SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(B) OR (G) OF
THE SECURITIES EXCHANGE ACT OF 1934
CHANCELLOR CORPORATION
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
Nevada 91-1762285
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(STATE OR ORTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
3030 Bridgeway, Suite 100
Sausalito, CA 94965
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code 415-332-8880
------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH
TO BE SO REGISTERED EACH CLASS IS TO BE REGISTERED
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Class A Common NASDAQ Small Cap
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- ------------------------------------ ------------------------------
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
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(TITLE OF CLASS)
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(TITLE OF CLASS)
<PAGE>
ITEM 1. BUSINESS.
In mid-1996, US Heritage, an Oklahoma trust later incorporated as US
Heritage Capital Corporation in the state of Oklahoma in 1997, and
wholly-owned by Ron Sparks, chairman and chief executive officer of
Chancellor Corporation, acquired control of Technivision Inc., a Nevada
corporation having several hundred shareholders. US Heritage,
principally through the efforts of Mr. Sparks, was in the process of
negotiating terms and conditions of a joint venture with the Chinese
government for the purpose of establishing and operating a national
lottery in China. US Heritage contributed its rights in the joint
venture to Technivision, Inc. in exchange for 3,000,000 shares of common
stock and in November 1996, the name of Technivision Inc. was changed to
Chancellor Corporation (the "Company").
On April 29, 1997 the Company, through its wholly-owned subsidiary
Morceli Limited Corp., an Oklahoma corporation, entered into a Joint
Venture Contract with Beijing Zhida Development Company, China to form
the Beijing DaDu International Jockey Club Co. Ltd. ("DaDu") for the
principal purpose of establishing offices in China to sell social
welfare lotteries. The agreement originally provided for the Company to
have 90% ownership and a Chinese government agency to own the remaining
10%. Subsequently, in early 1998, 5% of the Chinese ownership interest
was acquired by China Southern Securities, a multi-billion (USD) dollar
broker/dealer investment firm in China. Subsequently, Mr. Sparks and Mr.
Du, senior representative of China Southern Securities and a director of
DaDu, negotiated financing for the project through the Bank of China
which is expected to be funded in May 1998.
In late 1997, Mr. Sparks and Peter Lynch, a director of the Company and
former Director of the New York Lottery, met with representatives of
Autotote Lottery Corporation ("Autotote"), an American Stock Exchange
traded company and an internationally recognized lottery management
company, to negotiate terms and conditions of an agreement for Autotote
to manage the Chinese lottery. Autotote is presently completing its
analysis and plan for management of the lottery and the Company expects
to agree on terms of a formal contract with Autotote in the near future.
Upon completion of funding by the Bank of China and execution of
the management agreement with Autotote, the Company intends to
move forward to put in place the elements necessary to commence
lottery operations under the Autotote plan.
ITEM 2. FINANCIAL INFORMATION.
(A). SELECTED FINANCIAL DATA.
YEAR ENDING QUARTER
12-31-97 ENDING
3-31-98
(UNAUDITED)
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Operating Revenues -0- -0-
Total Assets 136,612,000 135,222,000
Long-term Obligations 122,607,000 122,607,000
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<PAGE>
(B) MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The Company has had no operations to date. During the period from
December 31, 1996 to December 31, 1997, $14,004,950 of net cash was
provided to the Company by financing activities. Of that amount,
$2,500,000 was invested in a subsidiary, $1,203,800 was used for
development costs, there was a $5,000,000 increase in cash reserves and
a similar increase in restricted securities, and there was a $397,950
decrease in cash transfers.
The Company expects operations to commence in the second quarter of
1998.
ITEM 3. PROPERTIES
The Company owns no materially important physical properties. It leases
offices in the U.S. at 3030 Bridgeway, Sausalito, California and 5555
Grand Blvd., Oklahoma City, Oklahoma; outside the U.S. the company
leases offices in Hong Kong and Beijing, China.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
(A) THE NAMES AND ADDRESSES OF THE KNOWN BENEFICIAL OWNERS OF MORE THAN
FIVE PERCENT OF THE COMPANY'S COMMON VOTING SHARES AS OF APRIL 15, 1998
WERE:
TITLE OF CLASS NAME AND ADDRESS OF AMOUNT AND PERCENT
BENEFICIAL OWNER NATURE OF OF CLASS
BENEFICIAL
OWNERSHIP
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Common Generation Capital Associates 400,000* 10.7%
333 Sandy Springs Circle, Ste. 230
Atlanta, GA 30328
" Radcliffe, Dennis & Sophie 175,000 5.3%
84 Clum Hill Road
Elka Park, NY 12427
" Radcliffe, Joseph & Kenneth 250,000 7.5%
237 Main Street
Tannersville, NY 12485
" US Heritage Capital Corp. 3,000,000 47.5%
3030 Bridgeway, #207
Sausalito, CA 94965
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* These shares are available for acquisition at the election of
Generation Capital Associates to convert promissory notes to stock
and/or to exercise a purchase warrant.
2
<PAGE>
(B) THE COMMON VOTING SHARES OF THE COMPANY BENEFICIALLY OWNED BY EACH
DIRECTOR AND EXECUTIVE OFFICER OF THE COMPANY AS OF APRIL 15, 1998, ARE
SET FORTH BELOW:
TITLE OF CLASS NAME OF AMOUNT AND PERCENT OF CLASS
BENEFICIAL OWNER NATURE OF
BENEFICIAL
OWNERSHIP
------------------------------------------------------------------------
COMMON RONALD SPARKS 25,000 0.8%
" MARTIN NEWMAN 10,000 0.2%
" PETER LYNCH 25,000 0.8%
" BRIAN CONDON 25,000 0.8%
" JANE KELLY 4,668 0.1%
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS.
RONALD SPARKS, CHAIRMAN & DIRECTOR. Mr. Sparks, 54 years of age, was
educated at the University of Southern California where he received a
degree in business in 1976. Mr. Sparks brings many years of business and
financial management experience to the board; since 1979 he has been
active in European financial markets and he has been an active principal
of Phoenix Financial, an international consulting firm since 1984.
Recently, Mr. Sparks has served as the Company's representative in
negotiating the joint venture contract between the Company and the
Chinese group, Zhida Development.
MARTIN NEWMAN, PRESIDENT & DIRECTOR. Mr. Newman, 54 years of age, was
born in England; he attended Ardingly College from 1957-62 and
subsequently matriculated at the A level at Oxford and Cambridge in
advanced mathematics and geography. From 1966 to the present, Mr. Newman
has been involved in a number of business enterprises, both as a
principal and as a manager. During the past ten years, he has been
involved in international financial consulting as a principal of Newman
Bros., GP. He has been president and a director of Chancellor
Corporation since 1997.
PETER LYNCH, DIRECTOR. Mr. Lynch, 48 years of age, is currently
president of PDL Consulting, an independent consulting firm specializing
in government affairs and finance for clients including manufacturers
and suppliers of lottery-related products and services for government
sponsored lotteries in the US and throughout the world. Mr. Lynch has 25
years of domestic and international experience in the operation of
lotterys. From 1986 - 1989 he was First Deputy Director, New York State
Lottery; thereafter, from 1989 - 1995, he was Director of the New York
State Lottery, the largest lottery in North America and fifth largest in
the world. During his tenure as Director, he oversaw increases in excess
of 100% in lottery total sales and net revenues which, in 1995 reached
$3.0 billion and $1.26 billion, respectively.
Mr. Lynch received a BS degree in Business Administration (management)
from Bryan College, Providence, Rhode Island, in 1970.
BRIAN CONDON, DIRECTOR. Mr. Condon, 42 years of age, received a degree
in Financial Management from the University of Wisconsin at Madison and
has 16 years of experience in all phases of banking with a major focus
on project management. During recent years he served as a Senior Bank
Analyst
3
<PAGE>
and International Project Manager for a major European bank and
additionally directed the successful conversion and implementation of a
major software program for an American-based International Bank.
JANE KELLY, SECRETARY. Ms. Kelly, 46 years of age, received a Bachelor
of Science degree from Western Michigan University and has formal
training in Computer Systems Technology. She has had extensive
experience during the past seventeen years in the operating and
financial aspects of real estate and investment banking. Since 1995, Ms.
Kelly has been the Financial Operations Officer for Phoenix Financial
Trust, an investment banking company in Larkspur, California.
ITEM 6. EXECUTIVE COMPENSATION.
The Company has had no operating income to date; therefore, the officers
and directors have received no cash compensation. Each officer and
director has received common stock in the Company in the respective
amounts indicated in Item 4, above.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
In mid-1996, US Heritage, an Oklahoma trust later incorporated as US
Heritage Capital Corporation in the state of Oklahoma in 1997, and
wholly-owned by Ron Sparks, chairman and chief executive officer of
Chancellor Corporation, acquired control of Technivision Inc., a Nevada
corporation having several hundred shareholders. US Heritage,
principally through the efforts of Mr. Sparks, was in the process of
negotiating terms and conditions of a joint venture with the Chinese
government for the purpose of establishing and operating a national
lottery in China. US Heritage contributed its rights in the joint
venture to Technivision, Inc. in exchange for 3,000,000 shares of common
stock and in November 1996, the name of Technivision Inc. was changed to
Chancellor Corporation (the "Company").
ITEM 8. LEGAL PROCEEDINGS.
None.
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The range of high and low bids for the Company's common stock for each
full quarter since there has been a market for such stock is as follows:
QTR ENDING HIGH LOW
---------------------------------------------------
09-30-97 8 1/2 6 3/4
12-31-97 7 1/8 4
03-31-98 4 1/2 2 3/8
---------------------------------------------------
On March 23, 1998, the last reported sales price for the Company's
common stock was $2.50 per share.
4
<PAGE>
There were approximately 567 holders of the Company's common voting
stock as of April 15, 1998.
The Company has had no operating income to date and has never paid any
cash dividends on its common stock. The board presently intends to
retain all earnings for use in the Company's business. Any future
determination as to payment of dividends will depend upon the
financial condition and results of operations of the Company and such
other factors as are deemed relevant by the board.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
In April 1997, the Company issued 800,000 shares of its common stock
to Columbia Trust, in consideration for the cancellation of a
promissory note executed by the Company in the amount of $25,000 and
payable to Columbia Trust as assignee of the promisee. The shares were
issued to Columbia Trust, a Vancouver, Canada entity, in reliance on
the exemption from registration under the 1933 Securities Act provided
by ss.4(2).
In June 1997, the Company sold 300,000 shares of common stock to
Carousel Consultants in consideration for financial consulting
services rendered and 100,000 shares of common stock to National
Employee Database in consideration for financial consulting services
rendered. Both sales were made in reliance on the exemption from
registration provided for in ss.4(2) of the 1933 Securities Act, as
amended.
In August 1987, the Company issued 500,000 shares of common stock to
Phoenix Financial Trust as payment in full of the principal and
interest due under a promissory note executed by the Company in favor
of Phoenix Financial Trust in the amount of $25,000. These shares were
issued under the exemption from registration provided under ss.4(2) of
the 1933 Securities Act, as amended.
In February 1998, pursuant to a Note and Warrant Purchase Agreement
("Agreement") between the Company and Generation Capital Associates
("GCA"), the Company issued 400,000 shares of common stock to be held
in escrow to be delivered to GCA upon the partial or total conversion
of one or more Convertible Promissory Notes ("Notes") executed by the
Company in favor of GCA pursuant to the Agreement. The Agreement
provides that, upon the election by GCA to convert some or all of the
Notes, the escrow agent will release to GCA the appropriate number of
shares at a conversion price equal to Two-Thirds (66.6667%) of the
Closing Bid Price of the Common Stock on the trading day immediately
preceding the Conversion Date.
Additionally, in February 1998, the Company issued a Warrant to GCA to
purchase 50,000 shares of common stock for each $100,000 (or portion
thereof) of Notes purchased from the Company at an exercise price of
$3.125 per share for the first 50,000 shares and at an exercise price
for any subsequent shares purchased which is the closing bid price on
the day prior to the Warrant issuance. The Warrant shall be
exercisable by GCA for five years.
The Note(s), Warrant(s), and the common stock to be issued upon
conversion of the Note(s) and exercise of the Warrant(s) were issued
pursuant to the exemption from registration provided under ss.4(2) of
the 1933 Securities Act, as amended.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
The Company is authorized to issue 100,000,000 shares of common stock
having a par value of $0.001. As of April 15, 1998, there were
6,321,000 shares of the Company's stock issued and outstanding held
5
<PAGE>
by approximately 567 shareholders.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The bylaws provide that any officer or director of the Company who was
or is a party or is threatened to be made a party to or is involved in
any action, suit, or proceeding, whether civil, criminal,
administrative or investigative, by reason of service as an officer or
director of the Company, shall be indemnified and held harmless to the
full extent permissible under Nevada law against all expenses,
liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or
suffered by him in connection therewith. The expenses of officers and
directors incurred in defending a civil or criminal action, suit or
proceeding must be paid by the Company as they are incurred and in
advance of the final disposition of the action, suit or proceeding
upon receipt of an undertaking by or on behalf of the director or
officer to repay the amount if it is ultimately determined by a court
of competent jurisdiction that he is not entitled to be indemnified by
the Company. The right of indemnification is a contract right
enforceable by any means desired by the director or officer and is not
exclusive of any other right such person may have or hereafter
acquire.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Financial Statements Attached.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
A. FINANCIAL STATEMENTS ATTACHED.
- as of December 31, 1996:
- Balance Sheet
- as of September 30, 1997
- Independent Auditor's Report
- Balance Sheet
- Cash Flows
- Statement of Stockholders' Equity
- as of December 31, 1997
- Independent Auditor's Report
- Balance Sheet
- Cash Flows
- Statement of Stockholders' Equity
- as of March 31, 1998
- Balance Sheet
6
<PAGE>
CHANCELLOR CORPORATION
FINANCIAL
STATEMENTS
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
December 31, 1996
ASSETS
Current Assets:
Cash $121,000
---------
Total Assets $121,000
=========
LIABILITIES & STOCKHOLDERS' EQUITY
Stockholders' Equity:
Common stock, 100,000,000 shares authorized
$0.001 par value, 3,500,000 shares issued and
outstanding. 3,500
Paid-in Capital 117,500
---------
Total stockholders' Equity $121,000
---------
Total Liabilities and Stockholders' Equity $121,000
=========
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
-1-
<PAGE>
CHANCELLOR CORPORATION
(A Development Stage Company)
Statement of Cash Flows
Period from December 31, 1996 & 1997
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net Income profit or (loss) $ 0
Cash flows from investing activities:
Investment in subsidiary (2,500,000)
Increase in developoment costs (1,203,800)
Increase in cash reserves (5,000,000)
Increase in securities (restricted) (5,000,000)
Decrease in cash transfers ( 397,950)
-------------
Net cash used for Investment Activities ($14,101,750)
Cash flow from financing activities:
Increase in payables 91,000
Issuance of common stock 145,416
Issuance of preferred stock 2,500,000
Incrrease in paid-in capital 11,268,534
-------------
Net cash provided by financing activities $14,004.950
-------------
Net decrease in cash and cash equivalents (96,800)
Cash and Cash equivalents at beginning of period 398,000
-------------
Cash and cash equivalents at end of period $301,200
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
- 2 -
<PAGE>
CHANCELLOR CORPORATION
(A Development Stage Company)
Comparative Balance Sheet
December 31, 1996 & 1997
Assets 1997 1996 Net Change
Debits (Credits)
Current assets:
Cash $ 301,200 $ 398,000 $ (96,800)
Non current assets:
Contract receivable 0 8,700,00 (8,700,000)
Other assets:
Subsidiary 2,500,000 0 2,500,000
Development costs 1,203,800 0 1,203,800
Stockholders'advances 970,000 0 (970,000)
Restricted assets:
Cash reserves 5,000,000 0 5,000,000
Securities 5,000,000 0 5,000,000
Discounted cash flows 122,606,644 0 122,606,644
Total assets $137,606,644 0 128,483,644
LIABILITIES & STOCKHOLDERS' EQUITY
Unearned revenues:
Revenues (Contracts) 0 8,700,000 8,700,000
Revenues (Cash flows) 122,606,644 0 (122,606,644)
Unclassified:
Cash transfer 0 397,950 397,950
Contributions by
shareholders' (Note ) 970,000 0 (970,000)
Current liabilities:
Accounts payable 91,000 0 (91,000)
Stockholders' equity:
Common stock 145,466 50 (145,416)
Preferred stock 2,500,000 0 (2,500,000)
Paid-in Capital 11,269,534 0 (11,268,534)
Total liabilities & stockholders'
equity $137,581,644 $ 9,098,000 $(128,483,644)
- 3 -
<PAGE>
ROBERT G. TSCHIDA
Certified Public Accountant
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301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Corporation
Oklahoma City, Oklahoma
I have audited the accompanying balance sheet of CHANCELLOR CORPORATION as of
September 30, 1997. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit of the balance sheet provides a reasonable basis for my
opinion.
In my opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CHANCELLOR CORPORATION as of
September 30, 1997 and the results of its operations and its cash flows for the
period ending September 30, 1997 in conformity with generally accepted
accounting principles.
/s/ Robert J. Tschida, CPA
- --------------------------
Robert G. Tschida, CPA
September 30, 1997
- --------------------------------------------------------------------------------
MEMBER OF THE AMERICAN AND COLORADO SOCIETIES OF CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
September 30, 1997
ASSETS
Current Assets: $ 375,000
Cash
Other Assets:
Subsidiary (Note 2) 2,500,000
Development costs (Note 2) 1,130,000
------------
Total other assets 3,630,000
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
------------
Total restricted assets 132,606,644
------------
Total Assets $136,611,644
============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 91,000
------------
Unearned Revenues (Note 3) 2,606,644
------------
Stockholders' Equity:
Common stock, 100,000,000 shares
authorized, $0.001 par value, 3,700,000
shares issued and outstanding 3,700
Preferred stock 5,000,000, $10.00 value
authorized, 250,000 shares issued and
outstanding 2,500,000
Paid-in capital 11,410,300
------------
TOTAL STOCKHOLDERS' EQUITY 13,914,000
Total Liabilities & Stockholders' Equity $136,611,644
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Cash Flows
September 30, 1997
Cash flows from operations:
Net Income $ 0
Cash flows from investing activities:
Increase in discounted cash flows (122,606,644)
Investment in subsidiary ( 2,500,000)
Investment in development costs ( 1,130,000)
Increase in unearned income 122,606,644
Issuance of preferred stock 2,500,000
Increase in paid capital 11,293,900
Cash flow from financing activities:
Investment of cash & securities in subsidiary ( 10,000,000)
Increase in payables 91,000
------------
Cash provided 254,000
Beginning Cash 121,000
------------
Ending Cash $ 375,000
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Stockholders' Equity
For the period ending September 30, 1997
Common Preferred Paid-in Retained
Stock Stock Capital Earnings Total
Balance at
inception $ 3,700 $ 2,500,000 $ 117,300 $ 0 $ 121,000
Net income
from development -- -- 11,293,000 -- 13,793,000
----------- ----------- ----------- ----- -----------
Totals $ 3,700 $ 2,500,000 $11,410,300 $ 0 $13,914,000
=========== =========== =========== ===== ===========
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
( A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
September 30, 1997
Note 1: The company was incorporated in the State of Nevada in 1981.
The company main project is a joint venture gaming agreement with the
Beijing DaDu International Jockey Club. This agreement has been
approved by the Chinese government. The agreement may be seen at the
company corporate office.
Note 2: The company has acquired management control of a Fraternal
Insurance Society to market various services to member in exchange for
the issuance of preferred stock. The company is managed by the U.S.
Management Subsidiary of Chancellor.
Note 3: The company's share of the proposed income from the Beijing
DaDu International Jockey Club is projected by using the present
value of the cash-flow based on a 20% accrual to Chancellor over
12 years of the projected income of the project over the same 12
years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $ 308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $ 122,606,644.00
Note 4: Cash and securities were placed as Registered Capital in China,
(for Morceli, Inc., a wholly owned subsidiary), and are restricted
as to usage in China. Entry consists of $5,000,000 cash and
$5,000,000 securities. Cash can be replaced by acceptable
securities at any time and total funds will be released on Dec. 1,
1998.
Note 5: Subsequent event: The company agreed to purchase property in
Guang Dong Province, China, approximate value $26,300,000. The
acquisition is to be financed 60% by a bank and 40% by the
company.
<PAGE>
ROBERT G. TSCHIDA
Certified Public Accountant
- --------------------------------------------------------------------------------
301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
INDEPENDENT AUDITOR'S REPORT
Board of Directors
Chancellor Corporation
Oklahoma City, Oklahoma
I have audited the accompanying balance sheet of CHANCELLOR CORPORATION as of
December 31, 1997. These financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion based on my
audit.
I conducted my audit in accordance with generally accepted auditing standards.
Those standards require that I plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. I
believe that my audit of the balance sheet provides a reasonable basis for my
opinion.
In my opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of CHANCELLOR CORPORATION as of
December 31, 1997 and the results of its operations and its cash flows for the
period ending December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Robert J. Tschida, CPA
- --------------------------
Robert G. Tschida, CPA
January 30, 1998
- --------------------------------------------------------------------------------
MEMBER OF THE AMERICAN AND COLORADO SOCIETIES OF CERTIFIED PUBLIC ACCOUNTANTS
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Consolidated Balance Sheet
December 31, 1997
ASSETS
Current Assets: $ 301,200
Cash
Other Assets:
Subsidiary (Note 2) 2,500,000
Development costs (Note 2) 1,203,800
------------
Total other assets 3,703,800
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
------------
Total restricted assets 132,606,644
------------
Total Assets $136,611,644
============
LIABILITIES & STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable 91,000
------------
Unearned Revenues (Note 3) 122,606,644
------------
Stockholders' Equity:
Common stock, 100,000,000 shares
authorized, $0.001 par value, 15,778,829
shares issued and outstanding 157,788
Preferred stock 5,000,000, $10.00 value
authorized, 250,000 shares issued and
outstanding 2,500,000
Paid-in capital 11,256,212
------------
TOTAL STOCKHOLDERS' EQUITY 13,914,000
------------
Total Liabilities & Stockholders' Equity $136,611,644
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Stockholders' Equity
For the period ending December 31, 1997
Common Preferred Paid-in Retained
Stock Stock Capital Earnings
Beginning
Balance $ 3,700 $ 2,500,000 $ 117,300 $ 0
Balance
12/31/97 $ 145,466 $ 2,500,000 $11,268,534 $ 0
=========== =========== =========== =====
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Cash Flows
December 31, 1997
Cash flows from operations:
Net Income
$ 0
Cash flows from investing activities:
Increase in discounted cash flows (122,606,644)
Investment in subsidiary ( 2,500,000)
Investment in development costs ( 1,203,800)
Increase in unearned income 122,606,644
Issuance of preferred stock 2,500,000
Issuance of common stock 141,766
Increase in paid capital 11,151,234
Cash flow from financing activities:
Investment of cash & securities in subsidiary ( 10,000,000)
Increase in payables 91,000
------------
Cash provided 254,000
Beginning Cash 121,000
------------
Ending Cash $ 301,200
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
( A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
December 31, 1997
Note 1: The company was incorporated in the State of Nevada in 1981.
The company main project is a joint venture gaming agreement with
the Beijing DaDu International Jockey Club. This agreement has
been approved by the Chinese government. The agreement may be seen
at the company corporate office.
Note 2: The company has acquired a Fraternal Insurance Society to
market various services to member in exchange for the issuance of
preferred stock. The company is managed by the U.S. Management, a
subsidiary of Chancellor.
Note 3: The company's share of the proposed income from the Beijing
DaDu International Jockey Club is projected by using the present
value of the cash-flow based on a 20% accrual to Chancellor over
12 years of the projected income of the project over the same 12
years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $ 308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $ 122,606,644.00
Note 4: Cash and securities were placed as Registered Capital in China,
(for Morceli, Inc., a wholly owned subsidiary), and are restricted
as to usage in China. Entry consists of $5,000,000 cash and
$5,000,000 securities. Cash can be replaced by acceptable
securities at any time and total funds will be released on
December 1, 1998.
Note 5: Subsequent Events:
The company reached an agreement with Zhida Development Co. Ltd.
and America Saipan International Trading Inc., as follows:
A) Chancellor Corporation and Ron Sparks, Chairman agreed to
cancel 8,333,000 shares of common stock that was issued in
the name of Beijing Dadu International Jockey Club Co. Ltd.
B) Cancellation of 500,000 preferred shares issued in the name
of Zhida Development Co. Ltd.
C) The 3,000,000 shares of control shares held by NAFTA Trust
were canceled and re-issued as follows;
1. 1,470,000 American Saipan International Trading Inc.
<PAGE>
2. 1,530,000 NAFTA Trust
Mr. Du, Lianlu of American Saipan was appointed to the Board of
Directors of Chancellor Corporation.
Note 6: The company reversed the acquisition of the Fraternal Insurance
Society and canceled the 250,000 shares of preferred stock used
for that acquisition. The company will proceed with an alternate
insurance program.
The net result of the above transaction leaves Chancellor
Corporation with only 6,321,000 shares outstanding, the
cancellation of debt for the real estate in Guang Dong Province
and the debt for the Fraternal company.
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet
March 31, 1998
ASSETS
Current Assets: $ 221,000
Cash
Other Assets:
Subsidiary (Note 2) 1,284,000
Development costs (Note 2) 1,110,000
------------
Total other assets 2,394,000
Restricted Assets:
Cash reserves (Note 4) 5,000,000
Securities deposited (Note 4) 5,000,000
Discounted cash-flows (Note 3) 122,606,644
------------
Total restricted assets 132,606,644
------------
Total Assets $135,221,644
============
LIABILITIES & STOCKHOLDERS' EQUITY
Unearned Revenues:
Revenues (Contracts) $122,606,644
Unclassified:
Contributions by shareholders 1,110,000
Current liabilities:
Accounts payable 91,000
Stockholders' Equity:
Common stock 145,466
Paid-in capital 11,268,534
------------
TOTAL STOCKHOLDERS' EQUITY 11,414,000
------------
Total Liabilities & Stockholders' Equity $135,221,644
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
(A DEVELOPMENT STAGE COMPANY)
Statement of Cash Flows
Period ending March 31, 1998
Increase (Decrease) in Cash and Cash Equivalents
Cash flows from operating activities:
Net profit or (loss) $ 0
Cash flows from investing activities:
Increase in development costs ( 1,284,000)
Increase in cash reserves ( 5,000,000)
Increase in securities (restricted) ( 5,000,000)
Decrease in cash transfers ( 301,150)
------------
Net cash used for Investment Activities ($11,585,150)
------------
Cash flow from financing activities:
Increase in payables 91,000
Issuance of common stock 145,416
Increase in paid-in capital 11,268,534
------------
Net cash provided by financing activities $ 11,504,950
------------
Net decrease in cash and cash equivalents ( 80,200)
Cash and cash equivalents at beginning of period 301,200
------------
Cash and cash equivalents at end of period $ 221,000
============
THE ACCOMPANY NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS.
<PAGE>
CHANCELLOR CORPORATION
( A DEVELOPMENT STAGE COMPANY)
Notes to the Financial Statements
March 31, 1998
Note 1: The company was incorporated in the State of Nevada in 1981.
The company's main project is a joint venture gaming agreement with
the Beijing DaDu International Jockey Club. This agreement has been
approved by the Chinese government. The agreement may be seen at the
company's corporate office.
Note 2: The companys will use the accrual basis of accounting and will
adhere to all IRS regulations.
Note 3: The company's share of the proposed income from the Beijing
DaDu International Jockey Club is projected to be by using the
present value of the cash-flow based on a 20% accrual to
Chancellor over 12 years of the projected income of the project
over the same 12 years as follows:
Total Income projected $1,542,576,295.00
20% accrual to Chancellor $ 308,515,259.00
Discounted @ 8% for 12 years
(factor is .3971)
$308,515,259.00 x .3971 = $ 122,606,644.00
Note 4: Cash and securities were placed as registered capital in China
for Morceli, Inc., a wholly owned subsidiary, and are restricted
as to usage in China. Entry consists of $5,000,000 cash and
$5,000,000 securities. Cash may be replaced by acceptable
securities at any time and total funds will be released on
December 31, 1998.
Note 5: The company reached an agreement with Zhida Development Co. Ltd. and
American Saipan International Trading Inc., as follows:
A) Chancellor Corporation and Ron Sparks, Chairman agreed to
cancel 8,333,000 shares of common stock that was issued in
the name of Beijing DaDu International Jockey Club Co. Ltd.
B) Cancellation of 500,000 preferred shares issued in the name
of Zhida Development Co. Ltd.
C) The 3,000,000 shares of control shares held by NAFTA Trust
were canceled and re-issued as follows:
1. 1,470,000 American Saipan International Trading Inc.
2. 1,530,000 NAFTA Trust
<PAGE>
3. Mr. Du, Lianlu of American Saipan was appointed to the Board
of Directors of Chancellor Corporation.
<PAGE>
B. EXHIBITS.
EXHIBIT DESCRIPTION
NUMBER AND
PAGE
- --------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation
3.5 Bylaws of the Company
10.1 Material Contracts
21.1 Subsidiaries of the Registrant
23.1 Consent of Expert
27 Financial Data Schedule
8
RESTATED ARTICLES OF INCORPORATION
OF
CHANCELLOR CORPORATION
We, Martin Neman, President and Jane Kelly, Secretary, hereby declare:
FIRST: Pursuant to the provisions of Section 78-403 of the Nevada Business
Corporation Act, the undersigned corporation adopts the following restated
Articles of Incorporation!
ARTICLE I: The name of the corporation is:
Chancellor Corporation
ARTICLE II: The principal place of business of the corporation within the
state of Nevada shall be:
Pacific Corporate Services, Inc.
7631 Bermuda Road
Las Vegas, Nevada 89123
ARTICLE III: The objects to be transacted, business and pursuit and nature
of the business promoted or carried on by this corporation are and shall
continue to be engaged in any lawful activity except banking or insurance.
ARTICLE IV: Article IV, which currently authorizes one director and one
shareholder only is amended to provide for additional directors.
ORIGINAL ARTICLE IV FILED ON JUNE 3, 1996: The members of the governing
board shall be styled Directors and the first Board of Directors shall consist
of one (1). The number of s tockholders of said corporation shall consist of one
(1). The number of directors and shareholders of this corporation may, from time
to time, be increased or decreased by an amendment to the By-laws of this
Corporation in that regard, and without the necessity of amending these Articles
of Incorporation. The name and address of the first Board of Directors and of
the incorporator signing these Articles is as follows:
Martin Newman 3030 Bridgeway, #117
Sausalito CA 94965
<PAGE>
AMENDED ARTICLE IV FILED ON NOVEMBER 8, 1996: The number of Directors of
the Corporation is three (3)
President: Marilyn Bess, Director
Secretary/Treasurer" Cesar Yumall, Director
Assistant Secretary: Gary Luttrell, Director
AMENDED ARTICLE IV: The governing body of the corporation shall be known as
directors, and the number, names and post office addresses of the Board of
Directors, which shall consist of three (3) are:
Martin Newman 3030 Bridgeway, #100
Sausalito, CA 94965
Ronald Sparks 3030 Bridgeway, #100
Sausalito, CA 94965
Jane Kelly 3030 Bridgeway, #100
Sausalito, CA 94965
ARTICLE V: The Corporation is to have perpetual existence.
ARTICLE VI: Article VI, which currently provides for authorized common
stock only is amended to provide authorization for common stock and preferred
stock.
ORIGINAL ARTICLE VI: The total authorized capitalization of this
Corporation shall be and is the mum of 25,000,000 shares common stock at $.OOI
par value, said shares to carry full voting power and the said shares shall be
issued fully paid at such time as the Board of Directors may designate in
exchange for cash, property, services, the stock of other corporations or other
values, rights or things, and the judgment of the Board of Directors an to the
value thereof shall be conclusive.
AMENDED ARTICLE VI. This corporation is authorized to issue two classes of
shares designated respectively "Common Stock" and "Preferred stock", and
referred to herein as Common Stock or Common Shares and Preferred Stock or
Preferred Shares, respectively. The number of shares of Common Stock is ONE
HUNDRED MILLION (100,000,000) shares with a par value of one mil ($.001) per
share and the number of Preferred Stock is TEN MILLION (10,000,000) shares with
a par value of one mil ($.001) per share.
ARTICLE VII: A new Article VII in inserted to read:
NEW ARTICLE VII: The Preferred shares may be issued from time to time in
one or more series. The Board of Directors is authorized to fix the number of
shares of any series of Preferred Shares and to determine the designation of any
such
2
<PAGE>
series. The Board of Directors is also authorized to determine or alter the
rights, preferences, privileges, and restrictions granted to or imposed upon any
wholly unissued series of Preferred shares, and, within the limits and
restrictions stated in any resolution or resolutions of the Board of Directors
originally fixing the number of shares constituting any series, to increase or
decrease (but not below the number of shares of such series than outstanding the
number of shares of any such series subsequent to the issue of shares of that
series.
ARTICLE VIII: Former Article VII is now Article VIII and reads, as follows:
NEW ARTICLE VIII: The capital stock shall be and remain non-assessable. The
private property of the stockholders shall not be liable for the debts or
liabilities of the Corporation.
ARTICLE IX: A new Article IX is inserted to read:
ARTICLE IX: In accordance with Section 78.037 of the Nevada Business
Corporation code, the directors and officers of this corporation shall not be
personally liable to the corporation or its stockholders for damages for breach
of fiduciary duty as a director or officer, so long as the acts or omissions did
not involve international misconduct, fraud or a knowing violation of law or as
a result of the payment of dividends in violation of NRS 78.300.
SECOND: The foregoing Restated Articles of Incorporation of the corporation
and any amendments were authorized and approved by a majority of the Board of
Directors at a special meeting held en October 28, 1997, where, pursuant to
Section 78.320 of the Corporation Laws of the State of Nevada, a majority of the
shareholders, constituting 3,764,197 out of the 4,364,197 issued and
outstanding, have consented to the amendment.
3
<PAGE>
October 28, 1997.
\s\ Martin Newman
------------------------------
Martin Newman
President
\s\ Jane Kelly
------------------------------
Jane Kelly
Secretary
State of California )
) ss.
County of Marin )
On October 28, 1997, personally appeared before me, Martin Newman,
President and Jane Kelly, Secretary of Chancellor Corporation, who acknowledged
to me that they were the signers of the foregoing Restated Articles of
Incorporation.
\s\ Susan Dupuis
NOTARY SEAL ------------------------------
Susan Dupuis
Notary Public
4
<PAGE>
SECRETARY OF STATE
STATE OF NEVADA
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that CHANCELLOR CORP. did on the THIRD day of JUNE, 1996 file in
this office the original Articles of Incorporation; that said Articles are now
on file and of record in the office of the Nevada Secretary of State, and
further, that said Articles contain all the provisions required by the law of
said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the Great Seal of State, at
my office in Carson City, Nevada, this THIRD
day of JUNE, 1996.
\s\
------------------------------
Secretary of State
BY \s\
----------------------
Certification Clerk
EXHIBIT 3.5
BYLAWS
OF
CHANCELLOR CORPORATION
A Nevada Corporation
ARTICLE I
---------
Offices
Section 1. The registered office of this corporation shall be in the County
of Clark, State of Nevada.
Section 2. The corporation may also have offices at such other places both
within and without the State of Nevada as the Board of Directors may from time
to time determine or the business of the corporation may require.
ARTICLE II
----------
Meetings of Stockholders
Section 1. All annual meetings of the stockholders shall be hold at the
registered office of the corporation or at such other place within or without
the State of Nevada as the directors shall determine. Special meetings of the
stockholders may be held at such time and place within or without the State of
Nevada as shall be stated in the notice of the meetings or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings of the stockholders, commencing with the year
1996, shall be held on the 31st day of May each year if not a legal holiday and,
if a legal holiday, then on the next secular day following, or at such other
time as may be :at by the Board of Directors from time to time, at which the
stockholders shall elect by vote a Board of Directors and transact such other
business as may properly be .brought before the meeting.
Section 3. special meetings of the stockholders, for any purpose or
purposes, unless otherwise prescribed by statute or by the Articles of
1
<PAGE>
Incorporation, may be called by the President or the Secretary by resolution of
the Board of Directors or at the request in writing of stockholders owning a
majority in amount of the entire capital stock Of the corporation issued and
outstanding and entitled to vote. such request shall state the purpose of the
proposed meeting.
Section 4. Notices of meetings shall be in writing and signed by the
President or a Vice-President or the Secretary or an Assistant Secretary or by
such other person or persons as the directors shall designate. Such notice shall
state the purpose or purposes for which the meeting is called and the time and
the place, which may be within or without this State, where it is to be held. A
copy of such notice shall be either delivered personally to or shall be mailed,
postage prepaid, to each stockholder of record entitled to vote at such meeting
not less than ten nor more than sixty days before such meeting. if mailed, it
shall be directed to a stockholder at his address as it appears upon the records
of the corporation and upon such mailing of any such notice, the service thereof
shall be complete and the time of the notice shall begin to run from the date
upon which such notice is deposited in the mail for transmission to such
stockholder. Personal delivery of any such notice to any officer of a
corporation or association, or to any member of a partnership shall constitute
delivery of such notice to such corporation, association or partnership. In the
event of the transfer of stock after delivery of such notice of and prior to the
holding of the meeting it shall not be necessary to deliver or mail notice of
the meeting to the transferee.
Section 5. Business transacted at any special meeting of stockholders shall
be limited to the purposes stated in the notice.
Section 6. The holders of a majority of the stock issued and outstanding
and entitled to vote thereat, present in person or represented by proxy, shall
constitute a quorum at all meetings of the stockholders for the transaction of
business except as otherwise provided by statute or by the Articles of
Incorporation. if, however, such quorum shall not be present or represented at
any meeting of the stockholders, the
2
<PAGE>
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have power to adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be present or
represented. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally notified.
Section 7. When a quorum is present or represented at any meeting, the vote
of the holders of a majority of the stock having voting power present in parson
or represented by proxy shall be sufficient to elect directors or to decide any
question brought before such meeting, unless the question one upon which by
express provision of the statutes or of the Articles of incorporation, a
different vote is required in which case such express provision shall govern and
control the decision of such question.
Section 8. Each stockholder of record of the corporation shall be entitled
at each meeting of stockholders to one vote for each share of stock standing in
his name on the books of the corporation. Upon the demand of any stockholder,
the vote for directors and the vote upon any question before the meeting shall
be by ballot.
Section 9. At any meeting of the stockholders any stockholder may be
represented and vote by a proxy or proxies appointed by an instrument in
writing. In the event that any such instrument in writing shall designate two or
more persons to act as proxies, a majority of such persons present at the
meeting, or, if only one shall be present, then that one shall have and may
exercise all of the powers conferred by such written instrument upon all of the
persons so designated unless the instrument shall otherwise provide. No proxy or
power of attorney to vote shall be used to vote at a meeting of the stockholders
unless it shall have been filed with the secretary of the meeting when required
by the inspectors of election. All questions regarding the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided by the inspectors of election who shall be appointed by the Board of
Directors, or if not
3
<PAGE>
so appointed, then by the presiding officer of the meeting.
Section 10. Any action which may be taken by the vote of the stockholders
at a meeting may be taken without a meeting if authorized by the written consent
of stockholders holding at least a majority of the voting power, unless the
provisions of the statutes or of the Articles of Incorporation require a greater
proportion of voting power to authorize such action in which case such greater
proportion of written consents shall be required,
ARTICLE III
-----------
Directors
Section 1, The business of the corporation shall be managed by its Board of
Directors which may exercise all such powers of the corporation and do all such
lawful acts and things as are not by statute or by the Articles of Incorporation
or by these Bylaws directed or required to be exercised or done by the
stockholders.
Section 2. The number of directors which shall constitute the whole board
shall be SEVEN (7). The number of directors may from time to time be increased
or decreased to not less than one nor more than fifteen by action of the Board
of Directors. The directors shall be elected at the annual meeting of the
stockholders and except as provided in Section 2 of this Article, each director
elected shall hold office until his successor is elected and qualified.
Directors need not be stockholders.
Section 3. Vacancies in the 5oard of Directors Including those caused by an
increase in the number of directors, may be filled by a majority of the
remaining directors, though logo than a quorum, or by a sole remaining director,
and each director so elected shall hold office until his successor is elected at
an annual or a special meeting of the stockholders. The holders of a two-thirds
of the outstanding shares of stock entitled to vote may at any time peremptorily
terminate the term of office of all or any of the directors by vote at a meeting
called for such purpose or by a written statement
4
<PAGE>
filed with the secretary or, in his absence, with any other officer. Such
removal shall be effective immediately, even if successors are not elected
simultaneously and the vacancies on the Board of Directors resulting therefrom
shall be filled only by the stockholders.
A vacancy or vacancies in the Board of Directors shall. be deemed to exist
in case of the death, resignation or removal of any directors, or if the
authorized number of directors be increased, or if the stockholders fail at any
annual or special meeting of Stockholders at which any director or directors are
elected to elect the full authorized number of directors to be voted for at that
meeting.
The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. If the Board of Directors
accepts the resignation of a director tendered to take effect at a future time,
the Board or the stockholders shall have power to elect a successor to take
office when the resignation is to become effective.
No reduction of the authorized number of directors shall have the affect of
removing any director prior to the expiration of his term of office.
ARTICLE IV
----------
Meetings of the Board of Directors
Section 1. Regular meetings of the Board of Directors shall be held at any
place within or without the State which has been designated from time to time by
resolution of the Board or by written consent of all members of the Board. In
the absence of such designation regular meetings shall be held at the registered
office of the corporation. Special meetings of the Board may be held either at a
place so designated or at the registered office.
Section 2. The first meeting of each newly elected Board of Directors shall
be held immediately following the adjournment of the meeting of stockholders
5
<PAGE>
and at the place thereof. No notice of such meeting shall be necessary to the
directors in order legally to constitute the meeting, provided a quorum be
present. In the event such meeting is not so held, the meeting may be held at
such time and place as shall be specified in a notice given as hereinafter
provided for special meetings of the Board of Directors.
Section 3. Regular meetings of the Board of Directors may be held without
call or notice at such time and at such place as shall from time to time be
fixed and determined by the Board of Directors.
Section 4. Special meetings of the Board of Directors may be called by the
Chairman or the President or by any Vice-President or by any two directors.
Written notice of the time and place of special meetings shall be delivered
personally to each director, or sent to *act director by Mail or by other form
of written communication, charges prepaid, addressed to him at his address as it
is shown upon the records or is not readily ascertainable, at the place in which
the meetings of the directors are regularly held. In case such notice is mailed
or telegraphed, it Shall be deposited in the United States mail or delivered to
the telegraph company at least forty-eight (48) hours prior to the time of the
holding of the meeting. in cast such notice is delivered as above provided, it
shall be so delivered at least twenty-four (24) hours prior to the time of the
holding of the meeting. Such mailing, telegraphing or delivery as above provided
shall be due, legal and personal notice to such director.
Section Notice of the time and place of holding an adjourned meeting need
not be given to the absent directors if the time and place be fixed at the
meeting adjourned.
Section 6. The transactions of any meeting of the Board of Directors,
however called and noticed or wherever hold, shall be as valid as though had at
a meeting duly hold after regular call and notice, if a quorum be present, and
if, either before or after the meeting, each of the directors not present signs
a
6
<PAGE>
written waiver of notice, or a consent to holding such meeting, or an approval
of the minutes thereof. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Section 7. A majority of the authorized number of directors shall be
necessary to constitute a quorum for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly hold at which a quorum is
present shall be regarded as the act of the Board of directors, unless a greater
number be required by law or by the Articles of Incorporation. Any action of a
majority, although not at a regularly called meeting, and the record thereof, if
assented to in writing by all of the other members of the Board shall be as
valid and effective in all respects as if passed by the Board in regular
meetings
Section 8. A quorum of the directors may adjourn any directors meeting to
meet again at a stated day and hour; provided, however, that in the absence of a
quorum, a majority of the directors present at any directors meeting, either
regular or special, may adjourn from time to time until the time fixed for the
next regular meeting of the Board.
ARTICLE V
---------
Committees of Directors
Section 1. The Board of Directors may, by resolution adopted by a majority
of the whole Board, designate one or more committees of the Board of Directors,
each committee to consist of two or more of the directors of the corporation
which, to the extent provided in the resolution, shall have and may exercise the
power of the Board of Directors in the management of the business and affairs of
the corporation and may have power to authorize the seal of the corporation to
be affixed to all papers which may require it. Such committee or committees
shall have such name or names as may be determined from time to time by the
Board of Directors. The members of any such committee present at
7
<PAGE>
any meeting and not disqualified from voting may, whether or not they constitute
a quorum, unanimously appoint another member of the Board of Directors to act at
the meeting in the place of any absent or disqualified member. At Meetings of
such committees, a majority of the members or alternate members shall constitute
a quorum for the transaction of business, and the act of a majority of the
members or alternate members at any matting at which there is a quorum shall he
the act of the committee.
Section 2. The committees shall keep regular minutes of their proceedings
and report the same to the Board of Directors.
Section 3. Any action required or permitted to be taken at any meeting of
the Board of Directors or of any committee thereof may be taken without a
meeting if a written consent thereto is signed by all members of the Board of
Directors or of such committee as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or committee.
ARTICLE VI
----------
Compensation of Directors
Section 1. The directors may be paid their expenses of attendance at each
meeting of the Board of Directors and may be paid a fixed sum for attendance at
each meeting of the Board of Directors or a stated salary as director. No such
payment shall preclude any director from serving the corporation in any other
capacity and receiving compensation therefor. Members of special or standing
committees may be allowed like reimbursement and compensation for attending
committee meetings.
ARTICLE VII
-----------
Notices
Section 1. Notices to directors and stockholders shall be in writing and
delivered personally or mailed to the directors or stockholders at their
addresses appearing on the books of the corporation.
8
<PAGE>
Notice by mail shall be deemed to be given at the time when the same shall be
mailed. Notice to directors may also be given by telegram.
Section 2. Whenever all parties entitled to vote at any meeting, whether of
directors or stockholders, consent, either by a writing on the records of the
meeting or filed with the secretary, or by presence at such meeting and oral
consent entered on the minutes, or by taking part in the deliberations at si4ch
meeting without objection, the doings of such meeting shall be as valid as if
had at a meeting regularly called and noticed, and at such meeting any business
may a transacted which is not excepted from the written consent or to the
consideration of which no objection for want of notice is made at the time, and
if any meeting be irregular for want of notice or of such consent, provided a
quorum was present at such meeting, the proceedings of said meeting may be
ratified and approved and rendered likewise valid and the irregularity or defect
therein waived by a writing signed by all parties having the right to vote ht
such meeting, and such consent or approval of stockholders may be by proxy or
attorney, but all such proxies and powers of attorney must be in writing.
Section 3. Whenever any notice whatever is required to be given under the
provisions of the statutes, of the Articles of Incorporation or of these Bylaws,
a waiver thereof in writing, signed by the person or persons entitled to said
notice, whether before or after the time stated therein, shall be deemed
equivalent thereto.
ARTICLE VIII
------------
Officers
Section 1. The officers of the corporation shall be chosen by the Board of
Directors and shall be a President, a Secretary and a Treasurer. Any person may
hold two or more offices.
Section 2. The Board of Directors at its first meeting after each annual
meeting of stockholders shall
9
<PAGE>
choose a Chairman of the Board who shall be a director, and shall choose a
President, a Secretary and a Treasurer, none of whom need be directors.
Section 3. The Board of Directors may appoint a Vice-Chairman of the Board,
Vice-Presidents and one or more Assistant Secretaries and Assistant Treasurers
and such other officers and agents as it shall deem necessary who shall hold
their offices for such terms and shall exercise such powers and perform Such
duties as shall be determined from tine to time by the Board of Directors.
Section 4. The salaries and compensation of all officers of the corporation
shall be fixed by the Board of Directors.
Section 5. The officers of the corporation shall hold office at the
pleasure of the Board of Directors. Any, officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. Any
vacancy occurring in any office of the corporation by death, resignation,
removal or otherwise shall be final by the Board of Directors.
Section 6. The CHAIRMAN OF THE BOARD shall preside at meetings of the
---------------------
stockholders and the Board of Directors, and shall see that all orders and
resolutions of the Board o.! Directors are carried into effect.
Section 7. The VICE-CHAIRMAN shall, in the absence or disability of the
-------------
Chairman of the Board, perform trio duties and exercise the powers of the
Chairman of the Board and shall perform such other duties as the Board of
Directors may from time to time prescribe.
Section 8. The PRESIDENT shall be the chief executive officer of the
---------
corporation and shall have active management of the business of the corporation.
He shall execute on behalf of the corporation all instruments requiring such
execution except to the extent the signing and execution thereof shall be
expressly designated by the Board of Directors to some other officer or agent of
the corporation.
10
<PAGE>
Section 9. The VICE-PRESIDENT shall act under the direction of the
--------------
President and in the absence or disability of the President shall perform the
duties and exercise the powers of the President. They shall perform such other
duties and have such other powers as the President or the Board of Directors may
from time to time prescribe. The Board of Directors may designate one or more
Executive Vice-Presidents or may otherwise specify the order of seniority of
- -the Vice-Presidents. The duties and powers of the President shall descend to
the Vice-Presidents in such specified order of seniority.
Section 10. The SECRETARY shall act under the direction of the President.
---------
subject to "o direction of the President he shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record the
proceedings. He shall perform like duties for the standing committees when
required. He shall give, or cause to be given, notice of all meetings of the
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may be prescribed by the President or the Board of
Directors.
Section 11. The ASSISTANT SECRETARIES shall act under the direction of the
---------------------
President. In order of their seniority, unless otherwise determined by the
President or the Board of Directors, they shall, in the absence or disability of
the Secretary, perform the duties and exercise the powers of the Secretary. They
shall perform such other duties and have such other powers as the President or
the Board of Directors may from time to time prescribe.
Section 12. The TREASURER shall act under the direction of the President.
---------
Subject to the direction of the President he shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all monies
and other valuable effects in the name and to the credit of the corporation in
such depositories as may be designated by the Board of Directors. Ha shall
disburse the funds of the corporation as may be ordered by the President or the
Board of Directors, taking proper vouchers for such disbursements, and shall.
render to the President and the
11
<PAGE>
Board of Directors, at its regular meetings, or when the Board of Directors so
requires, an account of all his transactions as Treasurer and of the financial
condition of the Corporation.
Section 13. If required by the Board of Directors, he shall give the
corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance o! the
duties of his office and for the restoration to the corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control Belonging to the corporation.
Section 14. The ASSISTANT TREASURER in the order of their seniority, unless
-------------------
otherwise determined by the President or the Board of Directors, shall, in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer. They shall perform such other duties and have such
other powers as the President or the Board of Directors may from time to time
prescribe.
ARTICLE IX
----------
Certificates of Stock
Section 1. Every stockholder shall be entitled to have a certificate signed
by the President or a Vice-President and the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary of the corporation,
certifying the number of shares owned by him in the corporation. If the
corporation shall be authorized to issue more than one class of stock or more
than one series of any class, the designations, preferences and relative,
participating, optional or other special rights of the various classes of stock
or series thereof and the qualifications, limitations or restrictions of such
rights, shall be set forth in full or summarized on the face or back of the
certificate which the corporation shall. issue to represent such stock.
12
<PAGE>
Section 2. If a certificate is signed (a) by a transfer agent other than
the corporation or its employees or (2) by a registrar other than the
corporation or its employees, the signatures of the officers of the corporation
may be facsimiles. in case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall cease to be such officer
before such certificate is issued, such certificate may be issued with the same
effect as though the person had not ceased to be such officer. The seal of the
corporation, or a facsimile thereof, may, but need not be, affixed to
certificates of stock.
Section 3. The Board of Directors may direct a now certificate or
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost or destroyed
upon the making of an affidavit of that fact by the person claiming the
certificate of stock to be lost or destroyed. When authorizing such issue of a
now certificate or certificates, the Board of Directors may, in its discretion
and as a condition precedent to trio issuance thereof, require the owner of such
lost or destroyed certificate or certificates, or his legal representative, to
advertise the same in such manner as it shall require and/or give the
corporation a bond in such manner as it may direct as indemnity against any
claim that may be made against the corporation with respect to the certificate
alleged to have been lost or destroyed.
Section 4. upon surrender to the corporation or the transfer agent of the
corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the corporation, if it is satisfied that all provisions of the laws and
regulations applicable to the corporation regarding transfer and ownership of
shares have been complied with, to issue a new certificate to the person
entitled thereto, cancel the old certificate and record the transaction upon its
books.
Section 5. The Board of Directors may fix in advance a date not exceeding
sixty (60) days nor less than ton (10) days preceding the data of any meeting of
13
<PAGE>
stockholders, or the date for the payment of any dividend, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
capital stock shall go into effect, or a date in connection with obtaining the
consent of stockholders for any purpose, as a record date for the determination
of the stockholders entitled to notice of and to vote at any such meeting, :nd
any adjournment thereof, or entitled to receive payment of any such dividend, or
to give such consent, and in such case, such stockholders, and only such
stockholders as shall be stockholders of record on the date so fixed, shall be
entitled to notice of and to vote at such meeting, or any adjournment thereof,
or to receive payment of such dividend, or to receive such allotment of rights,
or to exercise such rights, or to give such consent, as the case may be,
notwithstanding any transfer of any stock on the books of the corporation after
any such record date fixed as aforesaid.
Section 6. The corporation shall be entitled to recognize the person
registered on its books as the owner of shares to be the exclusive owner for all
purposes including voting and dividends, and the corporation shall not be bound
to recognize any equitable or other claim to or interest in such share or shares
on the part of any other person, whether or not it shall have express or other
notice thereof, except as otherwise provided by the laws of Nevada.
ARTICLE X
---------
General Provisions
Section 1. Dividends upon the capital stock of the corporation, subject to
the provisions of the Articles of Incorporation, if any, may be declared by the
Board of Directors at any regular or special meeting, pursuant to law. Dividends
may be paid in cash, in property or in shares of the capital stock, subject to
the provisions of the Articles of incorporation.
Section 2. Before payment of any dividend, there may be set 'aside out of
any funds of the corporation available for dividends such sum or sums as the
directors from time to time, in their absolute
14
<PAGE>
discretion, think proper as a reserve or reserves to most contingencies, or for
equalizing dividends or for repairing or maintaining any property of the
corporation or for such other purpose as the directors shall think conducive to
the interest of the corporation, and the directors may modify or abolish any
such reserve in the manner in which it was created.
Section 3. All checks or demands for money and notes of the corporation
shall be signed by such officer or officers or such other person or persons as
the Board of Directors may from time to time designate.
Section 4. The fiscal year of the corporation shall be fixed by resolution
of the Board of Directors.
Section 5. The corporation may or may not have a corporate sea!, as may
from time to time be determined by resolution of the Board of Directors. If a
corporate seal is adopted, it shall have inscribed thereon the name of the
corporation and the words "Corporate Seal" and "Nevada". The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or in any manner
reproduced.
ARTICLE XI
----------
Indemnification
Every person who was or is a party or is threatened to be made a party to
or is involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative, by reason of the fact that he or a person of
whom he is the legal representative is or was a director or officer of the
corporation or is or was serving at the request of the corporation or for its
benefit as a director or officer of another corporation, or as its
representative in a partnership, joint venture, trust or other enterprise, shall
be indemnified and held harmless to the fullest extent legally permissible under
the General Corporation Law Of the State of Nevada from time to time against all
expenses, liability and loss (including attorneys' fees, judgments, fines and
amounts paid or to be paid in settlement) reasonably incurred or suffered by him
in
15
<PAGE>
connection there-with. The expenses of officers and directors incurred in
defending a civil or criminal action, suit or proceeding must be paid by the
corporation as they are incurred and in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or an behalf of the
director or officer to repay the amount if it is ultimately determined by a
court of competent jurisdiction that he is not entitled to be indemnified by the
corporation. Such right of indemnification shall be a contract right which may
be enforced in any manner desired by such person. Such right of indemnification
shall not be exclusive of any other right which such directors, officers or
representatives may have or hereafter acquire and, without limiting the
generality of such statement, they shall be entitled to their respective rights
of indemnification under any bylaw, agreement, vote of stockholders, provision
of law or otherwise, as well as their rights under this Article.
The Board of Directors may cause the corporation to purchase and maintain
insurance on behalf of any person who Is or was a director or officer of the
corporation, or is or was serving at the request of the corporation as a
director or officer of another corporation, or as its representative in a
partnership, joint venture, trust or other enterprise against any liability
assorted against such person and incurred in any such capacity or arising out of
such status, whether or not the corporation would have the power to indemnify
such person.
The Board of Directors may from time to time adopt further Bylaws with
respect to indemnification and may amend these and such Bylaws to provide at all
times trio fullest indemnification permitted by the General Corporation Law of
the State of Nevada.
ARTICLE XII
-----------
Amendments
Section l. The Bylaws may he amended by a majority vote of all the stock
issued and outstanding and entitled to vote at any annual or special meeting of
the
16
<PAGE>
stockholders, provided notice of intention to amend shall have been contained in
the notice of the meeting.
Section 2. The Board of Directors by a majority vote of the whole Board at
any meeting may amend these Bylaws, including Bylaws adopted by the
stockholders, but the stockholders may from time to time specify particular
provisions of the Bylaws which shall not be amended by the Board of Directors.
APPROVED AND ADOPTED this 3rd day of JUNE, 1996.
\s\ Jane Kelly
----------------------------
Asst. Secretary
17
<PAGE>
CERTIFICATE OF SECRETARY
------------------------
I hereby certify that I am the Secretary of CHANCELLOR CORPORATION and that
the foregoing Bylaws, consisting of 17 pages, constitute the code of Bylaws of
___________________, as duly adopted at a regular meeting of the Board of
Directors of the corporation held June Fifth, 1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 1st day of
January, 1998.
\s\ Jane Kelly
-------------------------------
Secretary
18
Beijing Zhida Development Company
Party A
Morceli, Limited Corp
Party B
Joint Venture Contract
Beijing DaDu International Jockey Club Co. Ltd.
Beijing China
29 April, 1997
<PAGE>
CONTRACT OF JOINT VENTURE
BEIJING DADU INTERNATIONAL JOCKEY CLUB CO. LTD.
CHAPTER 1
GENERAL PROVISIONS
In accordance with the "LAW OF THE PEOPLE'S REPUBLIC OF CHINA ON CHINESE-
FOREIGN EQUITY JOINT VENTURES" and other relevant Chinese laws and regulations,
BEIJING ZHIDA DEVELOPMENT COMPANY, CHINA AND MORCELI LIMITED CORPORATION
adhering to the principle of equality and mutual benefit and through friendly
consultations agree to jointly invest to set up a joint venture enterprise in
Beijing, the People's Republic of China. The contract hereunder is concluded.
CHAPTER 2
PARTIES TO THE JOINT VENTURE
ARTICLE 1
Parties to this contract are as follows: BEIJING ZHIDA DEVELOPMENT COMPANY
(hereinafter referred to as PARTY A) duly registered in
Beijing, China with its legal address at 21 Liujiayao BeiLi Fengrai District
Beijing, 100075 P.R. China
Legal representative: Du Lianlu
Position: General Manager
Nationality: China
MORCELI LIMITED (hereinafter referred to as PARTY B) duly registered in
Nevada, United States, with its legal address at 5555 N. Grand Boulevard, Suite
200, Oklahoma City, OK 93112, U.S.A.
Legal representative: Ronald G. Sparks
Position: President
Nationality: U.S.A.
CHAPTER 3
ESTABLISHMENT OF THE JOINT VENTURE COMPANY
ARTICLE 2
In accordance with the "LAW OF THE PEOPLE'S REPUBLIC OF CHIN A ON CHINESE-
FOREIGN EQUITY JOINT VENTURES" and other relevant Chinese laws and regulations,
<PAGE>
both parties to the joint venture agree to set up BEIJING DADU INTERNATIONAL AL
JOCKEY CLUB CO. LTD.
ARTICLE 3
The name in Chinese of the joint venture company is:
(chinese script in this area)
The name in foreign language of the joint venture company is:
BEIJING DADU INTERNATIONAL JOCKEY CLUB CO. LTD.
The residence of the joint venture company is at Beijing Economy and
Technology Developing Zone, #2 Rongchang Xijie, 100029, P.R. China.
ARTICLE 4
All activities of the joint venture company shall be governed by the laws,
decrees and pertinent rules and regulations of the People's Republic of China.
ARTICLE 5
The organization form of the joint venture company is a limited liability
company. Each party to the joint venture company is liable to the joint venture
company within the limit of the capital subscribed by it. The profits, risks and
losses of the joint venture company shall be shared by the parties in proportion
to their con contributions of the registered capital.
CHAPTER 4
THE PURPOSE, SCOPE AND SCALE OF
PRODUCTION AND BUSINESS
ARTICLE 6
The purpose of the parties to the joint venture is in conformity with the
wish of enhancing the economic cooperation and technical exchanges, so as to
raise economic results and ensure satisfactory economic benefits for each
investor.
ARTICLE 7
The business scope of the joint venture company is as follows: Horse
racing, Jockey training, electronic shooting, tennis, swimming, singing and
dancing center, bar, recreational, on and off course social welfare lotteries
and shopping.
ARTICLE 8
The business mode of the joint venture company is to set up branches for
selling social welfare lotteries.
<PAGE>
CHAPTER 5
TOTAL AMOUNT OF INVESTMENT AND THE
REGISTERED CAPITAL
ARTICLE 9
The total amount of the investment of the joint venture company will depend
on the financial report of the project provided by the Board of Directors of the
company.
ARTICLE 10
Investment contributed by the parties is RMB 48,000,000 which will be the
registered capital of the joint venture company.
Of which: PARTY A SHALL INVEST RMB 4,800,000, accounts for 10%, PARTY B
shall pay 43,200,000, accounts for 90%.
ARTICLE 11
Both PARTY A and PARTY B will contribute the followings as their
investment:
PARTY A:
Cash of RMB 48,000,000
PARTY A shall complete all necessary formalities to obtain land use right.
Land use RIGHT OF A TOTAL AREA of 1,500 mu located in Beijing with all necessary
services to the site including, but not limited to:
(a) electricity;
(b) water supply;
(c) sewerage;
(d) storm water drainage;
(e) telecommunication;
(f) postal service; and
(g) natural gas.
PARTY B:
Cash of U.S. Dollars equivalent to RMB 43,200,000.00
ARTICLE 12
The registered capital of the joint venture company shall be invested in
installments by PARTY A and PARTY B according to their respective proportion of
their investment. The installment shall be fulfilled according to the capital
investment plan made by both PARTY A and PARTY B.
ARTICLE 13
In case any party to the joint venture intends to assign all or part of
it's investment subscribed to a third party, consent shall be obtained from the
other party to the joint venture, and approval from the examination and approval
authority is required.
<PAGE>
When one party to the joint venture assigns all or part of it's investment,
the other party has preemptive right.
CHAPTER 6
RESPONSIBILITIES OF EACH PARTY TO
THE JOINT VENTURE
ARTICLE 14
PARTY A and PARTY B shall be respectively responsible for the following
matters:
Responsibilities of PARTY A:
Handling of applications for approval, registration, business license and
other matters concerning the establishment of the joint venture company from
relevant departments in charge of China;
Processing for applying the right to the use of a site to the authority in
charge of the land;
Organizing the design and construction of the premises and other
engineering facilities of the joint venture company;
Assisting PARTY B for processing import customs declaration for the
machinery and equipments contributed by PARTY B as investment and arranging the
transportation within the Chinese territory;
Assisting the joint venture company in purchasing or leasing equipments,
materials, raw materials, articles for office use, means of transportation and
communication facilities, etc.;
Assisting the joint venture company in contacting and settling the
fundamental facilities such as water, electricity, transportation, etc.;
Assisting the joint venture in recruiting Chinese management personnel,
technical personnel, workers and other personnel needed;
Assisting foreign workers and staff in applying for entry visa, work
license and processing their traveling matters;
Responsible for handling other matters entrusted by the joint venture
company.
Responsibilities of PARTY B:
Providing Cash, machinery and equipment and responsible for shipping
capital goods such as machinery and equipment, etc. contributed as investment to
a Chinese port:
Training the technical personnel and workers of the joint venture company:
Responsible for other matters entrusted by the joint venture company.
<PAGE>
CHAPTER 7
BUSINESS OPERATION
ARTICLE 15
The joint venture company will operate business inside of China and it will
set up branches outside of China approved by the Board of the Directors.
ARTICLE 16
The operation mode of the joint venture company is to sell social welfare
lotteries at branches in Beijing, China.
CHAPTER 8
THE BOARD OF DIRECTORS
ARTICLE 17
The date of registration of the joint venture company shall be the date of
the establishment of the board of directors of the joint venture company.
ARTICLE 18
The Board of Directors is composed of 7 directors, of which 3 shall be
appointed by PARTY A, 4 by PARTY B. The chairman of the board shall be appointed
by B and its vice-chairman by A. The term of office for the chairman and
vice-chairman is four years. Their term of office may be renewed if continuously
appointed by the relevant party.
ARTICLE 19
The highest authority of the joint venture company shall be its board of
directors. It shall decide all major issues concerning the joint venture
company. Unanimous approval shall be required before any decisions are made
concerning major issues. As for other matters, approval by majority or a simple
majority shall be required.
ARTICLE 20
The chairman of the board is the legal representative of the joint venture
company. Should the chairman be unable to exercise his responsibilities for some
reasons, he shall authorize the vice-chairman or any other directors to
represent the joint venture company temporarily.
ARTICLE 21
The board of directors shall convene at least one meeting every year. The
meeting shall be called and presided over by the chairman of the board. The
chairman may convene an interim meeting based on a proposal made by more than
one third of the total number of directors. Minutes of the meetings shall be
placed on file.
<PAGE>
CHAPTER 9
BUSINESS MANAGEMENT OFFICE
ARTICLE 22
The joint venture company shall establish a management office which shall
be responsible for its daily management. The management office shall have a
general manager, appointed by PARTY B; 3 deputy general managers, 2 by PARTY A;
1 by PARTY B. The general manager and deputy general managers shall be invited
by the board of directors whose term of office is 2 years.
ARTICLE 23
The responsibility of the general manager is to carry out the decisions of
the board meeting and organize and conduct the daily management of the joint
venture company. The deputy general managers shall assist the general manager in
his work.
ARTICLE 24
Several department managers may be appointed by the management office. They
shall be responsible for the works in various department respectively, handling
the matters handed over by the general manager and deputy general managers and
shall be responsible to them.
ARTICLE 25
In case of great or serious dereliction of duty on the part of the general
manager and deputy general managers, the board of directors shall have the power
to dismiss them at any time.
CHAPTER 10
PURCHASE OF EQUIPMENT
ARTICLE 26
In its purchase of required raw materials, fuel, parts, means of
transportation and articles for office use, etc., the joint venture company
shall give first priority to purchase in China where conditions are the same.
ARTICLE 27
In case the joint venture company entrusts PARTY B to purchase equipment on
overseas market, persons appointed by PARTY A shall be invited to take part in
the purchasing.
<PAGE>
CHAPTER 11
PREPARATION AND CONSTRUCTION
ARTICLE 28
During the period of preparation and construction, a preparation and
construction office shall be set up under the board of directors. The
preparation and construction office shall consist of 7 persons, among which 4
persons will be from PARTY A, 3 persons from PARTY B. The preparation and
construction office shall have one manager recommended by PARTY A, and one
deputy manager by PARTY B. The manager and deputy manager shall be appointed by
the board of directors.
ARTICLE 29
The preparation and construction office is responsible for the following
concrete works: examining the designs of the project, signing project
construction contract, organizing the purchasing and inspecting of relative
equipment, materials, etc., working out the general schedule of project
construction, compiling the expenditure plans, controlling project financial
payments and final accounts of the project, drawing up managerial methods and
keeping and filing documents, drawings, files and materials, etc. during the
construction period of the project.
ARTICLE 30
A technical group with several technical personnel appointed by PARTY A and
PARTY B shall be organized. The group, under the leadership of the preparation
and construction office, is in charge of the examination, supervision,
inspection, testing, checking and accepting, and performance checking for the
project design, the quality of project, the equipment and materials and the
imported technology.
ARTICLE 31
After approved upon by both parties, the establishment, remuneration and
the expenses of the staff of the preparation and construction office shall be
covered in the project budget.
ARTICLE 32
After having completed the project and finishing the turning over
procedures, the preparation and construction office shall be dissolved upon the
approval of the board of directors.
<PAGE>
CHAPTER 12
LABOR MANAGEMENT
ARTICLE 33
Labor contract covering the recruitment, employment, dismissal and
resignation, wages, labor insurance, welfare, rewards, penalty and other matters
concerning the staff and workers of the joint venture company shall be drawn up
between the joint venture company and the Trade Union of the joint venture
company as a whole or individual employees in accordance with the "REGULATIONS
OF THE PEOPLE'S REPUBLIC OF CHINA ON LABOR MANAGEMENT IN CHINESE-FOREIGN EQUITY
JOINT VENTURES AND ITS IMPLEMENTATION RULES." The labor contracts shall, after
being signed, be filed with the local labor management department.
ARTICLE 34
The appointment of high-ranking administrative personnel recommended by
both parties, their salaries social insurance, welfare and the standard of
traveling expenses etc. shall be decided by the meeting of the board of
directors.
CHAPTER 13
TAXES, FINANCE AND AUDIT
ARTICLE 35
Joint venture company shall pay taxes in accordance with the stipulations
of Chinese laws and other relative regulations.
ARTICLE 36
Staff members and workers of the joint venture company shall pay individual
income tax according to the "INDIVIDUAL INCOME TAX LAW OF THE PEOPLE'S REPUBLIC
OF CHINA."
ARTICLE 37
Allocations for reserve funds, expansion funds of the joint venture company
and welfare funds and bonuses for staff and workers shall be set aside in
accordance with the stipulations in the "LAW OF THE PEOPLE'S REPUBLIC OF CHINA
ON CHINESE-FOREIGN EQUITY JOINT VENTURE." The annual proportion of allocations
shall be decided by the joint venture board of directors according to the
business situations of the joint venture company.
<PAGE>
ARTICLE 38
The fiscal year of the joint venture company shall be from January 1 to
December 31. All vouchers, receipts, statistic statements and reports, account
books shall be written in Chinese.
ARTICLE 39
Financial checking and examination of the joint venture company shall be
conducted by an auditor registered in China and reports shall be submitted to
the board of directors and the general manager.
ARTICLE 40
In case PARTY B considers it is necessary to employ a foreign auditor
registered in other country to undertake annual financial checking and
examination PARTY A shall give its consent. All the expenses thereof shall be
borne by PARTY B.
ARTICLE 41
In the first three months of each fiscal year, the manager shall prepare
previous year's balance sheet, profit and loss statement and proposal regarding
the disposal of profits, and submit them to the board of directors for
examination and approval.
CHAPTER 14
DURATION OF THE JOINT VENTURE
ARTICLE 42
The duration of the joint venture company is 30 years. The establishment of
the joint venture company shall start from the date on which the business
license of the joint venture company is issued.
ARTICLE 43
An application for the extension of the duration, proposed by one party and
unanimously approved by the board of directors, shall be submitted to the
Ministry of Foreign Trade and Economic Cooperation six months prior to the
expiry date of the joint venture for the duration of 10 years.
CHAPTER 15
THE DISPOSAL OF ASSETS AFTER THE EXPIRATION
OF THE DURATION
ARTICLE 44
Upon the expiration of the duration or termination before the date of
expiration of the joint venture, liquidation shall be carried out according to
the relevant law. The
<PAGE>
liquidated assets shall be distributed in accordance with the proportion of
investment contributed by PARTY A and PARTY B.
CHAPTER 16
INSURANCE
ARTICLE 45
Insurance policies of the joint venture company on various kinds of risks
shall be underwritten with the insurance companies set up within the boundary.
Types, the value and duration of insurance shall be decided by the board of
directors in accordance with the stipulations of the insurance companies set up
within the boundary.
CHAPTER 17
THE AMENDMENT, ALTERATION AND
DISCHARGE OF THE CONTRACT
ARTICLE 46
The amendment of the contract or other appendices shall come into force
only after the written agreement signed by PARTY A and PARTY B and approved by
the original examination and approval authority.
ARTICLE 47
In case of inability to fulfill the contract or to continue operation due
to heavy losses in successive years as a result of force majeure, the duration
of the joint venture and the contract shall be terminated before the time of
expiration after unanimously agreed upon by the board of directors and approved
by the original examination and approval authority.
ARTICLE 48
Should the joint venture company be unable to continue its operations or
achieve the business purpose stipulated in the contract due to the fact that one
of the contracting parties fails to fulfill the obligations prescribed by the
contract and articles of association, or seriously violates the stipulations of
the contract and articles of association, that party shall be deemed as
unilaterally terminates the con tract. The other party shall have the right to
terminate the contract in accordance with the provisions of the contract after
approved by the original examination and approval authority as well as to claim
damages. In case PARTY A and PARTY B of the joint venture company agree to
continue the operation, the party who fails to fulfill
<PAGE>
the obligations shall be liable to the economic losses thus caused to the joint
venture company.
CHAPTER 18
LIABILITIES For BREACH OF CONTRACT
ARTICLE 49
Should either PARTY A or PARTY B fail to pay on schedule the contributions
in accordance with the provisions defined in Chapter 5 of this contract the
breaching party shall pay to the other party 2% of the contribution starting
from the first month after exceeding the time limit, should the breaching party
fail to pay after 3 months. 4% of the contribution shall be paid to the other
party, who shall have the right to terminate the contract and to claim damages
to the breaching party in accordance with the stipulations in Article 45 of the
contract.
ARTICLE 50
Should all or part of the contract and its appendices be unable to be
fulfilled owing to the fault of one party, the breaching party shall bear the
responsibilities thus caused. Should it be the fault of both parties, they shall
bear their respective responsibilities according to actual situations.
CHAPTER 19
FORCE MAJEURE
ARTICLE 51
Should either of the parties to the contract be prevented from executing
the contract by force majeure, such as earthquake, typhoon, flood, fire and war
and other unforseen events, and their happening and consequences are
unpreventable and unavoidable, the prevented party shall notify the other party
by cable without any delay and within 15 days thereafter provide the detailed
information of the events and a valid document for evidence issued by the
relevant public notary organization for explaining the reason of its inability
to execute or delay the execution of all or part of the contract. Both parties
shall, through consultations, decide whether to terminate the contract or to
exempt the part of obligations for implementation of the contract or whether to
delay the execution of the contract according to the defects of the events on
the performance of the contract.
<PAGE>
CHAPTER 20
APPLICABLE LAW
ARTICLE 52
The formation of this contract, its validity, interpretation, execution and
settlement of the disputes shall be governed by the related laws of the People's
Republic of China.
CHAPTER 21
SETTLEMENT OF DISPUTES
ARTICLE 53
Any disputes arising from the execution of, or in connection with the
contract shall be settled through friendly consultations between both parties.
In case no settlement can be reached through consultations, the disputes shall
be submitted to the China International Economic and Trade Arbitration
Commission for arbitration in accordance with its rules of procedure. The
arbitrate award is final and binding upon both parties.
ARTICLE 54
During the arbitration, the contract shall be executed continuously by both
parties except for matters in disputes.
CHAPTER 22
LANGUAGE
ARTICLE 55
The contract shall be written in Chinese version and in English version.
Both above-mentioned versions, the Chinese version shall prevail.
CHAPTER 23
EFFECTIVENESS OF THE CONTRACT
AND MISCELLANEOUS
ARTICLE 56
The appendices drawn up in accordance with the principles of this contract
are integral part of this contract, including the project agreement, the
technology transfer agreement, the sales agreement....
<PAGE>
ARTICLE 57
The contract and its appendices shall come into force beginning from the
date of approval of the Ministry of Foreign Trade and Economic Cooperation of
the People's Republic of China.
ARTICLE 58
Should notices in connection with any party's rights and obligations be
sent by either PARTY A or PARTY B by telegram or telex, etc., the written letter
notices shall be also required afterwards. The residences of PARTY B listed in
this contract shall be the posting addresses. The mailing address of PARTY A is
Room 3301, 29 Yazigiao Road, Xuan wu District, Beijing 100055, China.
ARTICLE 59
The contract is signed in Beijing, China by the authorized representatives
of both parties on April 29, 1997.
FOR PARTY A BEIJING ZHIDA DEVELOPMENT COMPANY
(signature written in Chinese)
FOR PARTY B MORCELI, LIMITED
s/s Ronald G. Sparles
- ----------------------------
Ronald G. Sparles
Date: April 29, 1997
EXHIBIT 21
CHANCELLOR CORPORATION SUBSIDIARIES
U.S. Management Corporation (Oklahoma) (100%)
Morceli Limited Corp. (100%)
U.S. Heritage Corporation (Nevada) (100%)
EXHIBIT 23
Robert G. Tschida
Certified Public Account
- --------------------------------------------------------------------------------
301 North Main
P.O. Box 5507
Pueblo, CO 81002
(719) 568-9700
CONSENT OF INDEPENDENT AUDITOR
The Board of Directors and Stock holders
Chancellor Corporation
I consent to the incorporation of my reports dated December 31, 1996,
December 31, 1997, and the unaudited financial statements dated March 31, 1998,
each relating to and including respectively, the consolidated balance sheet, and
related statements of operations, stockholders' equity (deficit), cash flows and
financial statement schedule for the years ended December 31, 1996 and December
31, 1997 and the quarter ended March 31, 1998, in the registration statement of
SEC Form 10 of Chancellor Corporation.
Robert G. Tschida, CPA
April 20, 1998
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<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 12-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1998 JAN-01-1997
<PERIOD-END> MAR-31-1998 DEC-31-1997
<CASH> 5,221,000 5,301,200
<SECURITIES> 5,000,000 5,000,000
<RECEIVABLES> 122,606,644 122,606,644
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 221,000 301,200
<PP&E> 0 0
<DEPRECIATION> 0 0
<TOTAL-ASSETS> 135,221,644 136,611,644
<CURRENT-LIABILITIES> 91,000 91,000
<BONDS> 0 0
<COMMON> 145,466 145,466
0 0
0 2,500,000
<OTHER-SE> 11,268,534 11,268,534
<TOTAL-LIABILITY-AND-EQUITY> 135,221,644 136,611,644
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</TABLE>
