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Preliminary Information Statement
Dated: April 14, 2000
Natex Corporation
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 15, 2000
TO THE SHAREHOLDERS OF NATEX CORPORATION:
A special meeting of the shareholders (the "Special Meeting") of Natex
Corporation (the "Company"), will be held at the office of Taylor and
Associates, Inc., located at 3090 East 3300 South, Suite 400, Salt Lake City,
Utah 84109, on May 15, 2000, at 9:00 a.m., Mountain Daylight Time, to:
1. Elect three directors to serve until the expiration of their
respective terms and until their respective successors are elected and
qualified;
2. Adopt an agreement and plan of merger under which the Company will
issue 1,500,000 shares of the Company's common stock in exchange for all of
the issued and outstanding stock of Powerball Industries, Inc.
3. Approve the Company's 2000 Stock Option and Award Plan;
4. Consider and act upon the ratification of the appointment of David
Thomson, P.C., as independent public accountants; and
5. Transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE THE ABOVE PROPOSALS
WHICH ARE DESCRIBED IN MORE DETAIL IN THE ACCOMPANYING INFORMATION STATEMENT.
MEETING.
ONLY SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS ON APRIL __, 2000
(THE "RECORD DATE"), ARE ENTITLED TO NOTICE OF AND TO VOTE AT THE SPECIAL
MEETING. MEMBERS OF MANAGEMENT AND PRINCIPAL SHAREHOLDERS WHO, COLLECTIVELY
HOLD IN EXCESS OF 50% OF THE COMPANY'S ISSUED AND OUTSTANDING SHARES HAVE
INDICATED THEIR INTENTION TO VOTE IN FAVOR OF THE PROPOSALS. AS A RESULT, THE
PROPOSALS WILL BE APPROVED WITHOUT THE AFFIRMATIVE VOTE OF ANY OTHER
SHAREHOLDER. ALTHOUGH MANAGEMENT IS NOT ASKING FOR A PROXY AND YOU ARE
REQUESTED NOT TO SEND US A PROXY, SHAREHOLDERS MAY BE PRESENT AT THE SPECIAL
MEETING AND VOTE THEIR SHARES IN PERSON OR BY PROXY. MANAGEMENT DOES,
HOWEVER, ENCOURAGE ALL SHAREHOLDERS TO ATTEND THE SPECIAL MEETING IN PERSON.
BY ORDER OF THE BOARD OF DIRECTORS
Robert B. Ipson, President
Salt Lake City, Utah
April 14, 2000
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Natex Corporation
3150 South 900 West
Salt Lake City, Utah 84119
INFORMATION STATEMENT
This Information Statement is furnished to shareholders of the Company in
connection with a Special Meeting to be held at the office of Taylor and
Associates, Inc., located at 3090 East 3300 South, Suite 400, Salt Lake City,
Utah 84109, on May 15, 2000, at 9:00 a.m., Mountain Daylight Time.
At the Special Meeting, the shareholders will consider and vote on
proposals to:
1. Elect three directors to serve until the expiration of their
respective terms and until their respective successors are elected and
qualified;
2. Adopt an agreement and plan of merger under which the Company will
issue 1,500,000 shares of the Company's common stock in exchange for all of
the issued and outstanding stock of Powerball Industries, Inc.
3. Approve the Company's 2000 Stock Option and Award Plan;
4. Consider and act upon the ratification of the appointment of David
Thomson, P.C., as independent public accountants; and
5. Transact such other business as may properly come before the Special
Meeting or any adjournment thereof.
MANAGEMENT IS NOT ASKING FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A
PROXY, HOWEVER SHAREHOLDERS MAY BE PRESENT AT THE SPECIAL MEETING AND VOTE
THEIR SHARES IN PERSON OR BY PROXY. MANAGEMENT ENCOURAGES ALL SHAREHOLDERS TO
ATTEND THE SPECIAL MEETING IN PERSON. THIS INFORMATION STATEMENT IS BEING
MAILED ON OR ABOUT APRIL __, 2000 TO ALL SHAREHOLDERS ENTITLED TO VOTE AT THE
SPECIAL MEETING.
Only holders of record of the 1,469,000 shares of Common Stock
outstanding as of the Record Date are entitled to vote at the Special Meeting.
Each shareholder has the right to one vote for each share of Common Stock
owned. Cumulative voting is not provided for. Holders of more than 50% of
the 1,469,000 shares of Common Stock outstanding must be represented at the
Special Meeting to constitute a quorum for conducting business. Approval of
the proposals discussed above requires the affirmative vote of a majority of
issued and outstanding shares of Common Stock.
The Company's officers, directors, and principal shareholders owning or
controlling, in the aggregate, greater than 50% of the issued and outstanding
shares of Common Stock on the Record Date have indicated their intention to
vote in favor of the proposals. Accordingly, the proposals will be approved
without the affirmative vote of any other shares.
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PROPOSAL NO. 1
ELECTION OF BOARD OF DIRECTORS
The names of the Company's current executive officers and directors and
the positions held by each of them are set forth below:
Name Position with Company Officer or Director Since
Robert K. Ipson President/Director July 1997 to date
Shorland G. Hunsaker Vice President/Director July 1997 to date
Phillip L. McStotts Secretary/Treasurer/Director July 1997 to date
The Company's officers and directors have served in such positions since
the dates indicated above. The following persons have been nominated for
election as directors of the Company: Robert K. Ipson, Phillip L. McStotts and
Jed Checketts . Certain biographical information with respect to such persons
is set forth below. Each director, if elected by the shareholders, will serve
until the next annual meeting and until his or her successor is duly elected
and qualified. Vacancies on the board during the year may be filled by the
majority vote of the directors in office at the time of the vacancy without
further action by the stockholders.
Biographical Information on Nominees
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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. Mr. Ipson has been an officer
and/or director of several publicly held companies including the following:
Carrigan Gold Corporation-president/director 1984-1986; Nova Gold Corporation-
president/director 1983-1984; Petro Development Corporation-president/director
1983-1984 and 1989-1992; Midas Gold Corporation-vice president/director 1983-
1984; Pathfinder's Resources, Inc.-president/director 1983-1987; K.M.A., Inc.-
president/director 1983-1986; Megagold Corporation-president/director 1984-
1986; Datex Resources, Inc.-president/director 1985-1986; Lintex Resources,
Inc.-president/director 1986-1988 and 1989-1996; and Adlex Corporation-
president/director 1989-1992. Mr. Ipson was a director of Interline Resources
Corporation, a publicly held company engaged in the oil and gas business from
1989-1992.
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.
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. Mr. Checketts is the inventor of a Hydrogen Generation
System and Fuel Pellet for a Hydrogen Generation System which forms the
technological basis for the joint venture in which the Company is invested.
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Vote Required
Election of the proposed slate of nominees requires the approval of a
majority of the Shares present, in person or represented by proxy, and
entitled to vote at the Special Meeting. Members of management and other
principal shareholders holding or controlling the vote of in excess of fifty
percent (50%) of the issued and outstanding Shares entitled to vote at the
Special Meeting have indicated their intention to vote "FOR" all of the
nominees. The board of directors unanimously recommends a vote "FOR" all of
the nominees.
PROPOSAL NO. 2
AGREEMENT AND PLAN OF MERGER
General
The board of directors has adopted resolutions, subject to shareholder
approval, providing for a merger (the "Agreement and Plan of Merger") of the
Company with Powerball Industries, Inc. ("PIC"). Under the Agreement and Plan
of Merger, the Company will acquire all the issued and outstanding stock of
PIC in exchange for the issuance of one million five hundred thousand
(1,500,000) shares of the Company's common stock. If the Agreement and Plan
of Merger is approved by the shareholders, the 1,469,000 shares of common
stock presently issued and outstanding would be increased to 2,969,000 by the
issuance of the shares.
Natex's Reasons for the Merger
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PIC is the owner of all rights, title and interest in certain technology
relating to 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 above invention in the United States,
and any and all foreign countries, if any (hereinafter the "Technology"). PIC
is the Company's joint venture partner in Powerball Technologies, LLC (the
"JV"). The JV holds an Assignment for the Technology subject to certain
royalty payments to Jed Checketts, the inventor of the Technology. The
Technology forms the basis for the operations of the JV, and is the essential
reason the Company is invested in the JV.
Management believes it is in the best interest of the Company and its
shareholders to obtain direct ownership of the Technology by effecting a
merger with PIC. The merger will also consolidate ownership of the JV, with
the JV becoming a wholly-owned subsidiary of the Company.
PIC's Reasons for the Merger
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PIC was formed primarily to act as holding company for the Technology,
and to serve as an existing entity in the event that PIC's relationship with
Natex and the JV did not produce its intended results in terms of financing
and start-up operations for testing the Technology. Management of PIC is now
prepared to merge into Natex in exchange for the equity interest outlined
below.
Terms of the Transaction
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1. Technology. All rights, title and interest in the technology covered
by the Assignment of the Exclusive License Agreement between Powerball
Technologies, LLC and PIC, dated December 4, 1997 (the "Technology"), to PIC.
The Technology will become the property of the Company following the merger,
subject to royalty payments to Jed Checketts based on the gross sales of
Powerball Technologies, LLC.
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2. Share Exchange. The Company will issue a total of one million five
hundred thousand (1,500,000) shares of its common stock to the shareholders of
PIC in exchange for all of the issued and outstanding stock of PIC.
3. Rewriting of Assignment of the Exclusive License Agreement. At the
effective date of the merger, the Company will rewrite the Assignment of the
Exclusive License Agreement dated December 4, 1997 under which Powerball
Technolgies, LLC (the "JV") currently has rights and obligations relating to
the above Technology.
4. Royalty Agreement. Upon the merger, the Company will enter into a
royalty agreement with Jed Checketts for payments based on the gross sales of
Powerball Technologies, LLC.
5. Appointment of President. Upon the merger, Jed Checketts will be
appointed President of the Company.
6. Name Change. Upon the merger, the Company's name will be changed to
Powerball International, Inc., to better reflect the focus of the Company's
business and provide clear indentification with Powerball Technologies, LLC,
the operating subsidiary.
Interest of Certain Persons in the Acquisition
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In considering the recommendation of the Company's management with
respect to the Agreement and Plan of Merger, neither the Company's management
nor PIC's management will receive any benefits arising from their ownership of
the Company's common stock as a result of the acquisition that will not be
equally extended to all of the Company's and PIC's shareholders. No member of
the Company's management has an ownership interest in PIC and, other than
disclosed herein in regards to Jed Checketts, PIC shareholders have no
ownership interest in the Company prior to the completion of the acquisition.
Jed Checketts is a shareholder of the Company, holding 15,000 shares of the
Company's common stock prior to the contemplated merger. Mr. Checketts is
currently employed by the JV, and will be appointed President of the Company
upon completion of the contemplated merger.
Special Note Concerning Utah Dissenters' Rights
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Shareholders have dissenters' rights in Utah as a result of the
potential merger described more fully above, and, therefore, the Company will
offer dissenters' rights to its shareholders. Shareholders who oppose the
merger will have a right to receive payment for the value of their shares if
the merger is approved, as set forth in sections 16-10a-1301 et seq., of the
Utah Revised Business Corporation Act. A copy of these sections is attached
hereto as Appendix "A" to this Information Statement. The requirements for a
shareholder to exercise his or her rights under these provisions are very
technical in nature, and the following summary is qualified in its entirety by
the actual statutory provisions which should be carefully reviewed by any
shareholder wishing to assert such rights.
Under the Utah statutes, such dissenters' rights will be available only
to those shareholders of the Company who (i) object to the merger in writing
prior to or at the Special Meeting (a negative vote will not itself constitute
such a written objection); (ii) vote against approving the merger at the
Special Meeting; (iii) file a written demand with the Company prior to the
Special Meeting requesting payment of the fair value of the shares which they
hold; and (iv) meet other requirements of the governing Utah statutes.
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Within ten days after the effective date of the merger, the Company must
send to each shareholder who has satisfied all of the foregoing conditions
(each a "Dissenting Shareholder" and, together, the "Dissenting Shareholders")
a written notice in which the Company must offer to pay Dissenting
Shareholders for their shares at a price deemed by the Company to be the fair
value of such shares and supply a form for Dissenting Shareholders to demand
payment. Dissenting Shareholders will have 60 days to make their payment
demands or lose such rights. If the fair market value of the shares is agreed
on between the Dissenting Shareholders and the Company within 60 days after
the effective date of the exercise of the Acquisition or Sale Rights, the
Company must make payment within 60 days after the effective date on surrender
of the certificates representing such shares.
If the Dissenting Shareholders do not agree on the fair value of the
shares within the 60 day period, then within 60 days after receipt of written
demand from any Dissenting Shareholder, the Company shall initiate a judicial
proceeding seeking determination of the fair value of such shares. If the
Company fails to institute such a proceeding, it must pay the Dissenting
Shareholders the amount demanded. All Dissenting Shareholders must be a party
to the proceeding, and all such shareholders will be entitled to judgment
against the Company for the amount of the fair value of their shares, to be
paid on surrender of the certificates representing such shares. The judgment
will include an allowance for interest (at a rate determined by the court)
from the date on which the vote was taken on the Acquisition or Sale Rights to
the date of payment.
Within 20 days after demanding payment, whether or not a judicial
proceeding is instituted, each Dissenting Shareholder demanding payment must
submit the certificates representing his or her shares to the Company for
notation that such demand has been made. Failure to do so will permit the
Company to terminate the shareholder's valuation rights under the Utah statute
unless a court should otherwise direct.
The loss or forfeiture of appraisal rights simply means the loss of the
right to receive a cash payment from the Company in exchange for shares. In
such event, the Dissenting Shareholder will still hold the appropriate number
of shares of the Utah corporation.
Accounting Treatment
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The Company will acquire all of the issued and outstanding shares of
Powerball in exchange for 1,500,000 restricted shares of previously authorized
but unissued shares of the Company's common stock. The business combination
will be treated as a purchase with the fair value of the assets and
liabilities acquired approximating historical costs. Under the purchase
method of accounting for the acquisition, the retained earnings of the
Powerball are not recorded and the merged operations of the combined entities
are shown from the date of the acquisition forward.
No Legal Opinions or Tax Rulings
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The proposed merger of PIC into the Company is intended to qualify
as a tax-free reorganization under the Internal Revenue Code of 1986. If the
acquisition qualifies as a tax-free reorganization, no gain or loss will be
recognized for income tax purposes by either the Company or PIC as a result
of the acquisition. There will not be any material effects on the Company's
existing shareholders after the merger. However, neither the Company nor PIC
has requested a tax ruling from the Internal Revenue Service with respect to
the merger. Accordingly, no assurance can be given that the merger will
qualify as a tax-free reorganization.
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The shares of the Company's Common Stock to be issued to the PIC
shareholders in connection with the merger will not be registered under the
Securities Act of 1933, as amended (the "Act") and will be deemed "restricted
securities" as that term is defined in the Act. Accordingly, such shares will
be issued in reliance on the exemption from such registration requirements
provided by Section 4(2) of the Act, and Rule 506 of Regulation D, promulgated
thereunder. In order to claim the availability of the exemptions, each of the
PIC shareholders will be required to make representations to the Company with
respect to the acquisition of the Company's shares, including that he or she
is either an "accredited investors" as that term is defined under Rule 501 of
Regulation D of the Act, or has such knowledge and experience in financial and
business matters that he or she is capable of evaluating the merits and risks
of the prospective investment, such that the Company reasonably believes that
each of the PIC shareholders comes within the scope of the exemption. Such
shares will be restricted securities, and the certificates will bear legends
restricting their subsequent resale in the absence of registration under the
Securities Act or the availability of an exemption therefrom. The PIC
shareholders have been provided information regarding the Company and its
business and financial condition including copies of the Company's
registration statement on Form 10-SB and subsequent periodic reports required
to be filed under sections 13 or 15(d) of the Exchange Act. In addition, PIC
shareholders have met and/or were given opportunity to ask questions of the
Company's officers and directors. Within 15 days following the issuance of the
Company's common stock to the PIC shareholders, the Company will file the
requisite Notice of Sale of Securities on Form D with the Commission.
Vote Required
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The affirmative vote of the majority of the Company's issued and
outstanding shares of common stock is required to approve the merger. The
affirmative vote of such majority is assured in that members of management and
other principal shareholders holding or controlling the vote of in excess of
fifty percent (50%) of the issued and outstanding Shares entitled to vote at
the Special Meeting have indicated their intention to vote "FOR" the
Recapitalization. The board of directors unanimously recommends a vote "FOR"
the proposed merger.
PROPOSAL NO. 3
APPROVAL OF THE 2000 STOCK OPTION AND AWARD PLAN
General
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On January 1, 2000, the board of directors of the Company approved the
proposed terms of the 2000 Stock Option and Award Plan (the "Award Plan"). In
order for certain of the Award Plan's provisions to be effective. it must be
approved by the stockholders of the Company and is being submitted for such
approval pursuant to this Proxy Statement.
In the following paragraphs a summary of the terms of the Award Plan is
provided. The following summary is qualified in its, entirety by the
provisions of the Award Plan, the form of which is attached hereto at Appendix
"B".
Award Plan Summary
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The board of directors of the Company believes that it is important that
employees and other individuals who contribute to the success of the Company
have a stake in the enterprise as shareholders. Consistent with this belief,
the award of stock options has been and will continue to be an important
element of the Company's compensation program.
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The Award Plan is intended to (a) attract competent directors, executive
personnel, and other employees, (b) aid in the retention of the services of
existing directors, executive personnel, and employees, and (c) provide
incentives to all of such personnel to devote the utmost effort and skill to
the advancement and betterment of the appropriate corporation by permitting
them to participate in ownership and thereby permitting them to share in
increases in the value which they help produce.
The Award Plan is to be administered either by the board of directors or
by a committee (the "Committee") to be appointed from time to time by such
board of directors. Awards granted under the Award Plan may be incentive stock
options ("ISOs") as defined in the Internal Revenue Code of 1986, as amended
(the "Code"), appreciation rights, options which do not qualify as ISOs, or
stock bonus awards which are awarded to employees, including officers and
directors, who, in the opinion of the board or the Committee, have
contributed, or are expected to contribute, materially to the success of the
Company. In addition, at the discretion of the board of directors or the
Committee, options or bonus stock may be granted to individuals who are not
employees but contribute to the success of the Company.
The exercise price of options granted under the Award Plan will be based
on the fair market value of the underlying Common Stock at the time of grant
and, in the case of ISOs may not be less than 100% of the fair market value of
such capital stock on the date the option is granted ( 110% of the fair market
value in the case of 10% stockholders). Options granted under the Award Plan
shall expire no later than ten years after the date of grant (five years in
the case of ISOs granted to 10% stockholders). The option price may be paid by
cash or, at the discretion of the board of directors or Committee, by delivery
of a promissory note or shares of Common Stock of the Company already owned by
the optionee (valued at their fair market value at the date of exercise), or a
combination thereof
All of the employees, officers, and directors of the Company are eligible
to participate under the Award Plan. A maximum of 150,000 shares will be
available for grant under the Award Plan. The identification of individuals
entitled to receive awards, the terms of the awards, and the number of shares
subject to individual awards, are determined by the board of directors or the
Committee, in their sole discretion: provided, however, that in no event may
the aggregate fair market value of shares for which an ISO is first
exercisable in any calendar year by any eligible employee exceed $100,000.
The aggregate number of shares with respect to which options or stock
awards may be granted under the Award Plan. the number of shares covered by
each outstanding option, and the purchase price per share, shall be adjusted
for any increase or decrease in the number of issued shares resulting from a
recapitalization, reorganization, merger, consolidation, exchange of shares,
stock dividend, stock split. reverse stock split, or other subdivision or
consolidation of shares.
The board of directors or the Committee may from time to time alter,
amend, suspend. or discontinue the Award Plan with respect to any shares as to
which options or stock awards have not been granted. However, no such
alteration or amendment (unless approved by the stockholders) shall (a)
increase (except adjustment for an event of dilution) the maximum number of
shares for which options or stock awards may be granted under the Award Plan
either in the aggregate or to any eligible employee: (b) reduce (except
adjustment for an event of dilution) the minimum option prices which may be
established under the Award Plan; (c) extend the period or periods during
which options may be granted or exercised; (d) materially modify the
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requirements as to eligibility for participation in the Award Plan; (e) change
the provisions relating to events of dilution; or (f) materially increase the
benefits accruing to the eligible participants under the Award Plan.
Certain Tax Matters
- -------------------
For tax purposes, a participant to whom a non-qualified option is granted
will not realize income at the time of the grant if the exercise price is
equal to the then current market price. Upon exercise of the option, the
excess of the fair market value of the stock on the date of exercise over the
exercise price will be taxable to the optionee as ordinary income. The tax
basis to the optionee for the stock acquired is the exercise price plus the
amount recognized as income. The Company will be entitled to a deduction equal
to the amount of the ordinary income realized by the optionee in the taxable
year which includes the end of the optionee's taxable year in which he
realizes the ordinary income. When shares acquired pursuant to the exercise of
the option are disposed of, the holder will realize additional capital gain or
loss equal to the difference between the sales proceeds and his or her tax
basis in the stock.
If a participant to whom an option is granted exercises such option by
payment of the exercise price in whole or in part with previously owned
shares, the optionee will not realize income with respect to the number of
shares received on exercise which equals the number of shares delivered by the
optionee. The optionee's basis for the delivered shares will carry over to the
option shares received. With regard to the number of non-qualified option
shares received which exceeds the number of shares delivered, the optionee
will realize ordinary income at the time of exercise; the optionee's tax basis
in these additional option shares will equal the amount of ordinary income
realized plus the amount of any cash paid.
Recipients of ISOs will not be required to recognize income at the time
of the grant of the options or at the time of exercise of the options as long
as the stock received on exercise is held for at least two years from the date
of the grant of the ISOs or one year from the date of exercise (although the
difference between the fair market value of the stock and the exercise price
paid at the time of exercise must be taken into account for alternative
minimum tax purposes). If the stock received upon exercise of an ISO is
disposed of prior to the expiration of either of such time periods, the
optionee will be required to recognize as ordinary income the amount by which
the fair market value of the stock received at the time of exercise exceeds
the exercise price of the ISOs
Under the Award Plan, stock appreciation rights ("SARs") can be granted
at the time an option is granted with respect to all or a portion of the
shares subject to the related option. SARs can only be exercised to the extent
the related option is exercisable and cannot be exercised for the six-month
period following the date of grant, except in the event of death or disability
of the optionee. The exercise of any portion of either the related option or
the tandem SARs will cause a corresponding reduction in the number of shares
remaining subject to the option or the tandem SARs thus maintaining a balance
between outstanding options and SARs SARs permit the holder to receive an
amount (in cash, shares, or a combination of cash and shares, as determined by
the board of directors at the time of grant) equal to the number of SARs
exercised multiplied by the excess of the fair market value of the shares on
the exercise date over the exercise price of the related options.
Under the terms of the Award Plan, the board of directors or the
Committee may also grant stock awards which may, at the discretion of the
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board of directors or Committee, be subject to forfeiture under certain
conditions. Recipients of stock awards will realize ordinary income at the
time of the lapse of any forfeiture provisions equal to the fair market value
of the shares less any amount paid in connection with the issuance (the board
of directors or the Committee can require the payment of par value at the time
of the grant). The appropriate corporation will realize a corresponding
compensation deduction. The holder will have a basis in the shares acquired
equal to any amount paid on exercise plus the amount of any ordinary income
recognized by the holder. On sale of the shares, the holder will have a
capital gain or loss equal to the sale proceeds minus his or her basis in the
shares.
Vote Required
- -------------
The affirmative vote of the majority of the Company's issued and
outstanding shares of common stock is required to approve the Award Plan. The
affirmative vote of such majority is assured in that members of management and
other principal shareholders holding or controlling the vote of in excess of
fifty percent (50%) of the issued and outstanding Shares entitled to vote at
the Special Meeting have indicated their intention to vote "FOR" the Award
Plan. The board of directors unanimously recommends a vote "FOR" the Award
Plan.
PROPOSAL NO. 5
RATIFY THE SELECTION OF DAVID THOMSON, P.C. AS INDEPENDENT AUDITORS
The Board of Directors has selected David Thomson, P.C. as independent
auditors for the fiscal year ending December 31, 1999. To the knowledge of
the Company, at no time has David Thomson, P.C. had any direct or indirect
financial interest in or any connection with the Company other than as
independent public accountants. It is anticipated that representatives of
David Thomson, P.C. will be present at the Special Meeting and will be
provided the opportunity to make a statement, if they desire to do so, and be
available to respond to appropriate questions.
Vote Required
- -------------
The affirmative vote of the majority of the Company's issued and
outstanding shares of common stock is required to ratify the selection of
David Thomson, P.C. as independent auditors. The affirmative vote of such
majority is assured in that members of management and other principal
shareholders holding or controlling the vote of in excess of fifty percent
(50%) of the issued and outstanding Shares entitled to vote at the Special
Meeting have indicated their intention to vote "FOR" the ratification. The
board of directors unanimously recommends a vote "FOR" the selection.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Information Statement contains certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
with respect to the financial condition, results of operations, business
strategies, operating efficiencies or synergies, competitive positions, growth
opportunities for existing products, plans and objectives of management,
markets for stock of the Company and other matters. Statements in this
Information Statement that are not historical facts are hereby identified as
"forward-looking statements" for the purpose of the safe harbor provided by
Section 21E of the Exchange Act and Section 27A of the Securities Act. Such
forward-looking statements, including, without limitation, those relating to
the future business prospects, revenues and income, in each case relating to
the Company, wherever they occur in this Information Statement, are
necessarily estimates reflecting the best judgment of the management of the
Company and involve a number of risks and uncertainties that could cause
actual results to differ materially from those suggested by the
forward-looking statements. Such forward-looking statements should, therefore,
be considered in light of various important factors, including those set forth
in this Information Statement. Important factors that could cause actual
results to differ materially from estimates or projections contained in the
forward-looking statements include without limitation:
the performance of the Company's products within, and the overall strength
of, the prevailing retail environment
- - customer acceptance of newly-introduced product lines
- - changes in the costs of raw materials, labor and advertising
- - the effects of vigorous competition in the markets in which the Company
intends to operate
Words such as 'estimate', 'project', 'plan,' 'intend', 'expect', 'believe' and
similar expressions are intended to identify forward-looking statements. These
forward-looking statements are found at various places throughout this
Information Statement. The Company's stockholders are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the
date they were made.
<PAGE>
<PAGE> 12
Business of the Company
- -----------------------
Natex Corporation (hereinafter the "Company") 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
("PIC"). PIC's principal shareholder is 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 PIC
in exchange for a royalty. In December, 1997, the Company and PIC 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 PIC (Checketts).
PIC 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.
On February 11, 2000, the Company signed a Letter of Understanding with
PIC for a proposed merger in which the Company would acquire all the issued
and outstanding shares of PIC in exchange for 1,500,000 shares of the
Company's common stock. The terms of the letter require Checketts to assign
all his rights and title to the Technology to PIC prior to the merger. The
Technology would become the property of the Company following the merger,
subject to a royalty payment to Checketts based on the gross sales of the JV.
Checketts would be appointed President of the Company following the merger,
and the Company's name would be changed to Powerball International, Inc. The
merger is subject to the completion of financial statements and other due
diligence, the completion of definitive agreements, and approval by the
Company's shareholders. The Company expects to be able to provide its
shareholders with complete information regarding the proposed transaction on
or before April 30, 2000.
Use of Hydrogen and the Technology in General
- ---------------------------------------------
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
<PAGE>
<PAGE> 13
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.
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
- ------------------------------
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 polyethelene skins
must be removed. 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 Hydrogen Generation System is completely operational. It is shipped
in three separate wooden crates and can be quickly assembled by the purchaser.
It contains a hydraulic control system and an electronic control system and
automatically produces hydrogen by slicing pellets in half inside the Tank.
A second generation Hydrogen Generation System has been developed which
is similar to the original. The Tank holds 600 Powerballs, can produce 2280
liters of hydrogen gas on demand between refills, and is easier to refill than
<PAGE>
<PAGE> 14
the previous systems. The old Tank weighed 139 pounds and the new Tank weighs
52 pounds. The new system is more reliable, easier to manufacture and is able
to produce hydrogen at a faster rate.
The management of PIC 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 an
economically viable power supply.
Supplies
- --------
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 JV purchases sodium hydroxide and converts it to the
necessary sodium hydride. The cost of sodium hydroxide depends upon the
quantity in which it is purchased. The JV has been able to obtain sodium
hydroxide at a cost of approximately $50 per ton, which represents an almost
negligible cost in terms of the manufacturing process.
The polyethelene used to coat the Powerballs is likewise readily
available from a variety of sources at negligible cost, and the components of
the hydrogen tanks are standard off-the-shelf parts also available from
numerous suppliers. The total manufacturing costs of the parts needed to
produce the hydrogen generation system represent approximately 75% of the
suggested retail price for the completed system.
Because of the ready availability of all the supplies and components, the
Company has not restricted itself to any particular suppliers, although it may
seek to establish such relationships if production demands increase
substantially.
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.
Potential Products
- ------------------
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,
<PAGE>
<PAGE> 15
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"), such as
electronics manufacturers, experimental fuel cell vehicle manufacturers and
power plants. 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.
Deposits and/or orders have been received by the Joint Venture for the
new Tanks from a variety of companies in the United States and abroad,
including the following: Vance Mathews in Idaho (1), Technitrace in Utah (5),
Patrick Flanagan in Arizona (2), Optimox Corporation in California (1), Zevco
in the United Kingdom (2), Moonjo Jung in South Korea (1), Axel Schodel in
Germany (1), the Marcelo Group in Australia (1), and Envirotech in Japan (1).
An old style Tank has been sold to Warsitz Enterprises, and a new Tank has
been sold to Aselan, Inc. in Turkey. The Company intends to offer the new
Tanks for general sale at a price of $2,000.
Recycling Plant
- ---------------
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.
<PAGE>
<PAGE> 16
The Plant constructed by the Joint Venture is designed to be a proto type
plant. The operation of the Plant may involve additional research and
development efforts and continuing operations will likely require fine tuning
after it is successfully placed in operation.
As currently constructed, the Recycling Plant consists of a variety of
components including two hydroxide water evaporators, a furnace, heat
exchangers, a sodium reactor and various control systems. The Recycling Plant
currently requires approximately 2,000 square feet of floor space. As of
February 1999, engineering plans for the Plant were completed which allowed it
to be built in the existing facility currently leased by the JV. The Plant was
constructed by the JV under the direction of Checketts.
In March 1999, the Joint Venture entered into a construction contract
with KHI Engineering, Inc., a Utah engineering and construction corporation
("KHI"), to design, procure all equipment and materials, and construct the
Plant for a total price of $250,000. At the date of this filing, construction
has been completed and the final occupancy permit has been received. The
tuning and testing process for the Plant has begun. The Company expects the
Plant to be fully operational in the near future.
Initial Marketing Plan
- ----------------------
The JV will initially direct its marketing efforts to the industrial
hydrogen users market, such as peanut butter manufacturers and cooking oil
manufacturers. 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.
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.
<PAGE>
<PAGE> 17
As a result of the increase in fuel cell research and development
activities, the demand for hydrogen required in the fuel cell industry 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
- ------------------------
The Company has not incurred and does not expect to incur any research
and development costs. Research and development costs incurred by the JV may
be expensed against revenues derived by the JV before any distributions are
made to the Company. Initially, much of the research and development efforts
of the JV have related 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.
Since inception, the Company has invested $250,000, representing its
initial investment, and an additional $472,000, representing loans made by the
Company to the JV towards completion of the Plant. To date, almost none of
the costs for research and development incurred by the JV have been passed
directly to customers. However, the costs of past development and future
improvements and changes to the technology will be incorporated into the price
of the products sold by the JV as the market develops.
Competition
- -----------
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, such as Pax
Air. Generally, such competitors supply their customers with compressed
hydrogen gas or liquid hydrogen, and the Company believes its cost effective
hydrogen generation system will enable it to obtain a significant market share
from such customers. The JV will also compete with any other companies which
may offer technologies and products for hydrogen on demand production,
although no other companies offer on demand systems at this time. 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.
The Company is aware of specific competitors working on hydrogen
generating equipment, including the Arthur D. Little Corporation, Epyx
Corporation, Los Alamos National Laboratory, and Analytic Power Sysvtems.
<PAGE>
<PAGE> 18
H Power is working on a hydride-water system and Dais Corporation is working
on some form of pellets which dissolve in water (according to their web page).
Thermo Power Corporation is working on a slurry of hydride material in oil
which reacts with water to produce hydrogen.
Sales of compressed and liquid hydrogen represent an estimated 1 billion
dollar per year industry. There is great interest and demand for the
development of hydrogen technology and products. This interest and demand will
cause many additional companies and individuals to participate in the hydrogen
industry.
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.
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
- ----------------------------
The JV has been assigned the License for the Technology from PIC as its
capital contribution to the JV. PIC 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. There are no minimum production requirements for the
first license year which ran from November 1997 to September 11, 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 PIC
<PAGE>
<PAGE> 19
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.
Personnel
- ---------
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. The Company's President devotes 100%
of his working time, approximately 40 hours per week, to Natex. 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. Jed Checketts has devoted a minimum of 45
hours per week to the JV from its formation to the present. 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 $1,000 per week.
Government Regulation
- ---------------------
Sodium hydroxide, the primary component of the Powerballs is not a
regulated substance. Essentially, the only regulations to which the Company
is subject are the normal local business license and building permit
regulations. The JV has received its occupancy permit from West Valley City,
the local authority.
Facilities
- ----------
The Company has entered into an oral arrangement with Robert K. Ipson,
its president, providing for the use of his residence as its executive 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 is conducting its technical operations in a 5,000 sq. foot
facility located at 2095 West 2200 South, Salt Lake City, Utah. The facility
is leased from TSP Enterprises, an unaffiliated entity, by the JV. The term of
the lease expires June 2000. The Company expects to be able to renew the
lease. The current monthly lease payment is $2,158. These facilities will be
leased until such time as additional facilities may be required. The JV
currently makes the monthly lease payment.
<PAGE>
<PAGE> 20
Selected Financial Data of the Company
- --------------------------------------
The year end financial data included in the table has been selected by
the Company and has been derived from the Company's financial statements
included in the Company's Annual Report on Form 10KSB for its fiscal year
ended December 31, 1999. All financial information for the fiscal years ended
December 31, 1999 and 1998 have been examined by David Thomson, PC, certified
public accountants.
Year Ended December 31,
1999 1998
---------- ----------
Statement of
Operations Data:
Revenues $ - $ -
Cost of Sales $ - $ -
Operating Expenses $ 415,151 $ 73,608
Net (loss) $ (414,017) $ (72,866)
Net (loss)
per common share $ (0.43) $ (0.12)
Weighted Average
Shares Outstanding 1,029,501 600,000
At December 31,
1999 1998
---------- ----------
Balance Sheet Data:
Current Assets $ 129,190 $ 65,664
Current Liabilities $ 10,807 $ -
Work Capital(Deficit) $ 118,383 $ 65,664
Property &
Equipment (net) $ - $ -
Total Assets $ 601,190 $ 301,099
Long Term Liabilities $ - $ -
Shareholders' Equity (Deficit)$ 450,218 $ 301,099
<PAGE>
<PAGE> 21
Business of PIC
- ---------------
PIC was formed primarily to act as holding company for the Technology,
and to serve as an existing entity in the event that PIC's relationship with
Natex and the JV did not produce its intended results in terms of financing
and start-up operations for testing the Technology. (See disclosure contained
herein under the headings "Business of the Company" and "Intellectual Property
Rights" for additional information and explanation regarding the Technology).
Management of PIC is now prepared to merge into Natex in exchange for the
equity interest outlined below.
Selected Financial Data of PIC
- ------------------------------
The year end financial data included in the table has been selected by
PIC and has been derived from PIC's balance sheets at December 31, 1999 and
1998 and statements of operations for its fiscal years ended December 31, 1999
and 1998. All financial information for the fiscal years ended December 31,
1999 and 1998 has been examined by David Thomson, PC, certified public
accountants.
Year Ended December 31,
1999 1998
---------- ----------
Statement of
Operations Data:
Revenues $ - $ -
Cost of Sales $ - $ -
Operating Expenses $ - $ 10
Net income(loss) $ - $ (10)
Net earnings (loss)
per common share $ (0.00) $ (0.01)
Weighted Average
Shares Outstanding 1,000 1,000
At December 31,
1998 1997
---------- ----------
Balance Sheet Data:
Current Assets $ - $ -
Current Liabilities $ 454 $ 454
Work Capital (Deficit) $ (454) $ (454)
Property & Equipment (net) $ - $ -
Total Assets $ 76,000 $ -
Long Term Liabilities $ - $ -
Shareholders' Equity (Deficit) $ 75,546 $ (454)
<PAGE>
<PAGE> 22
Market Price of the Company's Common Stock and Dividends
- --------------------------------------------------------
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 2000 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 3/31/00 $19.00 $3.12
Fiscal Year 1999 High Bid Low Bid
- ---------------- -------- -------
Quarter ended 3/31/99 $2.50 $1.12
Quarter ended 6/30/99 $7.00 $1.75
Quarter ended 9/30/99 $2.88 $1.75
Quarter ended 12/30/99 $3.75 $2.88
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
March 23, 2000, was approximately 60.
The Company has not paid any cash dividends to date and does not
anticipate paying dividends in the foreseeable future.
<PAGE>
<PAGE> 23
PRO FORMA FINANCIAL INFORMATION
- --------------------------------
POWERBALL INTERNATIONAL, INC.
(Formerly Natex Corporation)
POWERBALL INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET AND INCOME STATEMENTS
(Unaudited)
The following unaudited proforma combined balance sheet and statement of
income aggregates the balance sheet and statement of operations of Powerball
International, Inc. formerly Natex Corporation (A Utah Corporation) as of
December 31, 1999 and the balance sheet and statement of income of Powerball
Industries, Inc. (A Utah Corporation) as of December 31, 1999 giving effect to
a transaction to be completed on May 15, 2000, wherein Powerball
International, Inc. will acquire Powerball Industries through a merger. This
business combination will be treated as a purchase with the fair value of the
assets and liabilities acquired approximating historical cost at the time of
the merger. Powerball International, Inc. will issue common stock in exchange
for all of the issued and outstanding shares of Powerball Industries, Inc.
The following proforma balance sheet and statement of income uses the
assumptions as described in the notes and the historical financial information
available at December 31, 1999. The financial statements of Powerball
International, Inc. at December 31, 1999 are audited. The financial statements
of Powerball Industries, Inc. at December 31, 1999 are also audited.
The unaudited proforma combined balance sheet and statement of income should
be read in conjunction with the separate financial statements and related
notes thereto of Parent and Subsidiary. The unaudited proforma condensed
combined balance sheet and statement of income are not necessarily indicative
of the condensed combined balance sheet and statement of income which might
have existed for the periods indicated or the results of operations as they
may appear now or in the future.
<PAGE>
<PAGE> 24
PRO FORMA FINANCIAL INFORMATION
- --------------------------------
POWERBALL INTERNATIONAL, INC.
(Formerly Natex Corporation)
POWERBALL INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
(Unaudited)
Giving effect to an Acquisition on May 15, 2000
<TABLE>
<CAPTION>
Powerball Powerball Proforma
International Industries Increase Proforma
Inc. Inc. (Decrease) Combined
------------ ------------ ---------- ------------
<S> <C> (12-31-99) <C>(12-31-99) <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 79,190 $ - $ 50,000 (1) $ 199,190
70,000 (2)
Stock subscription receivable 50,000 - (50,000)(1) -
------------ ------------ ---------- ------------
Total Current Assets 129,190 - 70,000 199,190
------------ ------------ ---------- ------------
Other Assets
Receivable - related party 472,000 - - 472,000
Note receivable - related entity - 76,000 - 76,000
------------ ------------ ----------- ------------
Total Other Assets 472,000 76,000 - 548,000
------------ ------------ ----------- ------------
Total Assets $ 601,190 $ 76,000 $ 70,000 $ 747,190
============ ============ =========== ============
LIABILITIES AND
STOCKHOLDERS' EQUITY (DEFICIT)
Current Liabilities
Accounts payable $ 807 $ - $ - $ 807
Due to affiliated company - 454 - 454
Deferred equity on stock sale 10,000 - - 10,000
------------ ------------ ----------- ------------
Total Current Liabilities 10,807 454 - 11,261
============ ============ =========== ============
Noncurrent Liabilities
Investment in limited liability
company, at cost less share of
income 140,165 - - 140,165
------------ ------------ ----------- ------------
Stockholders' equity (deficit)
Common stock, $.001 par value,
25,000,000 shares authorized,
2,969,000 issued and outstanding 1,399 3,344 70 (2) 2,969
(3,344)(3)
1,500 (3)
Capital in excess of par value 988,963 76,000 69,930 (2) 1,132,939
3,344 (3)
(1,500)(3)
(3,798)(4)
Earnings (deficit) accumulated
during the development stage (540,144) (3,798) 3,798 (4) (540,144)
------------ ------------ ----------- ------------
Total stockholders' equity 450,218 75,546 70,000 595,764
------------ ------------ ----------- ------------
Total liabilities and
stockholders' equity $ 601,190 $ 76,000 $ 70,000 $ 747,190
============ ============ =========== ============
</TABLE>
The accompanying notes are an integral part of this balance sheet.
<PAGE>
<PAGE> 25
PRO FORMA FINANCIAL INFORMATION
- --------------------------------
POWERBALL INTERNATIONAL, INC.
(Formerly Natex Corporation)
POWERBALL INDUSTRIES, INC.
PRO FORMA COMBINED BALANCE SHEET
(Unaudited)
Giving effect to an Acquisition on May 15, 2000
<TABLE>
<CAPTION>
Powerball Powerball Proforma
International Industries Increase Proforma
Inc. Inc. (Decrease) Combined
------------ ------------ ---------- ------------
<S> <C> (12-31-99) <C>(12-31-99) <C> <C>
REVENUES $ - $ - $ - $ -
EXPENSES
General and administrative 100,890 - - 100,890
Equity in loss from investment
in limited liability company 314,261 - - 314,261
------------ ------------ ------------ -----------
Total expenses 415,151 - - 415,151
------------ ------------ ------------ -----------
OPERATING LOSS (415,151) - - (415,151)
OTHER INCOME
Interest income 1,234 - - 1,234
------------ ------------ ------------ -----------
INCOME (LOSS) BEFORE INCOME TAXES (413,917) - - (413,917)
Minimum state franchise tax 100 - - 100
------------ ------------ ------------ -----------
NET INCOME (LOSS) BEFORE THE
CUMULATIVE EFFECT OF ACCOUNTING
CHANGE (414,017) - - (414,017)
Cumulative effect of accounting
change for organization costs (27,226) - - (27,266)
------------ ------------ ------------ -----------
NET INCOME (LOSS) $ (441,243) $ - $ - $ (441,243)
============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of this statement of income.
<PAGE> 26
PRO FORMA FINANCIAL INFORMATION
- -------------------------------
POWERBALL INTERNATIONAL, INC.
(Formerly Natex Corporation)
POWERBALL INDUSTRIES, INC.
PRO FORMA COMBINED NOTES TO THE FINANCIAL STATEMENTS
(Unaudited)
POWERBALL INTERNATIONAL, INC. (the "Company") - (Formerly Natex Corporation)
was incorporated under the laws of the state of Utah on July 9, 1998. 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 acquired
a license to 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.
POWERBALL INDUSTRIES, INC. ("Powerball") - A Utah corporation, was organized
September 3, 1997. Powerball's only office is located in Salt Lake City,
Utah. At the present time, Powerball is in the development stage. Powerball
was formed to use its licensed technology in a joint venture investment. The
joint venture is involved in research and development efforts of trying to
commercialize the technology.
Proforma Adjustments -
(1) Subsequent to December 31, 1999, the Company's stock subscription was
paid.
(2) Subsequent to December 31, 1999, the Company issued 70,000 shares of its
common stock for $70,000.
(3) The Company will acquire all of the issued and outstanding shares of
Powerball in exchange for 1,500,000 restricted shares of previously authorized
but unissued shares of the Company's common stock. The business combination
will be treated as a purchase with the fair value of the assets and
liabilities acquired approximating historical costs.
(4) This adjustment is part of the acquisition transaction. It eliminates the
retained deficit of Powerball. Under the purchase method of accounting for
the acquisition, the retained earnings of the Powerball are not recorded and
the merged operations of the combined entities are shown from the date of the
acquisition forward.
<PAGE>
<PAGE> 27
EXECUTIVE COMPENSATION
The following tables set forth certain summary information concerning the
compensation paid or accrued for each of the Company's last three completed
fiscal years to the Company's chief executive officer and each of its other
executive officers that received compensation in excess of $100,000 during
such period (as determined at December 31, 1999, the end of the Company's last
completed fiscal year):
<TABLE>
<CAPTION>
Long Term Compensation
----------------------
Annual Compensation Awards Payouts
Other Restricted
Name and Annual Stock Options LTIP All other
Principal Position Year Salary Bonus($) Compensation Awards /SARs Payout Compensation
- ------------------ ---- ------ -------- ------------ ------ ------- ------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Robert K. Ipson 1999 $ -0- -0- 75,000 -0- -0- -0- -0-
President 1998 $ -0- -0- -0- -0- -0- -0- -0-
1997 $ -0- -0- -0- -0- -0- -0- -0-
</TABLE>
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. At December 31, 1999, Mr. Ipson had
not exercised any of his options.
In June 1999, Mr. Ipson signed an employment agreement with the Company
for total compensation of $75,000 for the period January 1, 1999 to December
31, 1999. This compensation was paid as 150,000 Units valued at $0.50 per
Unit, each Unit consisting of one share of the Company's Common Stock and one
Warrant to purchase one share of Common Stock at an exercise price of $1.00
per share. At December 31, 1999, Mr. Ipson had not exercised any of the
Warrants.
Compensation for Management of JV
- ---------------------------------
The JV is managed by two managers, one appointed by the Company and one
appointed by PIC. The Company has appointed Robert K. Ipson, its president as
its management representative. PIC 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
$1,000 per week. 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>
<PAGE> 28
Compensation Pursuant to Plans
- ------------------------------
None.
Pension Table
- -------------
Not Applicable.
Other Compensation
- ------------------
None.
Compensation of Directors
- -------------------------
None.
Termination of Employment and Change of Control Arrangement
- -----------------------------------------------------------
There are no compensatory plans or arrangements, including payments to be
received from the Company, with respect to any person named in the Executive
Compensation set out above which would in any way result in payments to any
such person because of his resignation, retirement, or other termination of
such person's employment with the Company or its subsidiaries, or any change
in control of the Company, or a change in the person's responsibilities
following a change in control of the Company.
<PAGE>
<PAGE> 29
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of March 1, 2000 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 1,469,000
shares of Common Stock issued and outstanding before the proposed merger, the
name and shareholdings of each director and of all officers and directors as a
group, and the respective holdings following the issuance of 1,500,000 shares
in the proposed merger. The information on share numbers and percentage
ownership listed assumes:
- the exercise of options and warrants by the beneficial owner (all
included warrants and options are currently exercisable); and
- a corresponding increase in the number of shares issued and
outstanding.
Security Ownership of Certain Beneficial Owners
- -----------------------------------------------
Name and Address No. of Shares % of Class Post Merger % of Class
- ---------------- ------------- ---------- ----------- ----------
Robert K. Ipson 542,300 30.83 542,300 16.64
48 West 300 South, # 2303
Salt Lake City, UT 84101
Linda Lou Ipson 542,300 30.83 542,300 16.64
48 West 300 South, # 2303
Salt Lake City, UT 84101
Shorland Hunsaker 318,000 20.26 318,000 10.36
2751 East Rubidoux Road
Salt Lake City, UT 84093
Maynard Victor 125,000 8.28 125,000 4.15
1815 Maple View Drive
Salt Lake City, UT 84124
Paul N. Davis 80,000 5.37 80,000 2.68
2351 Hintze Drive
Salt Lake City, UT 84124
Phillip L. McStotts 92,500 6.13 92,500 3.07
746 Quaking Aspen Drive
Murray, UT 84123
Jed Checketts 15,000 1.02 1,093,000 36.81
2095 West 2200 South
Salt Lake City, UT 84199
Securities Ownership of Management
- ----------------------------------
Robert K. Ipson - See above -
President and Director
Shorland Hunsaker - See above -
Vice President and Director
Phillip L. McStotts - See above -
Secretary/Treasurer and Director
Jed Checketts - See above -
Nominee for Director
Officers and Directors
As a Group (3 persons) 952,800 50.99 1,727,800 52.37
- ----------------------
[Notes on the above table appear on the following page]
<PAGE>
<PAGE> 30
In the preceding table:
- Mr. Ipson's shares include an option to purchase 100,000 shares of the
Company's common stock at $1.00 per share.
- Linda L. Ipson is the spouse of Robert K. Ipson; shares and warrants held
of record by Linda Lou Ipson may be deemed to be beneficially owned by Robert
K. Ipson, and shares, options and warrants held of record by Robert Ipson may
likewise be deemed to be beneficially owned by Linda Lou Ipson.
- Ms. Ipson holds of record 30,500 shares and 30,000 warrants. Mr. Ipson
holds of record 221,800 shares, 100,000 options, and 160,000 warrants.
- Mr. Hunsaker's shares include 218,000 shares and 100,000 warrants.
- Mr. Victor is holder of record of 25,000 shares. The shares listed
include 60,000 shares and 40,000 warrants held of record by Victor
Investments, LLC., a limited liability company controlled by Maynard Victor of
which Mr. Victor may be deemed to be the beneficial owner.
- Mr. Davis' shares include 60,000 shares and 20,000 warrants.
- Mr. McStotts' shares include 52,500 shares and 40,000 warrants.
- The number of shares held by officers and directors as a group assumes
the exercise of all of their respective options and warrants. The post merger
numbers assume the approval of the merger and issuance of shares thereto, the
election of Jed Checketts to the board of directors, and the exercise of all
of the directors' respective options and warrants.
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS
In 1997, in connection the organization of the Company, the Company
issued a total of 200,000 shares of its common stock to its founding
shareholders 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 PIC, the Company's Joint
Venture partner, who is paid a weekly salary of $1,000.
In addition to the original $250,000 capital contribution to the JV made
by the Company, the Company agreed to loan additional capital to the JV, up to
$500,000, 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 December 31, 1999, the Company had loaned the JV an aggregate of
$472,000.
In March and April 1999, the Company completed a private placement of
400,000 Units consisting of one share and one warrant exercisable at $1.00 per
share, at a price of $0.50 per Unit, for aggregate proceeds of $200,000. Of
these Units, officers and directors purchased a total of 210,000, including
70,000 purchased by Shorland Hunsaker, 120,000 purchased by Robert Ipson and
his spouse Linda, and 20,000 purchased by Philip McStotts. Of the 100,000
exercised as of December 31, 1999, 70,000 were exercised by Shorland Hunsaker.
<PAGE>
<PAGE> 31
In June 1999, the Company issued shares and warrants to Robert Ipson in
connection with an employment agreement with the Company for total
compensation of $75,000 for the period January 1, 1999 to December 31, 1999.
This compensation was paid as 150,000 Units valued at $0.50 per Unit, each
Unit consisting of one share of the Company's Common Stock and one Warrant to
purchase one share of Common Stock at an exercise price of $1.00 per share.
In October 1999, the Company issued 15,000 shares valued at $3.00 per
share to Jed Checketts in connection with royalty payments due to him from the
JV for license fees for the Technology.
In December 1999, the Company completed a private placement of 120,000
Units consisting of one share and one warrant exercisable at $1.00, at a price
of $1.00 per Unit, to two officers and directors, in the amounts of 100,000
Units to Shorland Hunsaker and 20,000 Units to Philip McStotts.
On February 11, 2000, the Company signed a Letter of Understanding with
Powerball Industries, Inc. ("PIC"), the Company's JV partner, for a proposed
merger in which the Company would acquire all the issued and outstanding
shares of PIC in exchange for 1,500,000 shares of the Company's common stock.
The terms of the letter require Jed Checketts, the owner of the Technology and
a principal of PIC, to assign all his rights and title to the Technology to
PIC prior to the merger. The Technology would become the property of the
Company following the merger, subject to a royalty payment to Mr. Checketts
based on the gross sales of the JV. Mr. Checketts would be appointed
President of the Company following the merger, and the Company's name would be
changed to Powerball International, Inc. The merger is subject to the
completion of financial and other due diligence, the negotiation of definitive
agreements, and approval by the Company's shareholders. The Company expects
to be able to provide its shareholders with complete information regarding the
proposed transaction on or before April 30, 2000.
<PAGE>
<PAGE> 32
RELATIONSHIP WITH INDEPENDENT PUBLIC ACCOUNTANTS
David Thomson, PC, has been the independent certified public accountant
who has examined the Company's financial statements for the fiscal year ended
December 31, 1999.
David Thomson, PC, has been the certified public accountant who has
examined PIC's financial statements for the fiscal year ended December 31,
1999.
The Company's Board of Directors anticipates that a representative of
David Thomson, PC, will be present at the Meeting for purposes of making a
statement or responding to questions.
SHAREHOLDER PROPOSALS
No proposals have been submitted by shareholders of the Company for
consideration at the Special Meeting. It is anticipated that the next annual
meeting of shareholders will be held during March 2000. Shareholders may
present proposals for inclusion in the Information Statement to be mailed in
connection with the next annual meeting of shareholders of the Company,
provided such proposals are received by the Company no later than 90 days
prior to such meeting, and are otherwise in compliance with applicable laws
and regulations and the governing provisions of the articles of incorporation
and bylaws of the Company.
LEGAL MATTERS
None.
OTHER MATTERS
Management does not know of any business other than referred to in the
Notice which may be considered at the meeting. If any other matters should
properly come before the Special Meeting, such matters will be properly
addressed and resolved and those in attendance will vote on such matters in
accordance with their best judgment.
NATEX CORPORATION
By order of the Board of Directors
/S/ Robert K. Ipson, President
Salt Lake City, Utah
April __, 2000
<PAGE>
<PAGE> 33
Independent Auditor's Report
- ----------------------------
Board of Director
NATEX CORPORATION
Salt Lake City, Utah
I have audited the accompanying balance sheet of Natex Corporation (a
development stage company) as of December 31, 1999 and the related statements
of operations, stockholders' equity and cash flows for the year then ended.
These financial statements are the responsibility of the Company's management.
My responsibility is to express an opinion on the financial statements based
on my audit. The financial statements of Natex Corporation for the year ended
December 31, 1998 and from inception to December 31, 1999, were audited by
other auditors whose report thereon, dated February 5, 1999, expressed an
unqualified opinion.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial 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. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Natex Corporation (a
development stage company) as of December 31, 1999 and the results of its
operations and its cash flows for the year then ended in conformity with
generally accepted accounting principles.
As discussed in Note 8, the Company has been in the development stage since
its inception on July 9, 1997. Realization of a major portion of the assets
is dependent upon the Company's ability to meet its future financing
requirements, and the success of its future operations and that of the
partnership in which it has loaned or invested most of the capital it has
raised. The Company at December 31, 1999 had a deficit accumulated during its
development stage of $552,703. These factors raise substantial doubt the
Company's ability to continue as a going concern. The financial statements do
not include any adjustments relating to the recoverability and classification
of recorded assets, or the amounts and classification of liabilities that
might be necessary in the event the Company cannot continue in existence.
As discussed in Note 1 to the financial statements under organization costs,
the Company in 1999 changed its method of accounting for the costs of
organizing the Company.
Salt Lake City, Utah
February 29, 2000
<PAGE>
PAGE> 34
NATEX CORPORATION
(A Development Stage Company)
BALANCE SHEETS
ASSETS
December 31,
1999 1998
----------- -----------
CURRENT ASSETS
Cash in bank $ 79,190 $ 65,664
Stock subscription receivable - related party 50,000 -
----------- -----------
Total Current Assets 129,190 65,664
----------- -----------
OTHER ASSETS
Receivable - related party 472,000 44,000
Organization costs, net of amortization of $-0-
and $1,239 - 17,339
Investments in limited liability company, at cost
less shares of losses - 174,096
----------- -----------
Total Other Assets 472,000 235,435
----------- -----------
TOTAL ASSETS $ 601,190 $ 301,099
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable $ 807 $ -
Deferred equity on stock sale 10,000 -
----------- -----------
Total Current Liabilities 10,807 -
----------- -----------
NONCURRENT LIABILITIES
Investments in limited liability company,
at cost less share of losses 140,165 -
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, $.001 par value, 25,000,000 shares
authorized, 1,399,000 and 600,000 shares issued
and outstanding respectively 1,399 600
Capital in excess of par value 988,963 399,400
Earnings (deficit) accumulated during the
development stage (540,144) (98,901)
----------- -----------
Total Stockholders' Equity 450,218 301,099
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 601,190 $ 301,099
=========== ===========
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 35
NATEX CORPORATION
(A Development Stage Company)
STATEMENTS OF OPERATIONS
(Deficit)
For the For the Accumulated
Year ended Year ended During the
December 31, December 31, Development
1999 1998 Stage
----------- --------------- --------------
REVENUE $ - $ - $ -
EXPENSES
Loss from partnership 314,261 50,717 390,165
Office expense 6,003 748 6,769
Professional fees 91,558 4,967 97,355
Amortization expense - 1,239 1,239
Dues and subscriptions - 2,190 2,190
Filing fees 2,555 12,436 14,991
Travel - 1,301 1,301
Taxes and licenses 774 10 784
------- ------ -------
Total Expenses 415,151 73,608 514,794
------- ------ -------
OPERATING LOSS (415,151) (73,608) (514,794)
OTHER INCOME
Interest Income 1,234 842 2,076
------ ------ ------
INCOME(L0SS) BEFORE INCOME
TAXES (413,917) (72,766) (512,718)
Minimum State franchise tax 100 100 200
------- ------ -------
NET INCOME (LOSS) BEFORE
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE (414,017) (72,866) (512,918)
Cumulative effect of
accounting change for
organization costs (27,226) - (27,226)
------- ------ -------
NET INCOME (LOSS) $ (441,243) $ (72,866) $ (540,144)
======= ====== =======
EARNINGS (LOSS) PER SHARE
BEFORE ACCOUNTING CHANGE $ (0.40) $ (0.12) $ (0.73)
==== ==== ====
CUMULATIVE EFFECT OF
ACCOUNTING CHANGE $ (0.03) $ (0.00) $ (0.04)
==== ==== ====
EARNINGS (LOSS) PER SHARE $ (0.43) $ (0.12) $ (0.77)
==== ==== ====
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES 1,029,501 600,000 705,132
========= ======= =======
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 36
NATEX CORPORATION
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Capital in During the
Common Stock Excess of Development
Shares Amount Par Value Stage
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
BALANCE, July 9, 1997 (Inception) - $ - $ - $ -
Shares issued to initial stockholders
for cash, July 9, 1997 at $.20 per share 200,000 200 39,800 -
Shares issued pursuant to a public
offering, December 5, 1997 at $1.00
per share 400,000 400 399,600 -
Direct costs of public offering - - (40,000) -
Net income(loss) from July 9, 1997
(inception) to December 31, 1997 - - - (26,035)
------------ ------------ ------------ ------------
BALANCE, December 31, 1997 600,000 600 399,400 (26,035)
Net income (loss) for the year ended
December 31, 1998 - - - (72,866)
------------ ------------ ------------ ------------
BALANCE, December 31, 1998 600,000 600 399,400 (98,901)
Shares issued pursuant to a private
placement at $.50 per share, March
and April 1999 400,000 400 199,600 -
Direct costs of stock offering - - (1,638) -
Shares issued to vendor for services
June 1999 at $4.00 per share 10,000 10 39,990 -
Shares issued to officer and director
for services, June 1999 at $.50
per share 150,000 150 74,850 -
Shares issued upon exercise of
warrants, July and September 1999 at
$1.00 per share 100,000 100 99,900 -
Shares issued to pay royalty for joint
venture partner, October 1999 at
$3.00 per share 15,000 15 44,685 -
Shares issued to vendor for services,
December 1999 at $3.00 per share 4,000 4 11,996 -
Shares issued to officers and directors
pursuant to a private placement at
$1.00 per share, December 1999 120,000 120 119,880 -
Net income (loss) for the year ended
December 31, 1999 - - - (441,243)
--------- ------------ ------------ -------------
BALANCE, December 31, 1999 1,399,000 $ 1,399 $ 988,963 $ (540,144)
========= ============ ============ =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 37
NATEX CORPORATION
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the Cumulative
Year ended Year Ended During the
December 31, December 31, Development
1999 1998 Stage
------------ --------------- --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) $ (441,243) $ (72,866) $ (540,144)
Adjustments to reconcile net (loss) to
net cash provided by operating activities - - -
Cumulative change in accounting principle 27,226 - 27,226
Stock issued for services 75,000 - 75,000
Decrease in investment in limited liability
company 314,261 50,717 390,165
Amortization - 1,239 1,239
Changes in assets and liabilities
Increase in organization costs (9,887) - (28,465)
(Increase) in accounts payable 807 - 807
--------- -------- ---------
Net cash (used) by operating activities (33,836) (20,910) (74,172)
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Related party loans (331,000) - (375,000)
Investment in limited liability company - - (250,000)
--------- --------- ---------
Net cash provided (used) by investing
activities (331,000) - (625,000)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Sale of common stock 380,000 - 820,000
Direct costs of stock sale (1,638) - (41,648)
--------- --------- ---------
Net cash provided by financing activities 378,362 - 778,362
--------- --------- ---------
NET INCREASE (DECREASE) IN CASH 13,526 (20,910) 79,190
CASH - BEGINNING OF PERIOD 65,664 86,674 -
--------- --------- ---------
CASH - END OF PERIOD $ 79,190 $ 65,664 $ 79,190
========= ========= =========
SUPPLEMENTAL INFORMATION
Interest paid during the period $ - $ - $ -
====== ====== ======
Income taxes paid during the period $ - $ - -
====== ====== ======
Stock issued to pay royalties and
expenses of related entity $ 97,000 $ - $ 97,000
====== ====== ======
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE>
<PAGE> 38
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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 acquired a license to 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.
Investment in Limited Liability Company - The Company will account for its
investment in the Limited Liability Company using the equity method of
accounting.
Amortization of Organization Costs - The Company was amortizing its
organization costs over a sixty (60) month period using the straight-line
method. In 1998, the Accounting Standards Executive Committee (AcSEC) of the
American Institute of Certified Public Accountants issued Statement of
Position (SOP) 98-5. "Reporting on the Costs of Start-up Activities." The SOP
requires costs of start-up activities and organization costs to be expensed as
incurred. During 1999, the Company adopted the SOP and recognized a charge
for the cumulative effect of accounting change of $27,226.
Income Taxes - The Company provides for income taxes based on the liability
method, which required 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.
Use of Estimates - The preparation of financial statements in conformity with
the 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 revenue and expenses
during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents - 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. The Company had no noncash
financing activities for the years ended December 31, 1999 and 1998.
Net Income (Loss) Per Common Share - Basic earnings (loss) per common share
(EPS) is calculated by dividing net income (loss) for the period by the
weighted average number of the Company's common shares outstanding and, if
applicable, EPS is computed by dividing net income by diluted diluted common
equivalent shares from stock options and warrants, as calculated using the
treasury stock method.
Fully diluted earnings 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 Company
has had losses for every period since inception and thus a diluted earnings
per share computation would be antidilutive for December 31, 1999 and 1998.
Per Financial Accounting Statement No. 128 if there is a loss from continuing
operations, diluted EPS is the same as basic EPS.
<PAGE>
<PAGE> 39
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - CONTINUED
Issuance of Shares for Services and Other Expenses - Valuation of shares
issued for royalties, services and expenses of the Company and in behalf of
its joint venture partner were based on the fair market value of the above
items at the time of issuance
NOTE 2 - STOCK OPTION PLAN AND STOCK FOR COMPENSATION
The Company's president 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. This option has not been
exercised as of December 31, 1999. Of the above options, 50,000 expire January
1, 2002 and 50,00 expire March 31, 2002.
Pursuant to an employment agreement the President was also issued in June of
1999, 150,000 shares of common stock and warrants. The common stock was
valued at $.50 for compensation of $75,000 and the warrants can be exercised
at $1.00 per share. The transaction was concurrent with the March 1999
Private Placement of the Company's common stock. The warrants were not
exercised at December 31, 1999 and expire June 6, 2002.
Subsequent to December 31, 1999, the Company issued to an employee options
for 10,000 shares of common stock at $3.00 per share under a incentive stock
option plan for employees. The shares vest in 3,333 shares increments on
January 1, 2003, 2004, and 2005. The options expire January 1, 2006. Under
the option plan the exercise price of incentive based options is equal to the
market price of the Company's stock on the date of grant.
NOTE 3 - RECEIVABLE - RELATED ENTITY
The receivable from related entity is an unsecured non-interest bearing loan
which has no repayment terms. The Company has loaned $472,000 to the related
party through December 31, 1999. The receivable is due from Powerball
Technologies, LLC (A Development Stage Company). Natex Corporation is a 50%
owner of Powerball Technologies, LLC. (See note 5).
NOTE 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 1998
Carrying Fair Carrying Fair
Amount Value Amount Value
--------- -------- --------- --------
Cash and Cash Equivalents $ 79,190 $ 79,190 $ 65,664 $ 65,664
========= ======== ========= ========
<PAGE>
<PAGE> 40
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5 - INVESTMENT IN LIMITED LIABILITY COMPANY
The Company and Powerball Industries, Inc. have formed a limited liability
company called Powerball Technologies, LLC (LLC) 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. assigned the Technology License to the LLC for a
50% ownership interest in the LLC. The Company invested $250,000 in the LLC
for a 50% ownership interest. The LLC is a development Stage Company.
The following is a summary of financial position and results of operations of
the LLC:
1999 1998
--------- ---------
Current assets $ 8,720 $ 112,361
Property and equipment-net 18,434 -0-
Other assets 17,564 34,486
--------- ---------
Total assets 44,718 $ 146,847
Current liabilities $ 99,704 $ 1,311
Long-term debt 472,000 44,000
Members' equity (526,986) 101,536
--------- ---------
Total liabilities and equity $ 44,718 $ 146,847
Revenue $ -0- $ -0-
--------- ---------
Net income (loss) $(628,522) $(101,434)
--------- ---------
NOTE 6 - STOCK OFFERINGS AND COMMON STOCK TRANSACTIONS
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.
During March and April 1999, the Company completed a private placement of
400,000 Units consisting of one share of restricted Common Stock at $.50 per
share and 1 Warrant for 1 share of restricted Common Stock exercisable at
$1.00 per share. The Warrants expire March and April of 2002. Direct costs of
the offering were $1,638. During December 1999, the Company completed a
second private placement of 120,000 Units consisting of one share of
restricted Common Stock at $1.00 per share and 1 Warrant for 1 share of
restricted Common Stock exercisable at $1.00 per share. The Warrants expire
December 2001. The Units were sold to Officers and Directors of the Company.
At December 31, 1999, of the above Warrants 100,000 had been exercised.
Subsequent to year end an additional 80,000 shares have been exercised.
Also during 1999, the Company issued a total of 14,000 shares of its common
stock to a vendor to pay for services rendered at a value of $52,000 and
15,000 common shares to pay for royalties owed by the LLC which were valued at
$45,000.
<PAGE>
<PAGE> 41
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6 - STOCK OFFERINGS AND COMMON STOCK TRANSACTIONS - CONTINUED
The Company has received $10,000 for a sale of its common stock but the shares
have not yet been issued. The Company has recorded this transaction as a
deferred equity transaction in the liability section of the balance sheet
until the shares are issued. The Company has a Stock Subscription receivable
of $50,000 connected with the private placement of its Common Stock in
December 1999. Subsequent to yearend the $50,000 was received and the
subscription receivable was satisfied.
NOTE 7 - INCOME TAXES
Due to losses at December 31, 1999 and 1998, the Company had no income tax
liability and thus no provision for taxes was recorded. The Company had a
deferred tax benefit of $9,257 derived from the amortizing of organization
costs for tax reporting and expensing of organization costs for finical
reporting purposes. At December 31, 1998, the Company has a net operating loss
carryforward of approximately $552,700 which will expire between the years
2012 and 2019. A Valuation allowance of $197,175 has been established for
those tax credits which are not expected to be realized. The change in the
valuation allowances for 1999 was $163,549.
NOTE 8 - DEVELOPMENT STAGE COMPANY AND GOING CONCERN
The Company is a development stage company as defined in Financial Accounting
Standards Board Statement No. 7. It has yet to commence full-scale business
operations. From inception through the date of these financial statements,
the Company did not have any net income form operations. At the current time,
the Company has a deficit accumulated during the development stage of
$552,703.
Accordingly, the Company's ability to accomplish it business strategy and to
ultimately become profitable is at this time dependent on the success of its
joint venture and the joint venture's future ability to generate significant
revenue and to ultimately achieve profitable operations. At present most of
the capital the Company has obtained has been loaned to the joint venture.
There can be no assurance that the Company will be able to obtain additional
funding. and, if available, that the funding will be obtained on terms
favorable to or affordable or in adequate amounts needed to complete its
current business plan with its joint venture. The Company's management is
exploring all of its options so that if can successfully develop successful
operations around its business plan. Ultimately, however, the Company will
need to achieve profitable operations in order to continue as a going concern
NOTE 9 - SUBSEQUENT EVENTS
The Company has signed a letter of understanding with Powerball Industries,
Inc. (PIC) which is the other owner in the LLC. Under the terms of the letter
the Company will acquire PIC by effecting a merger in which the Company will
acquire all of the issued and outstanding stock of PIC in exchange for the
issuance of one million five hundred thousand shares of the Common Stock of
the Company. The letter also addresses the assignment of technology, the
share exchange, a rewriting of the exclusive license agreement and assignment,
and the Royalty agreement of the LLC. This acquisition will be accounted for
as a purchase.
<PAGE>
<PAGE> 42
NATEX CORPORATION
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 10 - OFFICE SPACE
The Company is receiving free office space from the management of the Company.
The management of the Company has deemed the value of the free office space to
be of nominal value through December 31, 1999.
<PAGE>
<PAGE> 43
Independent Auditor's Report
- ----------------------------
Board of Director
Powerball Industries, Inc.
Salt Lake City, Utah
I have audited the accompanying balance sheets of Powerball Industries, Inc.
(a development stage company) and (an S Corporation) as of December 31, 1999
and 1998 and the related statements of operations, stockholders' equity and
cash flows for the years then ended and from inception (September 3, 1997) to
December 31, 1999. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on the
financial statements based on my audits.
I conducted my audits in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial 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. I believe that my audits provide a reasonable basis
for my opinion.
In my opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Powerball Industries, Inc. (a
development stage company) as of December 31, 1999 and 1998 and the results of
its operations and its cash flows for the years then ended and from inception
(September 3, 1997) to December 31, 1999 in conformity with generally accepted
accounting principles.
As discussed in Note 4, the Company has been in the development stage since
its inception on September 3, 1997. Realization of a major portion of the
assets is dependent upon the Company's ability to meet its future financing
requirements, and the success of future operations. The Company at December
31, 1999 had no working capital. These factors raise substantial doubt about
the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of recorded assets, or the amounts and classification of
liabilities that might be necessary in the event the Company cannot continue
in existence.
Salt Lake City, Utah
March 23, 2000
<PAGE>
<PAGE> 44
POWERBALL INDUSTRIES, INC.
(A Development Stage Company)
Balance Sheet
December 31, December 31,
1999 1998
------------- ------------
CURRENT ASSETS
Cash $ - $ -
TOTAL CURRENT ASSETS - -
----------- -----------
OTHER ASSETS
Investment in limited liability
company, at cost less share of
losses
Note receivable - affiliated
company 76,000 -
----------- -----------
TOTAL ASSETS $ 76,000 $ -
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES
Account payable $ - $ 454
----------- -----------
Due to affiliated company 454 -
----------- -----------
TOTAL CURRENT LIABILITIES 454 454
----------- -----------
STOCKHOLDERS' EQUITY
Common stock, no par value, 100,000
shares authorized, 1,000 shares issued
and outstanding all periods 3,344 3,344
Additional paid-in capital 76,000 -
Deficit accumulated during the
development stage. (3,798) (3,798)
----------- -----------
Total stockholders' equity (deficit) 75,546 (454)
----------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 76,000 -
=========== ===========
The footnotes hereto are an integral part of these financial statements.
<PAGE>
<PAGE> 45
POWERBALL INDUSTRIES, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
December 31, 1998 to December 31, 1999
(Deficit)
For the Year For the Year Accumulated
Ended December Ended December During the
Development
31, 1999 31, 1998 Stage
------------ ------------ ----------
REVENUE $ $ $
------------ ------------ ----------
EXPENSES:
Legal fees 10 454
Equity in loss
from investment in - - 3,344
limited liability
company ------------ ------------ ----------
$ - $ 10 $ 3,798
------------ ------------ ----------
NET INCOME (LOSS) $ - $ (10) $ (3,798)
============ ============ ==========
EARNING (LOSS) PER
SHARE $ (0,00) $ (0.01) $ (3.80)
============ ============ ==========
WEIGHTED AVERAGE
NUMBER OF COMMON
SHARES 1,000 1,000 1,000
============ ============ ==========
The footnotes hereto are an integral part of these financial statements.
<PAGE>
<PAGE> 46
POWERBALL INDUSTRIES, INC.
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
(Deficit)
Accumulated
Common Additional During the Total
Stock Paid-in Development Stockholders'
Shares Amount Capitol Stage Equity
------- ------ -------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, SEPTEMBER 3, 1997 $ - $ - $ - $ - -
------ ------- -------- --------- -------------
Equity given for technology
and patent under license
agreement 1,000 3,344 - - 3,344
------- ------- -------- --------- ------------
Net (loss) for period
September 3, 1997 to
December 31, 1997 - - - (3,788) (3,788)
------- ------- -------- --------- ------------
BALANCE, December 31,
1997 1,000 3,344 - (3,788) (444)
------- ------- -------- --------- -------------
Net income (loss) for the
year ended December 31,
1998 - - - (10) (10)
------- -------- -------- --------- -------------
Balance, December 31, 1998 1,000 3,344 - (3,798) (454)
------- -------- -------- --------- -------------
(Capital contributed to the
Company by a stockholder - - 76,000 - 76,000
------- -------- -------- --------- -------------
Net income loss) for the
year ended December 31, 1999 - - - - -
------- -------- -------- --------- -------------
Balance, December 31, 1999 1,000 3,344 76,000 (3,798) 75,546
------- -------- -------- --------- -------------
</TABLE>
The footnotes hereto are an integral part of these financial statements.
<PAGE>
<PAGE> 47
POWERBALL INDUSTRIES, INC.
(A Developmental Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
For the For the (Deficit)
Year Year Accumulated
Ended Ended During the
December December Development
31, 31, Stage
1999 1998
------------ ------------ ------------
<S> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net (loss) $ - $ (10) $ (3,798)
Adjustments to reconcile ------------ ------------ ------------
net (loss) to net cash
provided by operating
activities
Decrease in investment in
limited liability company - - 3,344
------------ ------------ ------------
Changes in assets and liabilities
Account payable (454) 10 -
Due to affiliated company 454 - 454
------------ ------------ ------------
Net cash (used) by operating
activities - - -
------------ ------------ ------------
CASH FLOW FROM INVESTING ACTIVITIES
Note receivable-affiliated company (76,000) - (76,000)
------------ ------------ ------------
Net cash provided (used) by investing
activities (76,000) - (76,000)
------------ ------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES
Capital contributed by stockholder 76,000 - 76,000
------------ ------------- ------------
Net Cash Provided by Financing
Activities 76,000 - 76,000
------------ ------------- ------------
NET INCREASE (DECREASE) IN CASH - - -
------------ ------------- ------------
CASH - BEGINNING OF PERIOD - - -
------------ ------------- ------------
CASH - END OF PERIOD $ - $ - $ -
------------ ------------- -------------
SUPPLEMENTAL INFORMATION $ - $ - $ 3,344
------------ ------------- -------------
</TABLE>
The footnotes hereto are an integral part of these financial statements.
<PAGE>
<PAGE> 48
POWERBALL INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization - The Company was organized under the laws of the State of Utah
on September 3, 1997. The Company's only office is located in Salt Lake City,
Utah. At the present time, the Company is in the development stage. The
Company was formed to use its licensed technology in a joint venture
investment. The joint venture is involved in research and development efforts
of trying to commercialize the technology.
Intangible Asset - The Company obtained a license agreement from an individual
in exchange for $3,344 of equity. This license was then assigned to a joint
venture entity in exchange for equity in the entity. (see note 2).
Income Taxes - The Company has elected to be taxed under the provisions of
Subchapter S of the Internal Revenue Code. Under those provisions, the
Company is not a tax paying entity for Federal or State income tax purposes
and, thus, no income tax expense has been recorded in the financial
statements. The Stockholders' respective share of earnings and losses are
included in the Stockholders' individual member income tax returns and are
taxed based on their personal tax strategies.
Issuance of Shares for License agreement - Valuation of shares issued in
exchange for the license agreement were based on cost paid by the individual
to obtain the patents and technology.
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
disclosures 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.
Cash and Cash Equivalents - 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. The Company had no noncash
investing and financing activities at December 31, 1999 and 1998.
NOTE 2 - LOAN RECEIVABLE - RELATED ENTITY
A Long-term loan receivable to a related entity for the year ended December
31, 1999 and 1998 is summarized below:
Loan receivable 1999 1998
--------------- ---- ----
Powerball Technologies LLC 76,000 -
------- ----
$76,000 $ -
======= ====
<PAGE>
<PAGE> 49
POWERBALL INDUSTRIES, INC.
(A Development State Company)
NOTES TO FINANCIAL STATEMENTS (Con't)
NOTE 2 - LOAN RECEIVABLE - RELATED ENTITY - CONTINUED
Powerball Technologies, LLC ("LLC") is a limited liability company created to
develop technology and patents that the Company licensed to it. In exchange
for the license assignment the Company became a 50% member of the LLC. The
Company and has lent the LLC $76,000 on an unsecured non-interest basis.
There are no payback terms on the loan. The Company received the $76,000 to
lend to the LLC from a stockholder who contributed the cash to the Company.
The contributed capital of $76,000 is shown as additional equity added to the
no par common stock of the Company.
NOTE 3 - COMMON STOCK TRANSACTION
The Company issued 1,000 shares of its common stock to an individual in
exchange for a license agreement for patents and technology. The shares were
recorded at the cost paid by the individual to obtain the patents and
technology.
NOTE 4 - DEVELOPMENT STAGE COMPANY AND GOING CONCERN
The Company is a development stage company as defined in Financial Accounting
Standards Board Statement No. 7. It has yet to commence full-scale business
operations. From inception through the date of these financial statements,
the Company did not have any net income from operations.
The Company has not yet generated revenue and its only activity is from its
investment in the LLC.(see note 2). Accordingly, the Company's ability to
accomplish it business strategy and to ultimately achieve profitable
operations is currently dependent upon the success of the LLC. Ultimately,
however, the Company will need to achieve profitable operations in order to
continue as a going concern.
NOTE 5 - INVESTMENT CARRIED AT EQUITY
Investments in unconsolidated subsidiaries, jointly owned companies, and other
investees in which the Company has a 20% to 50% interest or otherwise
exercises significant influence are carried at cost, adjusted for the
Company's proportionate share of their undistributed earnings or losses. The
ownership percentage of the Company's Investment in Powerball Technology, LLC
is 50%.
During 1997, the Company suspended the equity method of accounting for its
investment in the LLC when the Company's share of losses equaled the carrying
amount of the investment. The Company's share of the LLC's loss charged to
operations in 1997 was $3,344. The Company's unrecorded share of the LLC's
losses for 1999, 1998, and 1997 was $314,261, $50,717, and $21,843
respectively.
<PAGE>
<PAGE> 50
POWERBALL INDUSTRIES, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
NOTE 5 - INVESTMENT CARRIED AT EQUITY - CONTINUED
The following is a summary of financial position and results of operations of
the LLC:
1999 1998
--------- ---------
Current assets $ 8,720 $112,361
Property and equipment - net 18,434 -0-
Other assets 17,564 34,486
Total assets --------- ---------
$ 44,718 $146,847
Current liabilities $ 99,704 $ 1,311
Long-term debt 472,000 44,000
Members' equity (526,986) 101,536
--------- --------
Total liabilities and
equity $ 44,718 $146,847
Revenue $ -0- $ -0-
--------- ---------
Net income (loss) $(628,522) $(101,434)
--------- ---------
NOTE 6 - SUBSEQUENT EVENTS
The Company, has signed a letter of understanding with Natex Corporation
(Natex) which is also an equity owner of the LLC. Under the terms of the
letter Natex will acquire the Company by effecting a merger in which Natex
will acquire all the issued and outstanding stock of the Company in exchange
for the issuance of one million five hundred thousand shares of the common
stock of Natex. The letter also addresses the assignment of technology, the
share exchange, a rewriting of the exclusive license agreement and assignment,
and the Royalty agreement. This acquisition will be accounted for as a
purchase.
<PAGE>
<PAGE> A-1
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger is entered into this ____ day of April
2000, by and between Natex Corporation, a Utah corporation ("Acquiror");
Powerball Industries, Inc., a Utah ("Acquiree"); and the persons listed in
Exhibit "A" attached hereto and by this reference made a part hereof,
representing all of the stockholders of Acquiree ( "Stockholders").
RECITALS
Stockholders own all of the issued and outstanding capital stock of
Acquiree. Acquiror desires to acquire all of the issued and outstanding
shares of capital stock of Acquiree, effecting of merger of Acquiree into
Acquiror, and Stockholders desire to exchange their shares in Acquiree solely
for shares of Acquiror's common stock, $0.001 par value, as described herein.
NOW, THEREFORE, for the mutual consideration set out herein and for other
good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties agree as follows:
AGREEMENT
1. Plan of Merger. Stockholders of Acquiree are the owners of all of the
issued and outstanding shares of capital stock of Acquiree. It is the
intention of the parties hereto that all of the issued and outstanding shares
of capital stock of Acquiree shall be acquired by Acquiror in exchange solely
for Acquiror's voting common stock. It is the intention of the parties hereto
that this transaction qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended.
2. Exchange of Shares. Acquiror and Stockholders agree that all of the
issued and outstanding shares of capital stock of Acquiree consisting, at the
Closing Date, of 1,000 shares of common stock, will be exchanged with Acquiror
for 1,500,000 shares of restricted common stock of Acquiror. The Acquiror
shares will, on the Closing Date, as hereafter defined, be delivered to the
Stockholders in exchange for their shares in Acquiree. Stockholders represent
and warrant that they will hold such shares of common stock of Acquiror for
investment purposes and not for further public distribution and agree that the
shares shall be appropriately restricted.
3. Delivery of Shares. On or before the Closing Date, Stockholders will
deliver certificates representing all of the issued and outstanding shares of
Acquiree, duly endorsed so as to make Acquiror the sole holder thereof, free
and clear of all claims and encumbrances. On such Closing Date, delivery of
the Acquiror shares, which will be appropriately restricted as to transfer,
will be made to the Stockholders as set forth herein. The transaction
contemplated herein shall not close unless all of the issued and outstanding
shares of Acquiree are delivered at Closing and the owners thereof execute
this Agreement. A list of shares of Acquiree, the owner thereof and shares of
Acquiror to be received by each Stockholder is attached hereto as Exhibit "A".
Each Stockholder shall sign Exhibit "B", attached hereto and by this reference
made a part hereof, evidencing his or her intent to be a party to this
Agreement and bound hereby.
4. Termination.
A. This Agreement may be terminated by action of the Board of Directors of
Acquiror, or by the Stockholders of Acquiree at any time prior to the Closing
Date if:
<PAGE>
<PAGE> A-2
(1) There shall be any actual or threatened action or proceeding by or
before any court or any other governmental body which shall seek to restrain,
prohibit, or invalidate the transactions contemplated by this Agreement and
which, in the judgment of such Board of Directors made in good faith and based
upon the advice of legal counsel, makes it inadvisable to proceed with the
transactions contemplated by this Agreement; or
(2) The Closing shall not have occurred prior to March 31, 2000, or such
later date as shall have been approved by parties hereto, other than for
reasons set forth in paragraph B or C below.
In the event of termination pursuant to this Section 4 (A) , no obligation,
right, or liability shall arise hereunder and each party shall bear all of the
expenses incurred by them in connection with the negotiation, drafting, and
execution of this Agreement and the consummation of the transactions herein
contemplated.
B. This Agreement may be terminated at any time prior to the Closing Date
by action of Acquiror if:
(1) Acquiree or the Stockholders shall fail to comply in any material
respect with any of its or their covenants or agreements contained in this
Agreement or if any of the representations or warranties of Acquiree or the
Stockholders contained herein shall be inaccurate in any material respect; or
(2) There shall have been any material change after February1, 2000, in the
assets, properties, business, or financial condition of Acquiree taken as a
whole which could have a materially adverse effect on the value of the
business of Acquiree except any changes disclosed in any exhibits or schedules
attached hereto.
In the event this Agreement is terminated pursuant to this Section 4 (B),
this Agreement shall be of no further force or effect, no obligation, right,
or liability shall arise hereunder, and Acquiree shall bear its own costs as
well as the legal, accounting, printing, and other costs incurred by Acquiror
in connection with the negotiation, preparation, and execution of this
Agreement and the transactions herein contemplated.
C. This Agreement may be terminated at any time prior to the Closing Date
by action of the Board of Directors of Acquiree or by the Stockholders of
Acquiree if:
(1) Acquiror shall fail to comply in any material respect with any of its
covenants or agreements contained in this Agreement or if any of the
representations or warranties of Acquiror contained herein shall be inaccurate
in any material respect; or
(2) There shall have been any material adverse change after February 1,
2000, in the assets, properties, business, or financial condition of
Acquiror as a whole which could have a materially adverse effect on the value
of the business of Acquiror taken as a whole except any changes disclosed in
any exhibit or schedule attached hereto.
In the event this Agreement is terminated pursuant to this Section 4 (C),
this Agreement shall be of no further force or effect, no obligation, right,
or liability shall arise hereunder, and Acquiror shall bear its own costs as
well as the legal, accounting, printing, and other costs incurred by Acquiree
and the Stockholders in connection with negotiation, preparation, and
execution of this Agreement and the transactions herein contemplated.
<PAGE>
<PAGE> A-3
5. Representations and Warranties of Stockholders and Acquiree.
A. The Stockholders and Acquiree hereby represent and warrant that,
effective this date and the Closing Date, the representations and warranties
listed below are true and correct.
(1) Stockholders of Acquiree. The Stockholders are the owners of all of the
issued and outstanding shares of the capital stock of Acquiree; such shares
are free from claims, liens, or other encumbrances; and Stockholders have the
unqualified right to sell, transfer, and dispose of such shares subject to the
laws of bankruptcy, insolvency, and general creditors' rights. Each
Stockholder represents and warrants, that in regards to his or her shares of
Acquiree, such Stockholder has the full right and authority to execute this
Agreement and to transfer his or her shares of Acquiree to Acquiror.
(2) Restricted Shares to be Issued. The Stockholders understand and
are aware that the issuance of Acquiror's shares hereunder is being made
without registration under the Securities Act of 1933, as amended (the
"Act"), or any state securities laws and that the shares so issued may not be
sold or transferred without registration under the Act and under applicable
state, securities laws, or unless an exemption from such registration is
available. The Stockholders understand that the investment in the shares of
Acquiror is speculative and may remain so for an indefinite period and
acknowledge that the Stockholders are able to bear the economic risk of their
investment in the shares of Acquiror. All certificates evidencing Acquiror's
common stock to be issued to Stockholders shall bear appropriate restrictive
legends.
B. The Principal Stockholders of Acquiree (defined for purposes of this
Agreement as owners of 2% or more of Acquiree Shares) and Acquiree hereby
represent and warrant that, effective this date and the Closing Date,
the representations and warranties listed below are true and correct.
(1) Corporate Authority. Acquiree has the full corporate power and
authority to enter into this Agreement and (subject to any requisite
approval by the holders of Acquiree common shares) to carry out the
transactions contemplated by this Agreement. The Board of Directors of
Acquiree has duly authorized the execution, delivery, and performance of
this Agreement.
(2) Financial Statements.
(a) The audited balance sheet of Acquiree as of December 31, 1999 and
1998 and the related statements of income (loss), changes in shareholders'
equity and, cash flows, and stockholders' equity for the years since inception
to December 31, 1999, and 1998, including the notes thereto, and the
accompanying report of David T. Thomson, PC, certified public accountants,
have been delivered to Acquiror ("Acquiree Financial Statements"). To the
best knowledge of Acquiree and Principal Stockholders, except as set forth in
Acquiree's Schedules, such financial statements contain all adjustments (all
of which are normal recurring adjustments) necessary to present fairly the
results of operations and financial position for the periods and as of the
dates indicated.
(b) The audited financial statements delivered pursuant to subparagraph
(a) have been prepared in accordance with United States generally accepted
accounting principles consistently applied throughout the periods involved
and, when required to be audited, have been audited by a certified public
accountants licensed to practice in the United States and before the
<PAGE>
<PAGE> A-4
Securities and Exchange Commission. The audited financial statements have
been presented in accordance with the requirements of Regulation S-X
promulgated by the SEC regarding the form and content of and requirements for
financial statements to be filed with the SEC. The Acquiree Financial
Statements present fairly, the financial position of Acquiree. Acquiree did
not have, as of the date of the Acquiree Financial Statements, except as and
to the extent reflected or reserved against therein, any liabilities or
obligations (absolute or contingent) which should be reflected in any
financial statements or the notes thereto prepared in accordance with
generally accepted accounting principles, and all assets reflected therein
present fairly the assets of Acquiree, in accordance with generally accepted
accounting principles. The statements of revenue and expenses and cash flows
present fairly the financial position and result of operations of Acquiree as
of their respective dates and for the respective periods covered thereby.
(c) The books and records, financial and otherwise, of Acquiree are in
all material respects complete and correct and have been maintained in
accordance with sound business and bookkeeping practices so as to accurately
and fairly reflect, in reasonable detail, the transactions and dispositions of
the assets of Acquiree.
(d) Proper and accurate amounts of taxes have been withheld by or on
behalf of Acquiree with respect to all material compensation paid to employees
of Acquiree for all periods ending on or before the date hereof, and all
deposits required with respect to compensation paid to such employees have
been made, in complete compliance with the provisions of all material accrual
or material arrangement for or payment of bonuses or special compensation
applicable under tax and other laws. There are no tax liens upon any of the
assets of Acquiree.
(3) Absence of Certain Changes or Events. Except as set forth in this
Agreement or the Acquiree Schedules attached hereto, since December 31, 1999,
the date of the Acquiree Financial Statements,:
(a) There has not been (1) any material adverse change in the
business, operations, properties, level of inventory, assets, or
financial condition of Acquiree taken as a whole; or (2) any damage,
destruction, or loss to Acquiree (whether or not covered by insurance)
materially and adversely affecting the business, operations, properties,
assets, or conditions of Acquiree;
(b) Acquiree has not (1) amended its Articles of Incorporation or Bylaws;
(2) declared or made, or agreed to declare to make, any payment of dividends
or distributions of any assets of any kind whatsoever to Stockholders or
purchased or redeemed, or agreed to purchase or redeem, any of their capital
stock; (3) waived any rights of value which in the aggregate are
extraordinary or material considering the business of Acquiree; (4) made any
material change in its method of management, operation, or accounting;
(5) entered into any other material transactions not in the ordinary course of
business except as otherwise contemplated by this Agreement; (6) made any
accrual or arrangement for or payment of bonuses or special compensation of
any kind or any severance or termination pay to any present or former officer
or employee; (7) increased the rate of compensation payable or to become
payable by it to any of its officers or directors or any of its employees
whose monthly compensation exceeds $5,000; or (8) made any increase in any
profit sharing, bonus, deferred compensation, insurance, pension, retirement,
or other employee benefit plan, payment, or arrangement made to, for, or with
its officers, directors, or employees;
<PAGE>
<PAGE> A-5
(c) Acquiree has not (1) granted or agreed to grant any options,
warrants, or other rights for its stocks, bonds, or other corporate securities
calling for the issuance thereof except as described in the Schedules
attached hereto; (2) borrowed or agreed to borrow any funds or incurred, or
become subject to, any material obligation or liability (absolute or
contingent) except liabilities incurred in the ordinary course of business;
(3) paid any material obligation or liability (absolute or contingent)
other than current liabilities reflected in or shown on the balance sheet
contained in the Acquiree Financial Statement and current liabilities incurred
since that date in the ordinary course of business; (4) sold or transferred,
or agreed to sell or transfer, any of its assets, property, or rights (except
assets, property, or rights held as inventory or canceled or agreed to cancel,
any debts or claims (except debts or claims which in the aggregate are of a
value of less than $1,000); (5) made or permitted any amendment or termination
of any contract, agreement, or license to which it is a party if such
amendment or termination is material, considering the business of Acquiree
taken as a whole; or (6) issued, delivered, or agreed to issue or deliver any
stock, bonds, or other corporate securities including debentures (whether
authorized and unissued or held as treasury stock); and
(d) To the best knowledge of Acquiree, it has not become subject to any
law or regulation which materially and adversely affects, or in the future may
adversely affect, its business, operations, properties, assets, or condition.
(4) Litigation and Proceedings. Acquiree is not involved in any pending
litigation or governmental investigation or proceeding not reflected in
such financial statements, or otherwise disclosed in the Acquiree Schedules
and, to the best knowledge of Acquiree and Principal Stockholders, no
litigation, claims, assessments, or governmental investigation or proceeding
is threatened against Acquiree, its Principal Stockholders, or
properties.
(5) Organization.
(a) As of the Closing Date, Acquiree will be in good standing in Utah,
its state of incorporation, and will be in good standing and duly qualified to
do business in each state and jurisdiction where the failure to qualify would
have a material adverse effect on Acquiree.
(b) To the best knowledge of Acquiree and Principal Stockholders,
Acquiree has complied with all state, federal, and local laws in connection
with its formation, issuance of securities, capitalization, and
operations, and no contingent liabilities have been threatened or claims made,
and no basis for the same exists with respect to said operations, formation,
or capitalization, including claims for violation of any state or federal
securities laws except where any noncompliance would not materially affect the
business or property of the Acquiree.
(6) Compliance with Laws, Rules and Regulations. Acquiree and Principal
Stockholders represent and warrant that Acquiree complies with all applicable
federal laws, rules and regulations; and all applicable State laws, rules and
regulations relating to the operation of its business and the sale of
Acquiree's products except to the extent that non-compliance would not
materially and adversely affect the business, operations, properties, assets,
or condition of Acquiree or except to the extent that non-compliance would not
result in the incurrence of any material liability for Acquiree.
<PAGE>
<PAGE> A-6
(7) Tax Returns. Acquiree has filed or will file prior to closing all
federal, state, county, and local income, excise, property, sales, and other
tax returns, forms, or reports, which are due or required to be filed by it
prior to the date hereof and have paid or made adequate provisions for the
payment of all taxes, penalty fees, or assessments which have or may become
due pursuant to such returns or pursuant to any assessments received.
(8) Subsidiaries. Acquiree has no subsidiaries and does not own any capital
stock, security, partnership interest, or other interest of any kind in
any corporation, partnership, joint venture, association, or other entity,
other than the 50% membership interest in Powerball Technologies, LLC
disclosed in the Schedules.
(9) No Conflict With Other Instruments. The execution of this Agreement
will not violate or breach any document, instrument, agreement, contract, or
commitment material to the business of Acquiree to which Acquiree or Principal
Stockholders are a party and has been duly authorized by all appropriate and
necessary action.
(10) Capitalization. The authorized capital stock of Acquiree consists of
100,000 shares of common stock having no par value, of which 1,000 shares have
been validly issued and are now outstanding, and of which 1,000 will be
outstanding at the Closing Date. There are no outstanding convertible
securities, warrants, options, or commitments of any nature which may cause
authorized but unissued shares to be issued to any person, except as described
in the schedules attached hereto. All issued and outstanding shares are
legally issued, fully paid, and non-assessable, and are not issued in
violation of the pre-emptive or other right of any person.
(11) Title and Related Matters. Acquiree has good and marketable title to
all of its licenses, copyrights, trademarks, trade secrets, patents, patents
pending, properties, inventory, interests in properties, and other assets,
real and personal, which are reflected in the Acquiree Financial Statements,
or acquired after that date (except properties, interest in properties, and
assets sold or otherwise disposed of since such date in the ordinary course of
business), free and clear of all mortgages, liens, pledges, charges, or
encumbrances except (i) statutory liens or claims not yet delinquent; (ii)
such imperfections of title and easements as do not and will not materially
detract from or interfere with the present or proposed use of the assets or
properties subject thereto or affected thereby or otherwise materially
impair present business operations on such properties or in connection with
such assets; and (iii) as described in Acquiree Financial Statements or in the
Acquiree Schedules. Acquiree owns, free and clear of any liens, claims,
encumbrances, royalty interests, or other restrictions or limitations of any
nature whatsoever, any and all procedures, techniques, business plans, methods
of management, or other information utilized in the conduct of its business or
operations, whether or not the value thereof is reflected in the most recent
balance sheet included in the Acquiree Schedules. The assets and equipment of
Acquiree that are necessary or used in the operations of its business are in
good operating condition and repair, normal wear and tear excepted.
(12) Contracts.
(a) Except as included or described in the Acquiree Schedules, there
are no material contracts, agreements, franchises, license agreements, or
other commitments to which Acquiree is a party or by which it or any of its
properties or assets are bound.
(b) Subject to the laws of bankruptcy, insolvency, general
creditor's rights, and equitable principles, all contracts, agreements,
<PAGE>
<PAGE> A-8
franchises, license agreements, and other commitments to which Acquiree is a
party or by which its properties or assets are bound and which are material to
its operations taken as a whole, are valid and enforceable in all respects.
(c) Acquiree is not a party to or bound by, and the assets of Acquiree
are not subject to, any contract, agreement, other commitment or
instrument; any charter or other corporate restriction; or any
judgment, order, writ, injunction, or decree which materially and adversely
affects, or in the future may (as far as Acquiree can now foresee), materially
and adversely affect, the business, operations, properties, assets, or
condition of Acquiree.
(d) Except as included or described in the Acquiree Schedules or
reflected in the most recent Acquiree Financial Statements, Acquiree is not a
party to any oral or written (a) contract for employment of any officer or
employee which is not terminable on 30 days (or less) notice; (b) profit
sharing, bonus, deferred compensation, stock option, severance pay,
pension benefit, or retirement plan, agreement, or arrangement covered by
Title IV of the Employee Retirement Income Security Act, as amended; (c)
agreement, contract, or indenture relating to the borrowing of money exceeding
$5,000; (d) guaranty of any obligation, other than one on which Acquiree is a
primary obligor, for the borrowing of money or otherwise, excluding
endorsements made for collection and other guarantees of obligations, which,
in the aggregate do not exceed $5,000; (e) consulting or other similar
contract with an unexpired term of more than one year of providing for payment
in excess of $5,000 in the aggregate; (f) collective bargaining agreement,
(g) agreement with any present or former officer or director of Acquiree or
its subsidiaries; or (h) contract, agreement, or other commitment involving
payments by it of more than $5,000 in the aggregate.
(13) Material Contract Defaults. To the best knowledge of Acquiree and
Principal Stockholders, Acquiree is not in default in any material respect
under the terms of any outstanding contract, agreement, lease, or other
commitment which is material to the business, operations, properties, assets,
or condition of Acquiree, and there is no event of default or other event
which, with notice or lapse of time or both, would constitute a default in any
material respect under any such contract, agreement, lease, or other
commitment in respect of which Acquiree has not taken adequate steps to
prevent such a default from occurring.
(14) Acquiree Schedules. Acquiree has delivered to Acquiror the following
schedules which are collectively referred to as the "Acquiree Schedules" and
which consist of separate schedules dated as of the date of execution of this
Agreement and instruments and data as of such date, all certified by the chief
executive officer of Acquiree and the Principal Stockholders, as complete,
true, and correct:
(a) A schedule containing complete and correct copies of the Articles
of Incorporation and Bylaws of Acquiree in effect as of the date of this
Agreement;
(b) A schedule including the financial statements of Acquiree
identified in paragraph 5(b) (2).
(c) A schedule containing a complete and correct copy of the stock ledger
of Acquiree;
(d) A schedule containing a description of all real property owned or
leased by Acquiree together with a description of every mortgage, deed of
trust, pledge, lien, agreement, encumbrance, claim, or equity interest of
any nature whatsoever in such real property with copies of the underlying
documentation;
<PAGE>
<PAGE> A-9
(e) A schedule containing copies of all material contracts, promissory
notes, profit sharing arrangements, options, warrants, employment agreements,
licenses, agreements, or other instruments to which Acquiree is a party or by
which it or its properties or assets are bound;
(f) A schedule describing all governmental licenses, permits, and
other governmental authorizations (or requests or applications therefor)
pursuant to which Acquiree carries on or propose to carry on its business
(except those which, in the aggregate, are immaterial to the present or
proposed business of Acquiree;
(g) A schedule setting forth a description of any material adverse
change in the business, operations, property, inventory, assets, or
condition of Acquiree since the date of the Acquiree Financial
Statements;
(h) A schedule of all litigation or governmental investigation or
proceeding which is pending or which, to the best knowledge of
management, is threatened or contemplated;
(i) A schedule of all other documents, disclosures, or
representations required to be disclosed by this Agreement or required to be
disclosed in order to set forth all material facts regarding Acquiree.
(15) Information. The information concerning Acquiree set forth in
this Agreement and in the Acquiree Schedules is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact required to make the statements made in light
of the circumstances under which they were made not misleading.
6. Representations and Warranties of Acquiror. Acquiror hereby represents
and warrants that effective this date and the Closing Date, the following
representations are true and correct:
A. Issuance of Shares. As of the Closing Date, the Acquiror shares to be
delivered to the Stockholders, will constitute valid and legally issued shares
of Acquiror, fully-paid and non-assessable, and will be legally equivalent in
all respects to the common stock of Acquiror issued and outstanding as
of the date hereof.
B. Authorization. The officers of Acquiror are duly authorized to execute
this Agreement and have taken all action required by law and agreements,
charters, Bylaws, etc., to properly and legally execute this Agreement.
C. Financial Statements.
(1) The audited balance sheets of Acquiror as of December 31, 1999 and
1998, and the related statements of operations, cash flows, and stockholders'
equity for the years ended December 31, 1999 and 1998, and the cumulative
amounts since inception, including the notes thereto, and the accompanying
Independent Auditor's Report of David T. Thomson, PC, have been delivered to
Acquiror. To the best knowledge of Acquiror, except as set forth in
Acquiror's Schedules, such financial statements contain all adjustments (all
of which are normal recurring adjustments) necessary to present fairly the
results of operations and financial position for the periods and as of the
dates indicated.
(2) The audited financial statements delivered pursuant to subparagraph (1)
have been prepared in accordance with United States generally accepted
accounting principles consistently applied throughout the periods involved
and, when required to be audited, have been audited by a certified public
accountants licensed to practice in the United States and before the
<PAGE>
<PAGE> A-10
Securities and Exchange Commission. The audited financial statements have
been presented in accordance with the requirements of Regulation S-X
promulgated by the SEC regarding the form and content of and requirements for
financial statements to be filed with the SEC. The Acquiror Financial
Statements present fairly the financial position of Acquiror. Acquiror did
not have, as of the date of the Acquiror Financial Statements, except as and
to the extent reflected or reserved against therein, any liabilities or
obligations (absolute or contingent) which should be reflected in any
financial statements or the notes thereto prepared in accordance with
generally accepted accounting principles, and all assets reflected therein
present fairly the assets of Acquiror, in accordance with generally accepted
accounting principles. The statements of revenue and expenses and cash flows
present fairly the financial position and result of operations of Acquiror as
of their respective dates and for the respective periods covered thereby.
(3) The books and records, financial and otherwise, of Acquiror are in all
material respects complete and correct and have been maintained in accordance
with sound business and bookkeeping practices so as to accurately and fairly
reflect, in reasonable detail, the transactions and dispositions of the assets
of Acquiror.
(4) Proper and accurate amounts of taxes have been withheld by or on behalf
of Acquiror with respect to all material compensation paid to employees of
Acquiror for all periods ending on or before the date hereof, and all deposits
required with respect to compensation paid to such employees have been made,
in complete compliance with the provisions of all material accrual or material
arrangement for or payment of bonuses or special compensation applicable under
tax and other laws. There are no tax liens upon any of the assets of Acquiror.
D. Absence of Certain Changes or Events. Except as set forth in this
Agreement or the Acquiror Schedules, since December 31, 1999:
(1) There has not been (a) any material adverse change in the business,
operations, properties, assets, or financial condition of Acquiror (whether
or not covered by insurance) materially and adversely affecting the business,
operations, properties, assets, or conditions of Acquiror;
(2) Acquiror has not (a) amended its Articles of Incorporation or Bylaws;
(b) declared or made, or agreed to declare or make, any payment of
dividends or distributions of any assets of any kind whatsoever to
stockholders or purchased or redeemed, or agreed to purchase or redeem any of
its capital stock; (c) waived any rights or value which in the
aggregate are extraordinary or material considering the business of Acquiror;
(d) made any material change in its method of management, operation, or
accounting; (e) entered into any other material transactions; (f) made any
accrual or arrangement for or payment of bonuses or special compensation
of any kind or any severance or termination pay to any present or former
officer or employees (g) increased the rate of compensation payable or to
become payable by it to any of its officers or directors of any of its
employees; or (h) established or made any increase in any profit sharing,
bonus, deferred compensation, insurance, pension, retirement, or other
employee benefit plan, payment, or arrangement made to, for, or with its
officers, directors, or employees;
(3) Acquiror has not (a) granted or agreed to grant any options, warrants,
or other rights for its stocks, bonds, or other corporate securities calling
for the issuance thereof; (b) borrowed or agreed to borrow any funds or
incurred, or become subject to, any material obligation or liability (absolute
<PAGE>
<PAGE> A-11
or contingent) except liabilities incurred in the ordinary course of business;
(c) paid any material obligation or liability (absolute or contingent) other
than current liabilities reflected in or shown on the Acquiror balance sheet
as of December 31, 1999, and current liabilities incurred since that date in
the ordinary course of business; (d) sold or transferred, or agreed to sell or
transfer, any of its assets, property, or rights, (e) made or permitted any
amendment or termination of any contract, agreement, or license to which it is
a party if such amendment or termination is material, considering the business
of Acquiror; or (f) issued, delivered, or agreed to issue or deliver any
stock, bonds, or other corporate securities including debentures (whether
authorized and unissued or held as treasury stock); and
(4) To the best knowledge of Acquiror, it has not become subject to any law
or regulation which materially and adversely affects, or in the future may
adversely affect, the business, operations, properties, assets, or condition
of Acquiror.
E. Litigation and Proceedings. To the best knowledge of Acquiror it is not
involved in any pending litigation, claims, or governmental investigation or
proceeding not reflected in such financial statements or otherwise disclosed
in the Acquiror Schedules and there are no lawsuits, claims, assessments,
investigations, or similar matters, to the best knowledge of management,.
threatened or contemplated against Acquiror, its management, or properties.
F. Organization. As of the Closing Date Acquiror shall be duly organized,
validly existing, and in good standing under the laws of the State of Utah; it
has the corporate power to own its property and to carry on its business as
now being conducted and is duly qualified to do business in any jurisdiction
where the failure to qualify would have a material adverse effect on Acquiror.
G. Tax Returns. Acquiror has filed all federal, state, county, and local
income, excise, property, and other tax returns, forms, or reports, which are
due or required to be filed by it prior to the date hereof. Acquiror has paid
or made adequate provisions for the payment of all taxes, penalty fees, or
assessments which have or may become due pursuant to such filed returns or
pursuant to any assessments received.
H. Contracts.
(1) Except as included or referred to in the Acquiror Schedules, there are
no material contracts, agreements, franchises, license agreements, or other
commitments to which Acquiror is a party or by which it or any of its
properties are bound.
(2) Subject to the laws of bankruptcy, insolvency, general creditor's
rights, and equitable principles, all contracts, agreements, franchises,
license agreements, and other commitments to which Acquiror is a party or by
which it or its properties are bound, and which are material to the operations
of Acquiror, are valid and enforceable by Acquiror in all respects.
(3) Acquiror is not a party to any contract, agreement, commitment, or
instrument or subject to any charter or other corporate restriction or any
judgment, order, writ, injunction, decree, or aware which materially and
adversely affects, or in the future may (as far as Acquiror can now foresee)
materially and adversely affect, the business, operations, properties, assets,
or condition of Acquiror.
<PAGE>
<PAGE> A-12
(4) Except as included or referred to in the Acquiror Schedules or
reflected in the latest Acquiror balance sheet, Acquiror is not a party to any
material oral or written (a) contract for the employment of any officer or
employee; (b) profit sharing, bonus, deferred compensation, stock option,
severance pay, pension, benefit, or retirement plan, agreement, or
arrangement covered by Title IV of the Employee Retirement Income Security
Act, as amended; (c) agreement, contract, or indenture relating to the
borrowing of money; (d) guaranty of any obligation, other than one which
Acquiror is a primary obligor, for the borrowing of money or otherwise,
excluding endorsements made for collection and other guarantees of
obligations, which, in the aggregate do not exceed $10,000; (e) consulting or
other similar contract with an unexpired term of more than one year or
providing for payments in excess of $10,000 in the aggregate; (f) collective
bargaining agreement; (g) agreement with any present or former officer or
director of Acquiror; or (h) contract, agreement or other commitment
involving payments by it of more than $10,000 in the aggregate.
I. Material Contract Defaults. To the best of its knowledge, Acquiror has
not materially breached, nor has it any knowledge of any pending or threatened
claims or any legal basis for a claim that Acquiror has materially breached,
any of the terms of conditions of any agreements, contracts, or commitments to
which it is a party or is bound and the execution and performance hereof will
not violate any provisions of applicable law of any agreement to which
Acquiror is subject.
J. Capitalization. The capitalization of Acquiror is, as of the date
hereof, comprised of 25,000,000 shares of authorized common stock, $.00l par
value, of which 1,469,000 shares are issued and outstanding. All outstanding
shares have been duly authorized, validly issued, and fully-paid, and there
are no outstanding or presently authorized securities, warrants, options,
or related commitments of any nature not disclosed in the Acquiror's
financial statements or in the Acquiror's Information Statement or in the
Acquiror Schedules attached hereto. All of the outstanding shares are non-
assessable and free of cumulative voting or pre-emptive rights.
K. Subsidiaries. Acquiror has no subsidiaries and does not own any capital
stock, security, partnership interest, or other interest of any kind in any
corporation, partnership, joint venture, association, or other entity, other
than the 50% membership interest in Powerball Technologies, LLC, as disclosed
in the Schedules.
L. Corporate Records. The corporate financial records, minute books, and
other documents and records of Acquiror are to be available to present
management of Acquiree prior to the Closing Date and turned over to new
management in their entirety at Closing or as soon thereafter as practicable.
M. No Conflict with Other Instrument. The execution of this Agreement will
not violate or breach any document, instrument, agreement, contract, or
commitment material to the business of Acquiror, to which Acquiror is a party.
N. Securities Laws. Acquiror is a public company and represents that to
the best of its knowledge it has no existing or threatened liabilities,
claims, lawsuits, or basis for the same with respect to its original stock
issuance to its founders, its public offering, or any dealings with its
Stockholders, the public, brokers, the Securities and Exchange Commission,
state agencies, or other persons. Acquiror is required to file Reports under
Section 15(d) of the Securities Exchange Act of 1934, as amended. Acquiror
represents that all reports required to be filed pursuant to Section 15(d) of
the Securities Act of 1934 as of the date of closing have been or will have
been filed.
<PAGE>
<PAGE> A-13
O. Compliance With Laws and Regulations. Acquiror has complied with all
applicable statutes and regulations of any federal, state, or other applicable
governmental entity or agency thereof, except to the extent that noncompliance
would not materially and adversely affect the business, operations,
properties, assets, or condition of Acquiror or except to the extent that
noncompliance would not result in the incurrence of any material liability
including, but not limited to, the Blue Sky regulations of this proposed
acquisition and issuance of Acquiror common stock.
P. Acquiror Schedules. Acquiror has delivered to Acquiree the following
schedules, which are collectively referred to as the "Acquiror Schedules,"
which are dated the date of this Agreement, all certified by an officer of
Acquiror and the officers of Acquiror to be complete, true, and accurate:
(1) A schedule containing complete and accurate copies of the Articles of
Incorporation and Bylaws of Acquiror as in effect as of the date of this
Agreement and copies of all Board of Directors and Shareholders Resolutions,
Minutes and Consents.
(2) A schedule containing copies of all financial statements referred to in
paragraph 6(c);
(3) A schedule containing the Prospectus of any previous public offering of
common stock of Acquiror;
(4) A schedule containing a list of the shareholders of Acquiror as of
February 1, 2000;
(5) A schedule describing all outstanding warrants to purchase shares of
Acquiror's common stock;
(6) A schedule setting forth a description of any material adverse change
in the business, operations, property, inventory, assets, or conditions of
Acquiror since December 31, 1999;
(7) A schedule of all litigation or governmental investigation or
proceeding which is pending or which, to the best knowledge of management, is
threatened or contemplated;
(8) A schedule containing copies of all contracts to which the Company is a
party;
(9) A schedule containing all reports filed with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934, as
amended;
(10) A schedule of all other documents, disclosures, or representations
required to be disclosed by this Agreement or required to be disclosed in
order to set forth all material facts regarding Acquiror.
Q. Information. The information concerning Acquiror set forth in this
Agreement and in the Acquiror Schedules is complete and accurate in all
material respects and does not contain any untrue statement of a material fact
or omit to state a material fact require to make the statements made, in light
of the circumstances under which they were made, not misleading.
7. Information Statement, Meeting of Natex Shareholders. As promptly as
practicable after the execution of this Agreement, Acquiror shall prepare and
file with the Securities and Exchange Commission ("SEC"), a preliminary
information statement including a notice of special meeting of its
<PAGE>
<PAGE> A-14
stockholders and related material (the "Information Statement") relating to
the approval of this Agreement and the transactions contemplated hereunder, as
promptly as practicable following receipt of the SEC's comments thereon (or,
should no SEC comments be forthcoming or the lapse of the period of time
during which SEC comments are required to be furnished, promptly following a
determination that no comments are forthcoming or the lapse of such period),
Acquiror shall file with the SEC and mail to its stockholders of record a
definitive Information Statement relating to such matters. The Information
Statement shall set a date of record for all shareholders entitled to vote on
this Agreement and shall include the recommendation of the Acquiror's board of
directors in favor of such matters.
8. Additional Financial Statements. To the extent required, Acquiree and
Acquiror shall utilize their best efforts and cooperate to provide the
financial information necessary to present the pro forma consolidated
financial statements, including a pro forma consolidated balance sheet, pro
forma consolidated income statements, for all periods required to be
presented, including the notes thereto, and in the form and manner required
for use in the Form 8-K and/or Information Statement or any other document
required to be filed with the SEC, requiring the presentation of the
Acquiror's financial statements under generally accepted accounting
principles.
9. Closing Date. The Closing Date herein referred to shall be upon
such date as the parties hereto may mutually agree upon, but is expected to be
on or about April __, 2000, but not later than May 15, 2000. At the Closing,
Acquiror shall deliver and the Stockholders will be deemed to have accepted
delivery, the certificate of stock to be issued in his or her name, and in
connection therewith, will make delivery of his or her stock in Acquiree to
Acquiror. Certain opinions, exhibits, etc., may be delivered subsequent to
the Closing Date upon the mutual agreement of the parties hereto.
10. Conditions Precedent to the Obligations of Acquiree and the
Stockholders. All obligations of Acquiree and Stockholders under this
Agreement are subject to the fulfillment, by Acquiror, prior to or as of the
Closing Date, of each of the following conditions:
A. The representations and warranties by or on behalf of Acquiror contained
in this Agreement or in any certificate or documents delivered to Acquiree
pursuant to the provisions hereof shall be true in all material respects at
and as of the time of Closing as though such representations and warranties
were made at and as of such time.
B. Acquiror shall have performed and complied with all covenants,
agreements, and conditions required by this Agreement to be performed or
complied with by it prior to or at the Closing on the Closing Date.
C. Acquiror shall take all corporation action necessary to issue the
shares to Stockholders pursuant to this Agreement.
D. Acquiror's Board of Directors shall approve the appointment of
Acquiree's nominee, Jed Checketts, to the position as President of Acquiror.
E. Acquiror's Board of Directors shall approve a proposal to amend
Acquiror's Articles of Incorporation to change Acquiror's name to Powerball
International, Inc.
<PAGE>
<PAGE> A-15
F. All instruments and documents delivered to Stockholders pursuant to
the provisions hereof shall be reasonably satisfactory to legal counsel for
Stockholders.
G. Acquiror shall have delivered to Stockholders and Acquiree an opinion of
its counsel dated the Closing Date to that effect that
(1) Acquiror is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Utah;
(2) Acquiror has the corporate power to carry on its business as now being
conducted;
(3) This Agreement has been duly authorized, executed, and delivered by
Acquiror and is a valid and binding obligation of Acquiror; and
(4) The shares to be issued to Stockholders hereunder will, when
issued, be duly and validly issued, fully paid, and non-assessable.
G. Acquiror shall have prepared to be executed at Closing a Royalty
Agreement with Jed Checketts for payments to Jed Checketts based on the gross
sales of Powerball Technologies, LLC.
11. Conditions Precedent to the Obligations of Acquiror. All obligations of
Acquiror under this Agreement are subject to the fulfillment, by Acquiree and
Stockholders, prior to or as of the Closing Date, of each of the following
conditions:
A. The representations and warranties by Acquiree and Stockholders
contained in this Agreement or in any certificate or document delivered to
Acquiror pursuant to the provisions hereof shall be true at and as of the time
of Closing as though such representations and warranties were made at and as
of such time.
B. Jed Checketts shall have assigned all rights, title and interest in the
technology covered by the Exclusive License Agreement between him and
Acquiree, dated September 18, 1997(the "Technology"), to Acquiree.
C. Acquiree and Stockholders shall have performed and complied with all
covenants, agreements, and conditions required by this Agreement to be
performed or complied with by it prior to or at the Closing; including the
delivery of all of the outstanding stock of Acquiree.
D. Stockholders shall deliver to Acquiror a letter commonly known as an
"investment letter" agreeing that the shares of stock in Acquiror are being
acquired for investment purposes, and not with a view to public resale and
that the materials, including current financial statements prepared and
delivered by Acquiror to Stockholders, have been read and understood by
Stockholders, that he is familiar with the business of Acquiror, that he is
acquiring the Acquiror shares under Section 4(2), commonly known as the
private offering exemption of the Securities Act of 1933, and that the shares
are restricted and may not be resold, except in reliance of an exemption under
the Act.
E. Acquiree shall have delivered to Acquiror an opinion of counsel dated
the Closing Date to the effect that:
<PAGE>
<PAGE> A-16
(1) Acquiree is duly organized, validly existing and in good standing under
the laws of the State of Utah;
(2) Acquiree has the corporate power to carry on its business as now being
conducted, and is duly qualified to do business in the State of Utah and in
any jurisdiction where so required where the nonqualification to do business
in any jurisdiction would not materially adversely affect the business
and properties of Acquiree; and
(3) This Agreement has been duly authorized, executed, and delivered by
Acquiree and Stockholders.
12. Indemnification. Within the period provided in paragraph 13 herein and
in accordance with the terms of that paragraph, each party to this Agreement
shall indemnify and hold harmless each other party at all times after the date
of this Agreement against and in respect of any liability, damage, or
deficiency, all actions, suits, proceedings, demands, assessments,
judgments, costs, and expenses which exceed $10,000 including attorney's fees
incident to any of the foregoing, resulting from any
misrepresentations, breach of covenant, or warranty or nonfulfillment
of any agreement on the part of such party under this Agreement or from any
misrepresentation in or omission from any certificate furnished or to be
furnished to a party hereunder. Subject to the terms of this Agreement, the
defaulting party shall reimburse the other party or parties on demand, for any
reasonable payment made by said parties at any time after the Closing, in
respect of any liability of claim to which the foregoing indemnity relates, if
such payment is made after reasonable notice to the other party to defend or
satisfy the same and such party failed to defend or satisfy the same. No
liability shall arise for party hereof regarding a settlement of any claim
unless such settlement was previously approved by such party.
13. Nature and Survival of Representations. All representations,
warranties, and covenants made by any party in this Agreement shall survive
the Closing hereunder and the consummation of the transactions contemplated
hereby for two years from the date hereof. All of the parties hereto are
executing and carrying out the provisions of this Agreement in reliance solely
on the representations, warranties, and covenants and agreements contained in
this Agreement or at the Closing of the transactions herein provided for and
not upon any investigation upon 'which it might have made or any
representations, warranty, agreement, promise, or information, written or
oral, made by the other party or any other person other than as specifically
set forth herein.
14. Documents at Closing. At the Closing the following transactions shall
occur, all of such transactions being deemed to occur simultaneously:
A. Stockholders will deliver, or cause to be delivered, to Acquiror the
following:
(1) Stock certificates for all of the issued and outstanding stock of
Acquiree being tendered and duly endorsed;
(2) All corporate records of Acquiree, including without limitation,
corporate minute books (which shall contain copies of the Articles of
Incorporation and Bylaws, as amended to the Closing), stock ledgers, stock
transfer books, corporate seals, and other such corporate books and records as
may reasonably be requested for review by Acquiror and its counsel;
(3) The opinion of counsel for Acquiree as set forth herein;
<PAGE>
<PAGE> A-17
(4) A certificate executed by the Principal Stockholders to the effect
that all representations and warranties made by Acquiree under this Agreement
are true and correct as of the Closing, the same as though originally given to
Acquiror on said date;
(5) A certificate from the Secretary of State of its incorporation dated
within 45 days of the Closing Date to the effect that Acquiree is in good
standing under the laws of said state;
(6) An investment letter from the Stockholders representing that they are
acquiring shares of Acquiror for investment purposes only and not with a view
to further distribution;
(7) Such other instruments, documents, and certificates, if any, as
are required to be delivered pursuant to the provision of this Agreement or
which may be reasonably requested in furtherance of the provisions of this
Agreement.
B. Acquiror will deliver or cause to be delivered to the Stockholders and
Acquiree:
(1) Stock certificates for common stock to be issued as part of the
exchange as listed on Exhibit "A";
(2) A certificate of the president and secretary of Acquiror to the effect
that all representations and warranties of Acquiror made under this Agreement
are reaffirmed on the Closing Date, the same as though originally given to
Stockholders on said date;
(3) The opinion of Acquiror's counsel set forth herein;
(4) Certified copies of resolutions by Acquiror's Board of Directors and
Stockholders authorizing this transaction;
(5) A certificate from the Secretary of State of Acquiror's state of
incorporation dated within 45 days of the Closing Date that Acquiror is in
good standing under the laws of said state;
(6) Such other instruments, documents, and certificates, if any, as
are required to be delivered pursuant to the provision of this Agreement or
which may be reasonably requested in furtherance of the provisions of this
Agreement.
15. Additional Covenants. Between the date hereof and the Closing Date,
except with the prior written consent of the other party:
A. Acquiror and Acquiree shall conduct their business only in the usual and
ordinary course and the character of such business shall not be changed nor
any different business be undertaken.
B. No change shall be made in the Articles of Incorporation or Bylaws
of Acquiror or Acquiree, except as described in the Acquiree Schedules
attached hereto.
C. No change shall be made in the authorized or issued shares of Acquiror
or Acquiree.
D. Neither Acquiror nor Acquiree shall discharge or satisfy any lien or
encumbrance or obligation or liability, other than current liabilities
shown on the financial statements heretofore delivered and current
liabilities incurred since that date in the ordinary course of business.
<PAGE>
<PAGE> A-18
E. Neither Acquiror nor Acquiree shall make any payment or distribution to
their respective stockholders or purchase or redeem any shares or capital
stock.
F. Neither Acquiror nor Acquiree shall mortgage, pledge, or subject to
lien or encumbrance any of its assets, tangible or intangible.
G. Neither Acquiror nor Acquiree shall cancel any debts or claims or waive
any rights.
H. Present management of Acquiror agree that after the Closing they will
continue to furnish new management with such additional documentation and
information regarding Acquiror as is reasonably requested.
16. Miscellaneous.
A. Further Assurances. At any time and from time to time, after the
effective date, each party will execute such additional instruments and take
such action as may be reasonably requested by the other party to confirm or
perfect title to any property transferred hereunder or otherwise to carry out
the intent and purposes of this Agreement.
B. Waiver. Any failure on the part of any party hereto to comply with any
of its obligations, agreements, or conditions hereunder may be waived in
writing by the party to whom such compliance is owed.
C. Payment of Expenses. Acquiror shall pay for all of its own legal,
accounting and other expenses associated with the consummation of the
transactions contemplated under this Agreement, including those costs
associated with the preparation, filing, and mailing of the Information
Statement to the Acquiror's stockholders and holding a special meeting of the
Acquiror's stockholders. Acquiror shall also pay for all of Acquiree's legal,
accounting and other expenses associated with the consummation of the
transactions contemplated under this Agreement.
D. Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been given if delivered in person or sent
by prepaid first class registered or certified mail, return receipt requested.
E. Headings. The section and subsection heading in this Agreement are
inserted for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
F. Counterparts. This Agreement may be executed simultaneously in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
G. Facsimile Transmission. Facsimile transmission of any signed original
document, and retransmission of any signed facsimile transmission, shall be
the same as delivery of an original. At the request of any party hereto, the
parties will confirm facsimile transmitted signatures by signing an original
document.
H. Governing Law. This Agreement was negotiated and is being contracted for
in the State of Utah, and shall be governed by the laws of the State of
Utah, not withstanding any Utah or other conflict-of-law provision to the
contrary, and the securities being issued herein are being issued and
delivered in the State of Utah in accordance with isolated transaction and
non-public offering exemption.
<PAGE>
<PAGE> A-19
I. Binding Effect. This Agreement shall be binding upon the parties hereto
and inure to the benefit of the parties, their respective heirs,
administrators, executors, successors, and assigns.
J. Entire Agreement. This Agreement contains the entire agreement between
the parties hereto and supersedes any and all prior agreements, arrangements,
or under-standings between the parties relating to the subject matter hereof.
No oral understandings, statements, promises, or inducements contrary to the
terms of this Agreement exist. No representations, warranties, covenants,
or conditions, express or implied, other than as set forth herein, have been
made by any party.
IN WITNESS WHEREOF, the parties have executed this Agreement the day and
year first above written.
ATTEST: Natex Corporation, a Utah corporation
By__________________________________ By ________________________________
Secretary President
ATTEST: Powerball Industries, Inc., a Utah corporation
By __________________________________ By ________________________________
Secretary President
STOCKHOLDERS
(See Exhibit "B" attached hereto in counterparts.)
Exhibit A
POWERBALL INDUSTRIES, INC.
List of Stockholders
Number of Shares of
Name of Shareholder Number of Shares of Natex Corporation
Powerball Industries, Inc. Percent Shares to be Received
in Exchange
- ------------------- -------------------------- ------- ---------------------
Jed Checketts 718.667 71.1867 1,078,000
Matthew Fisher 14.666 1.4666 22,000
JCJ Associates, LLC 266.667 26.6667 400,000
------- ------- ---------
Total Percentage/Shares 100.0000 1,500,000
Exhibit B
POWERBALL INDUSTRIES, INC.
Stockholders
Counterpart Signature Page
Name of Shareholder Date Signature
- ------------------------------------- ------- --------------------
Jed Checketts
Matthew Fisher
Allen Meadows for JCJ Associates, LLC
<PAGE>
<PAGE> B-1
DISSENTERS' RIGHTS
16-10a.1301. DEFINITIONS.
For purposes of Part 13:
(1) "Beneficial shareholder" means the person who is a beneficial owner of
shares held in a voting trust or by a nominee as the record shareholder.
(2) "Corporation" means the issuer of the shares held by a dissenter before
the corporate action, or the surviving or acquiring corporation by merger or
share exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 16-10a-1302 and who exercises that right when
and in the manner required by Sections 16-10a-1320 through 16-10a-1328.
(4) "Fair value" with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to
which the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action.
(5) "Interest" means interest from the effective date of the corporate
action until the date of payment, at the statutory rate set forth in Section
15-1-1, compounded annually.
(6) "Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares
that are registered in the name of a nominee to the extent the beneficial
owner is recognized by the corporation as the shareholder as provided in
Section 16- 10a-723.
(7) "Shareholder" means the record share-holder or the beneficial
shareholder.
16.10a-1302. RIGHT TO DISSENT.
(1) A shareholder, whether or not entitled to vote, is entitled to dissent
from, and obtain payment of the fair value of shares held by him in the event
of, any of the following corporate actions:
(a) consummation of a plan of merger to which the corporation is a party
if-
(i) shareholder approval is required for the merger by Section
16-lOa-1103 or the articles of incorporation; or
(ii) the corporation is a subsidiary that is merged with its parent
under Section 16-10a-1104;
(b) consummation of a plan of share exchange to which the corporation is
a party as the corporation whose shares will be acquired;
(c) consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of the corporation for which a
shareholder vote is required under Subsection 16-10a-1202(l), but not
including a sale for cash pursuant to a plan by which all or substantially all
of the net proceeds of the sale will be distributed to the shareholders within
one year after the date of sale; and
(d) consummation of a sale, lease, exchange, or other disposition of all,
or substantially all, of the property of an entity controlled by the
corporation if the shareholders of the corporation were entitled to vote upon
the consent of the corporation to the disposition pursuant to Subsection
16-10a-1202(2).
<PAGE>
<PAGE> B-2
(2) A shareholder is entitled to dissent and obtain payment of the fair
value of his shares in the event of any other corporate action to the extent
the articles of incorporation, bylaws, or a resolution of the board of
directors so provides.
(3) Notwithstanding the other provisions of this part, except to the extent
otherwise provided in the articles of incorporation, bylaws, or a resolution
of the board of directors, and subject to the limitations set forth in
Subsection (4), a shareholder is not entitled to dissent and obtain payment
under Subsection (1) of the fair value of the shares of any class or series of
shares which either were listed on a national securities exchange registered
under the federal Securities Exchange Act of
1934, as amended, or on the National Market System of the National Association
of Securities Dealers Automated Quotation System, or were held of record by
more than 2,000 shareholders, at the time of.
(a) the record date fixed under Section 16-10a-707 to determine the
shareholders entitled to receive notice of the shareholders' meeting at which
the corporate action is submitted to a vote;
(b) the record date fixed under Section 16-10a-704 to determine
shareholders entitled to sign writings consenting to the proposed corporate
action; or
(c) the effective date of the corporate action if the corporate action is
authorized other than by a vote of shareholders.
(4) The limitation set forth in Subsection (3) does not apply if the
shareholder will receive for his shares, pursuant to the corporate action,
anything except:
(a) shares of the corporation surviving the consummation of the plan of
merger or share exchange;
(b) shares of a corporation which at the effective date of the plan of
merger or share exchange either will be listed on a national securities
exchange registered under the federal Securities Exchange Act of 1934, as
amended, or on the National Market System of the National Association of
Securities Dealers Automated Quotation System, or will be held of record by
more than 2,000 shareholders;
(c) cash in lieu of fractional shares; or
(d) any combination of the shares described in Subsection (4), or cash in
lieu of fractional shares.
(5) A shareholder entitled to dissent and obtain payment for his shares
under this part may not challenge the corporate action creating the
entitlement unless the action is unlawful or fraudulent with respect to him or
to the corporation.
16-10a-1303. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(1) A record shareholder may assert dissenters' rights as to fewer than all
the shares registered in his name only if the shareholder dissents with
respect to all shares beneficially owned by any one person and causes the
corporation to receive written notice which states the dissent and the name
and address of each person on whose behalf dissenters' rights are being
asserted. The rights of a partial dissenter under this subsection are
determined as if the shares as to which the shareholder dissents and the other
shares held of record by him were registered in the names of different
shareholders.
(2) A beneficial shareholder may assert dissenters rights as to shares held
on his behalf only if:
<PAGE>
<PAGE> B-3
(a) the beneficial shareholder causes the corporation to receive the
record shareholder's written consent to the dissent not later than the time
the beneficial shareholder asserts dissenters' rights; and
(b) the beneficial shareholder dissents with respect to all shares of
which he is the beneficial shareholder.
(3) The corporation may require that, when a record shareholder dissents
with respect to the shares held by any one or more beneficial shareholders,
each beneficial shareholder must certify to the corporation that both he and
the record shareholders of all shares owned beneficially by him have asserted,
or will timely assert, dissenters' rights as to all the shares unlimited on
the ability to exercise dissenters' rights. The certification requirement
must be stated in the dissenters' notice given pursuant to Section 16-
10a-1322.
16-10a-1320. NOTICE OF DISSENTERS' RIGHTS.
(1) If a proposed corporate action creating dissenters' rights under
Section 16-1Oa-1302 is submitted to a vote at a shareholders' meeting, the
meeting notice must be sent to all shareholders of the corporation as of the
applicable record date, whether or not they are entitled to vote at the
meeting. The notice shall state that shareholders are or may be entitled to
assert dissenters' rights under this part. The
notice must be accompanied by a copy of this part and the materials, if any,
that under this chapter are required to be given the shareholders entitled to
vote on the proposed action at the meeting. Failure to give notice as
required by this subsection does not affect any action taken at the
shareholders' meeting for which the notice was to have been given.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant
to Section 16-10a-704, any written or oral solicitation of a shareholder to
execute a written consent to the action contemplated by Section 16-10a-704
must be accompanied or preceded by a written notice stating that shareholders
are or may be entitled to assert dissenters' rights under this part, by a copy
of this part, and by the materials, if any, that under this chapter would have
been required to be given to shareholders entitled to vote on the proposed
action if the proposed action were submitted to a vote at a shareholders'
meeting. Failure to give written notice as provided by this subsection does
not affect any action taken pursuant to Section 16-10a-704 for which the
notice
was to have been given.
16-10a-1321. DEMAND FOR PAYMENT - ELIGIBILITY AND NOTICE OF INTENT.
(1) If a proposed corporate action creating dissenters' rights under Section
16-10a-1302 is submitted to a vote at a shareholders' meeting, a shareholder
who wishes to assert dissenters' rights:
(a) must cause the corporation to receive, before the vote is taken,
written notice of his intent to demand payment for shares if the proposed
action is effectuated; and
(b) may not vote any of his shares in favor of the proposed action.
(2) If a proposed corporate action creating dissenters' rights under
Section 16-10a-1302 is authorized without a meeting of shareholders pursuant
to Section 16-10a-704, a shareholder who wishes to assert dissenters' rights
may not execute a writing consenting to the proposed corporate action.
<PAGE>
<PAGE> B-4
(3) In order to be entitled to payment for shares under this part, unless
otherwise provided in the articles of incorporation, bylaws, or a resolution
adopted by the board of directors, a shareholder must have been a shareholder
with respect to the shares for which payment is demanded as of the date the
proposed corporate action creating dissenters' rights under Section
16-10a-1302 is approved by the shareholders, if shareholder approval is
required, or as of the effective date of the corporate action if the corporate
action is authorized other than by a vote of shareholders.
(4) A shareholder who does not satisfy the requirements of Subsections (1)
through (3) is not entitled to payment for shares under this part.
1992
16-1Oa-1322. DISSENTERS' NOTICE.
(1) If proposed corporate action creating dissenters' rights under Section
16-10a-1302 is authorized, the corporation shall give a written dissenters'
notice to all shareholders who are entitled to demand payment for their shares
under this part.
(2) The dissenters' notice required by Subsection(1)must be sent no later
than ten days after the effective date of the corporate action creating
dissenters' rights under Section 16- 10a-1302, and shall:
(a) state that the corporate action was authorized and the effective date
or proposed effective date of the corporate action;
(b) state an address at which the corporation will receive payment
demands and an address at which certificates for certificated shares must be
deposited;
(c) inform holders of uncertificated shares to what extent transfer of
the shares will be restricted after the payment demand is received;
(d) supply a form for demanding payment, which form requests a dissenter
to state an address to which payment is to be made;
(e) set a date by which the corporation must receive the payment demand
and by which certificates for certificated shares must be deposited at the
address indicated in the dissenters' notice, which dates may not be fewer than
30 nor more than 70 days after the date the dissenters' notice required by
Subsection (1) is given;
(f) state the requirement contemplated by Subsection 16-1Oa-1303(3), if
the requirement is imposed; and
(g) be accompanied by a copy of this part. 1992
16-1Oa-1323. PROCEDURE TO DEMAND PAYMENT.
(1) A shareholder who is given a dissenters' notice described in Section
16-10a-1322, who meets the requirements of Section 16-1Oa-1321, and wishes to
assert dissenters' rights must, in accordance with the terms of the
dissenters' notice:
(a) cause the corporation to receive a payment demand, which may be the
payment demand form contemplated in Subsection 16-10a-1322(2)(d), duly
completed, or may be stated in another writing;
(b) deposit certificates for his certificated shares in accordance with
the terms of the dissenters' notice; and
(c) if required by the corporation in the dissenters' notice described in
Section 16-1Oa-1322, as contemplated by Section 16-10a-1327, certify in
writing, in or with the payment demand, whether or not he or the person on
whose behalf he asserts dissenters' rights acquired beneficial ownership of
the shares before the date of the first announcement to news media or to
<PAGE>
<PAGE> B-5
shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302.
(2) A shareholder who demands payment in accordance with Subsection (1)
retains all rights of a shareholder except the right to transfer the shares
until the effective date of the proposed corporate action giving rise to the
exercise of dissenters' rights and has only the right to receive payment for
the shares after the effective date of the corporate action.
(3) A shareholder who does not demand payment and deposit share
certificates as required, by the date or dates set in the dissenters' notice,
is not entitled to payment for shares under this part.
1992
16-10a-1324. UNCERTIFICATED SHARES.
(1) Upon receipt of a demand for payment under Section 16-10a-1323 from a
shareholder holding uncertificated shares, and in lieu of the deposit of
certificates representing the shares, the corporation may restrict the
transfer of the shares until the proposed corporate action is taken or the
restrictions are released under Section 16-10a-1326.
(2) In all other respects, the provisions of Section 16-10a-1323 apply to
shareholders who own uncertificated shares. 1992
16-1Oa-1325. PAYMENT.
(1) Except as provided in Section 16-1Oa-1327, upon the later of the
effective date of the corporate action creating dissenters' rights under
Section 16-10a-1302, and receipt by the corporation of each payment demand
pursuant to Section 16-1Oa-1323, the corporation shall pay the amount the
corporation estimates to be the fair value of the dissenter's shares, plus
interest to each dissenter who has complied with Section 16-1Oa-1323, and who
meets the requirements of Section 16-1Oa-1321, and who has not yet received
payment.
(2) Each payment made pursuant to Subsection (1) must be accompanied by:
(a) (i) (A) the corporation's balance sheet as of the end of its most
recent fiscal year, or if not available, a fiscal year ending not more than 16
months before the date of payment; (B)an income statement for that year; (C)a
statement of changes in shareholders' equity for that year and a statement of
cash flow for that year, if the corporation customarily provides such
statements to shareholders; and (D)the latest available interim financial
statements, if any;
(ii) the balance sheet and statements referred to in Subsection (i)
must be audited if the corporation customarily provides audited financial
statements to shareholders;
(b) a statement of the corporation's estimate of the fair value of the
shares and the amount of interest payable with respect to the shares;
(c) a statement of the dissenter's right to demand payment under Section
16-10a-1328; and
(d) a copy of this part. 1992
16-10a-1326. FAILURE TO TAKE ACTION.
(1) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 does not occur within 60 days after the date
set by the corporation as the date by which the corporation must receive
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payment demands as provided in Section 16-10a-1322, the corporation shall
return all deposited certificates and release the transfer restrictions
imposed on uncertificated shares, and all shareholders who submitted a demand
for payment pursuant to Section 16-10a-1323 shall thereafter have all rights
of a shareholder as if no demand for payment had been made.
(2) If the effective date of the corporate action creating dissenters'
rights under Section 16-10a-1302 occurs more than 60 days after the date set
by the corporation as the date by which the corporation must receive payment
demands as provided in Section 16-10a-1322, then the corporation shall send a
new dissenters' notice, as provided in Section 16-10a-1322, and the provisions
of Sections 16-10a-1323 through 16-10a-1328 shall again be applicable. 1992
16-10a-1327. SPECIAL PROVISIONS RELATING TO SHARES ACQUIRED AFTER
ANNOUNCEMENT OF PROPOSED CORPORATE ACTION.
(1) A corporation may, with the dissenters' notice given pursuant to
Section 16-1Oa-1322, state the date of the first announcement to news media or
to shareholders of the terms of the proposed corporate action creating
dissenters' rights under Section 16-10a-1302 and state that a shareholder who
asserts dissenters' rights must certify in writing, in or with the payment
demand, whether or not he or the person on whose behalf he asserts dissenters'
rights acquired beneficial ownership of the shares before that date. With
respect to any dissenter who does not certify in writing, in or with the
payment demand that he or the person on whose behalf the dissenters' rights
are being asserted, acquired beneficial ownership of the shares before that
date, the corporation may, in lieu of making the payment provided in Section
16-10a-1325, offer to make payment if the dissenter agrees to accept it in
full satisfaction of his demand.
(2) An offer to make payment under Subsection (1) shall include or be
accompanied by the information required by Subsection 16-10a-1325(2). 1992
16-10a-1328. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH PAYMENT OR OFFER.
(1) A dissenter who has not accepted an offer made by a corporation under
Section 16-1Oa-1327 may notify the corporation in writing of his own estimate
of the fair value of his shares and demand payment of the estimated amount,
plus interest, less any payment made under Section 16-LOA-1325, if:
(a) the dissenter believes that the amount paid under Section 16-10a-1325
or offered under Section 16-10a-1327 is less than the fair value of the
shares;
(b) the corporation fails to make payment under Section 16-10a-1325
within 60 days after the date set by the corporation as the date by which it
must receive the payment demand; or
(c) the corporation, having failed to take the proposed corporate action
creating dissenters' rights, does not return the deposited certificates or
release the transfer restrictions imposed on uncertificated shares as required
by Section 16-10a-1326.
(2) A dissenter waives the right to demand payment under this section
unless he causes the corporation to receive the notice required by Subsection
(i) within 30 days after the corporation made or offered payment for his
shares. 1992
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<PAGE> B-7
16-10a-1330. JUDICIAL APPRAISAL OF SHARES COURT ACTION.
(1) If a demand for payment under Section 16-1Oa-1328 remains unresolved,
the corporation shall commence a proceeding within 60 days after receiving the
payment demand contemplated by Section 16-10a-1328, and petition the court to
determine the fair value of the shares and the amount of interest. If the
corporation does not commence the proceeding within the 60-day period, it
shall pay each dissenter whose demand remains unresolved the amount demanded.
(2) The corporation shall commence the proceeding described in Subsection
(1) in the district court of the county in this state where the corporation's
principal office, or if it has no principal office in this state, the county
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this state, it shall commence the
proceeding in the county in this state where the registered office of the
domestic corporation merged with, or whose shares were acquired by, the
foreign corporation was located.
(3) The corporation shall make all dissenters who have satisfied the
requirements of Sections 16-10a-1321, 16-10a-1323, and 16-10a-1328, whether or
not they are residents of this state whose demands remain unresolved, parties
to the proceeding commenced under Subsection (2) as an action against their
shares. All such dissenters who are named as parties must be served with a
copy of the petition. Service on each dissenter may be by registered or
certified mail to the address stated in his payment demand made pursuant to
Section 16-10a-1328. If no address is stated in the payment demand, service
may be made at the address stated in the payment demand given pursuant to
Section 16-10a-1323. If no address is stated in the payment demand, service
may be made at the address shown on the corporation's current record of
shareholders for the record shareholder holding the dissenter's shares.
Service may also be made otherwise as provided by law.
(4) The jurisdiction of the court in which the proceeding is commenced
under Subsection (2) is plenary and exclusive. The court may appoint one or
more persons as appraisers to receive evidence and recommend decision on the
question of fair value. The appraisers have the powers described in the order
appointing them, or in any amendment to it. The dissenters are entitled to
the same discovery rights as parties in other civil proceedings.
(5) Each dissenter made a party to the proceeding commenced under
Subsection (2) is entitled to judgment:
(a) for the amount, if any, by which the court finds that the fair value
of his shares, plus interest, exceeds the amount paid by the corporation
pursuant to Section 16-10a-1325; or
(b) for the fair value, plus interest, of the dissenter's after-acquired
shares for which the corporation elected to withhold payment under Section
16-10a-1327. 1992
16-10a-1331. COURT COSTS AND COUNSEL FEES.
(1) The court in an appraisal proceeding commenced under Section
16-10a-1330 shall determine all costs of the proceeding, including the
reasonable compensation and expenses of appraisers appointed by the court.
The court shall assess the costs against the corporation, except that the
court may assess costs against all or some of the dissenters, in amounts the
court finds equitable, to the extent the court finds that the dissenters acted
arbitrarily, vexatiously, or not in good faith in demanding payment under
Section 16-10a-1328.
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<PAGE> B-8
(2) The court may also assess the fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable:
(a) against the corporation and in favor of any or all dissenters if the
court finds the corporation did not substantially comply with the requirements
of Sections 16-10a-1320 through 16-10a-1328; or
(b) against either the corporation or one or more dissenters, in favor of
any other party, if the court finds that the party against whom the fees and
expenses are assessed acted arbitrarily, vexatiously, or not in good faith
with respect to the rights provided by this part.
(3) If the court finds that the services of counsel for any dissenter were
of substantial benefit to other dissenters similarly situated, and that the
fees for those services should not be assessed against the corporation, the
court may award to those counsel reasonable fees to be paid out of the amounts
awarded the dissenters who were benefitted. 1992
