herein.
5.1.2. President. The sole officer of the Company shall be the
"President". The day-to-day operations of the Company shall be managed by the
President (the "President") appointed by the Board, and operating under the
control of the Board. The President may, but need not be, a Member of the
Company. The President shall conduct all meetings of the Members and shall
have such additional responsibilities as may be determined from time-to-time
by the Board. The Initial President of the Company shall be Jed Checketts.
5.1.3. General Powers. Subject to any limitations expressly set
forth herein, the President shall have the power and authority to take any
other action by or on behalf of the Company which is in the ordinary course of
business and is not expressly prohibited by this Agreement or any other
agreement governing the management and operation of the Company.
5.1.4. Limitation on Authority of Members.
5.1.4.1. No Member is an agent of the Company solely by virtue
of being a Member, and no Member has authority to act for the Company solely
by virtue of being a Member.
5.1.4.2. Any Member who takes any action or binds the Company
in violation of this paragraph 5.1 shall be solely responsible for any loss
and expense incurred by the Company as a result of the unauthorized action and
shall indemnify and hold the Company harmless with respect to the loss or
expense.
5.2. Meetings of and Voting by Members.
5.2.1. A meeting of the Members may be called at any time by the
President or by any member of the Board. Meetings of Members shall be held at
the Company's principal place of business or at any other place designated by
the Person or Persons calling the meeting. Meetings may also be conducted by
telephone conference or by unanimous written consent of all Board
representatives. Not less than seven (7) and no more than thirty (30) days
before each meeting, the Person or Persons calling the meeting shall give
written notice of the meeting to each Member entitled to vote at the meeting.
The notice shall state the time, place and purpose of the meeting.
Notwithstanding the foregoing provisions, each Member who is entitled to
notice may waive notice, either before or after the meeting, by executing a
waiver of such notice, or by appearing at and participating, in person or by
proxy in the meeting. Unless this Agreement provides otherwise, at a meeting
of Members, the presence in person by all Members constitutes a quorum. A
Member may vote either in person or by written proxy signed by the Member or
by the Member's duly-authorized attorney-in-fact.
5.2.2. The affirmative vote of all Members shall be required to
approve any matter coming before the Members.
5.2.3. In lieu of holding a meeting, meetings may also be conducted
by telephone conference or by unanimous written consent of all Members. The
Members may take action by written consents specifying the action to be taken.
<PAGE> 11
5.3. Personal Service. No Member shall tee required to perform services
for the Company solely by virtue of being a Member. Unless approved by the
Board or as provided herein, no Member shall perform services for the Company
or be entitled to compensation for services performed for the Company.
5.4. Duties of Parties.
5.4.1. The President shall devote such time to the business and
affairs of the Company as is necessary to carry out the President's duties set
forth in this Agreement.
5.4.2. The only fiduciary duties a President owes to the Company
and the Members are the duty of loyalty and the duty of care set forth in
subdivisions (i) and (ii):
(i) A President's duty of loyalty to the Company and the
Members is limited to the following:
(a) to account to the Company and hold as trustee for it
any property, profit, or benefit derived by the President in the conduct or
winding up of the Company's business or derived from a use by the President of
Company property, including the appropriation of a Company opportunity,
without the consent of the Members;
(b) to refrain from dealing with the Company in the
conduct or winding up of the Company business as or on behalf of a party
having an interest adverse to the Company without the consent of the Members;
and
(c) to refrain from competing with the Company in the
conduct of the Company in the business of developing, manufacturing and
marketing pelletized hydrogen technologies and products before the dissolution
of the Company without the consent of the Members.
(ii) A President's duty of care to the Company and the Members
in the conduct and winding up of the Company business is limited to refraining
from engaging in grossly negligent or reckless conduct, intentional
misconduct, or a knowing violation of law.
5.5. Indemnification.
5.5.1. The President and Board Members shall not be liable,
responsible, or accountable, in damages or otherwise, to any Member or to the
Company for any act performed by such President or Board Member within the
scope of the authority conferred on them by this Agreement, and within the
standard of care specified herein.
5.5.2. The Company shall indemnify the President or Board Member for
any act performed by them within the scope of the authority conferred on them
by this Agreement, unless such act constitutes grossly negligent or reckless
conduct, intentional misconduct, or a knowing violation of law.
5.6. Covenant Not to Compete. Each of the parties hereby agrees that as
consideration for the transactions contemplated hereby that no party shall
directly compete with the Company in the business of developing, manufacturing
and marketing pelletized hydrogen technologies and products.
5.7. Power of Attorney.
<PAGE> 12
5.7.1. Grant of Power. Except as provided herein, each Member
constitutes and appoints the President as the Member's true and lawful
attorney-in-fact ("Attorney-in-Fact"), and in the Member's name, place, and
stead, to make, execute, sign, acknowledge, and file:
5.7.1 .1. one or more Articles of Organization;
5.7.1.2. all documents (including amendments to Articles of
Organization) which the Attorney-in-Fact deems appropriate to reflect any
amendment, change, or modification of this Agreement;
5.7.1.3. any and all other certificates or other instruments
required to be filed by the Company under the laws of the State of Utah or of
any other state or jurisdiction, including, without limitation, any
certificate or other instruments necessary in order for the Company to
continue to qualify as a Limited Liability Company under the laws of the State
of Utah;
5.7.1.4. one or more fictitious trade name certificates; and
5.7.1.5. all documents which may be required to dissolve and
terminate the Company and to cancel its Articles of Organization.
5.8. Irrevocability The foregoing power of attorney is irrevocable and is
coupled with an interest, and, to the extent permitted by applicable law,
shall survive the death or disability of a Member. It also shall survive the
Transfer of a Member Interest, except that if the Assignee is admitted as a
Member, this power of attorney shall survive the delivery of the assignment
for the sole purpose of enabling the Attorney-in-Fact to execute, acknowledge,
and file any documents needed to effectuate the substitution. Each Member
shall be bound by any representations made by the Attorney-in-Fact acting in
good faith pursuant to this power of attorney, and each Member hereby waives
any and all defenses which may be available to contest, negate, or disaffirm
the action of the Attorney-in-Fact taken in good faith under this power of
attorney.
5.9. Confidential Information. The parties acknowledge that the
transaction described herein is of a confidential nature and its details shall
not be disclosed except to consultants, employees and advisors, or upon the
prior written consent of the other parties (which consent shall not be
unreasonably withheld), or as required by law. No party shall make any public
disclosure of the specific terms of this transaction, except as required by
law. In connection with the negotiation of this Agreement and the preparation
for the consummations of the transactions contemplated hereby, each party
acknowledges that it will have access to confidential information relating to
the other parties. Each party shall treat such information as confidential,
preserve the confidentiality thereof and not duplicate or use such
information, except to advisors, consultants or employees in connection with
the transactions contemplated hereby.
ARTICLE VI
Transfer of Interests and Withdrawals of Members
6.1. Transfers. Except as provided herein, no Member may Transfer all, or
any portion of, or any interest or rights in, the Member Interest owned by the
Member unless all other Members consent in writing to such Transfer. Each
Member hereby acknowledges the reasonableness of this prohibition in view of
the purposes of the Company and the relationship of the Members. The attempted
Transfer of any portion or all of a Member Interest in violation of the
prohibition contained in this paragraph 6.1 shall be deemed invalid, null and
void, and of no force or effect, except any Transfer mandated by operation of
<PAGE> 13
law and then only to the extent necessary to give effect to such Transfer by
operation of law.
6.1.1. A Member may Transfer all or any portion of or any interest
or rights in the Member's Economic Interest (but not Member Interest) if each
of the following conditions ("Conditions of Transfer") is satisfied:
6.1.1.1. the Transfer may be accomplished without registration,
or similar process, under federal and state securities laws;
6.1.1.2. the transferee delivers to the Company a written
agreement to be bound by the terms of Article VI of this Agreement;
6.1.1.3. the Transfer will not result in the termination of the
Company pursuant to Code Section 708;
6.1.1.4. the transferor or the transferee delivers the
following information to the Company: (i) the transferee's taxpayer
identification number; and (ii) the transferee's initial tax basis in the
transferred Member Interest, and
6.1.1.5. the transferor complies with the provisions set forth
in paragraph 6.1.3.
6.1.2. If the Conditions of Transfer are satisfied, the Member may
Transfer all or any portion of the Member's Economic Interest. The Transfer of
an Economic Interest pursuant to this paragraph 6.1 shall not result in the
Transfer of any of the transferor's other membership rights. The transferee of
the Economic Interest shall have no right to: (1) become a Member; (2)
exercise any membership rights other than those specifically pertaining to the
ownership of an Economic Interest; or (3) act as an agent of the Company.
6.1.3. Right of First Refusal.
6.1.3.1. If a Member (a "Transferor") receives a bona fide
written offer which the Member desires to accept (the "Transferee Offer") from
any other Person, including another Member (a "Transferee") to purchase all or
any portion of or any interest or rights in the Transferor's Economic Interest
(the "Transferor Interest") then, prior to any Transfer of the Transferor's
Interest, the Transferor shall give the Company written notice (the "Transfer
Notice") containing each of the following:
6.1.3.1.1. the Transferee's identity;
6.1.3.1.2. a true and complete copy of the Transferee
Offer; and
6.1.3.1.3. the Transferor's offer (the "Offer") to sell
the Transferor Interest to the Company for consideration equal to that
contained in the Transferee Offer or if the consideration specified in the
Transferee Offer is not specified as cash, then for consideration in U. S.
dollars equal in value to the consideration specified in the Transferee Offer
(the "Transfer Purchase Price").
6.1.3.2. The Offer shall be and remain irrevocable for a period
(the "Offer Period") ending at 11:59 P.M. local time at the Company's
principal office, on the sixtieth (60th) day following the date the Transfer
Notice is given to the Company. At any time during the Offer Period, the
Company may accept the Offer by giving written notice to the Transferor of its
acceptance (the "Offeree Notice"). The Transferor shall not be deemed a Member
<PAGE> 14
for the purpose of the vote on whether the Company shall accept the Offer. If
the Company accepts the Offer, the offeree Notice shall fix a closing date
(the "Transfer Closing Date") for the purchase, which shall not be earlier
than ten (10) or more than thirty (30) days after the expiration of the Offer
Period.
6.1.3.3. If the Company accepts the Offer, the Transfer
Purchase Price shall be paid on the Transfer Closing Date unless the Company
elects prior to or on the Transfer Closing Date to pay the Transfer Purchase
Price in installments pursuant to the provisions of paragraph 6.5 of this
Agreement.
6.l.3.4. If the Company does not accept the Offer in its
entirety within thirty (30) days after the Offer Date, the Company shall give
immediate notice to that effect (the "Remaining Members' Notice") to each
Member, other than the Transferor (the "Remaining Members"). Such notice to
the Remaining Members shall include a copy of the Transfer Notice and inform
the Remaining Members of their right to purchase all, or a portion, of the
Transferor Interest for a pro rata portion of the Transfer Purchase Price.
6.1.3.5. The Remaining Members' Notice shall be and remain
irrevocable for the remainder of the Offer Period. At any time during such
period, a Remaining Member may accept the Offer by notifying the Transferor in
writing that the Remaining Member intends to purchase all, but not less than
all, of the Transferor Interest. If two (2) or more Remaining Members desire
to accept the Offer, then, in the absence of an agreement between or among
them, each such Remaining Member shall purchase the Transferor Interest in the
proportion that such Member's respective Percentage bears to the total
Percentages of all of the Remaining Member who desire to accept the Offer,
adjusted to reflect the portion, if any, of the Transferor Interest to be
purchased by the Company.
6.1.3.6. If the Company and/or the Remaining Members
(collectively, the "Purchasers") have accepted the Offer prior to the end of
the Offer Period, any Purchaser may give written notice to that effect to the
Transferor specifying a closing date (the "Transfer Closing Date") for the
purchase which shall be no earlier than ten (10) nor later than thirty (30)
days after the expiration of the Offer Period.
6.1.3.7. On the Transfer Closing Date the Purchasers shall pay
the Transfer Purchase Price unless the Purchasers elect prior to or on the
Transfer Closing Date to pay the Transfer Purchase Price in installments
pursuant to the provisions of paragraph 6.5 of this Agreement.
6.1.3.8. If neither the Company nor any Remaining Members
accepts the Offer (within the time and in the manner specified in this
Section), then the Transferor shall be free for a period (the "Permitted
Transfer Period") of thirty (30) days after the expiration of the Offer Period
to Transfer the Transferor Interest to the Transferee, for the same or greater
price on the same terms and conditions as set forth in the Transfer Notice.
The Transfer shall be subject, however, to the Conditions of Transfer. If the
Transferor does not Transfer the Transferor's Interest within the Permitted
Transfer Period, the Transferor's right to Transfer the Transferor Interest
pursuant to this Section shall cease and terminate.
6.1.3.9. Any Transfer by the Transferor after the last day of
the Permitted Transfer Period or without strict compliance with the terms,
provisions, and conditions of this Section and the other terms, provisions,
and conditions of this Agreement, shall be null and void and of no force or
effect.
<PAGE> 15
6.2. Withdrawal of a Member. No Member shall have the right or power to
Voluntarily Withdraw from the Company, except as otherwise provided by this
Agreement. Upon withdrawal of any Member ("Withdrawn Member") as permitted
under the terms of this paragraph 6.2., the Withdrawn Member and the Company
shall have the respective rights and obligations set forth in paragraph 6.3 of
this Agreement provided, however, that the Withdrawn Member's Membership
Interest shall be valued at book value' and, provided further, that the
Company shall have the right to pay the amount due the Withdrawing Member in
twenty-four (24) equal monthly payments, the first of which shall be due on
the thirtieth (30th) day following the date upon which such amount due shall
be finally determined.
6.3. Optional Buy-Out in Event of Involuntary Withdrawal.
6.3.1. If all of the remaining Members elect to continue the Company
after an Involuntary-Withdrawal, the Withdrawn Member or the successor in
interest to such Member shall be deemed to offer for sale to the Company (the
"Withdrawal Offer") all of the Membership Interest of the Withdrawn Member
(the "Withdrawal Interest").
6.3.2. The Withdrawal Offer shall be and remain irrevocable for a
period (the "Withdrawal Offer Period") ending at 11:59 P.M. local time at the
Company's principal of Lice on the sixtieth (60th) day following the date and
all remaining Members elect to continue the Company. At any time during the
Withdrawal Offer Period, the Company may accept the Withdrawal Offer by
notifying the Withdrawn Member of its acceptance (the "Withdrawal Notice").
The Withdrawn Member shall not be deemed a Member or Manager for the purpose
of the vote on whether the Company shall accept the Withdrawal Offer.
6.3.3. If the Company accepts the Withdrawal Offer, the Withdrawal
Notice shall fix a closing date (the "Withdrawal Closing Date") for the
purchase which shall be not earlier than ten (10) or later than ninety (90)
days after the expiration of the Withdrawal Period.
6.3.4. If the Company accepts the Withdrawal Offer, the Company
shall purchase the Withdrawal Interest for the price equal to the amount the
Withdrawn Member would receive if the Company were liquidated and the amount
equal to the appraised value as set forth in paragraph 6.4 were available for
distribution to the Members pursuant to paragraph 4.4 (the "Withdrawal
Purchase Price"). The Withdrawal Purchase Price shall be paid in cash on the
Withdrawal Closing Date.
6.3.5. If the Company fails to accept the Withdrawal Offer, then the
Withdrawn Member, upon the expiration of the Withdrawal Offer Period,
thereafter shall be treated as the unadmitted Assignee of a Member.
6.4. Appraised Value.
6.4.1. The term "Appraised Value" means the appraised value of the
Company as hereinafter provided. Within fifteen (15) days after demand by
either one to the other, the Company and the Withdrawn Member shall each
appoint an appraiser to determine the value of the Company. If the two
appraisers agree upon such value, they shall jointly render a single written
report stating that value. If the two appraisers cannot agree upon the value
of the Company, they shall each render a separate written report and shall
appoint a third appraiser, who shall appraise the Company, determine its
value, and render a written report of his or her opinion thereon. Each party
shall pay the fees and other costs of the appraiser appointed by such party,
and the fees and other costs of the third appraiser shall be shared equally by
both parties.
<PAGE> 16
6.4.2. The value contained in the aforesaid joint written report or
written report of the third appraiser, as the case may be, shall be the
Appraised Value; provided, however, that if the value of the equity contained
in the appraisal report of the third appraiser is more than the higher of the
first two appraisals, the higher of the first two appraisals shall govern; and
provided, further, that if the value of the equity contained in the appraisal
report of the third appraiser is less than the lower of the first two
appraisals, the lower of the first two appraisals shall govern.
[FN]
i For purposes of this Agreement, book value equals assets minus liabilities
calculated at the end of the most recent fiscal quarter unless otherwise
agreed by the parties.
</FN>
ARTICLE VII
Dissolution, Liquidation, and Termination of the Company
7.1. Events of Dissolution. The Company shall be dissolved upon the
happening of the first to occur of an event specified in the Act or any of the
following events:
7.1.1. on the date fixed for its termination in paragraph 2.4; and
7.1.2. the agreement of the Members owning 75% or more of the
Membership Interests.
7.2. Procedure for Winding Up and Dissolution. If the Company is
dissolved, the President shall wind up its affairs. On winding up of the
Company, the assets of the Company shall be distributed, first to creditors of
the Company, including Interest Holders who are creditors, in satisfaction of
the liabilities of the Company, and then, to the Interest Holders in
accordance with Article IV of this Agreement.
7.3. Filing of Certificate of Cancellation. Upon completion of the
affairs of the Company, the President shall promptly file the Certificate of
Cancellation of Articles of Organization with the Secretary of State. If there
is no President, then the Certificate of Cancellation shall be filed by the
remaining Members; if there are no remaining Members, the Certificate shall be
filed by the last Person to be a Member; if there is neither a President,
remaining Members, nor a Person who last was a Member, the Certificate shall
be filed by the legal or personal representatives of the Person who last was a
Member.
ARTICLE VIII
Books, Records, Accounting, and Tax Elections
8.1. Bank Accounts. All funds of the Company shall be deposited in
separate bank accounts opened in the Company's name as provided herein.
Subject to the restrictions set forth herein, the President shall determine
the financial institution or institutions at which the accounts will be opened
and maintained, the types of accounts, and the Persons who will have authority
with respect to the accounts and the funds therein. The Company shall
establish and maintain the following separate bank accounts.
(i) Operating Account. An operating account shall be established
into which all proceeds from the Company's activities shall be deposited.
(ii) Petty Cash Account. A petty cash account shall be established
into which not more than $5,000 shall be deposited at any one time.
<PAGE> 17
8.2. Check Signing Authority Checks may be signed on behalf of the
Company only as follows:
(i) any check which is in an amount of $5,000 or less may be signed
by the President alone;
(ii) subject to any prior approval required by the Board as required
herein, any check which is an amount in excess of $5,000 shall require the
signature of both the President, and any other one (1) of the Company's Board
Members.
8.3. Books and Records. The Company shall maintain books of account, keep
full and complete financial records and furnish to each Member the following,
all in accordance with generally accepted accounting principals consistently
applied:
(i) within 120 days after the end of each fiscal year, a copy of the
consolidated balance sheet of the Company as at the end of such year, together
with consolidated statements of income, retained earnings and cash flows of
the Company for such year, audited and certified by independent public
accounts;
(ii) within thirty (3 0) days after the end of each month commencing
with March 1998, a consolidated unaudited balance sheet of the Company as at
the end of such month and consolidated unaudited statements of income,
retained earnings and cash flows for such month and for the year to date, each
of the foregoing balance sheets and statements of income, retained earnings
and cash flows set forth in comparative form the corresponding figures for the
prior fiscal year period; and
(iii) such other financial information as the members may reasonably
request, including but not limited to a prospective budget for any fiscal year
of the Company.
8.4. Right to Inspect Books and Records; Receive Information.
8.4.1. Upon the reasonable request of a Member for a purpose
reasonably related to the interest of that Member of the Company, the
President shall promptly deliver to the requesting Member, at the expense of
the Company, a copy of this Agreement, as well as the information required to
be maintained by the Company under this Agreement or the Act.
8.4.2. Each Member and Manger has the right upon reasonable request,
and for purposes reasonably related to the interest of that Member or Manager
of the Company, to do the following:
(i) to inspect and copy during normal business hours any of the
records required to be maintained by the Company under this Agreement or the
Act; and
(ii) to obtain from the Company promptly after becoming
available, a copy of the Company's federal, state, and local income tax or
information returns for each year.
8.4.3. The President shall cause an annual report to be sent to each
Member of the Company not later than 120 days after the close of the Company's
fiscal year. Such report must contain the Company's balance sheet as of the
end of the Company's fiscal year and an income statement and statement of
changes in financial position for such fiscal year. The financial statements
referred to in this paragraph shall be accompanied by the report thereon, if
any, of the independent accountants engaged by the Company or, if there is no
<PAGE> 18
report? the certificate of the President that the financial statements were
prepared without audit from the books and records of the Company.
8.4.4. If a Manager has executed an amendment to the Articles of
Organization or this Agreement pursuant to a power of attorney from the
Members, such Manager must promptly furnish to the Members a copy of such
amendment.
8.4.5. The President shall send or shall cause to be sent to each
Member or Interest Holder within 90 days after the end of each fiscal year of
the Company, such information as is necessary to complete federal and state
income tax or information returns.
8.4.6. Unless otherwise expressly provided in this Agreement, the
inspecting or requesting Member or Officer as the case may be, shall reimburse
the Company for all reasonable costs and expenses incurred by the Company in
connection with such inspection and copying of the Company's books and records
and the production and delivery of any other books or records.
8.5. Annual Accounting Period. The annual accounting period of the
company shall be its taxable year. The Company's taxable year shall be
selected by the Board, subject to the requirements and limitations of the
Code.
8.6. Management of Tax Matters. The Board shall manage the Company's tax
matters ("Tax Matters") for purposes of Code Section 6231 (a)(7), and shall
have all the authority granted by the Code to the management of Tax Matters,
provided that the Board shall not have the authority without first obtaining
the consent of the Members to do any of the following:
(i) Enter into a settlement agreement with the Internal Revenue
Service that purports to bind the Members;
(ii) File a petition as contemplated in Code Section 6226(a) or Code
Section 6228;
(iii) Intervene in any action as contemplated in Code Section
6226(b)(5);
(iv) File any request contemplated in Code Section 6227(b); and
(v) Enter into an agreement extending the period of limitations as
contemplated in Code Section 6229(b)(1)(B).
8.7. Tax Elections. The Board shall have the authority to make all
Company elections permitted under the Code, including, without limitation,
elections of methods of depreciation and elections under Code Section 754. The
decision to make or not make an election shall be at the Board's sole and
absolute discretion.
8.8. Title to Company Property. All real and personal property acquired
by the Company shall be acquired and held by the Company in the Company's
name.
ARTICLE IX
General Provisions
9.1. Assurances. Each Member shall execute all certificates and other
documents and shall do all such filing, recording, publishing, and other acts
as the President deems appropriate to comply with the requirements of law for
<PAGE> 19
the formation and operation of the Company and to comply with any laws, rules,
and regulations relating to the acquisition, operation, or holding of the
property of the Company.
9.2. Notifications. Any notice, demand, consent, election, offer,
approval, request, or Other communication (collectively a "notice") required
or permitted under this Agreement must be in writing and either delivered
personally or sent by certified or registered mail, post prepaid, return
receipt requested. Any notice to be given hereunder by the Company shall be
given by the President. A notice must be addressed to an Interest Holder at
the Interest Holder's last known address on the records of the Company. A
notice to the Company must be addressed to the Company's principal office. A
notice delivered personally will be deemed given only when acknowledged in
writing by the Person to whom it is delivered. A notice that is sent by mail
will be deemed given three (3) business days after it is mailed. Any party may
designate, by notice to all of the others, substitute addresses or addressees
for notices; and, thereafter, notices are to be directed to those substitute
addresses or addressees.
9.3. Specific Performance. The parties recognize that irreparable injury
will result from a breach of any provision of this Agreement and that money
damages will be inadequate to fully remedy the injury. Accordingly, in the
event of a breach or threatened breach of one or more of the provisions of
this Agreement, any party who may be injured (in addition to any other
remedies which may be available to that party) shall be entitled to one or
more preliminary or permanent orders (i) restraining and enj oining any act
which would constitute a breach, or (ii) compelling the performance of any
obligation which, if not performed, would constitute a breach.
9.4. Complete Agreement. This Agreement constitutes the complete and
exclusive statement of the agreement among the Members. It supersedes all
prior written and oral statements, including any prior representation,
statement, condition, or warranty. Except as expressly provided otherwise
herein, this Agreement may not be amended without the written consent of all
of the Members.
9.5. Applicable Law. All questions concerning the construction, validity,
and interpretation of this Agreement and the performance of the obligations
imposed by this Agreement shall be governed by the internal law, not the law
of conflicts of the State of Utah.
9.6. Article and Section Titles. The headings herein are inserted as a
matter of convenience only and do not define, limit, or describe the scope of
this Agreement or the intent of the provisions hereof.
9.7. Binding Provisions. This Agreement is binding upon, and to the
limited extent specifically provided herein, inures to the benefit of, the
parties hereto and their respective heirs, executors, administrators, personal
and legal representatives, successors, and assigns.
9.8. Jurisdiction and Venue. Any suit involving any dispute or matter
arising under this Agreement may only be brought in the appropriate United
States District Court in Utah or any Utah State Court having jurisdiction over
the subject matter of the dispute or matter. All Members hereby consent to the
exercise of personal jurisdiction by any such court with respect to any such
proceeding.
9.9. Terms. Common nouns and pronouns shall be deemed to refer to the
masculine, feminine, neuter, singular, and plural, as the identity of the
Person may in the context require.
<PAGE> 20
9.10. Separability of Provisions. Each provision of this Agreement shall
be considered separable; and if, for any reason, any provision or provisions
herein are determined to be invalid and contrary to any existing or future
law, such invalidity shall not impair the operation of or affect those
portions of this Agreement which are valid.
9.11. Counterparts. This Agreement may be executed simultaneously in two
or more counterparts, each of which shall be deemed an original and all of
which, when taken together, constitute one and the same document. The
signature of any party to any counterpart shall be deemed a signature to, and
may be appended to, any other counterpart.
9.12. Estoppel Certificate. Each Member shall, within ten (10) days after
written request by the President, deliver to the requesting Person a
certificate stating, to the Member's knowledge, that: (a) this Agreement is in
full force and effect; (b) this Agreement has not been modified except by any
instrument or instruments identified in the certificate; and (c) there is not
default hereunder by the requesting Person, or if there is a default, the
nature and extent thereof. If the certificate is not received within the 1
0-day period, the President shall execute and deliver the certificate on
behalf of the requested member, without qualification, pursuant to the power
of attorney granted in paragraph 5.7.
9.13. Dispute Resolution Procedure.
9.13.1. Procedure. The Members shall attempt to resolve any disputes
by reasonable businesslike negotiations in accordance with the following
procedures, and without resort to litigation.
9.13.2. Special Meeting. Any Member may call a special meeting
("Special Meeting") for the resolution of disputes. The Special Meeting shall
be held at a mutually agreeable location no sooner than ten (10) days nor
later than fifteen (15) days of a written request for the meeting, which
request shall specify the nature of the dispute to be resolved. The Special
Meeting shall be attended by non-attorney representatives of the Members, who
shall attempt in good faith to resolve the dispute and shall have reasonable
authority to do so.
9.13.3 Mediation. If the dispute has not been resolved within twenty
(20) days after conclusion of the Special Meeting, any Member may initiate
mediation by delivering written notice to the other. Both Members shall attend
and participate in the mediation, which shall be non-binding and without
prejudice to any other rights or remedies which any party may have. The
mediation proceeding shall be commenced within thirty (30) days after the
notice initiating mediation is delivered, and shall be conducted in Salt Lake
City, Utah by an impartial third party mediator who shall be selected by
Judicial Arbitration & Mediation Services, Inc. ("JAMS") in accordance with
its procedures. The mediator, who shall have relevant background or experience
satisfactory to the parties, shall be given any written statement(s) of the
parties and may inspect any applicable documents. The mediator shall call a
meeting of the Members within ten (10) business days of his/her selection.
This meeting shall be attended by representatives of the Members with
reasonable authority to resolve the dispute. All costs of the mediation
(including attorneys' fees and costs and any mediation fees and expenses
incurred) shall be borne by the Company unless the mediator determines that
one of the Members has acted frivolously or in bad faith. The comments or
findings of the mediator shall be non-binding and without prejudice to the
rights of any party.
<PAGE> 21
9.13.4 Settlement. If, as a result of the mediation, a voluntary
settlement is reached and the Members agree that such settlement shall be
reduced to writing, then the Members also agree that (a) the mediator shall be
appointed an arbitrator for the sole purpose of signing the mediation
agreement; (b) the agreement shall have the same force and effect as an
arbitration award; and (c) judgment may be entered upon it in accordance with
applicable law in any court having jurisdiction thereof.
9.13.5 Applicable Law. The Special Meeting and mediation
proceedings shall be subject to the laws of the State of Utah.
9.13.6 Statutes of Limitation. This dispute resolution procedure
shall not in any way affect any statutes of limitation relating to any claim,
dispute or other matter arising out of this Agreement.
IN WITNESS WHEREOF, the parties have executed, or caused this Agreement
to be executed, under seal, as of the date set forth hereinabove.
MEMBERS:
POWERBALL INDUSTIES, INC. NATEX CORPORATION
By:/s/Jed Checketts, President By: /s/Robert K. Ipson, President
<PAGE>
<PAGE>
EXHIBIT "A"
TO POWERBALL TECHNOLOGIES, LLC
OPERATING AGREEMENT
MEMBER PERCENTAGE OWNERSHIP CONSIDERATION
- ------- -------------------- -------------
Powerball Industries, Inc. 50% Assignment of License
Natex Corporation 50% $250,000
--------------------
TOTAL: 100%
<PAGE> 1
Exhibit 10.01
EXCLUSIVE LICENSE AGREEMENT
This Exclusive License Agreement is made and effective this 18th day of
September, 1997, by and between JED H. CHECKETTS, of 3033 West 3650 South,
West Valley City, Utah 84119, hereinafter referred to as "LICENSOR," and
POWERBALL INDUSTRIES, INC., a Utah Corporation of the State of Utah, having a
principal place of business at 2095 West 2000 South, Salt Lake City, Utah 841
19, hereinafter referred to as "LICENSEE."
WHEREAS, LICENSOR is the inventor of a certain Hydrogen Generation System
and Fuel Pellet for a Hydrogen Generation System, and is owner of the entire
right, title and interest in and to said invention currently embodied in
United States Patent Application;
WHEREAS, LICENSEE desires to manufacture and sell both Hydrogen
Generation System and Fuel Pellet for a Hydrogen Generation System of the
invention;
WHEREAS, LICENSOR is willing to exclusively license to LICENSEE his
entire right, title and interest in and to his inventions, patents, reissues,
continuation or continuations in part thereof, and additional patent
applications therein in the United States and throughout the world for the
life of any patent issued thereon or a period of five (5) years, whichever is
longer, and will cooperate with LICENSEE in filing additional patent
applications, as LICENSEE may desire and pay for, covering improvements to
LICENSOR's invention.
NOW, THEREFORE, based upon the mutual covenants and promises set forth
herein, the parties hereto agree as follows:
DEFINITIONS
1. Patent rights means the above set out in U.S. Patent Applications for
a Hydrogen Generation System and Fuel Pellet for a Hydrogen Generation System
and all present and future patents and patent applications as are or later
filed relating to the LICENSOR's invention in the United States, and any and
all foreign countries, if any.
2. Effective date shall mean the date first set forth in the preamble to
this Agreement.
3. Net selling price shall mean the price received on a sale to an
unrelated third party of each unit of a Hydrogen Generation System or Fuel
Pellet for a Hydrogen Generation System less any trade discounts as are
usually allowed and actually given, cost of returns and taxes, if any.
4. Sold shall mean when a unit of the invention hereinafter referred to
as "unit and/or fuel pellet" is manufactured, shipped or first used
commercially and has been paid for.
5. Inventor A reference to inventor refers to LICENSOR, Jed H. Checketts
6. Licensed subject matter means the LICENSOR's inventions and
improvements thereto as embodied in the subject U.S. Patent Applications for a
Hydrogen Generation System and a Fuel Pellet for a Hydrogen Generation System.
WITNESSETH
1. License Grant. LICENSOR hereby sells, grants, transfers and conveys
to LICENSEE an exclusive license to make, use and sell units of the licensed
<PAGE> 2
subject matter in the United States and throughout the world, including trade
secrets, know how, and the like. This license grant is limited to the
inventions and improvements thereto, and is for the United States and
throughout the world, and includes the right to sublicense others under the
terms and conditions of this Agreement, providing that such sublicensees agree
to be bound by all of the terms and conditions of this Agreement.
2. Royalties and Consideration LICENSEE, for and in consideration of the
granting of this Exclusive License Agreement, agrees to pay to LICENSOR, for
the term of this Agreement, a royalty of one (1) percent of the net selling
price for all wholesale or retail sales of "units and/or fuel pellets" of
LICENSOR's inventions, that include the improvements engineered thereto, and
products as are later developed as a result of LICENSOR's efforts, and as are
sold by LICENSEE or any sublicensee, in the United States and throughout the
world. Royalty payments to be paid quarterly, on or before the fifteenth (15)
day following the end of each calendar quarter. If such royalties are not paid
by the thirtieth (30) day from the last day of the previous calendar quarter,
the LICENSOR may terminate this Agreement as provided for in paragraph 8
below.
3. Minimum Production. LICENSEE agrees that from the date of this
Agreement it will, after a first year from the date of this Agreement for a
second year, produce and market "units" of the invention "fuel pellets" of the
invention each year for the term of this Agreement, and pay royalties thereon,
as set out in paragraph 2. Should this production schedule of sales of "units"
and/or "fuel pellets," coming under the subject U.S. Patent Applications, not
be produced in the second year or subsequent years, LICENSEE may keep this
license current by paying to LICENSOR as royalties for that year, an amount
equal to the royalties as would be paid on the number of "units" and/or pounds
of "fuel pellets," set out below, based upon the then net selling price of the
"units," with a minimum production of "units" and fuel pellets" being for a:
First year: no minimums;
Second year: LICENSEE shall have manufactured and sold at
least 50 "units" and/or 250,000 pounds of "fuel
pellets" by the end of the second year;
Third year: shall have manufactured and sold at least 50
"units" and/or 250,000 pounds of "fuel pellets,"
during a third year,
Fourth year: shall have manufactured and sold at least 150
"units" and/or 500,000 pounds of "fuel pellets,"
during a fourth year and
Fifth year and
for the
remainder
of this
Agreement: shall have manufactured and sold at least 250
"units" and/or 5,000,000 pounds of "fuel
pellets," during each year thereafter for the
term of this Agreement.
4. Time is of the Essence. LICENSEE agrees that time is of the essence in
commercially exploiting the technology licensed hereunder and accordingly
agrees to use their best efforts to develop for manufacture market ready
products embodying the rights licensed herein.
<PAGE> 3
5. Minimum Payments. The above minimum royalty payment amounts are due
and payable on the fifteenth (15) day of the month following the end of each
calendar year during the term of this Agreement. The greater of actual
royalties due or the minimum payment shall be paid. If any payment is not made
by the thirtieth (30) day of the month following the end of each calendar
year, the LICENSOR may terminate this Agreement as provided for in paragraph 8
below. Accordingly, if sales have been made during a calendar year and the
actual royalties due and paid on such sales is less than the required yearly
minimum, an appropriate amount must be added thereto to reach this minimum
amount to maintain this Exclusive License Agreement. Where royalties paid in
the previous four (4) quarters are greater that the minimum, no additional
amount is due.
6. Improvements. Subject to the terms and conditions of this Agreement,
and for so long as LICENSEE has fully performed all of its obligations and the
covenants set out hereunder, LICENSOR agrees that it will promptly make
available to LICENSEE all improvements, developments, discoveries and
inventions as LICENSOR shall acquire during the term of this Agreement and
relating to the licensed invention, and provided LICENSEE has paid for the
development of such improvements, then these improvements shall be included as
part of the licensed subject matter without additional payment. Should such
improvement result in the issue of an additional patent or patents, as set out
in paragraph 11 below, the term of this Agreement shall be extended to the end
of the life of such additional patent or patents, unless sooner terminated
hereunder.
7. Term. The term of the license herein granted shall commence on the
effective date of this Agreement and continue for the life of the last to
expire issued United States Patent concerning the licensed subject matter
including improvements as set out in paragraph 6 above as LICENSOR shall
acquire, or for the period of five (5) years from the effective date of this
Agreement, whichever is longer. As to foreign countries, this license shall
continue for such country where a patent has been granted for the life of the
last to expire patent issued in such country.
8. Termination This Agreement can be terminated by LICENSEE at any time
after the effective date hereof by LICENSEE notifying LICENSOR of such
termination in writing directed by registered mail to LICENSOR at the address
set out herein or other address supplied by LICENSOR to LICENSEE. Such
termination shall be effective thirty (30) days from the date received by
LICENSOR
LICENSOR, at its discretion, may terminate this Agreement should LICENSEE
fail to pay any required royalty when due as provided in paragraph 2 above, or
timely meet or pay any required minimum production set out in paragraph 3
above, or minimum payments as provided for in paragraph 5 hereinabove.
Termination shall be effective after notice is sent by LICENSOR to LICENSEE by
registered mail addressed to LICENSEE's address set out hereinbelow or to an
address as later supplied by LICENSEE to LICENSOR, LICENSEE to have thirty
(30) days after receipt of notice of termination to correct the cited default
by bringing all required payments current together with interest at a rate of
twelve (12) percent per annum from the date(s) that such payments were due on.
If default is not corrected within the thirty (30) day period, this license
shall be null and void without a requirement for further action by LICENSOR.
At the occurrence of a default by LICENSEE of the terms and conditions of this
Agreement other than the above set out failure to make minimum payments or pay
royalties, LICENSOR may, in its sole discretion, give notice of their
intention to terminate this Agreement if such default is not timely corrected.
<PAGE> 4
Which notice shall be sent by registered mail to LICENSEE's address set out
hereinbelow or other address as LICENSEE shall supply to LICENSOR. Such notice
shall recite the claimed default with reference to this Agreement. Upon
receipt of such notice, LICENSEE shall take prompt steps to correct the
default and shall timely inform LICENSOR of the steps taken. Should LICENSEE
fail to take appropriate measures to correct such default, LICENSOR, after
thirty (30) days, may notify LICENSEE of the termination of this Agreement,
which notice shall be sent by registered mail as set out above. LICENSEE shall
then have an additional thirty (30) day period to correct said default to
LICENSOR's satisfaction, or shall during this time period have taken steps to
correct said default to LICENSOR's satisfaction. At the end of this second
thirty (30) day period from receipt of the notice of termination, if LICENSEE
has not corrected the default or taken steps to correct said default to
LICENSOR's satisfaction, this Agreement is automatically terminated without a
requirement for further action by LICENSOR. Should LICENSEE correct the said
default within the second thirty (30) day period to LICENSOR's satisfaction,
or have taken steps that are satisfactory to LICENSOR that will correct such
default, then the notice of default and/or notice of termination will be
considered withdrawn.
9. LICENSEE's Obligations Upon Termination. LICENSEE agrees that, upon
termination, for any reason, all rights as they may have acquired under this
Agreement shall and do immediately cease. Accordingly, LICENSEE, upon
termination, will immediately cease any and all production and sale of "units"
and/or "fuel pellets" of the inventions and components thereof and will turn
over to LICENSOR or to his agent, at LICENSOR's request, all technical data,
materials, blueprints, plans, and like written materials, including computer
programs, as may be in their possession relating to the licensed subject
matter. LICENSEE shall further turn over to LICENSOR or to his agent, at
LICENSOR's request, all molds, dyes, jigs, tooling, and the like, as were used
in or relate to the manufacture of "units" and/or "fuel pellets" of the
inventions. LICENSEE, upon termination, will immediately cease and desist from
further manufacture and sale of "units" and/or "fuel pellets" of the
inventions, their components and the like. Upon termination LICENSEE shall
promptly notify LICENSOR of the number of "units" and/or "fuel pellets" on
hand of the inventions that have been produced and the number and state of
completion of "units" and/or "fuel pellets" of the inventions that are under
construction. "units" of the invention, LICENSEE shall have the right to
promptly complete said "units" of the invention as are classifiable as forty
percent or more completed at the date of their receipt of the notice of
termination and LICENSEE shall, for a reasonable period of time, not to exceed
one hundred eighty (180) days, have the right to sell these "units" and/or any
"fuel pellets" previously made at a fair market price in the normal course of
business, said sales to be governed by LICENSEE's pricing schedule in place at
the time of termination. "Units" and/or "fuel pellets" that have not been sold
within that one hundred eighty (180) day period, will be offered for purchase
to LICENSOR at the LICENSEE's cost of manufacture. Should LICENSOR determine
not to purchase said "units" and/or "fuel pellets," then LICENSEE shall have
an additional one hundred eighty (180) day period to sell said "units" and/or
"fuel pellets" at whatever price they can negotiate, except that LICENSOR
shall have a right of first refusal to buy all or part of said "units" and/or
"fuel pellets" at the offered price. such right to purchase must be accepted
by LICENSOR within ten (10) days of their receipt of a written notice from
LICENSEE. After the expiration of said ten (10) day period, provided LICENSOR
has not accepted the offer, LICENSEE may dispose of said "unit" or "units"
and/or "fuel pellets" to such other offeror.
As to LICENSEE's inventory of parts and supplies and "units" and/or "fuel
<PAGE> 5
pellets" that are less than forty (40) percent completed, LICENSEE and
LICENSOR shall negotiate in good faith for LICENSOR to purchase these
materials. Except that LICENSOR shall not purchase these materials for less
than ten (10) percent of LICENSEE's cost.
Upon termination, any leases, contracts, and agreements as LICENSEE may
have entered into or negotiated as relating to the manufacture and sale of
"units" and/or "fuel pellets" of the inventions, may be assumed by LICENSOR,
at LICENSOR's sole discretion. In such assumption, LICENSOR is hereby granted
the right and authority to negotiate directly with parties LICENSEE has
contracted with an effort to negotiate more favorable terms. However, should
terms less than what LICENSEE is obligated for be negotiated, such assumption
terms must then be approved by LICENSEE. It is understood, however, that
LICENSOR is not obligated to undertake or assume any liability of LICENSEE
under any contracts as LICENSEE has entered into and that LICENSOR will only
become liable for such agreements as they expressly, in writing, assume.
Termination of this Agreement shall not relieve LICENSEE of any burden or
obligation of payment for past royalties or past minimum payments to LICENSOR
and for payment of royalties on "units" and/or "fuel pellets" of the
inventions as have been manufactured or whereon manufacture is completed and
sold after termination of this Agreement. Accounting for such sales shall be
as provided for in paragraph 17 hereinbelow.
10. Confidentiality. LICENSEE agrees to maintain as confidential all of
the subject matter licensed hereunder, including trade secrets, and the like,
as may be disclosed by LICENSOR to LICENSEE, in conjunction with or subsequent
to the execution of this Agreement. LICENSEE shall maintain as proprietary and
confidential all information relating to design and improvements that are or
maybe the subject of United States and/or foreign patent applications.
LICENSEE will, within their manufacturing facility or the like, maintain close
controls on entry and movement of persons within such manufacturing facility
as are appropriate to maintain as confidential and as trade secrets the
activities conducted within such facility, including, but not limited,
requiring persons entering such facility to agree in writing to be bound by
the terms and conditions of an acceptable Confidential Disclosure Agreement.
Such Confidential Disclosure Agreement is to be approved by LICENSOR in
advance of use and shall be maintained after signing by LICENSEE for
LICENSOR's inspection.
11. Patent Applications. LICENSEE, by this Agreement, agrees to be
responsible for paying for the filing and prosecuting additional patent
applications, if any, utilizing patent counsel as selected by LICENSOR only,
covering the licensed subject matter of this Agreement in the United States
and foreign countries and improvements thereon as it elects, to allowance,
final judgement, refusal or abandonment. LICENSEE shall timely elect specific
countries as they determine to file patent applications in and shall notify
LICENSOR of such determination. LICENSOR, at its option and with the
cooperation of the inventors, shall then have the right to select any
additional foreign countries as LICENSOR elects to file patent applications
in. Should LICENSOR so elect, then, at the option of LICENSEE, any patent
rights granted in such additional foreign country shall and will become part
of the licensed subject matter of this Agreement, and are then considered as
having been licensed hereunder to LICENSEE.
Should this Agreement be terminated, as set out above, upon the request
of LICENSOR, LICENSEE will promptly execute appropriate documents for
transferring any title to LICENSOR as they may be acquired to issued patents
<PAGE> 6
and patent applications, and shall turn over to LICENSOR all materials
associated therewith and shall, at the request of LICENSOR, cooperate with the
LICENSOR in continuing the prosecution of such patent applications and will
take ail reasonable steps necessary to protect and preserve such patent rights
to the benefit of LICENSOR.
12. Trademarks. LICENSEE, whether with or without the input of LICENSOR,
may adopt a trademark or trademarks covering "units" and/or "fuel pellets" of
the inventions, for example "Power Ball TM." Upon termination, LICENSEE agrees
that such marks as have become identified with the subject matter of this
Agreement shall be conveyed by separate assignment to LICENSOR. Which
assignment shall include a conveyance of the rights as LICENSEE shall have
acquired in such mark or marks, as will expressly including the goodwill
associated therewith. This Trademark Assignment will be made without cost to
LICENSOR and shall be executed in conjunction with other assignments and
conveyances of the rights licensed as called for herein.
13. Patent Notice. LICENSEE acknowledges the importance of protecting
patent rights and accordingly agrees to attach a suitable name plate, located
in a prominent position, to each "unit" or to a, container housing "fuel
pellets" or the like, covered by this Agreement, which name plate, label, or
the like, shall indicate that the product has been manufactured under license
from LICENSOR and will set forth the U.S. and foreign Patent Numbers, and any
additional patent numbers, if any, both United States and foreign, and may
indicate that other patents are pending at the time of the manufacture, if
applicable, covering the licensed subject matter. This notice shall be in
conformity with requirements of United States statutes relating to the marking
of patented devices.
14. Infringement LICENSEE agrees to notify LICENSOR promptly of any claim
of, or threatened action or suit for infringement, of any patents belonging to
third parties, made or brought against LICENSEE by reason of LICENSEE's
exercise of rights granted hereunder. LICENSOR, upon notification, shall have
the right to take charge of the defense of such action, as LICENSOR
determines, including the hiring of attorneys of its own selection, or may
elect to indemnify or hold harmless LICENSEE, who shall defend any such action
through attorneys of LICENSEE's own selection. If any such action should be
instigated against LICENSOR and LICENSEE jointly, LICENSEE shall defend such
action on behalf of both parties through attorneys of its choosing providing
such attorney is acceptable to LICENSOR LICENSOR shall assist with such
defense and accordingly shall without charge make available to LICENSEE any
relevant records, information, samples, tests, reports, engineering data, and
the like, and shall at its own cost make all reasonable efforts to secure the
testimony of its employees and shall cooperate with such defense as requested
by LICENSEE. LICENS OR, however, shall have the right to participate in the
defense of any such action at its own expense through counsel of its own
choosing.
In the event LICENSEE shall determine that one or more of the patent
rights licensed hereunder are being infringed, LICENSEE shall not communicate
with such suspected infringer and shall provide LICENSOR with evidence as
LICENSEE may have acquired showing such infringement. If LICENSOR shall
determine that an infringement exists, LICENSOR may take action to suppress
the infringement to the extent of bringing suit against such infringer, if
necessary. LICENSOR, however, is under no obligation to bring such suit or to
prosecute more than one suit at a time involving a claim for infringement of
any of the patents licensed hereunder. In the event LICENSOR declines to bring
suit or to prosecute more than one suit at a time involving a claim for
<PAGE> 7
infringement of his patent or patents licensed hereunder, LICENSEE, with the
permission of LICENSOR, may bring such suit at its own expense. If LICENSEE
shall bring such suit and recover, then LICENSEE alone shall enjoy the benefit
of such recovery. Should LICENSEE and LICENSOR determine to jointly or
collectively bring action for infringement, then any recovery therefrom shall
be divided between LICENSOR and LICENSEE based on the financial contributions
of the respective parties, which contribution of LICENSOR may be provided by
his foregoing royalties as provided for herein
15. Patent Invalidity. It is agreed that if a judgemetn is entered by a
court of competent jurisdiction in any proceeding in which any claim or claims
of one or more of the patent or patents licensed under this Agreement is found
to be invalid for any reason, and should such judgement become final, such
rights to such invalidated claim or claims will cease to be part of the
subject matter licensed hereunder. However, the parties hereby acknowledge
that this Agreement is not founded on any single patent or claim or claims
thereof but is also to technology, know how and trade secrets, and therefore
the invalidity of a single claim, claims, patent or even several patents of
the licensed subject matter shall not alter or modify the terms and conditions
of this Agreement.
16. Assignment. This Agreement is personal to LICENSOR and may not be
assigned without written approval by LICENSEE except in the event of the death
of LICENSOR, the rights to payments provided for hereunder shall survive and
are inheritable by his estate to continue for as long as this Agreement is in
full force and effect. It is, however, assignable by LICENSEE to a successor
to its entire business or to a third party as approved by LICENSOR who will
not unreasonably withhold his approval, which third party will agree in
writing in advance of such assignment to be bound to the terms and conditions
of this Agreement. Assignment will, however, in no way relieve LICENSOR or
LICENSEE of their obligations under the provisions of this Agreement.
17. Reports, Records, and Payments. Before the thirtieth (30) day
following each quarterly period ending September 30, 1997, December 31, 1997,
and March 31, 1998, June 30, 1998, and so on, respectively, from the date of
the signing of this Agreement, all production minimums and sales, and related
royalties payable hereunder shall be reported to LICENSOR. LICENSEE shall
furnish to LICENSOR a statement, certified by an officer of LICENSEE, showing
all licensed "units" and/or "fuel pellets" manufactured and sold by LICENSEE
during such quarter. This report shall include details of all production and
sales and a computation of the royalties payable pursuant to paragraph 3
hereof. In that itemization, sales of all companies operating as sublicensees
of LICENSEE shall also be reported. This statement shall be submitted to
LICENSOR even if no sales have taken place during the applicable quarterly
period.
Concurrent with the conveyance of such royalty report, LICENSEE shall pay
to LICENSOR all royalties as are due and payable. All sums of money payable by
LICENSEE to LICENSOR under this Agreement shall be paid in United States
currency and to the LICENSOR directly, or to an account designed by LICENSOR.
Payment shall be made in accordance with the definition of net selling price
of "units" and/or "fuel pellets" of the inventions licensed hereunder, as set
out in the definitions portion of this Agreement. Where foreign currency is
received, such shall be converted into United States currency using the
foreign exchange rate as set for bank transfers in the United States for
payment abroad, less all expenses relating to the conversion and/or collection
thereof. The exchange rate shall be that which is in effect for the last
business day of a calendar quarter in which the sales were made.
<PAGE> 8
LICENSEE shall keep complete, true and accurate books of account
containing all particulars of their business activities as necessary for
demonstrating the accuracy of the report rendered to LICENSOR setting out the
amount to be paid to LICENSOR by way of royalties, as set forth above. Such
books of account and supporting data shall be open at any reasonable time for
a period of five (5) years following the end of a calendar year to which they
pertain for the inspection of LICENSOR, or his representatives, for the
purpose of verifying LICENSEE's royalty statements, or LICENSEE's compliance
with respect to other aspects of this Agreement.
18. Disclaimer of Liability. LICENSEE agrees to assume all financial and
service obligations for products manufactured and sold by it, and hereby
expressly absolves and holds harmless LICENSOR from all liability and/or
responsibility to LICENSEE and/or to others, including third parties, for any
failure in production, design, operation or otherwise, including fitness of
purpose and inherent defects, for products manufactured and sold by LICENSEE.
19. Non-waiver Provisions. Failure by LICENSOR or LICENSEE to enforce any
provision of this Agreement, or any right in respect hereto, or to exercise
any election herein shall in no way be considered to be a waiver of such
provision, right, or election nor in any way shall such effect the validity of
this Agreement. The exercise by LICENSOR or LICENSEE of any of their rights,
herein or any of their elections under the terms or conditions herein shall
also not preclude or prejudice LICENSOR or LICENSEE from exercising the same
or any other right as they may have under this Agreement irrespective or any
previous action or proceeding taking by LICENSOR or LICENSEE hereunder.
20. Termination/Bankrupcy Unless otherwise provided by law, LICENSOR
shall have the right to terminate this Agreement and any sublicense or
sublicenses granted hereunder upon the filing by LICENSEE of a petition in
bankruptcy or insolvency, or upon or after a declaration of bankruptcy or
insolvency, or upon or after the filing by LICENSEE of any petition or answer
seeking reorganization, readjustment or arrangement under any law relating to
bankruptcy or insolvency, as could involve the appointment of receiver for all
or any part of the property of LICENSEE, or upon or after the initiation by
LICENSEE of any proceedings for the liquidation or winding up of its business
or for the termination of its corporate charter; and upon the exercise of such
rights, any licenses or sublicenses granted shall automatically terminate
fifteen (15) days after notice in writing to that effect has been given by
LICENSOR to LICENSEE or to sublicensees
Should, however, a petition in bankruptcy or insolvency, or upon or after
a declaration of bankruptcy or insolvency, or upon or after the filing by
LICENSEE of any petition or answer seeking reorganization, readjustment or
arrangement under any law relating to bankruptcy or insolvency, as could
involve the appointment of receiver for all or any part of the property of
LICENSEE, or upon or after initiation by LICENSEE of any proceedings for the
liquidation or winding up of its business or for the termination of its
corporate charter, and a court block termination it is agreed that the
provisions of paragraphs 2 and 3 shall remain in force and effect and all
amounts due and payable thereunder shall accrue as a responsibility of a
subsequent taker, who acquires from such court the rights and responsibilities
under this Agreement.
21. Construction. This Agreement shall be governed by and construed in
accordance with the laws of the United States of America and the State of
Utah. This Agreement constitutes the entire agreement between the parties with
respect to the subject matter licensed hereunder, and shall supercede any
<PAGE> 9
previous communications, representations, understandings and agreements,
either oral or written, between the parties or any officer to representative
thereof with respect to the subject matter of this Agreement.
22. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, and
supercedes all prior agreements, understandings, negotiations and discussions,
whether oral or written, relating to the subject matter of this Agreement. No
supplement, modification, waiver or termination of this Agreement shall be
valid unless executed by the party to be bound thereby. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver
of any other provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
23. Notices. Any notice or other communication required or permitted
hereunder shall be in writing and shall be deemed to have been given (i) if
personally delivered, when so delivered, (ii) if mailed, one (1) week after
having been placed in the United States mail, registered or certified, postage
prepaid, addressed to the party to whom it is directed at the address set
forth below:
If to LICENSOR:
Jed H. Checketts
3033 West 3650 South
West Valley City, Utah 84119
With a copy to:
M. Reid Russell, Esq.
261 East 300 South, Suite 300
Salt Lake City, Utah 8411 1
If to LICENSEE:
Powerball Industries, Inc.
2095 West 2200 South
West Valley City, Utah 84119
Either party may change the address to which such notices are to be
addressed by giving the other party notice in the manner herein set forth.
24. Third Parties. Nothing in this Agreement, expressed or implied, is
intended to confer upon any person other than LICENSOR or LICENSEE any rights
or remedies under or by reason of this Agreement.
25. Injunctive Relief. Each party hereby acknowledges and agrees that it
would be difficult to fully compensate the other party for damages resulting
from the breach or threatened breach of any provision of this Agreement and,
accordingly, that each party shall be entitled to temporary and injunctive
relief, including temporary restraining orders, preliminary injunctions and
permanent injunctions, to enforce such provisions without the necessity of
proving actual damages or being required to post any bond or undertaking in
connection with any such action. This provision with respect to injunctive
relief shall not diminish, however, the right of either party to any other
relief or to claim and recover damages.
26. Headings. Section and subsection headings are not to be considered
part of this Agreement and are included solely for convenience and reference
and in no way define, limit or describe the scope of this Agreement or the
intent of any provisions hereof.
<PAGE> 10
27. Attorneys' Fees. In the event any party takes legal action to enforce
any of the terms of this Agreement, the unsuccessful party to such action
shall pay the successful party's expenses (including, but not limited to,
attorneys' fees and costs) incurred in such action.
28. Arbitration. Any controversy arising out of or relating to this
Agreement or the transactions contemplated hereby shall be referred to
arbitration before the American Arbitration Association strictly in accordance
with the terms of this Agreement and the substantive law of the State of Utah.
The board of a arbitrators shall convene at a place mutually acceptable to the
parties in the State of Utah and, if the place of arbitration cannot be agreed
upon, arbitration shall be conducted in Salt Lake City, Utah. The parties
hereto agree to accept the decision of the board of arbitrators, and judgement
upon any award rendered hereunder may be entered in any court having
jurisdiction thereof. Neither party shall institute a proceeding hereunder
until that party has furnished to the other party, by registered mail, at
least thirty (30) days prior written notice of its intent to do so.
29. Force Majeure. Except for obligations of payment neither LICENSOR nor
LICENSEE shall be liable for non-performance caused by any circumstances
beyond their reasonable control, including, but not limited to, lightning,
earthquake, storm, strike, lockout or other industrial disturbance, shortage
of necessary labor, acts of enemies, sabotage, war, blockage, insurrection,
riot, epidemic, landslide, flood, fire, washout or the order of any court or
authority, which circumstance by the exercise of due diligence the party
invoking this paragraph 29 is unable to prevent or overcome; provided,
however, that (i) lack of financial capacity shall in no event be deemed to be
a cause beyond a party's control and (ii) no party shall be entitled to invoke
this paragraph 29 if the failure to observe or perform any of the covenants or
obligations herein imposed upon it was caused by such party failing to act in
a reasonable and prudent manner under the circumstances, or failing to remedy
the condition with reasonable diligence, or failing to give notice as soon as
possible after determining that an event of force majeure has occurred and
specifying those covenants or conditions such party will be unable to perform,
or was the result of a knowing or negligent breach by such party of any
applicable laws, regulations, agreements or contracts.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the day
and year first written above.
/S/JED H. CHECKETTS/INVENTOR and LICENSOR
POWERBALL INDUSTIES, INC., LICENSEE
By: /S/Jed H. Checketts
Its: President
<PAGE>
Exhibit 10.02
ASSIGNMENT OF EXCLUSIVE LICENSE AGREEMENT
This Assignment of Exclusive License Agreement is made effective December
4, 1997 between Powerball Industries, Inc., a Utah corporation ("Industries")
and Powerball Technologies, L.L.C., a Limited Liability Company
"Technologies".
RECITALS
By an exclusive License Agreement dated November 6, 1997, ("License") a
copy of which is attached as Exhibit "An, Industries acquired from Jed H.
Checketts ("Checketts") the exclusive right in the United States of America
and throughout the world to certain patent and intellectual property rights
owned by Checketts.
Technologies desires to acquire the License from Industries, and
Checketts has consented to an assignment of the License.
It is therefore agreed:
1. Assignment. As consideration for a 50% ownership interest in
Technologies, Industries hereby assigns to Technologies the License and all of
Industries' right, title and interest thereunder, subject to the covenants and
conditions set forth in the License.
2. Covenants of Industries. Industries warrants that the License is now
valid and in full force, that all royalties reserved therein have been paid up
to December 4 1997, and that all of the covenants and conditions of the
License have been fulfilled.
3. Covenants of Technologies. Technologies shall pay to Checketts all
royalities granted to Checketts under the License from and after December 4
1997, shall fulfill all the royalties, covenants and conditions required to be
fulfilled by Industries under the License, and shall indemnify Industries
against all damages costs, and expenses in respect of such royalties,
covenants, and conditions.
In witness whereof the parties have signed this Assignment.
POWERBALL INDUSTRIES, INC. POWERBALL TECHNOLOGIES , L.L.C.
By: /s/Jed H. Checketts, President By: /s/Jed H. Checketts, President
I hereby consent to the above assignment, reserving all my rights pursuant to
the License.
/s/Jed H. Checketts
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001048237
<NAME> NATEX CORPORATION
<S> <C> <C>
<PERIOD-TYPE> 3-MOS YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1998
<PERIOD-END> MAR-31-1999 DEC-31-1998
<CASH> 179,781 65,664
<SECURITIES> 0 0
<RECEIVABLES> 69,000 44,000
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 248,781 109,664
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 420,685 301,099
<CURRENT-LIABILITIES> 0 0
<BONDS> 0 0
0 0
0 0
<COMMON> 539,000 400,000
<OTHER-SE> (118,315) (98,901)
<TOTAL-LIABILITY-AND-EQUITY> 420,685 301,099
<SALES> 0 0
<TOTAL-REVENUES> 0 0
<CGS> 0 0
<TOTAL-COSTS> 1,171 22,891
<OTHER-EXPENSES> 18,144 49,875
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 0
<INCOME-PRETAX> (19,415) (72,866)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 0 0
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (19,415) (72,866)
<EPS-PRIMARY> (0.021) (0.121)
<EPS-DILUTED> (0.021) (0.121)
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