SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of
The Securities Exchange Act of 1934
POWER DIRECT, INC.,
A Delaware corporation (Exact name of
registrant as specified in its charter)
DELAWARE 52-2132622
(State or other jurisdiction (I.R.S. Employer Identification No.)
of incorporation or organization)
1288 Alberni Street, Suite 806, Vancouver, BC V6E 4N5
(Address of registrant's principal executive offices) (Zip Code)
604.664.0484
(Registrant's Telephone Number, Including Area Code)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of Each Exchange on which
to be so registered: each class is to be registered:
None None
Securities to be registered under Section 12(g) of the Act:
Common Stock, Par value $.0001
(Title of Class)
Copies to:
Thomas E. Stepp, Jr.
Stepp & Beauchamp LLP
Attorneys-at-Law
1301 Dove Street, Suite 460
Newport Beach, California 92660
949.660.9700
Facsimile 949.660.9010
Page 1 of 58
Exhibit Index is specified on Page 21
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Power Direct, Inc.,
a Delaware corporation
Index to Form 10-SB Registration Statement
Item Number and Caption Page
- ----------------------- ----
1. Description of Business 3
2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 6
3. Description of Property 15
4. Security Ownership of Certain Beneficial Owners and Management 15
5. Directors, Executive Officers, Promoters and Control Persons 16
6. Executive Compensation - Remuneration of Directors and Officers 17
7. Certain Relationships and Related Transactions 17
8. Legal Proceedings 18
9. Market For Common Equity and Related Shareholder Matters 19
10. Recent Sales of Unregistered Securities 19
11. Description of Securities 19
12. Indemnification of Officers and Directors 20
13. Financial Statements 21
14. Changes in and Disagreements with Accountants 21
15. Financial Statements and Exhibits
15(a) Index to Financial Statements 21
Financial Statements F-1 through F-3
15(b) Index to Exhibits 21
Exhibits E-1 through E-48
Signatures 23
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Item 1. Description of Business.
Power Direct, Inc. (the "Company") was incorporated in the State of
Delaware on September 13, 1993, and maintains its principal executive offices at
1288 Alberni Street, Suite 806, Vancouver, BC V6E 4N5. The Company's offices in
the United States are located at 4291 Meridian Street, Suite 29, Bellingham, WA
98226. The Company's primary business is the acquisition and development of oil
and natural gas producing properties; however the Company recently invested
funds to acquire an ownership interest in LANSource Technologies, Inc., a
Canadian company ("LANSource"), which develops facsimile and data communications
software. The Company's ownership interest in LANSource is contingent upon the
Company making payments to LANSource in specific installments, and there is
presently a dispute between the Company and LANSource regarding the Company's
acquisition of that ownership interest. The Company's ownership interest in
LANSource is also contingent upon the issuance, by the Company, of certain
shares of its common stock to Marc Bisnaire, President of LANSource, which
shares have not been issued. The Company is taking and will continue to take,
the action it believes is appropriate to resolve its dispute with LANSource.
For purposes of clarification, anytime that "US$" appears in this
Registration Statement, it means the currency of the United States of America,
unless otherwise stated. Anytime that "CDN$" appears, it means the currency of
Canada, in Canadian dollars.
The Company was inactive from January 1, 1996, through November 1, 1998. In
November, 1998 the Company began the process of identifying available interests
in oil and natural gas producing properties. On January 15, 1999, the Company
entered into a letter of intent with Rising Phoenix Development Group Ltd., a
Canadian corporation, located in Vancouver, British Columbia, Canada ("Rising
Phoenix"), to acquire all the assets of Rising Phoenix, including that
corporation's interest in the oil and natural gas rights on 6,360 acres located
in the Powder River Basin of eastern Wyoming (the "Wyoming Property"). That
letter of intent specifies that the Company must, among other things, pay Rising
Phoenix seventy-five thousand dollars (US$75,000) and, further, issue 3,800,000
shares of its common stock to Rising Phoenix to complete the acquisition of the
assets of Rising Phoenix. The letter of intent also provides that the Company
will appoint no more than three directors from Rising Phoenix's board of
directors to the Company's board of directors. The Company paid Rising Phoenix a
prepayment advance of Twenty-Five Thousand Dollars (US$25,000) on January 27,
1999. On or about February 24, 1999, the Company made a second prepayment
advance to Rising Phoenix of Ten Thousand Dollars (US$10,000). The Company has
not transferred any of its common stock to Rising Phoenix to complete this
transaction. According to the letter of intent, the Company is to assume all of
Rising Phoenix's financial obligations pertaining to the Wyoming Property as of
January 31, 1999. In return, Rising Phoenix agreed to deliver the Wyoming
Property in good title and assign to the Company its joint venture agreement
with Derek Resources Corporation ("Derek Resources"). Pursuant to that joint
venture agreement, Derek Resources agreed to provide up to a maximum of Three
Million Five Hundred Thousand Dollars (US$3,500,000) of improvements on the
Wyoming Property.
On January 26, 1999, the Company signed a letter of agreement with I.T.A.
Enterprises, Inc. ("I.T.A."), a Canadian company, to acquire and own a 37.8%
working interest in a natural gas project in west central Alberta (the "Alberta
Property"). This letter of agreement requires the Company to provide 42% of the
costs for the three phase project, which are estimated in the letter of
agreement to be Two Hundred Thousand Dollars (CDN$200,000). The working interest
acquired will be subject to a 10% gross overriding royalty (that is, 3.78% of
the 37.8% working interest shall be payable directly to Nicholas Baiton, the
royalty holder). To date, the
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Company has paid a deposit of Eight Thousand Four Hundred Dollars (CDN$8,400) to
I.T.A. pursuant to the terms of that agreement. It was agreed between I.T.A. and
the Company that the $8,400 deposit would be used for prospect fees, and that
the Company will receive a refund of any unused portion of that deposit. Within
ten (10) days of I.T.A. providing the Company with an "Authority for
Expenditures" and a cash call for Phases I and II of the development of the
Alberta Property, the Company will be required to advance Seventy Five Thousand
Six Hundred Dollars (CDN$75,600) to I.T.A., representing the balance of the
Company's 42% of the estimated costs. There can be no assurance that the Company
will have sufficient funds available to meet this obligation in the time frame
required by the letter of agreement.
On or about April 28, 1999, the Company entered into a licensing agreement
("Licensing Agreement") with Compte De Sierge Accomodative Corp. doing business
as E-Card Gaming Systems, Inc., a corporation incorporated in Panama City,
Panama ("E-Card") which provides, among other things, that the Company will have
the worldwide right to utilize and commercially exploit certain gaming software
systems and related proprietary technology relating to the operation of the
Greeting Card Lotto, a virtual lottery conducted over the Internet. The Company
anticipates that its subsidiary, PDTech.com will acquire the rights, title and
interest under the Licensing Agreement. In the alternative, the Licensing
Agreement provides that the Company may grant sublicenses to third parties with
new terms agreeable to E-Card in respect to the proprietary technology.
PDTech.com may become such a third party licensee.
The Licensing Agreement also provides that three equal cash payments of
CDN$100,000 are to be paid to E-Card by the Company as partial consideration
pursuant to the Licensing Agreement. The first such payment is due upon
execution of the Licensing Agreement; the second payment is due upon completion
of the first phase of testing; and the third payment is due upon completion of
the second phase of testing. The Licensing Agreement also provides that the
Company shall issue 6,000,000 shares of its common restricted stock with a
one-year hold period in two equal installments, the first issuance to be made
upon execution of the Licensing Agreement, and the second issuance to be made
upon the commencement of the Greeting Card Lotto, as specified in the Licensing
Agreement. As of May 13, 1999, the Company had paid a total of CDN$69,445 toward
satisfying its financial obligations under the Licensing Agreement. There can be
no assurance that either the Company or PDTech.com will have the ability to make
further payments due pursuant to the Licensing Agreement in a timely manner, or
at all.
Business of Company's Subsidiary. On February 19, 1999, the Company caused
PDTech.com, a Nevada corporation, to be formed, and will always own at least 51%
of this issued and outstanding common stock of PDTech.com. The Company
anticipates that PDTech.com will invest in Internet companies and related
technology, and further anticipates that the Company's interest in LANSource,
when and if acquired, as specified below, will be transferred to PDTech.com. The
Company further anticipates that its interest in the Licensing Agreement with
E-Card will eventually be transferred to PDTech.com.
On February 15, 1999, the Company signed a letter of intent to acquire and
own up to a 51% ownership interest in LANSource. LANSource is a developer of fax
and data communications software. LANSource's primary products are WINport, a
modem-sharing application and FAXport, a group of software products which allows
users to send and receive faxes from their desktop computer or through their
e-mail system. WINport, FAXport, and other LANSource products are distributed
through Tech Data US, Tech Data Canada, Ingram Micro Canada, Ingram USA, Ingram
UK, Ingram Italy, EMJ Date Systems Canada, EMJ USA, Merisel US and Micro
Central. WINport is currently available in 12 languages and is distributed
worldwide. In order to purchase the first 12.5% ownership interest in LANSource,
the Company was required to make, on or before March 1, 1999, a total
non-refundable deposit of Three Hundred Thousand Dollars (CDN$300,000), which
payment was timely made to LANSource by the Company.
The letter of intent contemplated that, on or before March 31, 1999, the
Company and LANSource would enter into a formal Purchase and Sale Agreement.
Upon the execution of that agreement, the Company would be required to make an
additional non-refundable deposit of Two Hundred Thousand Dollars (CDN$200,000).
The letter of intent also specifies that in the event that the parties, for
whatever reason, were unable to finalize the Purchase and Sale Agreement by
March 31, 1999, than the transaction between the Company and LANSource would be
considered null and void and LANSource would be entitled to retain all deposits.
Because of delays by LANSource in preparing the formal Purchase and Sale
Agreement, as of April 8, 1999, the Company and LANSource have not finalized a
formal agreement. The Company is taking appropriate action to resolve this
dispute with LANSource.
Pursuant to the letter of intent with LANSource, LANSource and the Company
agreed to sign a definitive agreement and close the subject transaction no later
than March 31, 1999. LANSource undertook to cause that agreement to be prepared.
Counsel for LANSource did not provide a complete copy of that agreement to the
Company and its counsel until March 26, 1999. Moreover, the agreement delivered
by LANSource's counsel was incomplete and not capable of being entered into by
the Company on or before March 31, 1999. Because the counsel for the Company did
not receive a complete copy of the unfinished definitive agreement until March
26, 1999, such counsel could not offer effective comments to that agreement in
time for the March 31, 1999, deadline. As a result, that agreement was not
entered into by LANSource and the Company on March 31, 1999. As a result,
LANSource has attempted to repudiate that agreement. The Company has indicated
to LANSource that the Company believes that LANSource was negotiating in bad
faith and, as a result, the Company has sued
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LANSource to seek enforcement of that agreement.
In the event this dispute is resolved, and a formal Purchase and Sale
Agreement is finalized, then, on or before April 30, 1999, the Company is
required to make an additional non-refundable deposit of Five Hundred Thousand
Dollars (CDN$500,000) Thereafter, on or before May 31, 1999, the Company is
required to provide an additional deposit of One Million Dollars
(CDN$1,000,000). There is no assurance that the Company can meet those financial
obligations.
Should the Company meet the aforementioned financial obligations, the
Company will have the option to purchase an additional 12.5% interest in
LANSource for Three Million Dollars (CDN$3,000,000) by delivering such funds to
LANSource on or before September 30, 1999. Should the Company successfully
acquire 25% of LANSource, it will then have the option to purchase an additional
26% ownership interest by delivering Twenty Million Dollars (CDN$20,000,000) to
LANSource on or before September 30, 2000. Moreover, the letter of intent
provided that the Company would issue 1,200,000 restricted shares of common
stock to Marc Bisnaire, the President of LANSource, on the signing of the letter
of intent. Those shares have not yet been issued. In addition, the Company is
required to deliver to Mr. Bisnaire an additional 1,200,000 restricted shares of
its common stock should it elect to purchase the additional 12.5% interest in
LANSource.
Competition and Technological Changes. Competition in the oil and natural
gas production industry is intense. The Company will encounter intense
competition from other companies and entities in virtually all phases of the oil
and gas industry. The Company will compete to identify and acquire both existing
producing wells and undeveloped leases as acquisition candidates. If the Company
produces oil and gas in commercial quantities, it will encounter significant
competition in the sale of its oil and gas production. Many of these competitors
have greater financial and other resources, and more experience in the oil and
gas industry, than the Company. The Company competes directly with other
companies and businesses that have developed, and are in the process of
developing, exploration and drilling technologies which may provide those
competitors with an advantage over the Company.
The Company believes it will encounter competition from other oil and
natural gas companies in all areas of its operations, including the acquisition
of exploratory prospects and proven properties. The Company's competitors
include major integrated oil and natural gas companies and numerous independent
oil and natural gas companies, individuals, and drilling and income programs.
Many of its competitors are large, well-established companies with substantially
larger operating staffs and greater capital resources than those of the Company
and which, in many instances, have been engaged in the oil and natural gas
business for a much longer time than the Company. Such companies may be able to
pay more for exploratory prospects and productive oil and natural gas properties
and may be able to identify, evaluate, bid for and purchase a greater number of
properties and prospects than the Company's financial or human resources permit.
In addition, such companies may be able to expend greater resources on the
existing and changing technologies that the Company believes are and will be
increasingly important to the current and future success of oil and natural gas
companies. The Company's ability to explore for oil and natural gas prospects
and to acquire additional properties in the future will be dependent upon its
ability to conduct its operations, to evaluate and select suitable properties
and to consummate transactions in this highly competitive environment.
The oil and gas industry is characterized by rapid and significant
technological advancements and introductions of new products and services
utilizing new technologies. As others use or develop new technologies, the
Company may be placed at a competitive disadvantage, and competition may force
the
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Company to implement such new technologies at substantial cost. In addition,
other oil and gas companies may have greater financial, technical and personnel
resources that allow them to enjoy technological advantages and may in the
future allow them to implement new technologies before the Company. There can be
no assurance that the Company will be able to respond to such competitive
pressures and implement such technologies on a timely basis or at an acceptable
cost. One or more of the technologies currently utilized by the Company or
implemented in the future may become obsolete. In such case, the Company's
business, financial condition and results of operations could be materially
adversely affected. If the Company is unable to utilize the most advanced
commercially available technology, the Company's business, financial condition
and results of operations could be materially and adversely affected.
Competition in the gambling industry is intense. Certain of the Company's
competitors have more experienced management and greater name recognition,
marketing capabilities and financial resources than the Company or its
subsidiary. The Company or its subsidiary may also face increasing competition
from the new and existing sports betting operations developed and promoted both
by casinos and by Internet gaming industry companies in other jurisdictions
throughout the United States and abroad. The Company or its subsidiary also
faces indirect competition from other forms of lawful gambling, such as
state-sponsored lotteries and video lottery terminals, pari-mutuel betting on
horse and dog racing and bingo parlors, as well as from other forms of
entertainment. It is possible that increased competition could have a material
adverse effect on the Company or its subsidiary. Many of these competitors have
greater financial and other resources, and more experience in the gambling
industry, than the Company or its subsidiary. There can be no assurance that
competitors have not or will not succeed in developing technologies that are
more effective than any which have been or are being developed by the Company or
its subsidiary or which would render the gaming operations of the Company or its
subsidiary obsolete and noncompetitive.
The Company or its subsidiary faces competition from hundreds of Internet
gambling companies, including companies that specialize in Internet lotteries.
Lotteries have become a $100 billion per year industry. GTECH, traded on the New
York Stock Exchange under the trading symbol "GTK", is reputedly the world's
leading supplier of computerized online lottery products and services, and
supplies or operates approximately 29 United States lottery systems and 51
foreign lottery systems. GTECH announced a contract in February, 1999 to provide
online lottery products and services to the Idaho State Lottery, including the
central system hardware, software and terminals. In March, 1999, GTECH announced
that it had signed a new contract to provide online lottery products and
services to Loteria Electronica de Puerto Rico. Another competitor, Plus Lotto,
was one of the first operating gaming sites on the Internet. It is an Internet
lottery run by the Liechtenstein Foundation, and donates 25% of its profits to
the International Red Cross. Games available include conventional weekly and
hourly lotteries as well as instant and interactive games such as Bingo and
Scratch-Offs.
The Company or its subsidiary also face competition from other types of
online gambling by well-established companies. The approximately 55 offshore
gaming operators who comprise the IGC are all direct competitors. Inland
Entertainment is a publicly-traded company based in San Diego, California and
was previously a leader in the Native American gaming industry. The company has
since diversified by launching several online casinos, including Casino
Australia, The Good Luck Club, and the Kenny Rogers Casino. You Bet!
International is a Los Angeles-based interactive technology company that
provides horse players instant access to live racing, information and wagering
on a secure, proprietary private network. The service is multilingual and
multicurrency. American Wagering, Inc., traded on Nasdaq under the trading
symbol "BETM" has a gambling license in Nevada and has begun accepting wagers
over the Internet from its Australian website, having received approval and
licensing by Australian regulatory authorities.
Competition for the Company's Subsidiary. Competition in the computer
software industry is also intense, and there can be no assurance that the
Company's subsidiary will be able to effectively compete with other companies in
that industry, which companies may have significantly greater financial and
other resources. Moreover, the computer software industry, and Internet
applications thereof, may be subject to various forms of government regulation.
There can be no assurance that the Company, or its subsidiary, will complete the
acquisition of ownership interest in LANSource contemplated by the letter of
intent referenced above. If the Company's interest in the Licensing Agreement is
transferred to the Company's subsidiary, the subsidiary will face the same
competitive pressures described above regarding Internet gambling.
Employees. The Company currently has 2 part-time employees and 1 full-time
employee.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources. The Company had cash resources of
US$2,246.00 at December 21, 1998. The cash and equivalents constitute the
Company's present internal sources of liquidity. Because neither the Company nor
its subsidiaries are generating any significant royalty revenues, the Company's
only external source of liquidity is the sale of its capital stock. On or about
December 31, 1998, the Company commenced an offering of shares of its common
stock in reliance on an exemption from registration pursuant to Section 3(b) of
the Securities Act of 1933 and Rule 504 of Regulation D promulgated pursuant
thereto by the Securities and Exchange Commission. Through March 15, 1999, the
Company had sold a total of 7,127,500 shares of its common stock pursuant to
that offering. Gross proceeds from the offering were $US1,000,000.
Results of Operations. The Company has not yet realized any significant
revenue from operations, nor does it expect to in the foreseeable future. Loss
from operations increased from $0.00 in 1997 to US$10,796.99 in 1998 due to the
Company's renewed activities in locating and evaluating suitable gas and oil
leases and the general, selling, and administrative amortization of organization
costs.
Marketing. The Company anticipates any future production will be marketed
to third parties consistent with industry practices. Typically, oil is sold at
the wellhead at field-posted prices plus a bonus and natural gas is sold by
contract at a negotiated price based upon factors normally considered in the
industry, such as distance from the well to the pipeline, well pressure,
estimated reserves, quality of natural gas and prevailing supply/demand
conditions. The Company's marketing objective is to receive the highest possible
wellhead price for its product.
There are a variety of factors which affect the market for oil and natural
gas, including the extent of domestic production and imports of oil and natural
gas, the proximity and capacity of natural gas pipelines and other
transportation facilities, demand for oil and natural gas, the marketing of
competitive fuels and the effects of state and federal regulations on oil and
natural gas production and sales. The Company does not anticipate
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significant difficulties in marketing the oil and natural gas it eventually
produces. The oil and natural gas industry also competes with other industries
in supplying the energy and fuel requirements of industrial, commercial and
individual customers. The availability of a ready market for the Company's oil
and natural gas production depends on the proximity of reserves to, and the
capacity of, oil and natural gas gathering systems, pipelines and trucking or
terminal facilities. The Company anticipates that it will deliver natural gas
through gas gathering systems and gas pipelines that it does not own. Federal
and state regulation of natural gas and oil production and transportation, tax
and energy policies, changes in supply and demand and general economic
conditions all could adversely affect the Company's ability to produce and
market its oil and natural gas.
The Company anticipates it will take the necessary steps to attempt to
control price risk. Even if the Company takes the proper steps, it will remain
subject to price fluctuations for natural gas sold in the spot market due
primarily to seasonality of demand and other factors beyond the Company's
control. Domestic oil prices generally follow worldwide oil prices, which are
subject to price fluctuations resulting from changes in world supply and demand.
The Company believes that it will be able to reduce these risks by entering
into, and expects to enter into, hedge transactions in future years.
Oil and Gas Regulation in the United States. The Company's operations are
subject to various types of regulation by federal, state and local agencies.
Such regulations impose a comprehensive statutory and regulatory scheme with
respect to oil and natural gas operations. Among other things, these regulations
provide for (i) new well permits and well registration requirements, procedures
and fees; (ii) minimum well spacing requirements; (iii) restrictions on well
locations and underground gas storage; (iv) certain well site restoration,
groundwater protection and safety measures; (v) landowner notification
requirements; (vi) certain bonding or other security measures; (vii) various
production reporting requirements; (viii) well plugging standards and
procedures; (ix) broad state regulatory enforcement powers; (x) limitations on
the rate of allowable oil and gas production; (xi) the method of drilling and
casing wells; (xii) the surface use and restoration of properties upon which
wells are drilled; (xiii) the plugging and abandoning of wells; and (xiv) the
disposal of fluids used in connection with operations.
The availability of a ready market for oil and gas production depends upon
numerous factors beyond the Company's control. These factors include regulation
of oil and natural gas production, federal and state regulations governing
environmental quality and pollution control, state limits on allowable rates of
production by well or proration unit, the amount of oil and natural gas
available for sale, the availability of adequate pipeline and other
transportation and processing facilities and the marketing of competitive fuels.
For example, a productive natural gas well may be "shut-in" because of an
oversupply of natural gas or lack of an available natural gas pipeline in the
areas in which the Company may conduct operations. State and federal regulations
generally are intended to prevent waste of oil and natural gas, protect rights
to produce oil and natural gas between owners in a common reservoir, control the
amount of oil and natural gas produced by assigning allowable rates of
production and control contamination of the environment. Pipelines are subject
to the jurisdiction of various federal, state and local agencies. The Company is
also subject to changing and extensive tax laws, the effects of which cannot be
predicted.
The following discussion summarizes the regulation of the United States oil
and gas industry. The Company believes that it is in substantial compliance with
the various statutes, rules, regulations and governmental orders to which the
Company's operations may be subject, although there can be no assurance that
this is or will remain the case. Moreover, such statutes, rules, regulations and
government orders may be changed or reinterpreted from time to time in response
to economic or political conditions, and there can be no assurance
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that such changes or reinterpretations will not materially adversely affect the
Company's results of operations and financial condition. The following
discussion is not intended to constitute a complete discussion of the various
statutes, rules, regulations and governmental orders to which the Company's
operations may be subject.
Regulation of Oil and Natural Gas Exploration and Production. The Company's
operations are subject to various conservation laws and regulations. These
include the regulation of the size of drilling and spacing units or proration
units and the density of wells that may be drilled; and the pooling of oil and
gas properties. In this regard, some states allow the forced pooling or
integration of tracts to facilitate exploration while other states rely
primarily or exclusively on voluntary pooling of lands and leases. In areas
where pooling is voluntary, it may be more difficult to form units, and,
therefore, more difficult to develop a project if the operator owns less than
100% of the leasehold. In addition, state conservation laws establish maximum
rates of production from oil and natural gas wells, generally prohibit the
venting or flaring of natural gas and impose certain requirements regarding the
ratability of production. The effect of these regulations may limit the amount
of oil and natural gas the Company will be able to produce from its wells and
may limit the number of wells or the locations at which the Company can drill.
The regulatory burden on the oil and gas industry increases the Company's costs
of doing business and, consequently, affects its profitability. Inasmuch as such
laws and regulations are frequently expanded, amended and reinterpreted, the
Company is unable to predict the future cost or impact of complying with such
regulations.
Regulation of Sales and Transportation of Natural Gas. Federal legislation
and regulatory controls have historically affected the price of natural gas
produced by the Company and the manner in which such production is transported
and marketed. Under the Natural Gas Act of 1938, the Federal Energy Regulatory
Commission (the "FERC") regulates the interstate transportation and sale in
interstate commerce of natural gas. The FERC's jurisdiction over interstate
natural gas sales was substantially modified by the Natural Gas Policy Act,
pursuant to which the FERC continued to regulate the maximum selling prices of
certain categories of gas sold in "first sales" in interstate and intrastate
commerce. Effective January 1, 1993, however, the Natural Gas Wellhead Decontrol
Act (the "Decontrol Act") deregulated natural gas prices for all "first sales"
of natural gas, including all sales by the Company of its own production. As a
result, all of the Company's domestically produced natural gas may now be sold
at market prices, subject to the terms of any private contracts which may be in
effect. The FERC's jurisdiction over natural gas transportation was not affected
by the Decontrol Act.
The Company's natural gas sales are affected by intrastate and interstate
gas transportation regulation. Beginning in 1985, the FERC adopted regulatory
changes that have significantly altered the transportation and marketing of
natural gas. These changes were intended by the FERC to foster competition by,
among other things, transforming the role of interstate pipeline companies from
wholesaler marketers of gas to the primary role of gas transporters. All gas
marketing by the pipelines was required to be divested to a marketing affiliate,
which operates separately from the transporter and in direct competition with
all other merchants. As a result of the various omnibus rule making proceedings
in the late 1980s and the individual pipeline restructuring proceedings of the
early to mid-1990s, the interstate pipelines are now required to provide open
and nondiscriminatory transportation and transportation-related services to all
producers, gas marketing companies, local distribution companies, industrial end
users and other customers seeking service. Through similar orders affecting
intrastate pipelines that provide similar interstate services, the FERC expanded
the impact of open access regulations to intrastate commerce. More recently, the
FERC has pursued other policy initiatives that have affected natural gas
marketing. Most notable are (i) the large-scale divestiture of interstate
pipeline-owned gas gathering facilities to affiliated or non-affiliated
companies, (ii) further development of rules governing the relationship of the
pipelines with their marketing affiliates, (iii) the publication of standards
relating to the use
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of electronic bulletin boards and electronic data exchange by the pipelines to
make available transportation information on a timely basis and to enable
transactions to occur on a purely electronic basis, (iv) further review of the
role of the secondary market for released pipeline capacity and its relationship
to open access service in the primary market and (v) development of policy and
promulgation of orders pertaining to its authorization of market-based rates
(rather than traditional cost-of-service based rates) for transportation or
transportation-related services upon the pipeline's demonstration of lack of
market control in the relevant service market. It remains to be seen what effect
the FERC's other activities will have on access to markets, the fostering of
competition and the cost of doing business.
As a result of these changes, sellers and buyers of natural gas have gained
direct access to the particular pipeline services they need and are better able
to conduct business with a larger number of counter-parties. The Company
believes these changes generally have improved the Company's access to markets
while, at the same time, substantially increasing competition in the natural gas
marketplace. The Company cannot predict what new or different regulations the
FERC and other regulatory agencies may adopt, or what effect subsequent
regulations may have on the Company's activities.
In the past, Congress has been very active in the area of natural gas
regulation. However, as discussed above, the more recent trend has been in favor
of deregulation and the promotion of competition in the natural gas industry.
Thus, in addition to "first sale" deregulation, Congress also repealed
incremental pricing requirements and previous gas use restraints. There are
other legislative proposals pending in the federal and state legislatures which,
if enacted, would significantly affect the petroleum industry. At the present
time, it is impossible to predict what proposals, if any, might actually be
enacted by Congress or the various state legislatures and what effect, if any,
such proposals might have on the Company. Similarly, and despite the trend
toward federal deregulation of the natural gas industry, whether or to what
extent that trend will continue, or what the ultimate effect will be on the
Company's sales of gas, cannot be predicted.
Alberta Regulation. The Alberta Ministry of Energy ("Ministry") is
responsible for regulating the production, transportation and sale of Alberta's
oil, natural gas, coal, electricity, and mineral resources. The Ministry
operates through two distinct organizations, the Alberta Department of Energy
and the Alberta Energy and Utilities Board.
The Ministry is constantly promulgating rules and regulations, and revising
existing rules and regulations, relating to the oil and natural gas industry in
Alberta. For example, amendments to Section 24 of the Natural Gas Royalty
Regulation ("Regulation") specify the various monthly and annual reports
required under the Regulation and provide new penalty rules for non-compliance,
effective January 1, 1999.
Alberta is one of the world's top oil and natural gas producers. 51% of the
natural gas produced in Alberta is now sold into the United States. Alberta's
share of the U.S. natural gas market increased to 11.6% in 1997. Gas Alberta,
formerly a part of the Rural Utilities Branch of the Alberta Transportation and
Utilities, was privatized on July 1, 1998. The new entity, Gas Alberta, Inc.,
has exclusive supply rights to rural gas cooperatives for a two year period.
Moreover, the Alberta electricity market is in the process of being deregulated,
and electricity direct sales could become available as early as 2001. Direct
sellers of gas to core consumers (which might include small producers such as
the Company) are regulated by the Alberta government under the Natural Gas
Direct Marketing Regulation, and might require registration and bonding for
producers dealing with core consumers. All of these regulatory factors could
have a significant effect on the price of natural gas and oil in the Alberta
market.
9
<PAGE>
Oil Price Controls and Transportation Rates. Effective as of January 1,
1995, the FERC implemented regulations generally grandfathering all previously
approved interstate transportation rates and establishing an indexing system for
those rates by which adjustments are made annually based on the rate of
inflation, subject to certain conditions and limitations. These regulations may
tend to increase the cost of transporting oil and natural gas liquids by
interstate pipeline, although the annual adjustments may result in decreased
rates in a given year. These regulations have generally been approved on
judicial review. The Company is not able at this time to predict the effects of
these regulations, if any, on the transportation costs associated with oil
production from the Company's oil producing operations.
Environmental Regulations. The Company's operations are subject to numerous
federal, state and local laws and regulations governing the discharge of
materials into the environment or otherwise relating to environmental
protection. These laws and regulations may require the acquisition of a permit
before drilling commences, restrict the types, quantities and concentration of
various substances that can be released into the environment in connection with
drilling and production activities, limit or prohibit drilling activities on
certain lands within wilderness, wetlands and other protected areas, require
remedial measures to mitigate pollution from former operations, such as pit
closure and plugging abandoned wells, and impose substantial liabilities for
pollution resulting from production and drilling operations. Public interest in
the protection of the environment has increased dramatically in recent years.
The trend of more expansive and stricter environmental legislation and
regulations applied to the oil and natural gas industry could continue,
resulting in increased costs of doing business and consequently affecting
profitability. To the extent laws are enacted or other governmental action is
taken that restricts drilling or imposes more stringent and costly waste
handling, disposal and cleanup requirements, the business and prospects of the
Company could be adversely affected.
The Company anticipates that it will generate waste that may be subject to
the federal Resource Conservation and Recovery Act ("RCRA") and comparable state
statutes. The U.S. Environmental Protection Agency ("EPA") and various state
agencies have limited the approved methods of disposal for certain hazardous and
non-hazardous wastes. Furthermore, certain wastes generated by the Company's oil
and natural gas operations that are currently exempt from treatment as
"hazardous wastes" may in the future be designated as "hazardous wastes," and
therefore be subject to more rigorous and costly operating and disposal
requirements.
The Company believes that it may eventually own or lease properties that
have been previously used for the exploration and production of oil and gas.
Although the Company's goal is to implement good operating and waste disposal
practices, prior owners and operators of these properties may not have used
similar practices, and hydrocarbons or other wastes may have been disposed of or
released on or under the properties owned or leased by the Company or on or
under locations where such wastes have been taken for disposal. In addition,
these properties will likely have been operated by third parties whose treatment
and disposal or release of hydrocarbons or other wastes was not under the
Company's control. These properties and the wastes disposed thereon may be
subject to the Comprehensive Environmental Response, Compensation and Liability
Act ("CERCLA"), RCRA and analogous state laws as well as state laws governing
the management of oil and gas wastes. Under such laws, the Company could be
required to remove or remediate previously disposed wastes (including wastes
disposed of or released by prior owners or operators) or property contamination
(including groundwater contamination) or to perform remedial plugging operations
to prevent future contamination.
The Company's operations may be subject to the Clean Air Act ("CAA") and
comparable state and local requirements. Amendments to the CAA were adopted in
1990 and contain provisions that may result in the
10
<PAGE>
gradual imposition of certain pollution control requirements with respect to air
emissions from the operations of the Company. The EPA and states have been
developing regulations to implement these requirements. The Company may be
required to incur certain capital expenditures in the next several years for air
pollution control equipment in connection with maintaining or obtaining
operating permits and approvals addressing other air emission-related issues.
However, the Company does not believe its operations will be materially
adversely affected by any such requirements.
Federal regulations require certain owners or operators of facilities that
store or otherwise handle oil, such as the Company, to prepare and implement
spill prevention, control, countermeasure ("SPCC") and response plans relating
to the possible discharge of oil into surface waters. The Company believes that
it will be able to develop and implement the necessary plans to meet such
federal requirements.
The Oil Pollution Act of 1990, ("OPA") contains numerous requirements
relating to the prevention of and response to oil spills into waters of the
United States. The OPA subjects owners of facilities to strict joint and several
liability for all containment and cleanup costs and certain other damages
arising from a spill, including, but not limited to, the costs of responding to
a release of oil to surface waters. The OPA also requires owners and operators
of offshore facilities that could be the source of an oil spill into federal or
state waters, including wetlands, to post a bond, letter of credit or other form
of financial assurance in amounts ranging from $10 million in specified state
waters to $35 million in federal outer continental shelf waters to cover costs
that could be incurred by governmental authorities in responding to an oil
spill. Such financial assurances may be increased by as much as $150 million if
a formal risk assessment indicates that the increase is warranted. Noncompliance
with OPA may result in varying civil and criminal penalties and liabilities.
Future operations of the Company may also be subject to the federal Clean Water
Act ("CWA") and analogous state laws. Pursuant to the requirements of the CWA,
the EPA has adopted regulations concerning discharges of storm water runoff.
This program requires covered facilities to obtain individual permits,
participate in a group permit or seek coverage under an EPA general permit. If
the Company owns properties that require permits for discharges of storm water
runoff, the Company believes that it will be able to obtain, or be included
under, such permits, where necessary. Like OPA, the CWA and analogous state laws
relating to the control of water pollution provide varying civil and criminal
penalties and liabilities for releases of petroleum or its derivatives into
surface waters or into the ground.
CERCLA, also known as the "Superfund" law, and similar state laws impose
liability, without regard to fault or the legality of the original conduct, on
certain classes of persons that are considered to have contributed to the
release of a "hazardous substance" into the environment. These persons include
the owner or operator of the disposal site or sites where the release occurred
and companies that disposed or arranged for the disposal of the hazardous
substances found at the site. Persons who are or were responsible for releases
of hazardous substances under CERCLA may be subject to joint and several
liability for the costs of cleaning up the hazardous substances that have been
released into the environment, for damages to natural resources and for the
costs of certain health studies, and it is not uncommon for neighboring
landowners and other third parties to file claims for personal injury and
property damage allegedly caused by the hazardous substances released into the
environment.
The Company also anticipates being subject to a variety of federal, state
and local permitting and registration requirements relating to protection of the
environment. Management believes that the Company will be able to maintain
substantial compliance with current applicable environmental laws and
regulations and that continued compliance with existing requirements will not
have a material adverse effect on the Company.
11
<PAGE>
Operating Hazards and Insurance. The oil and natural gas business involves
a variety of operating hazards and risks such as well blowouts, craterings, pipe
failures, casing collapse, explosions, uncontrollable flows of oil, natural gas
or well fluids, fires, formations with abnormal pressures, pipeline ruptures or
spills, pollution, releases of toxic gas and other environmental hazards and
risks. These hazards and risks could result in substantial losses to the Company
from, among other things, injury or loss of life, severe damage to or
destruction of property, natural resources and equipment, pollution or other
environmental damage, cleanup responsibilities, regulatory investigation and
penalties and suspension of operations. In addition, the Company may be liable
for environmental damages caused by previous owners of property purchased and
leased by the Company. As a result, substantial liabilities to third parties or
governmental entities may be incurred, the payment of which could reduce or
eliminate the funds available for exploration, development or acquisitions or
result in the loss of the Company's properties. In accordance with customary
industry practices, the Company expects that it will maintain insurance against
some, but not all, of such risks and losses. There can be no assurance that any
insurance obtained by the Company will be adequate to cover any losses or
liabilities. The Company cannot predict the availability of insurance or the
availability of insurance at premium levels that justify its purchase. The
occurrence of a significant event not fully insured or indemnified against could
materially and adversely affect the Company's financial condition and
operations. The Company may elect to self-insure if management believes that the
cost of insurance, although available, is excessive relative to the risks
presented. In addition, pollution and environmental risks generally are not
fully insurable. The occurrence of an event not fully covered by insurance could
have a material adverse effect on the financial condition and results of
operations of the Company.
Title to Properties; Acquisition Risks. The Company believes that it will
be able to secure satisfactory title to all of its producing properties in
accordance with standards generally accepted in the oil and natural gas
industry. The Company anticipates that properties purchased in the future will
be subject to customary royalty interests, liens incident to operating
agreements, liens for current taxes and other burdens which the Company believes
will not materially interfere with the use of or affect the value of such
properties. As is customary in the industry in the case of undeveloped
properties, little investigation of record title is made at the time of
acquisition (other than a preliminary review of local records). Investigations,
including a title opinion of local counsel, are generally made before
commencement of drilling operations.
The successful acquisition of producing properties requires an assessment
of recoverable reserves, future oil and natural gas prices, operating costs,
potential environmental and other liabilities and other factors. Such
assessments are necessarily inexact and the accuracy inherently uncertain. In
connection with such an assessment, the Company performs a review of the subject
properties that it believes to be generally consistent with industry practices,
which generally includes on-site inspections and the review of reports filed
with various regulatory entities. Such a review, however, will not reveal all
existing or potential problems nor will it permit a buyer to become sufficiently
familiar with the properties to fully assess their deficiencies and
capabilities. Inspections may not always be performed on every well, and
structural and environmental problems are not necessarily observable even when
an inspection is undertaken. Even when problems are identified, the seller may
be unwilling or unable to provide effective contractual protection against all
or part of such problems. There can be no assurances that any acquisition of
property interests by the Company will be successful and, if unsuccessful, that
such failure will not have an adverse effect on the Company's future results of
operations and financial condition.
Uncertainty of Pricing of Oil and Gas. There is currently significant
uncertainty concerning the pricing of oil and natural gas worldwide. The
Organization of Oil Producing Countries ("OPEC") has historically taken
unilateral pricing actions which may have an adverse effect on the Company's
pricing strategies for the
12
<PAGE>
Company's future oil and gas production or which may, in the alternative, prove
beneficial to the Company. For example, OPEC has recently imposed a
1.7-million-barrels-per-day cutback in member states' production which, as of
April 13, 1999, has driven up the price of gas in the United States. During the
late 1980's, and up to the present, oil and gas prices have been highly
volatile. Wellhead prices for oil and natural gas drop significantly from time
to time because of a surplus supply of oil and natural gas, and cycles of price
erosion and recovery occur regularly in the oil and natural gas markets.
Significant future price erosions will have a material adverse impact on the net
revenues of the Company. The availability of a market for the company's oil and
natural gas production, if any, will depend upon factors largely beyond the
control of the Company, including the activities of OPEC, fluctuations in
climate, the availability and proximity of adequate pipeline or other
transportation facilities, the amount of domestic oil and natural gas
production, foreign imports of oil and natural gas, the marketing of competitive
fuels, governmental regulations, and the availability of oil and natural gas
from other sources.
Securities Exchange Act Industry Guide 2. The Securities Exchange Act
Industry Guide 2 requires certain information be provided by small business
issuers engaged in the oil and gas industry including estimates of oil and
natural gas reserves.
There are numerous uncertainties inherent in estimating oil and natural gas
reserves and their estimated values, including many factors beyond the control
of the producer. Reservoir engineering is a subjective process of estimating
underground accumulations of oil and natural gas that cannot be measured in an
exact manner. Estimates of economically recoverable oil and natural gas reserves
and of future net cash flows necessarily depend upon a number of variable
factors and assumptions, such as historical production from the area compared
with production from other producing areas, the assumed effects of regulations
by governmental agencies and assumptions concerning future oil and natural gas
prices, future operating costs, severance and excise taxes, development costs
and workover and remedial costs, all of which may in fact vary considerably from
actual results. For these reasons, estimates of the economically recoverable
quantities of oil and natural gas attributable to any particular group of
properties, classifications of such reserves based on risk of recovery, and
estimates of the future net cash flows expected therefrom prepared by different
engineers or by the same engineers but at different times may vary substantially
and such reserve estimates may be subject to downward or upward adjustment based
upon such factors. Actual production, revenues and expenditures with respect to
the Company's reserves will likely vary from estimates, when and if made, and
such variances may be material. In addition, the 10% discount factor, which is
required by the Securities Exchange Commission to be used in calculating
discounted future net cash flows for reporting purposes, is not necessarily the
most appropriate discount factor based on interest rates in effect from time to
time and risks associated with the Company or the oil and natural gas industry
in general.
In general, the volume of production from oil and natural gas properties
declines as reserves are depleted, with the rate of decline depending on
reservoir characteristics. Except to the extent the Company conducts successful
exploration and development activities or acquires properties containing proved
reserves, or both, the proved reserves of the Company will decline as reserves
are produced. The Company's future oil and natural gas production is, therefore,
highly dependent upon its level of success in finding or acquiring additional
reserves. The business of exploring for, developing or acquiring reserves is
capital intensive. To the extent cash flow from operations is reduced and
external sources of capital become limited or unavailable, the Company's ability
to make the necessary capital investment to maintain or expand its asset base of
oil and natural gas reserves would be impaired. The failure of an operator of
the Company's wells to adequately perform operations, or such
13
<PAGE>
operator's breach of the applicable agreements, could adversely impact the
Company. In addition, there can be no assurance that the Company's future
exploration, development and acquisition activities will result in additional
proved reserves or that the Company will be able to drill productive wells at
acceptable costs. Furthermore, although the Company's revenues could increase if
prevailing prices for oil and natural gas increase significantly, the Company's
finding and development costs could also increase.
The Wyoming Property is currently undeveloped and as such there are no
records as to average sales price, production costs, total gross and net
productive wells, drilling activities or delivery commitments. The Company has
not performed its own examination as to the net oil or gas reserves existing on
the Wyoming Property. The total amount of undeveloped acreage is 6,360 acres.
According to I.T.A., the Alberta Property currently contains one existing
deep abandoned natural gas well. Also according to I.T.A., during the drilling
of the existing well, a gas flow was encountered from an uphole zone. The amount
of undeveloped acreage on the Alberta Property is 1,120 acres. The Company
anticipates that it will re-enter the existing well and plans to drill up to 3
new wells. There are no present activities on the land with no current delivery
commitments. The Company has not performed its own examination as to the net oil
or gas reserves existing on the Alberta Property.
The Online Gambling Industry. Internet gambling sites will generate an
estimated $651 million in revenue in 1999 according to economist Sebastian
Sinclair of the New York firm Christiansen, Cummings and Associates. Such
figures are prompting the National Collegiate Athletic Association, the National
Football League, and various state attorneys general to campaign to block online
wagering. Illegal bookmaking is an $80 billion to $100 billion a year industry
in the United States, the Nevada Gaming Commission estimates. Law-enforcement
officials estimate that $2.5 billion was illegally bet on the 1996 NCAA men's
basketball championship game alone.
The Interactive Gaming Council ("IGC") is a trade association for the
international, interactive gaming industry, comprised of a group of Internet
gambling operators who are attempting to establish industry guidelines that
could become the international standard for Internet gambling operations. Its
members operate or supply services to many of the 280 interactive gaming and
wagering sites on the World Wide Web. The IGC is considering a common database
to share fraudulent account information. IGC representatives have discussed
practical applications with the NCAA. For example, by developing a database of
college athletes, the IGC could prevent those athletes from opening accounts
with IGC members. The system, however, would not prevent someone from using a
third party's credit card or betting through unaffiliated website.
Moreover, with Australia, England, Germany, New Zealand and South Africa
starting to sanction Internet gambling operations, it seems unlikely that the
United States, standing alone, will be able to control Internet gambling. For
example, currently a United States resident can wager on horse racing in Germany
or place a bet in Australia or Antigua without any appreciable regulatory risk
because it is impossible for state and federal regulators to monitor every home
computer.
Even the Nevada Gaming Commission, which opposes Internet gambling, has
licensed a slot-machine manufacturer to test a system that allows Nevada
residents to make sports bets from home computers. The system traces phone calls
so operators know exactly where those calls originated. Before entering the
Internet, whose dial-up access is restricted to subscribers, customers have to
go to a Nevada sports book and open an account.
Possible Adverse Legislation. Approximately 25 countries are currently
regulating, and taxing, Internet gambling operations. The regulation of Internet
gambling operations in the United States is currently uncertain. On August 3,
1996, President Clinton signed a bill creating a nine-member National Gambling
Impact Study Commission to study the economic and social impact of gambling and
report its findings to Congress and the President. The Commission could
recommend changes in state or federal gaming policies. The President, House
Speaker and Senate Majority Leader each selected three of the Commission's
members. Additional federal regulation of the gaming industry could occur as a
result of investigations or hearings by the committee, which could have a
material adverse effect on the Company or its subsidiary. The Commission last
met in Washington, D.C. on April 27 and April 28, 1999 and continued its
deliberations regarding its Final Report which is presently scheduled to be
released to the President, Congress, state governors, Native American tribal
leaders, and the public on June 18, 1999.
Senator Jon Kyl (R-Ariz.), Congress' foremost opponent of online betting, is
reintroducing a revised measure to amend the federal Wire Communications Act of
1961 ("Wire Act") prohibitions on interstate sports gambling conducted by
telephone or wire to cover newer technological transmissions, including the
Internet. The bill would extend the law to prohibit some newer forms of
gambling, including those offered by an estimated 300 sports betting and
"cybercasinos" that now exist in cyberspace. The new Internet Gambling
Prohibition Act allows for the continuation of all forms of gambling that are
currently legal and also limits the liability of Internet access providers. Such
providers do not have to do anything that is "technologically infeasible" or
"unduly burdensome" to restrict such Internet gambling sites. Kyl believes that
more than a billion dollars will be gambled over the Internet in 1999. Kyl also
believes that Internet gambling is addictive, accessible to minors, subject to
fraud and other criminal use, evasive of state gambling laws and already illegal
at the federal level in many cases. Kyl's bill outlaws most types of online
gambling on a federal level, and calls for three months in prison and $1,500 in
fines, or three times the amount of the wager, for bettors caught in the act.
Last year's version of Kyl's bill, which passed the Senate 90-10 but died in the
House, did not make any exceptions for Native American tribal betting
operations. Kyl predicts that Internet-based gambling receipts will reach an
estimated $100 billion by 2006.
Reps. Bob Goodlatte, R-Va., and Frank LoBiondo, R-N.J., are resurrecting
their online gambling bill in the House of Representatives from the previous
Congressional session, but the bill will not mirror Kyl's senate measure. The
House bill will not take on the issue of fantasy sports, merely games of chance;
moreover, it will not totally prohibit online gambling on a federal level.
Instead, the bill will allow states to decide their own online gambling
policies.
Possible Adverse Litigation. Several state court lawsuits might result in
case law adverse to the Company or its subsidiary's continued operations. In
March, 1999, Cynthia Haines, a California woman who gambled away more than
$70,000 on the Internet to more than 50 cybercasinos sued her credit issuer,
Providian National Bank, in Marin County Superior Court. She alleged that credit
card companies are engaging in unfair business practices and aiding and abetting
a crime by giving online wager house merchant accounts to process bets for
customers who live where such betting activity is illegal.
Possible Law Enforcement Action. Alan Kesner, Wisconsin's assistant
attorney general and the chairman of the Internet Gambling Committee for the
National Association of Attorneys General, recognized the difficulty of
eliminating Internet gambling, but many state attorneys general continue to
challenge the legality of Internet gambling within the borders of their
respective states. For example, the Attorney General for the State of Minnesota
has claimed that, because gambling is illegal in Minnesota, users there cannot
place bets through a server located elsewhere (in one case, the web page
advertiser was located in Nevada and the server processing the bet was located
in Belize).
In March, 1998 the Federal Bureau of Investigation's Computer Crisis squad
charged Jay Cohen and 19 other owners and managers of offshore companies with
illegally using interstate telephone lines to take online wagers and accept
money from United States customers in violation of the Wire Act, a law designed
to stop organized crime's illegal bookmaking activities. To date, Cohen and one
other person have been indicted, three have agreed to plea bargains, and four
refused to return to the United States. For the rest, indictments are pending.
Cohen's website was started in Antigua in 1996, where such gambling is legal.
Taxes and Fees. Gaming companies are typically subject to significant taxes
and fees in addition to normal federal and state corporate income taxes, and
such taxes and fees are subject to increase at any time. Additionally, from time
to time, certain federal legislators have proposed the imposition of a federal
tax on gaming revenues. Any such federal tax or any material increase in
existing taxes or fees would adversely affect the Company or its subsidiary.
Lack of Internet Gaming Experience. The Company's subsidiary currently has
no management with Internet Gaming experience. However, the Company recently
announced the appointment of Michael R. Wright as Chairman of the Board of
Directors of the Company. Mr. Wright has significant experience in the gaming
industry. He specialized in the design, manufacture, distribution and operation
of slot machines for Bally Gaming. He resided in Prague, Czech Republic, where
he operated the National TV Bingo Lottery. As President and Chief Executive
Officer of Border Capital, a Canadian public company, Mr. Wright directed the
development of the software and design of television game shows for the global
lottery industry. There can be no assurance that the Company or its subsidiary
will benefit, directly or indirectly, from Mr. Wright's experience in the gaming
industry.
Business Interruption; Reliance on Computer and Telecommunications
Infrastructure. The Company or its subsidiary's success will be dependent in
large part on its continued investment in sophisticated telecommunications and
computer systems and computer software. The Company and/or its subsidiary
anticipates making significant investments in the acquisition, development, and
maintenance of such technologies in an effort to remain competitive and
anticipates that such expenditures will be necessary on an on-going basis.
Moreover, computer and telecommunication technologies are evolving rapidly and
are characterized by short product lifecycles, which requires the Company to
anticipate technological developments. There can be no assurance that the
Company or its subsidiary will be successful in anticipating, managing or
adopting such technological changes on a timely basis or that the Company or its
subsidiary will have the capital resources available to invest in new
technologies. In addition, the Internet Gaming business is highly dependent on
computer and telecommunications equipment and software systems, the temporary or
permanent loss of which, through physical damage or operating malfunction, could
have a material adverse effect on the either the Company or its subsidiary's
business. While neither the Company nor any of its Affiliates anticipates any
problems with their computer software relating to the year 2000, operating
malfunctions in the software systems of financial institutions and other parties
might have an adverse affect on the operations of the Company or its subsidiary.
The Internet Gaming business is materially dependent on service provided by
various local and long distance telephone companies. A significant increase in
the cost of telephone services that is not recoverable through an increase in
the price of the Company or its subsidiary's services, or any significant
interruption in telephone services, could have a material adverse effect on the
Company or its subsidiary.
Impact of the Year 2000. The Company anticipates that the Year 2000
(commonly referred to as "Y2K") could adversely impact the business of the
Company. Many business software applications use only the last two digits to
indicate the applicable year. Unless these programs are modified, computers
running time- sensitive software may be unable to distinguish between the year
1900 and the year 2000, which would result in system failures, miscalculations,
and general disruption of operations, including, among other things, a temporary
inability to process transactions or to engage in other normal business
activities. Many Y2K problems might not be readily apparent when they first
occur, but instead could imperceptibly degrade technology systems and corrupt
information stored in computerized databases, in some cases before January 1,
2000.
The Company anticipates the completion of a preliminary assessment of each
of its operations and their Y2K readiness and feels that the appropriate actions
will be taken. The Company does not believe the Y2K issue will pose significant
problems for the Company's computer systems. The Company anticipates that its
Year 2000 remediation efforts for information technology systems, consisting
primarily of software upgrades, will continue through 1999, and anticipates
incurring less than $10,000 in connection with these efforts. The Company
recognizes, however, that the Y2K issue could have a material impact on the
operations of the Company. There is no guarantee that the systems of other
companies on which the Company's systems rely will be timely readied for the
Year 2000. Moreover, there can be no guarantee that the Company's suppliers,
customers, or other parties with whom the Company does business will not
experience significant Y2K problems, which might result in an adverse effect on
the Company's operations. The Company's computer system currently runs several
programs which may be affected by Y2K. The Company anticipates taking the
necessary steps to determine whether the programs are Y2K compliant and, if not,
what steps need to be taken to reduce the effect of Y2K.
The Company's assessment of its Year 2000 issues involves many assumptions.
There can be no assurance that the Company's assumptions will prove accurate,
and actual results could differ significantly from the assumptions. In
conducting its Year 2000 compliance efforts, the Company has relied primarily on
vendor representations with respect to its internal computerized systems and
representations from third parties with
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<PAGE>
which the Company has business relationships and has not independently verified
these representations. There can be no assurance that these representations will
prove to be accurate. A Year 2000 failure could result in a business disruption
that adversely affects the Company's business, financial condition or results of
operations. Although it is not currently aware of any likely business
disruption, the Company anticipates developing contingency plans to address Year
2000 failures and expects this work to continue through 1999.
Item 3. Description of Property
Property held by the Company. As of the dates specified in the following
table, the Company held the following property in the following amounts:
================================================================================
Property December 31, 1998 December 31,1997
- --------------------------------------------------------------------------------
Cash and equivalents US$2,246.00 $0.00
- --------------------------------------------------------------------------------
The Company defines cash equivalents as all highly liquid investments with
a maturity of 3 months or less when purchased. The Company does not presently
own any interests in real estate. The Company does not presently own any
inventory or equipment.
Item 4. Security Ownership of Certain Beneficial Owners and Management
(a) Security Ownership of Certain Beneficial Owners. The following are
persons, other than directors and officers, who are beneficial owners of 5% or
more of the Company's issued and outstanding common stock:
<TABLE>
<CAPTION>
Name and Address Amount of Percent of
Title of Class of Beneficial Owner Beneficial Owner Class
- -------------- ------------------- ---------------- -----
<S> <C> <C> <C>
Warrants to YENN Asset Management 1,100,000 12.2%
purchase Common Stock Buckingham Square/The Penthouse
Seven Mile Reach/West Bay Road
Warrant to J & S Overseas Holding Ltd. 800,000 8.9%
purchase Common Stock
</TABLE>
(b) Security Ownership of Management. As of March 15, 1999, the directors
and principal executive officers of the Company beneficially owned, in the
aggregate, 600,000 shares of the Company's common stock, or approximately 4.80%
of the issued and outstanding shares, as set forth on the following table:
<TABLE>
<CAPTION>
Title of Class Name and Address Amount and Percent of
of Beneficial Owner Nature of Class
Beneficial Owner
<S> <C> <C> <C>
Common Shares Jack Sha 300,000 shares 2.40%
5550 Cambie Street
Suite 306 Vancouver, B.C.
V5Z 3A2 President and Director
Common Shares Ferdinand Marehard 300,000 shares 2.40%
1270 Robson Street
Suite 406 Vancouver, B.C.
V6E 3Z6 Secretary/Treasurer
and Director
</TABLE>
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<PAGE>
Changes in Control. Management of the Company is not aware of any
arrangements which may result in "changes in control" as that term is defined by
the provisions of Item 403(c) of Regulation S-B.
Item 5. Directors, Executive Officers, Promoters and Control Persons
The directors and principal executive officers of the Company are as
specified on the following table:
================================================================================
Name Age Position
- --------------------------------------------------------------------------------
Jack Sha 48 President and a Director
5550 Cambie Street,
Suite 306 Vancouver, B.C.
V5Z 3A2
- --------------------------------------------------------------------------------
Ferdinand Marehard 70 Secretary, Treasurer and a Director
1270 Robson Street
Suite 406 Vancouver, B.C.
V6E 3Z6
- --------------------------------------------------------------------------------
Michael R. Wright 50 Chairman of the Board of Directors
890 Regan Way
Fremont, CA 94539
================================================================================
Jack Sha is the President and a Director of the Company. Mr. Sha was the
president of Tokyo Trading Ltd. from 1990 through 1994, during which time he was
involved in the decision making process for various investment opportunities
ranging from golf course developments to mining properties. In 1991, Mr. Sha
acquired, on behalf of the Tokyo Trading Ltd., the rights to develop and market
a unique essence for skin care products. In 1994, Mr. Sha underwent major
surgery and was inactive until 1998.
Ferdinand Marehard is the Secretary, Treasurer and a Director of the
Company. Mr. Marehard was the president of West-Mar Resources Ltd. ("West-Mar")
from 1984 through 1994, during which time he managed West-Mar's participation in
various foreign and domestic gas and oil leases. In 1985, Mr. Marehard managed
West-Mar's participation in the development of six gas wells in Indiana, and
also participated in negotiations for the acquisition of a 1,200,000 acre oil
concession in Liberia, West Africa. In 1986 he acquired, on behalf of West-Mar,
a 5% working interest on 40,000 acres in Adams County, Indiana. From 1990
through 1994 he participated in drilling and developing a horizontal well and in
waterflood oil production in Texas. He also acquired, on behalf of West-Mar,
17,000 acres of gas and oil leases in the state of Washington. From 1975 through
1981 Mr. Marehard was the president of Hesca Resources Corp., Ltd.; from 1982
through 1984 he was the president of Demus Petro Corporation; and from 1979
through 1984 he was the president of Mar-Gold Resources, Ltd. These entities
participated in the oil and gas industry and the mining industry. During this
period, Mr. Marehard had a broad range of management duties for these companies,
including oversight of drilling and production of oil wells in Kentucky, Texas
and Utah. He also negotiated the acquisition of several properties in the
Greenwood-Grandforks gold camp and negotiated financing for the various company
operations.
16
<PAGE>
Mr. Marehard has experience in prospecting, including examination of
property in the field. He has supervised placer gold leases in the Yukon and has
identified and negotiated for silver, lead, zinc and copper bearing property on
Vancouver Island, British Columbia. He has experience in mining and exploration
for precious and base metals in British Columbia, the Yukon, the Northwest
Territories and the United States.
Michael Wright has extensive experience in the amusement game industry,
commercial real estate sales and development as well as the gaming and lottery
industries. Mr. Wright operated, sold and marketed amusement video games for
Bally Manufacturing. He was an executive vice-president of Exidy where he
manufactured and sold video games. Mr. Wright was involved with international
sales and marketing with Taito Corporation in Japan. He was also the president
of Simutrak, a company specializing in laser disc technology for coin operated
video games. Mr. Wright's real estate experience involves the development and
sale of commercial and single family real estate in Northern California. Mr.
Wright was involved with the design, manufacture, distribution and operation of
slot machines for Bally Gaming. Mr. Wright operated the National Television
Bingo Lottery in Prague. He also was the president of OnPoint, a San Diego based
company where he was involved in the manufacture and sale of vending machines
for the lottery and transportation industries. Mr. Wright was the president and
CEO of Border Capital, a Canadian public company involved in the software and
design of television game shows for the global lottery industry. Mr. Wright
attended the University of Portland where he majored in Mass Communications. Mr.
Wright is currently the Chairman of the Company's Board of Directors.
None of the above listed persons share any familial relationship. Other
than the persons listed above, there are no significant employees expected by
the Company to make a significant contribution to the business of the Company.
All directors of the Company serve until the next annual meeting of
stockholders. The Company's executive officers are appointed by the Company's
Board of Directors and serve at the discretion of the Board of Directors.
Robert Klein, President of Rising Phoenix, recently resigned from the
Company's Board of Directors. It is anticipated that Mr. Klein will return to
the Company's Board of Directors upon the Company's acquisition of Rising
Phoenix's interest in the LAK Ranch oil recovery project.
There are no orders, judgments, or decrees of any governmental agency or
administrator, or of any court of competent jurisdiction, revoking or suspending
for cause any license, permit or other authority to engage in the securities
business or in the sale of a particular security or temporarily or permanently
restraining Mr. Sha, Mr. Marehard or Mr. Wright from engaging in or continuing
any conduct, practice or employment in connection with the purchase or sale of
securities, or convicting such person of any felony or misdemeanor involving a
security, or any aspect of the securities business or of theft, nor are Mr. Sha,
Mr. Marehard or Mr. Wright the officers or directors of any corporation or
entity so enjoined.
Item 6. Executive Compensation - Remuneration of Directors and Officers.
Specified below, in tabular form, is the aggregate annual remuneration of
the Company's Chief Executive Officer and the four (4) most highly compensated
executive officers other than the Chief Executive Officer who were serving as
executive officers at the end of the Company's last completed fiscal year. The
officers and directors of the Company received no direct compensation from the
Company during the Company's most recent fiscal year. The officers and directors
of the Company are reimbursed for expenses incurred on behalf of the Company.
================================================================================
Name of individual or Capacities in which Aggregate
Identity of Group remuneration was received remuneration
- --------------------------------------------------------------------------------
Executive Officers None None
================================================================================
As of December 31, 1998, no compensation has been paid to any of the
officers or directors of the Company. The Company anticipates compensating Jack
Sha for accrued salary in an amount yet to be determined by the Company's Board
of Directors.
Item 7. Certain Relationships and Related Transactions
Agreement to Purchase Rising Phoenix Development Group Ltd.'s Corporate
Assets Was Not the Result of Arms-Length Negotiations. As specified above, on
January 15, 1999, the Company signed a letter of intent to acquire all of the
corporate assets of Rising Phoenix Development Group, Ltd. (previously defined
17
<PAGE>
as "Rising Phoenix") in exchange for 3,800,000 shares of the Company's common
stock and seventy-five thousand dollars (US$75,000). The president of Rising
Phoenix, Robert Klein, was on the Company's Board of Directors from February 1,
1999 through early in March, 1999, at which time Mr. Klein resigned from the
Company's Board of Directors. It is anticipated that Mr. Klein will rejoin the
Company's Board of Directors and, therefore, the agreement regarding the
intended purchase of Rising Phoenix's assets is not the result of arm's-length
negotiations between disinterested parties.
Transactions with Promoters. Holm Investments Ltd. is a promoter of the
Company and has received 600,000 shares of common stock of the Company for
promotional services provided to the Company.
Item 8. Legal Proceedings
On or about April 15, 1999, a Statement of Claim, on behalf of the Company
as Plaintiff, was issued by the Ontario Court, General Division. Also on or
about April 15, 1999, that Statement of Claim was served on Defendant LANSource.
As described in Item 1, LANSource and the Company entered into a letter
agreement whereby the Company was to purchase a 12.5% interest in LANSource with
an option to purchase an additional 38.5% interest. A formal agreement was to be
finalized on or before March 31, 1999. The letter agreement provided that in the
event a formal agreement was not consummated by March 31, 1999, the letter
agreement would be null and void and LANSource would be permitted to retain all
deposits made by the Company. The Company alleges that LANSource agreed that its
counsel would draft the final agreement in an expeditious manner. The Company
further alleges that counsel for LANSource did not produce an agreement for
review by the Company until March 25, 1999. Moreover, the Company alleges that,
prior to its receipt of the proposed final agreement from counsel for LANSource,
the proposed agreement had not been read or approved by LANSource, the agreement
was incomplete and in need of substantial revisions, and that LANSource failed
and neglected to provide the essential information necessary for a meaningful
review of the proposed final agreement.
The Company has alleged that it has been damaged in the amount of
$1,000,000 in that LANSource breached its agreement with the Company, breached
its fiduciary duty to the Company and breached its duty of good faith. In the
alternative, the Company has asked that the Court either: (i) compel LANSource
to perform its obligations under the agreement; (ii) order LANSource to pay into
the Court a total of $300,000 representing the deposit money paid to LANSource
by the Company, declare that the agreement between the Company and LANSource is
rescinded and return the deposit amount to the Company; declare that LANSource
has breached the agreement and proceed to trial to determine the Company's
damages; or issue an order requiring LANSource to disgorge to the Company any
and all profits earned by LANSource as a result of its breach. Moreover, the
Company has alleged punitive damages in the amount of $100,000.
While the action is pending, the Company has asked the Ontario Court to
enjoin LANSource from: (i) transferring or disposing of, in any manner, its
assets; (ii) borrowing funds except in the usual course of business; (iii)
granting any license, franchise or similar arrangement to any person relating to
its intellectual property or potential intellectual property; (iv) issuing,
distributing or transferring in any way shares, warrants, options or other
securities; (v) redeeming or purchasing any of the company's shares; (vi) taking
or instituting proceedings to alter its corporate structure in any way; (vii)
amending its Bylaws, Articles or any material agreements; or (viii) taking
action to materially change the nature of its business in any way.
The Company plans to vigorously prosecute its claim against LANSource.
18
<PAGE>
Item 9. Market For Common Equity and Related Stockholder Matters
The Company participates in the OTC Bulletin Board, Electronic Quotation
System maintained by the National Association of Securities Dealers, Inc., under
the trading symbol "PWDR". The Company's common stock has closed at a low of
US$0.23 and a high of US$0.75 for the 52 week period ending March 12, 1999 and
closed at $US0.32 on that date. As of May 13, 1999, there were one million nine
hundred thousand (1,900,000) warrants outstanding, each of which represents the
right purchase from the Company one share of its $.0001 par value common stock
at a price of $.30 per share. YENN Asset Management is the holder of 1,100,000
of the aforementioned warrants. J & S Overseas Holdings Ltd. is the holder of
800,000 of those warrants. All 1,900,000 warrants expire by their own terms on
October 31, 2000. There have been no cash dividends declared on the Company's
common stock since the Company's inception. The Company has not yet adopted any
policy regarding payment of dividends.
Item 10. Recent Sales of Unregistered Securities
There have been no sales of unregistered securities within the last three
(3) years which would be required to be disclosed pursuant to Item 701 of
Regulation S-B, except for the following:
On or about December 31, 1998, the Company commenced an offering of shares
of its common stock in reliance on an exemption from the registration
requirements of the Securities Act of 1933 ("Act") specified by the provisions
of Section 3(b) of the Act and Rule 504 of Regulation D promulgated by the
Securities and Exchange Commission pursuant to Section 3(b). Through April 14,
1999, the Company had sold a total of 7,127,500 shares of its common stock
pursuant to that offering. Gross proceeds from the offering were US$1,000,000 in
cash, as follows:
3,000,000 shares at US$.08 per share (total US$240,000)
1,000,000 shares at US$.10 per share (total US$100,000)
1,562,500 shares at US$.22 per share (total US$343,750)
500,000 shares at US$.15 per share (total US$75,000)
500,000 shares at US$.20 per share (total US$100,000)
565,000 shares at US$.25 per share (total US$141,250)
The offering price for the Company's shares of common stock was arbitrarily
established by the Company and had no relationship to assets, book value,
revenues or other established criteria of value. Proceeds from the 504 offering
were used for, among other purposes, working capital, including legal fees;
office equipment and office expenses; and to finance the Company's various
acquisition contracts.
Item 11. Description of Securities
The Company is authorized to issue 100,000,000 shares of common stock,
$.0001 par value, each share of common stock having equal rights and
preferences, including voting privileges. As of March 15, 1999, 12,515,000
shares of the Company's common stock were issued and outstanding, with 1,200,000
shares subject to certain restrictions and 11,315,000 unrestricted shares.
The shares of $.0001 par value common stock of the Company constitute
equity interests in the Company entitling each shareholder to a pro rata share
of cash distributions made to shareholders, including dividend payments. The
holders of the Company's common stock are entitled to one vote for each share of
record on all
19
<PAGE>
matters to be voted on by shareholders. There is no cumulative voting with
respect to the election of directors of the Company or any other matter, with
the result that the holders of more than 50% of the shares voted for the
election of those directors can elect all of the Directors. The holders of the
Company's common stock are entitled to receive dividends when, as and if
declared by the Company's Board of Directors from funds legally available
therefor; provided, however, that cash dividends are at the sole discretion of
the Company's Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, the holders of common stock are entitled to share
ratably in all assets remaining available for distribution to them after payment
of liabilities of the Company and after provision has been made for each class
of stock, if any, having preference in relation to the Company's common stock.
Holders of the shares of Company's common stock have no conversion, preemptive
or other subscription rights, and there are no redemption provisions applicable
to the Company's common stock. All of the outstanding shares of the Company's
common stock are duly authorized, validly issued, fully paid and non-assessable.
Item 12. Indemnification of Directors and Officers
Article VII of the Company's Bylaws provides that no officer or director of
the Company shall be personally liable for obligations of the Company or for any
duties or obligations arising out of any acts or conduct of such an officer or
director performed for on behalf of the Company. That Article VII also provides
that the Company shall indemnify each officer and director from and against any
and all claims, judgments and liabilities by reason of any action taken or
omitted to have been taken by him or her as a director or officer, and also
provides that the Company shall reimburse each officer and director for all
legal and other expenses reasonably incurred in connection with such a claim or
liability; provided, however, that such officers and directors shall not be
indemnified against, or be reimbursed for, any expense incurred in connection
with any claim or liability arising out of such a person's own negligence or
willful misconduct.
Moreover, Article Fifth of the Company's Restated and Amended Certificate
of Incorporation filed January 13, 1999 with the Delaware Secretary of State
provides, in pertinent part, that the directors of the Company shall not be
personally liable to the Company or its stockholders for breach of fiduciary
duty as a director, except for (1) breach of such director's duty of loyalty to
the Company or its stockholders, (2) for acts or omissions not in good faith
which involve intentional misconduct or a knowing violation of law, (3) for
transactions in which such director derived improper personal benefit, or (4)
pursuant to the provisions of Section 174 of the General Corporation Law.
The Company anticipates that it will enter into indemnification agreements
with each of its officers and directors pursuant to which the Company agrees to
indemnify each such officer and director for all expenses and liabilities,
including criminal monetary judgments, penalties and fines, incurred by such
officer and director in connection with any criminal or civil action brought or
threatened against such officer or director by reason of such officer or
director being or having been an officer or director of the Company. In order to
be entitled to indemnification by the Company, such officer or director must
have acted in good faith and in a manner such person believed to be in the best
interests of the Company and, with respect to criminal actions, such officer or
director must have had no reasonable cause to believe his or her conduct was
unlawful.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION FOR
LIABILITIES ARISING PURSUANT TO THE SECURITIES ACT OF 1933 IS CONTRARY TO PUBLIC
POLICY AND, THEREFORE, UNENFORCEABLE.
20
<PAGE>
Item 13. Financial Statements.
Copies of the Company's Financial Statements specified in Regulation
228.310 (Item 310) are filed with this Registration Statement, Form 10-SB (see
Item 15 below).
Item 14. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
There have been no changes in or disagreements with the Company's
accountants since the formation of the Company required to be disclosed pursuant
to Item 304 of Regulation S-B.
Item 15. Financial Statements and Exhibits
<TABLE>
<CAPTION>
(a) Index to Financial Statements. Page
- ----------------------------------- ----
<S> <C>
Independent Auditor's Report F-1
Balance Sheets as of December 31, 1998 F-2
Statement of Operations for the periods ending December 31, 1998,
1997 and 1996 and the period ending December 31, 1998 F-3
Statement of Shareholders' Equity for the period ending
December 31, 1998 F-4
Statement of Cash Flows for the period ending
December 31, 1998 F-5
Notes to Financial Statements F-6 through F-7
(b) Index to Exhibits.
Copies of the following documents are filed with this Registration
Statement, Form 10-SB as exhibits:
Index to Exhibits Page
- ----------------- ----
1 Certificate of Incorporation E-1
of Power Direct, Inc.
2 Certificate of Amendment E-2
of Certificate of Incorporation of
Power Direct, Inc.
3 Amended and Restated Certificate of E-3 through E-9
Incorporation of Power Direct, Inc.
(Charter document)
</TABLE>
21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
4 Bylaws of Power Direct, Inc. E-10 through E-20
(Instrument defining the rights of
Security holders)
5 Letter of Agreement Between E-21 through E-24
I.T.A. Enterprises, Inc. and
Power Direct, Inc.
6 Letter of Intent Between Rising E-25 through E-26
Phoenix Development Group Ltd. and
Power Direct, Inc.
7 Letter of Intent Between LANSource E-27 through E-29
Technologies, Inc. and Power Direct, Inc.
8 License Agreement Between the Company and E-30 through E-48
Compte De Sierge Accomodative Corp.
</TABLE>
22
<PAGE>
SIGNATURES
In accordance with the provisions of Section 12 of the Securities Exchange
Act of 1934, Power Direct, Inc. has duly caused this Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized, in the
City of Vancouver, British Columbia, on May 12, 1999.
Power Direct, Inc.,
a Delaware corporation
By: /s/ Jack Sha
---------------
Jack Sha
Its: President
23
<PAGE>
- --------------------------------------------------------------------------------
James E. Slayton, CPA
- --------------------------------------------------------------------------------
3867 WEST MARKET STREET
SUITE 208
AKRON, OHIO 44333
INDEPENDENT AUDITORS' REPORT
Board of Directors March 8, 1999
Power Direct, Inc. (the Company)
I have audited the Balance Sheet of Power Direct, Inc. (A Development State
Company), as of December 31, 1998, December 31, 1997, and December 31, 1996 and
the related Statements of Operations, Stockholders' Equity and Cash Flows for
the period January 1, 1998 to December 31, 1998, and the two years ended
December 31, 1997 and December 31, 1996. These financial statements are the
responsibility of the Company's management. My responsibility is to express an
opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis evidence supporting
the amounts and disclosures in the financial statement presentation. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. I believe that my audit provides a reasonable basis for my
opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Power Direct, Inc., (A
Development State Company), at December 31, 1998, December 31, 1997 and December
31, 1996, and the results of its operations and cash flows for the period
January 1, 1998 to December 31, 1998, and the two years ended December 31, 1997,
and December 31, 1996, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note 3 to the
financial statements, The Company has had limited operations and has not
established a long term source of revenue. This raises substantial doubt about
its ability to continue as a going concern. Management's plan in regard to these
matters are also described in Note 3. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
/s/ JAMES E. SLAYTON
James E. Slayton, CPA
Ohio License ID# 04-1-15582
----------
F-1
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
BALANCE SHEET
AS AT
December 31, 1998
<TABLE>
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
<S> <C> <C> <C>
ASSETS
Current Asset
Cash in Bank 2246.00 0.00 0.00
Other Current Assets 0.00 0.00 0.00
--------- --------- ---------
Total Current Assets 2246.00 0.00 0.00
OTHER ASSETS
Organization Costs net of Amortization 0.00 0.00 0.00
TOTAL ASSETS 2246.00 0.00 0.00
========= ========= =========
LIABILITIES & EQUITY
Current Liabilities
Accounts Payable 13042.99 0.00
EQUITY
Capital Stock 600.00 100.00 100.00
Additional paid in capital 400.00 900.00 900.00
Retained Earnings -11796.99 -1000.00 -1000.00
--------- --------- ---------
Total Stockholders' Equity -10796.99 0.00 0.00
--------- --------- ---------
TOTAL LIABILITIES & OWNER'S EQUITY 2246.00 0.00 0.00
========= ========= =========
</TABLE>
See accompany notes to financial statements & audit report
-2-
F-2
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF OPERATIONS
FOR PERIOD
January 1, 1998 to December 31, 1998
<TABLE>
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
--------- --------- ---------
<S> <C> <C> <C>
REVENUE
Services 0.00 0.00 0.00
COSTS AND EXPENSES
Selling, General and Administrative 10796.99 0.00 0.00
Amortization of Organization Costs
Total Costs and Expenses 10796.99 0.00 0.00
--------- --------- ---------
Net Ordinary Income or (Loss) -10796.99 0.00 0.00
========= ========= =========
Weighted average
number of common
shares outstanding 6,000,000 2,000,000 2,000,000
Net Loss
Per Share -0.0018 0 0
</TABLE>
See accompany notes to financial statements & audit report
-3-
F-3
<PAGE>
Power Direct, Inc.
A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR PERIOD
January 1, 1998 to December 31, 1998
Deficit
accumulated
Additional during
Common Stock paid-in development
Shares Amount capital stage
------ ------ --------- -----------
Balance
December 31, 1995 10,000 100.00 900.00 -1000.00
Net loss year ended
December 31, 1996 0.00
Net loss year ended 0.00
December 31, 1997
July 30, 1998
changed form $.01
par value to $.0001
par value (Note 1) (99.00) 99.00
July 30, 1998
forward stock split
200:1 (Note 1) 1,990,000 199 -199
October 21, 1998
forward stock split
3:1 Note 1 4,000,000 400 -400
Net loss
January 1,1998
December 31, 1998 (10,796.99)
--------- ------- ------- -----------
Balance
December 31, 1998 6,000,000 $600.00 $400.00 ($11,796.99)
========= ======= ======= ===========
See accompany notes to financial statements & audit report
-4-
F-4
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
FOR PERIOD
January 1,1998 to December 31, 1998
<TABLE>
<CAPTION>
December December December
31, 1998 31, 1997 31, 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss from operations -10796.99 0.00 0.00
Net Cash provided by Operating Activities -10796.99 0.00 0.00
Increase in current assets 0.00 0.00 0.00
Increase in other assets 0.00 0.00 0.00
Increase in current liabilities 13042.99 0.00 0.00
--------- ------ ------
Cash provided by Operating Activities 2246.00 0.00 0.00
--------- ------ ------
Net cash flow provided by operating activities 2246.00 0.00 0.00
CASH FLOWS FROM INVESTING ACTIVITIES
Deposit on Asset Purchase Agreement
Net cash used by investing activities 0.00 0.00 0.00
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of Capital Stock
Net cash provided by financing activities 0.00 0.00 0.00
Net increase (decrease) in cash 2246.00 0.00 0.00
Cash and cash equivalents, December 31, 1998 0.00 0.00 0.00
Cash and cash equivalents, end of year 2246.00 0.00 0.00
</TABLE>
See accompany notes to financial statements & audit report
-5-
F-5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized September 13, 1993, under the laws of the State
of Delaware, as Power Direct, Inc. The Company currently has no operations and
in accordance with SFAS #7, the Company is considered a development stage
company.
On September 30, 1993, the company issued 10,000 Shares of its .01 par
value common stock for cash of $1,000.00.
On July 30, 1998, the State of Delaware approved the Company's restated
Articles of Incorporation, which increased its capitalization from 10,000 common
shares to 25,000,000 common shares. The par value was changed from $.0l par
value to $0.000l.
On July 30, 1998, the Company forward split its common stock 200:1, thus
increasing the number of outstanding common stock shares from 10,000 to
2,000,000 shares.
On October 21, 1998. the Company forward split its common stock 3:1, thus
increasing the number of outstanding common stock shares from 2,000,000 to
6,000,000 shares.
On December 16, 1998, the Company increased its capitalization from
25,000,000 common shares to 100,000,000 common shares. The par value remained at
$0.0001.
NOTE 2 - ACCOUNTING POLICIES AND PROCEDURES
Accounting polices and procedures have not been determined except as
follows:
1. The Company uses the accrual method of accounting.
2. Earnings per share is computed using the weighted average number of
shares of common stock outstanding.
4. The Company has not yet adopted any policy regarding payment of
dividends. No dividends have been paid since inception.
NOTE 3 - GOING CONCERN
The Company's financial statements are prepared using the generally
accepted accounting principles applicable to a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of
business. However, the Company has no current source of revenue. Without
realization of additional capital or revenues, it would be unlikely for the
Company to continue as a going concern. It is management's plan to seek
additional capital through a merger with an existing operating company.
-6-
F-6
<PAGE>
Power Direct, Inc.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
December 31, 1998
NOTE 4 - RELATED PARTY TRANSACTION
The Company neither owns or leases any real or personal property. Office
services are provided without charge by a director. Such costs are immaterial to
the financial statements and, accordingly, have not been reflected therein. The
officers and directors of the Company are involved in other business activities
and may, in the future, become involved in other business opportunities. If a
specific business opportunity becomes available, such persons may face a
conflict in selecting between the Company and their other business interests.
The Company has not formulated a policy for the resolution of such conflicts.
NOTE 5 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
shares of common stock.
F-7
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 09/13/1993
763256035 -- 2350791
CERTIFICATE OF INCORPORATION
OF
Power Direct, Inc.
A CLOSE CORPORATION
FIRST: The name of this corporation is Power Direct, Inc.
SECOND: Its registered office in the State of Delaware is to be located at Three
Christina Centre, 201 N. Walnut Street, Wilmington DE 19801, County of New
Castle. The registered agent in charge thereof is The Company Corporation,
address same as above.
THIRD: The nature of the business and the objects and purposes proposed to be
transacted, promoted and carried on, are to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
Delaware.
FOURTH: The amount of total authorized shares of stock of this corporation is
10,000 shares of $.O1 par value.
FIFTH: The name and mailing address of the incorporator is
Vanessa Foster, Three Christina Centre, 201 N. Walnut Street,
Wilmington DE 19801
SIXTH: The powers of the incorporator are to terminate upon filing of the
certificate of incorporation. All of the corporation's issued stock, exclusive
of treasury shares, shall be held of record by not more than thirty (30)
persons.
SEVENTH: All of the issued stock of all classes shall be subject to one or more
of the restrictions on transfer permitted by Section 202 of the General
Corporation Law.
EIGHTH: The corporation shall make no offering of any of its stock of any class
which would constitute a "public offering" within the meaning of the United
States Securities Act of 1933, as it may be amended from time to time.
NINTH: Directors of the corporation shall not be liable to either the
corporation or its stockholders for monetary damages for a breach of fiduciary
duties unless the breach involves: (1) a director's duty of loyalty to the
corporation or its stockholders; (2) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law; (3)
liability for unlawful payments of dividends or unlawful stock purchases or
redemption by the corporation; or (4) a transaction from which the director
derived an improper personal benefit.
I, THE UNDERSIGNED, for the purpose of forming a corporation under the laws of
the State of Delaware, do make, file and record this Certificate and do certify
that the facts herein are true, and I have accordingly hereunto set my hand.
DATED: September 13, 1993 /S/ Vanessa Foster
------------------------
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CERTIFICATE OF AMENDMENT OF CERTIFICATE OF INCORPORATION
OF
POWER DIRECT, INC.
Power Direct, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware.
DOES HEREBY CERTIFY:
That at a meeting of the Board of Directors of Power Direct, Inc. on
September 30, 1994 resolutions were duly adopted setting forth the proposed
amendments of the Certificate of Incorporation of the corporation, declaring
said corporation for consideration thereof. The resolutions setting forth the
proposed amendments are as follows:
RESOLVED, that the Certificate of Incorporation of this corporation be
amended by changing the corporation to an "open" corporation and deleting "a
close corporation" from the header.
RESOLVED, that the Article thereof number "FOURTH" so that, as amended,
said Article shall be and read as follows:
"The amount of total authorized shares of stock of this corporation is
25,000,000 shares of $.000l par value."
RESOLVED, that the corporation delete Articles Six through Eight from the
original Articles dated September 13, 1993, and renumber Article Nine as number
Six.
That thereafter, pursuant to resolution of its Board of Directors, a
special meeting of the stockholders of said corporation was duly called and held
upon notice in accordance with Section 222 of the General Corporation Law of the
State of Delaware at which meeting the necessary number of shares as required by
statute were voted in favor of the amendment.
That said amendment was duly adopted in accordance with the provisions of
Section 242 of the General Corporation Law of the State of Delaware.
That the capital of the corporation shall not be reduced under or by reason
of said amendments.
IN WITNESS WHEREOF, said Board of Directors has caused this certificate to
be signed by Maria Contreras, Secretary of the corporation this 3Oth day of
September, 1994.
[SEAL] /s/ Maria Contreras
-------------------------------
Maria Contreras, Secretary
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 07/30/1998
981299289 - 2350791
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STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 01/13/1999
991015390 -- 2350791
RESTATED AND AMENDED
CERTIFICATE OF INCORPORATION OF
POWER DIRECT, INC.
a Delaware corporation
The present name of the corporation (hereinafter called this "corporation")
is Power Direct, Inc. which is the pursuant to which this corporation was
originally incorporated; the date of filing the original certificate of
incorporation of this corporation with the Secretary of Stare of Delaware is
September 13, 1993. The amendments and restatement of the restated Certificate
of Incorporation herein certified have been duly adopted by the stockholders in
accordance with the provisions of Section 242 and of Section 245 of the General
Corporation Law of the State of Delaware.
By unanimous written consent of the members of the Board of Directors of
this corporation, dated December 16, 1998, the members of the Board of Directors
of this corporation approved and adopted resolutions approving the amendment and
restatement of the Certificate of Incorporation of this corporation to specify
as follows:
FIRST. The name of this corporation is Power Direct, Inc.
SECOND. The purpose of this corporation is to engage in any lawful act or
activity for which corporations may be organized pursuant to the General
Corporation Law of the State of Delaware.
THIRD. The name and address of the corporation's registered agent is The
Company Corporation, 1013 Centre Road, Wilmington, County of New Castle,
Delaware 19805.
FOURTH. The total number of shares of stock which this corporation shall
have authority to issue is one hundred million (10O,000,000) with a par value of
$.0001 per share with a total authorized capitalization of $100,000.00. Those
shares are Common Stock. Each share of Common Stock shall entitle the holder
thereof to one vote, in person or by proxy, on any matter on which action of the
stockholders of this corporation is sought.
FIFTH. Each director of this corporation shall not be personally liable to
this corporation or its stockholders for monetary damages for breach of
fiduciary duty as a director, except for liability (I) for any breach of such
director's duty of loyalty to this corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which such director derived
any improper personal benefit. In the event that the Delaware General
Corporation Law is amended to authorize corporate action further eliminating or
limited
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the personal liability of directors of this corporation, then the liability of
each director of this corporation shall be eliminated or limited to the fullest
and most complete extent permitted by the Delaware General Corporation Law, as
so amended.
Any repeal or modification of this article by the stockholders of this
corporation shall not affect adversely any right or protection of any director
of this corporation existing at the time of such repeal or modification.
SIXTH. This corporation reserves the right at any time, and from time to
time, to amend, alter, change or repeal any provision specified in this
Certificate of Incorporation, and other provisions authorized by the laws of the
State of Delaware at any such time then in force may be added or inserted, in
the manner now or hereafter prescribed by law; and all rights, preferences and
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate of Incorporation in
its present form or as hereafter amended are granted subject to the rights
reserved in this article.
SEVENTH. (a) The number of directors constituting the entire Board of
Directors of this corporation shall be not less than two (2) nor more than as
fixed from time to time by vote of a majority of the entire Board of Directors
of this corporation; provided, however, that the number of directors shall not
be reduced so as to shorten the term of any director at the time in office, and;
provided, further, that the number of directors constituting the entire Board of
Directors of this corporation shall be two (2), until otherwise fixed by a
majority of the entire Board of Directors of this corporation.
(b) At all times as there are three (3) or more members of the Board
of Directors of this corporation, the Board of Directors of this corporation
shall be divided into three (3) classes, as nearly equal in numbers as the then
total number of directors constituting the entire Board of Directors permits,
with the term of office of one class expiring each year. At the first annual
meeting of stockholders of this corporation directors of the first class shall
be elected to hold office for a term expiring at the next succeeding annual
meeting of those stockholders, directors of the second class shall be elected to
hold office for a term expiring at the second succeeding annual meeting, and
directors of the third class shall be elected to hold office for a term expiring
at the third succeeding annual meeting of those stockholders. Any vacancies in
the Board of Directors for any reason, and any directorships resulting from any
increase in the number of directors, may be filled by the Board of Directors,
acting by a majority of the directors then in office, although less than a
quorum, and any directors so chosen shall hold office until the next election of
the class for which such directors shall have been chosen and until their
successors shall be elected and qualified. Subject to the foregoing, at each
annual meeting of stockholders the successors to the class of directors whose
terms shall then expire shall be elected to hold office for a term expiring at
the third succeeding annual meeting of stockholders.
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(c)Notwithstanding any other provisions of this Certificate of
Incorporation or the bylaws of this corporation (and notwithstanding the fact
that some lesser percentage may be specified by law, this Certificate of
Incorporation or the bylaws of this corporation), any director or the entire
Board of Directors of this corporation may be removed at any time, but only for
cause and only by the affirmative vote of the holders of seventy-five percent
(75%) or more of the outstanding shares of common Stock of this corporation
entitled to vote generally in the election of directors (considered for this
purpose as one class) cast at a meeting of the stockholders of this corporation
called for that purpose.
EIGHTH. The affirmative vote of at least two-thirds (2/3) of the
outstanding shares of Common Stock held by stockholders of this corporation
other than the "related person" (as defined later in this Certificate of
Incorporation), shall be required for the approval or authorization of any
"business combination" (as defined later in this Certificate of Incorporation)
of this corporation with any related person; provided, however, that such voting
requirement shall not be applicable if:
(1) The business combination was approved by the Board of Directors of
this corporation either (A) prior to the acquisition by such related person
of the beneficial ownership of twenty percent (20%) or requisition the
outstanding shares of the Common Stock of this corporation, or (B) after
such acquisition, but only during such time as such related person has
sought and obtained the unanimous approval by the Board of Directors of
this corporation of such acquisition of more than 20% of the Common Stock
prior to such acquisition being consummated; or
(2) The business combination is solely between this corporation and
another corporation, fifty percent (50%) or more of the voting stock of
which is owned by a related person; provided, however, that each
stockholder of this corporation receives the same type of consideration in
such transaction in proportion to his or her stock holdings; or
(3) All of the following conditions are satisfied:
(A) The cash or fair market value of the property, securities or
other consideration to be received per share by holders of Common
Stock of this corporation in the business combination is not less than
the higher of (I) the highest per share price (including brokerage
commissions, soliciting dealers fees, dealer-management compensation,
and other expenses, including, but not limited to costs of newspaper
advertisements, printing expenses and attorneys' fees) paid by such
related person in acquiring any of its holdings of this corporation's
Common Stock or (ii) an amount which has the same or a greater
percentage relationship to the market price of this corporation's
Common Stock immediately prior to the commencement of acquisition of
this corporation's Common Stock by such related person, but in no
event in
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excess of two (2) times the highest per share price determined in
clause (I), above; and
(B) After becoming a related person and prior to the consummation
of such business combination, (I) such related person shall not have
acquired any newly issued shares of capita] stock, directly or
indirectly, from this corporation (except upon conversion of
convertible securities acquired by it prior to becoming a related
person or upon compliance with the provision of this article or as a
result of a pro rata stock dividend or stock split) and (ii) such
related person shall not have received the benefit, directly or
indirectly, (except proportionately as a stockholder) of any loans,
advances, guarantees, pledges or other financial assistance or tax
credits provided by this corporation, or made any major changes in
this corporation's business or equity capital structure; and
(c) A proxy statement complying with the requirements of the
Securities Exchange Act of 1934, whether or not this corporation is
then subject to such requirements, shall be mailed to the public
stockholders of this corporation for the purpose of soliciting
stockholder approval of such business combination and shall contain at
the front thereof, in a prominent place (I) any recommendations as to
the advisability (or inadvisability) of the business combination which
the continuing directors, or any outside directors, may determine to
specify, and (ii) the opinion of a reputable national investment
banking firm as to the fairness (or not) of the terms of such business
combination, from the point of view of the remaining public
stockholders of this corporation (such investment banking firm to be
engaged solely on behalf of the remaining public stockholders, to be
paid a reasonable fee for its services by this corporation upon
receipt of such opinion, to be a reputable national investment banking
firm which has not previously been associated with such related person
and, if there are at the time any such directors, to be selected by a
majority of the continuing directors and outside directors).
For purposes of this article:
(1) The term "business combination" shall be defined as and mean (a)
any merger or consolidation of this corporation with or into a related
person; (b) any sale, lease, exchange, transfer or other disposition,
including, without limitation, a mortgage or any other security device, of
all or any substantial part of the assets of this corporation, including,
without limitation, any voting securities of a subsidiary, or of a
subsidiary, to a related person; (c) any merger or consolidation of a
related person with or into this
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corporation or a subsidiary of this corporation; (d) any sale, lease
exchange, transfer or other disposition of all or any substantial part of
the assets of a related person to this corporation or a subsidiary of this
corporation; (e) the issuance of any securities of this corporation or a
subsidiary of this corporation to a related person; (f) the acquisition by
this corporation or a subsidiary of this corporation of any securities of a
related person; (g) any reclassification of Common Stock of this
corporation, or any recapitalization involving Common Stock of this
corporation, consummated within five (5) years after a related person
becomes a related person, and (h) any agreement, contract or other
arrangement providing for any of the transactions described in this
definition of business combination,
(2) The term "related person" shall be defined as and mean and include
any individual, corporation, trust, association, partnership or other
person or entity which, together with their "affiliates" and "associates"
(defined later in this Certificate of Incorporation), "beneficially" owns
(as this term is defined in Rule 13d-3 of the General Rules and Regulations
pursuant to the Securities Exchange Act of 1934), in the aggregate 20% or
more of the outstanding shares of the Common Stock of this corporation, and
any "affiliate" or "associate" (as those terms are defined in Rule 12b-2
pursuant to the Securities Exchange Act of 1934) of any such individual,
corporation, trust, association, partnership or other person or entity;
(3) The term "substantial part" shall be defined as and mean more than
ten percent (10%) of the total assets of the corporation in question, as of
the end of its most recent fiscal year ending prior to the time the
determination is being made;
(4) Without limitation, any shares of Common Stock of this corporation
which any related person has the right to acquire pursuant to any
agreement, or upon exercise of conversion rights, warrants or options, or
otherwise, shall be deemed beneficially owned by such related person;
(5) For the purposes of this article, the term "other consideration to
be received" shall include, without limitation, Common Stock of this
corporation retained by its existing public stockholders in the event of a
business combination with such related person pursuant to which this
corporation is the surviving corporation; and
(6) With respect to any proposed business combination, the term
"continuing director" shall be defined as and mean a director who was a
member of the Board of Directors of this corporation immediately prior to
the time that any related person involved in the proposed business
combination acquired twenty percent (20%) or more of the outstanding shares
of Common Stock of this corporation, and the term "outside director" shall
be defined as and mean a director who is not (a) an officer or employee of
this corporation
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or any relative of an officer or employee, (b) a related person or an
officer, director employee, associate or affiliate of a related person, or
a relative of any of the foregoing, or (c) a person having a direct or
indirect material business relationship with this corporation.
NINTH. No special meeting of the stockholders of this corporation may be
called by any of the stockholders of this corporation, and the power of
stockholders of this corporation to call such a meeting is specifically denied.
TENTH. All of the powers of this corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of Directors,
are hereby conferred upon the Board of Directors of this corporation. In
furtherance and not in limitation of that power, the Board of Directors shall
have the power to make, adopt, alter, amend and repeal from time to time bylaws
of this corporation, subject to the right of the shareholders entitled to vote
with respect thereto to adopt, alter, amend and repeal bylaws made by the Board
of Directors; provided, however, that bylaws shall not be adopted, altered,
amended or repealed by the stockholders of this corporation, except by the vote
of the holders of not less than two thirds (2/3) of the outstanding shares of
stock entitled to vote upon the election of directors.
Thereafter, pursuant to a resolution of the members of the Board of Directors,
by unanimous written consent dated December 16, 1998, there was submitted to the
shareholders of this corporation, for approval, the amendment and restatement of
the Certificate of Incorporation of this corporation, as specified above. A
majority of the issued and outstanding common stock of this corporation entitled
to vote on that amendment and restatement duly approved that amendment and
restatement pursuant to the provisions of Section 242 of the Delaware General
Corporation Law.
IN WETNESS WHEREOF, the undersigned, Jack Sha, being the president of this
corporation, executes this Restated and Amended Certificate of Incorporation and
verifies, subject to penalties of perjury that the information specified herein
is true and correct; dated December 29, 1998
/s/ Jack Sha
-------------------------
Jack Sha, President
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<PAGE>
State of Delaware
Office of the Secretary of State PAGE 1
---------------------------------------
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE RESTATED CERTIFICATE OF
"POWER DIRECT, INC.", FILED IN THIS OFFICE ON THE THIRTEENTH DAY OF JANUARY,
A.D. 1999, AT 9 O'CLOCK A.M.
A FILED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO THE NEW CASTLE
COUNTY RECORDER OF DEEDS.
[SEAL]
/s/ Edward J. Freel
------------------------------------
Edward J. Freel, Secretary of State
AUTHENTICATION: 9526661
DATE: 01-19-99
2350791 8100
991015390
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BYLAWS
OF
POWER DIRECT, INC.
(the "Corporation")
Article I.
Office
The Board of Directors shall designate and the Corporation shall maintain a
principal office. The location of the principal office may be changed by the
Board of Directors. The Corporation also may have offices in such other places
as the Board may from time to time designate. The location of the initial
principal office of the Corporation shall be designated by resolution.
Article II.
Shareholders Meetings
1. Annual Meetings
The annual meeting of the shareholders of the Corporation shall be held at
such place within or without the State of Nevada as shall be set forth in
compliance with these Bylaws. The meeting shall be held on the 31st of December
of each year. If such day is a legal holiday, the meeting shall be on the next
business day. This meeting shall be for the election of Directors and for the
transaction of such other business as may properly come before it.
2. Special Meetings
Special meetings of shareholders, other than those regulated by statute,
may be called by the President upon written request of the holders of 50% or
more of the outstanding shares entitled to vote at such special meeting. Written
notice of such meeting stating the place, the date and hour of the meeting, the
purpose or purposes for which it is called, and the name of the person by whom
or at whose direction the meeting is called shall be given.
3. Notice of Shareholders Meetings
The Secretary shall give written notice stating the place, day, and hour of
the meeting, and in the case of a special meeting, the purpose or purposes for
which the meeting is called, which shall be delivered not less than ten or more
than fifty days before the date of the meeting, either personally or by mail to
each shareholder of record entitled to vote at such meeting. If mailed, such
notice shall be deemed to be delivered when deposited in the United States mail,
addressed to the shareholder at his address as it appears
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on the books of the Corporation, with postage thereon prepaid. Attendance at the
meeting shall constitute a waiver of notice thereof.
4. Place of Meeting
The Board of Directors may designate any place, either within or without
the State of Nevada, as the place of meeting for any annual meeting or for any
special meeting called by the Board of Directors. A waiver of notice signed by
all shareholders entitled to vote at a meeting may designate any place, either
within or without the State of Nevada, as the place for the holding of such
meeting. If no designation is made, or if a special meeting is otherwise called,
the place of meeting shall be the principal office of the Corporation.
5. Record Date
The Board of Directors may fix a date not less than ten nor more than sixty
days prior to any meeting as the record date for the purpose of determining
shareholders entitled to notice of and to vote at such meetings of the
shareholders. The transfer books may be closed by the Board of Directors for a
stated period not to exceed fifty days for the purpose of determining
shareholders entitled to receive payment of any dividend, or in order to make a
determination of shareholders for any other purpose.
6. Quorum
A majority of the outstanding shares of the Corporation entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. If less than a majority of the outstanding shares are represented
at a meeting, a majority of the shares so represented may adjourn the meeting
from time to time without further notice. At a meeting resumed after any such
adjournment at which a quorum shall be present or represented, any business may
be transacted, which might have been transacted at the meeting as originally
noticed.
7. Voting
A holder of an outstanding share, entitled to vote at a meeting, may vote
at such meeting in person or by proxy. Except as may otherwise be provided in
the currently filed Articles of incorporation, every shareholder shall be
entitled to one vote for each share standing in his name on the record of
shareholders. Except as herein or in the currently filed Articles of
Incorporation otherwise provided, all corporate action shall be determined by a
majority of the vote's cast at a meeting of shareholders by the holders of
shares entitled to vote thereon.
8. Proxies
At all meetings of shareholders, a shareholder may vote in person or by
proxy executed in writing by the shareholder or by his duly authorized
attorney-in-fact. Such proxy shall be filed with the Secretary of the
Corporation before or at the time of the meeting. No proxy shall be valid after
six months from the date of its execution.
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9. Informal Action by Shareholders
Any action required to be taken at a meeting of the shareholders, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by a majority of the shareholders entitled to vote with
respect to the subject matter thereof.
Article III.
Board Of Directors
1. General Powers
The business and affairs of the Corporation shall be managed by its Board
of Directors. The Board of Directors may adopt such rules and regulations for
the conduct of their meetings and the management of the Corporation as they
appropriate under the circumstances. The Board shall have authority to authorize
changes in the Corporation's capital structure.
2. Number, Tenure and Qualification
The number of Directors of the Corporation shall be a number between one
and five, as the Directors may by resolution determine from time to time. Each
of the Directors shall hold office until the next annual meeting of shareholders
and until his successor shall have been elected and qualified.
3. Regular Meetings
A regular meeting of the Board of Directors shall be held without other
notice than by this Bylaw, immediately after and, at the same place as the
annual meeting of shareholders. The Board of Directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than this resolution.
4. Special Meetings
Special meetings of the Board of Directors may be called by order of the
Chairman of the Board or the President. The Secretary shall give notice of the
time, place and purpose or purposes of each special meeting by mailing the same
at least two days before the meeting or by telephone, telegraphing or
telecopying the same at least one day before the meeting to each Director.
Meeting of the Board of Directors may be held by telephone conference call.
5. Quorum
A majority of the members of the Board of Directors shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn any
meeting from time to time until a quorum shall be present, whereupon the meeting
may be held, as adjourned, without further
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notice. At any meeting at which every Director shall be present, even though
without any formal notice, any business may be transacted.
6. Manner of Acting
At all meetings of the Board of Directors, each Director shall have one
vote. The act of a majority of Directors present at a meeting shall be the act
of the full Board of Directors, provided that a quorum is present.
7. Vacancies
A vacancy in the Board of Directors shall be deemed to exist in the case of
death, resignation, or removal of any Director, or if the authorized number of
Directors is increased, or if the shareholders fail, at any meeting of the
shareholders, at which any Director is to be elected, to elect the full
authorized number of Director to be elected at that meeting.
8. Removals
Directors may be removed, at any time, by a vote of the shareholders
holding a majority of the shares outstanding and entitled to vote. Such vacancy
shall be filled by the Directors then in office, though less than a quorum, to
hold office until the next annual meeting or until his successor is duly elected
and qualified, except that any directorship to be filled by election by the
shareholders at the meeting at which the Director is removed. No reduction of
the authorized number of Directors shall have the effect of removing any
Director prior to the expiration of his term of office.
9. Resignation
A Director may resign at any time by delivering written notification
thereof to the President or Secretary of the Corporation. A resignation shall
become effective upon its acceptance by the Board of Directors; provided,
however, that if the Board of Directors has not acted thereon within ten days
from the date of its delivery, the resignation shall be deemed accepted.
10. Presumption of Assent
A Director of the Corporation who is present at a meeting of the Board of
Directors at which action on any corporate matter is taken shall be presumed to
have assented to the action(s) taken unless his dissent shall be placed in the
minutes of the meeting or unless he shall file his written dissent to such
action with the person acting as the secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
Secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a Director who voted in favor of such
action.
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11. Compensation
By resolution of the Board of Directors, the Directors may be paid their
expenses, if any, of attendance at each meeting of the Board of Directors or a
stated salary as Director. No such payment shall preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
12. Emergency Power
When, due to a national disaster or death, a majority of the Directors are
incapacitated or otherwise unable to attend the meetings and function as
Directors, the remaining members of the Board of Directors shall have all the
powers necessary to function as a complete Board, and for the purpose of doing
business and filling vacancies shall constitute a quorum, until such time as all
Directors can attend or vacancies can be filled pursuant to these Bylaws.
13. Chairman
The Board of Directors may elect from its own number a Chairman of the
Board, who shall preside at all meetings of the Board of Directors, and shall
perform such other duties as may be prescribed from time to time by the Board of
Directors. The Chairman may by appointment fill any vacancies on the Board of
Directors.
Article IV.
Officers
1. Number
The Officers of the Corporation shall be a President, one or more Vice
Presidents, and a Secretary Treasurer, each of whom shall be elected by a
majority of the Board of Directors. Such other Officers and assistant Officers
as may be deemed necessary may be elected or appointed by the Board of
Directors. In its discretion, the Board of Directors may leave unfilled for any
such period as it may determine any office except those of President and
Secretary. Any two or more offices may be held by the same person. Officers may
or may not be Directors or shareholders of the Corporation.
2. Election and Term of Office
The Officers of the Corporation to be elected by the Board of Directors
shall be elected annually by the Board of Directors at the first meeting of the
Board of Directors held after each annual meeting of the shareholders. If the
election of Officers shall not be held at such meeting, such election shall be
held as soon thereafter as convenient. Each Officer shall hold office until his
successor shall have been duly elected and shall have qualified or until his
death or until he shall resign or shall have been removed in the manner
hereinafter provided.
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3. Resignations
Any Officer may resign at any time by delivering a written resignation
either to the President or to the Secretary. Unless otherwise specified therein,
such resignation shall take effect upon delivery.
4. Removal
Any Officer or agent may be removed by the Board of Directors whenever in
its judgment the best interests of the Corporation will be served thereby, but
such removal shall be without prejudice to the contract rights, if any, of the
person so removed. Election or appointment of an Officer or agent shall not of
itself create contract rights. Any such removal shall require a majority vote of
the Board of Directors, exclusive of the Officer in question if he is also a
Director.
5. Vacancies
A vacancy in any office because of death, resignation, removal,
disqualification or otherwise, or if a new office shall be created, may be
filled by the Board of Directors for the un-expired portion of the term.
6. President
The President shall be the chief executive and administrative Officer of
the Corporation. He shall preside at all meetings of the stockholders and, in
the absence of the Chairman of the Board, at meetings of the Board of Directors.
He shall exercise such duties as customarily pertain to the office of President
and shall have general and active supervision over the property, business, and
affairs of the Corporation and over its several Officers, agents, or employees
other than those appointed by the Board of Directors. He may sign, execute and
deliver in the name of the Corporation powers of attorney, contracts, bonds and
other obligations, and shall perform such other duties as may be prescribed from
time to time by the Board of Directors or by the Bylaws.
7. Vice President
The Vice President shall have such powers and perform such duties as may be
assigned to him by the Board of Directors or the President. In the absence or
disability of the President, the Vice President designated by the Board or the
President shall perform the duties and exercise the powers of the President. A
Vice President may sign and execute contracts and other obligations pertaining
to the regular course of his duties.
8. Secretary
The Secretary shall keep the minutes of all meetings of the stockholders
and of the Board of Directors and, to the extent ordered by the Board of
Directors or the President, the minutes of meetings of all committees. He shall
cause notice to be given of meetings of stockholders, of the
6
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<PAGE>
Board of Directors, and of any committee appointed by the Board. He shall have
custody of the corporate seal and general charge of the records, documents and
papers of the Corporation not pertaining to the performance of the duties vested
in other Officers, which shall at all reasonable times be open to the
examination of any Directors. He may sign or execute contracts with the
President or a Vice President thereunto authorized in the name of the
Corporation and affix the seal of the Corporation thereto. He shall perform such
other duties as may be prescribed from time to time by the Board of Directors or
by the Bylaws.
9. Treasurer
The Treasurer shall have general custody of the collection and disbursement
of funds of the Corporation. He shall endorse on behalf of the Corporation for
collection checks, notes and other obligations, and shall deposit the same to
the credit accounts to any Director of the Corporation upon application at the
office of the Corporation during business hours; and, whenever required by the
Board of Directors or the President, shall render a statement of his accounts.
He shall perform such other duties as may be prescribed from time to time by the
Board of Directors or by the Bylaws.
10. Other Officers
Other Officers shall perform such duties and shall have such powers as may
be assigned to them by the Board of Directors.
11. Salaries
The salaries or other compensation of the Officers of the Corporation shall
be fixed from time to time by the Board of Directors, except that the Board of
Directors may delegate to any person or group of persons the power to fix the
salaries or other compensation of any subordinate Officers or agents. No Officer
shall be prevented from receiving any such salary or compensation by reason of
the fact that he is also a Director of the Corporation.
12. Surety Bonds
In case the Board of Directors shall so require, any Officer or agent of
the Corporation shall execute to the Corporation a bond in such sums and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to the Corporation, including
responsibility for negligence and for the accounting for all property, moneys or
securities of the Corporation, which may come into his hands.
7
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<PAGE>
Article V.
Contracts, Loans, Checks And Deposits
1. Contracts
The Board of Directors may authorize any Officer or Officers, agent or
agents, to enter into any contract or execute and deliver any instrument in the
name of and on behalf of the Corporation and such authority may be general or
confined to specific instances.
2. Loans
No loan or advance shall be contracted on behalf of the Corporation, no
negotiable paper or other evidence of its obligation under any loan or advance
shall be issued in its name, and no property of the Corporation shall be
mortgaged, pledged, hypothecated or transferred as security for the payment of
any loan, advance, indebtedness or liability of the Corporation unless and
except as authorized by the Board of Directors. Any such authorization may be
general or confined to specific instances.
3. Deposits
All funds of the Corporation not otherwise employed shall be deposited from
time to time to the credit of the Corporation in such banks, trust companies or
other depositories as the Board of Directors may select, or as may be selected
by an Officer or agent of the Corporation authorized to do so by the Board of
Directors.
4. Checks and Drafts
All notes, drafts, acceptances, checks, endorsements and evidence of
indebtedness of the Corporation shall be signed by such Officer or Officers or
such agent or agents of the Corporation and in such manner as the Board of
Directors from time to time may determine. Endorsements for deposits to the
credit of the Corporation in any of its duly authorized depositories shall be
made in such manner as the Board of Directors may from time to time determine.
5. Bonds and Debentures
Every bond or debenture issued by the Corporation shall be in the form of
an appropriate legal writing, which shall be signed by the President or Vice
President and by the Treasurer or by the Secretary, and sealed with the seal of
the Corporation. The seal may be facsimile, engraved or printed. Where such bond
or debenture is authenticated with the manual signature of an authorized Officer
of the Corporation or other trustee designated by the indenture of trust or
other agreement under which such security is issued, the signature of any of the
Corporation's Officers named thereon may be facsimile. In case any Officer who
signed, or whose facsimile signature has been used on any such bond or
debenture, shall cease to be an Officer of the Corporation for any reason before
the same has been delivered by the Corporation, such bond or
8
E-17
<PAGE>
debenture may nevertheless be adopted by the Corporation and issued and
delivered as though the person who signed it or whose facsimile signature has
been used thereon had not ceased to be such Officer.
Article VII
Capital Stock
1. Certificate of Share
The shares of the Corporation shall be represented by certificates prepared
by the Board of Directors and signed by the President. The signatures of such
Officers upon a certificate may be facsimiles if the certificate is
countersigned by a transfer agent or registered by a registrar other than the
Corporation itself or one of its employees. All certificates for shares shall be
consecutively numbered or otherwise identified. The name and address of the
person to whom the shares represented thereby are issued, with the number of
shares and date of issue, shall be entered on the stock transfer books of the
Corporation. All certificates surrendered to the Corporation for transfer shall
be canceled except that in case of a lost, destroyed or mutilated certificate, a
new one may be issued therefor upon such terms and indemnity to the Corporation
as the Board of Directors may prescribe.
2. Transfer of Shares
Transfer of shares of the Corporation shall be made only on the stock
transfer books of the Corporation by the holder of record thereof or by his
legal representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto authorized by power of attorney duly
executed and filed with the Secretary of the Corporation, and on surrender for
cancellation of the certificate for such shares. The person in whose name shares
stand on the books of the Corporation shall be deemed by the Corporation to be
the owner thereof for all purposes.
3. Transfer Agent and Registrar
The Board of Directors of shall have the power to appoint one or more
transfer agents and registrars for the transfer and registration of certificates
of stock of any class, and may require that stock certificates shall be
countersigned and registered by one or more of such transfer agents and
registrars.
4. Lost or Destroyed Certificates
The Corporation may issue a new certificate to replace any certificate
theretofore issued by it alleged to have been lost or destroyed. The Board of
Directors may require the owner of such a certificate or his legal
representative to give the Corporation a bond in such sum and with such sureties
as the Board of Directors may direct to indemnify the Corporation as transfer
agents and
9
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<PAGE>
registrars, if any, against claims that may be made on account of the issuance
of such new certificates. A new certificate may be issued without requiring any
bond.
5. Consideration for Shares
The capital stock of the Corporation shall be issued for such consideration
as shall be fixed from time to time by the Board of Directors. In the absence of
fraud, the determination of the Board of Directors as to the value of any
property or services received in full or partial payment of shares shall be
conclusive.
6. Registered Shareholders
The Corporation shall be entitled to treat the holder of record of any
share or shares of stock as the holder thereof, in fact, and shall not be bound
to recognize any equitable or other claim to or on behalf of this Corporation to
any and all of the rights and powers incident to the ownership of such stock at
any such meeting, and shall have power and authority to execute and deliver
proxies and consents on behalf of this Corporation in connection with the
exercise by this Corporation of the rights and powers incident to the ownership
of such stock. The Board of Directors, from time to time, may confer like powers
upon any other person or persons
Article VII.
Indemnification
No Officer or Director shall be personally liable for any obligations of
the Corporation or for any duties or obligations arising out of any acts or
conduct of said Officer or Director performed for or on behalf of the
Corporation. The Corporation shall and does hereby indemnify and hold harmless
each person and his heirs and administrators who shall serve at any time
hereafter as a Director or Officer of the Corporation from and against any and
all claims, judgments and liabilities to which such persons shall become subject
by reason of his having heretofore or hereafter been a Director or Officer of
the Corporation, or by reason of any action alleged to have heretofore or
hereafter taken or omitted to have been taken by him as such Director or
Officer, and shall reimburse each such person for all legal and other expenses
reasonably incurred by him in connection with any such claim or liability,
including power to defend such persons from all suits or claims as provided for
under the provisions of the Nevada Revised Statutes; provided, however, that no
such persons shall be indemnified against, or be reimbursed for, any expense
incurred in connection with any claim or liability arising out of his own
negligence or willful misconduct. The rights accruing to any person under the
foregoing provisions of this section shall not exclude any other right to which
he may lawfully be entitled, nor shall anything herein contained restrict the
right of the Corporation to indemnify or reimburse such person in any proper
case, even though not specifically herein provided for. The Corporation, its
Directors, Officers, employees and agents shall be fully protected in taking any
action or making any payment, or in refusing so to do in reliance upon the
advice of counsel.
10
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<PAGE>
Article VIII.
Notice
Whenever any notice is required to be given to any shareholder or Director
of the Corporation under the provisions of the Articles of Incorporation, or
under the provisions of the Delaware statutes, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated therein, shall be deemed equivalent to the giving of such
notice. Attendance at any meeting shall constitute a waiver of notice of such
meetings, except where attendance is for the express purpose of objecting to the
holding of that meeting.
Article IX.
Amendments
These Bylaws may be altered, amended, repealed, or new Bylaws adopted by a
majority of the entire Board of Directors at any regular or special meeting. Any
Bylaw adopted by the Board may be repealed or changed by the action of the
shareholders.
Article X.
Fiscal Year
The fiscal year of the Corporation shall be fixed and may be varied by
resolution of the Board of Directors.
Article Xl.
Dividends
The Board of Directors may at any regular or special meeting, as they deem
advisable, declare dividends payable out of the surplus of the Corporation.
Article XII.
Corporate Seal
The seal of the Corporation shall be in the form of a circle and shall bear
the name of the Corporation and the year of incorporation per sample affixed
hereto.
Date: September 30, 1993
/s/ Maria Conterars
- ---------------------------
Maria Conterars, Secretary
11
E-20
LETTER OF AGREEMENT
Re: ENTWISTLE COAL METHANE GAS PROJECT
This LETTER OF AGREEMENT made as of January 26, 1999 between POWER DIRECT INC.,
a body corporate having an office in the Province of British Columbia
(hereinafter referred to as "Power");
OF THE FIRST PART
-and-
I.T.A. ENTERPRISES INC., a body corporate having an office in the Province of
Alberta; (hereinafter referred to as ("ITA");
OF THE SECOND PART
AND WHEREAS:
ITA wishes to undertake the acquisition, exploration, development and operation
of a Coal Methane Gas Project in the Entwistle Area of west central Alberta,
hereinafter referred to as "The ECMG Project";
AND WHEREAS:
Power wishes to participate as a working interest owner in The ECMG Project;
THEREFORE;
The terms and conditions stipulated below shall be in effect;
1. Power shall acquire and own a 37.8% working interest in The ECMG
Project by providing a 42% share of the acquisition, exploration and
development costs for The ECMG Project. The costs for Phases I, II and
III of The ECMG Project are estimated to be Cdn. $500,000 (Five
Hundred Thousand Dollars) of which the Power 42% share of costs is
estimated at Cdn. $210,000 (Two Hundred Ten Thousand Dollars). The
working interest will be subject to a 10% gross overriding royalty
(3.78% on the 37.8% working interest of Power) payable to Nicholas
Baiton.
2. The costs for Phases I and II of The ECMG Project are estimated at
Cdn. $200,000 (Two Hundred Thousand Dollars) of which the Power 42%
share is estimated at Cdn. $84,000 (Eighty Four Thousand Dollars).
Upon execution of this LETTER OF AGREEMENT, Power shall advance to
ITA, Cdn. $8,400 (Eight Thousand Four Hundred Dollars) representing
10% of Power share of costs. This cash advance shall be non-refundable
should Power chose not to continue its obligations under this LETTER
OF
E-21
<PAGE>
LETTER OF AGREEMENT-ECMG PROJECT Cont'd
AGREEMENT. ITA shall provide Power with an "Authority For
Expenditures" (AFE) and a cash call for Phases I and II of The ECMG
Project. Within 10 days, Power shall advance to ITA, Cdn. $75,600
(Seventy Five Thousand, Six Hundred Dollars) representing the balance
of its 42% share of the estimated costs. Actual costs for the
acquisition, exploration and development of the lands shall be used to
determine the exact costs attributable to Power and an adjustment
shall be made for any difference in the funds provided by Power in the
cash call and the actual costs. Power shall make an election to
continue with Phase III after Phases I and II are completed.
3. Power shall sign a Confidentiality Agreement provided by ITA and Power
shall adhere to all the conditions stipulated in the Confidentiality
Agreement.
4. "Schedule B" is a map showing the area of mutual interest (AMI) in
which The ECMG Project lands are located. The lands being considered
for the project are either held by others, freehold or crown leases.
The project is contingent on acquiring these lands; therefor it is
mandatory that strict confidentiality be maintained during the land
negotiations.
5. ITA will not be the legal operator of the project but will act as an
Agent Manager for The ECMG Project on behalf of the Working Interest
Owners. The Working Interest owners shall execute a formal Joint
Acquisition Exploration Development and Operating agreement which
shall include provisions of the 1990 CAPL OPERATING PROCEDURE and the
1991 PASC ACCOUNTING PROCEDURE as attachments These documents shall be
executed following approval of this LETTER OF AGREEMENT by the working
interest owners.
6. Time is of the essence as it is intended to proceed with the
acquisition and posting of lands commencing in early 1999.
AGREED ON THIS 26th DAY OF January, 1999.
Power Direct, Inc.
Company I.T.A. ENTERPRISES INC.
/s/ Jack Sha /s/ N. Baiton
- --------------------- ---------------------
Signature Signature
Jack Sha, President N. Baiton, President
Title Title
E-22
<PAGE>
CONFIDENTIALLY AGREEMENT
This Confidentially Agreement, made this 22nd day of January, 1999, is between
I.T.A. Enterprises Inc., a body corporate with offices in the City of Calgary,
(the "Company") in the Province of Alberta, and Power Direct, Inc. (the
"Recipient") of the Confidential Information.
The Recipient of the Confidential Information hereby agrees on behalf of its
Employees, Directors, Agents, Consultants and Advisors as follows:
1. All Confidential Information shall be kept in strict confidence and shall
not be disclosed to any person other than the Employees, Directors, Agents,
Consultants and Advisors and such person(s) shall be informed at the time
of disclosure of the confidential nature of the Confidential
Information and any such person(s) shall be required to execute a Secrecy
Agreement as provided in Paragraph 6 hereof.
2. In the event that an Employee, Director, Agent, Consultant or Advisor of
the "Recipient" visits the property, any technical or confidential
information derived from visual inspection or discussions shall be deemed
to be part of the Confidential Information and the confidentiality and use
restrictions of this agreement shall be observed.
3. Confidential Information shall not include information which:
(a) at the time of disclosure or thereafter generally available to the
public other than as a result of disclosure by the Company.
(b) was at the time of disclosure already in the possession of the
Recipient on a lawful basis.
(c) is lawfully acquired by the Recipient, its Employees, Directors,
Agents, Consultants and Advisors from a third party under no
obligation of confidence to the Company.
4. The Recipient shall not acquire any right or interest in the Confidential
Information by virtue of the disclosure by the Company to the Recipient as
contemplated in this agreement. At any time at the request of the Company,
the Recipient shall upon request, destroy or have destroyed all memoranda,
notes, reports and documents prepare by or in its possession of the
Recipient or its Employees, Directors, Agents, Consultants, Advisors or
Representatives in connection with the Recipient's review of the
Confidential Information; or, return or cause to be returned the
Confidential Information to the Company and shall not retain any copies,
other productions or extracts thereof.
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<PAGE>
Page 2
CONFIDENTIALITY AGREEMENT cont'd...
5. The Recipient agrees that it shall not disclose to any person any of the
terms, conditions or other facts with respect to any possible transaction
concerning the Confidential Information and shall direct such of its
Employees, Directors, Agents, Consultants and Advisors not to disclose to
any person any terms, conditions or other facts with respect to the
Confidential Information.
6. The Recipient shall require each of its Agents, Consultants and Advisors,
together with their respective Employees, to execute and deliver to the
Recipient, a Secrecy Agreement in the Form of Schedule "A" attached hereto
before disclosing any Confidential Information to such Agent, Consultant or
Advisor or Employee thereof, and the Recipient shall take all such other
steps as are necessary to ensure that the terms and conditions of this
agreement are binding upon such persons.
7. The Recipient acknowledges that neither the Company nor any of its
Representatives makes any representation of warranty, express or implied,
as to the accuracy or completeness of the Confidentiality Information.
8. The Recipient agrees that neither the Company nor anyone representing the
Company shall have any liability to the Recipient or to any of the
Recipient's Representatives as a result of the use of the Confidential
Information by the Recipient or its Representatives.
9. Without limitation and in addition to any rights of the Company against the
Recipient arising by any reason of any breach hereof, the Recipient agrees
to indemnify and hold harmless, the Company against all claims resulting
from injury to or death of any persons, or from damage to or destruction of
any Property arising out of or in any way connected with the Recipient's
evaluation and inspection of the Property.
10. This agreement shall be in full force commencing on the date hereof for a
period of one year or until such a time as the Company and the Recipient
mutually choose to terminate the agreement.
AGREED TO ON THIS 22ND DAY OF JANUARY, 1999.
I.T.A. Enterprises Inc. Power Direct, Inc.
- ---------------------------- ------------------------------
Company Recipient
/s/ N. Baiton P.ENG. /s/ Jack Sha
- ---------------------------- ------------------------------
Signature Signature
N. Baiton, President Jack Sha, President
- ---------------------------- ------------------------------
Print Name and Title Print Name and Title
E-24
[LETTERHEAD]
January 15, 1999
Rising Phoenix Development Group Ltd.
409 Granville Street, Suite 304
Vancouver, B.C. V6C 1T2
Attn: Mr. Robert Klein, President
Dear Sirs:
Re: LAK Ranch oil recovery project in Newcastle, Wyoming
This letter will serve as a letter of intent between Power Direct, Inc. (PWDR)
and Rising Phoenix Development Group Ltd. (RISE) regarding the above referred
to property.
PWDR agrees to the following:
1) To acquire all the assets of RISE for three million eight hundred thousand
(3,800,000) shares of PWDR and seventy five thousand (U.S. $75,000.00)
dollars cash in U.S. Funds.
2) Will inherit all RISE's financial obligations pertaining to the LAK Ranch
property up to and including 31 January 1999.
3) Appoint up to three directors from RISE's Board of Directors to PWDR's
Board of Directors.
4) Cover its own legal costs to this transaction.
RISE agrees to the following:
1) Deliver the LAK Ranch project in good title within its joint agreement with
Derek Resources.
1
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<PAGE>
Letter of Agreement
Between Power Direct, Inc. and Rising Phoenix Development Group Ltd.
January 15, 1999
2) Make available to PWDR all contacts and information pertaining to LAK Ranch
project.
3) Release PWDR from any liabilities that RISE may have outside of the LAK
Ranch.
4) Cover its own legal costs to this transaction.
Final agreement to be completed within thirty (30) days.
Yours truly,
/s/ Jack Sha
- ----------------------------
Jack Sha
President
Rising Phoenix Development Group Ltd.
[ILLEGIBLE] [ILLEGIBLE]
- ---------------------------- -------------------------------
Authorized Signature Authorized Signature
2
E-26
February 15, 1999
LANSource Technologies Inc.
21 Randolph Avenue
Toronto, Ontario
M6P 3L8
Attn: Mr. Marc Bisnaire ("Bisnaire"), President
Dear Mr. Bisnaire;
This will confirm that Power Direct Inc. ("Power") has agreed to acquire upto a
Fifty-One (51%) Per cent ownership interest from you in LANSource Technologies
Inc. ("LANSource"), upon the following terms and conditions:
1. On the signing of this Letter of Intent (the "Letter"), Power shall deliver
to you an initial non-refundable deposit of $100,000.00. You shall be entitled
to retain this deposit as your absolute property regardless of whether this
transaction is completed, it being understood that this non-refundable payment
being made is in recognition of you withdrawing LanSource from its dealings with
other potential purchasers at this time.
2. On or before March 1, 1999, Power shall provide you with an additional
non-refundable deposit of $200,000.00, which deposit shall be treated in like
manner as the initial deposit.
3. On or before March 31, 1999, Power, LanSource and Bisnaire shall enter
into a formal Agreement of Purchase and Sale (the "Agreement") with respect
to this transaction, which Agreement shall contain the terms set out in this
Letter, together with such other commercial reasonable terms and provisions
as are ordinarily found in a transaction of this nature and which are
completely acceptable to the parties hereto. At the time of execution of
the Agreement, Power shall deliver to LanSource an additional non-refundable
deposit of $200,000.00, which deposit shall be treated in like manner as the
previous deposits. In the event that the parties for whatever reason are
unable to finalize the Agreement by March 31, 1999, then the within
transaction shall be considered null and void and you shall be entitled to
retain all deposits hereinbefore referred to.
4. On or before April 30, 1999, Power shall provide you with an additional
non-refundable deposit of $500,000.00, which deposit shall be treated in like
manner to the previous deposits.
5. On or before May 31, 1999, Power shall provide you with the sum of
($1,000,000.00), whereupon you shall deliver a 12.5% ownership interest in
LanSource to Power.
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<PAGE>
6. Provided Power has completed its initial 12.5% ownership acquisition in
LanSource, Power shall have the right to purchase an additional Twelve and One
Half (12.5%) Per Cent ownership interest from you in LanSource for the sum of
Three Million ($3,000,000.00) Dollars, by delivering to the aforementioned funds
to you by no later than September 30, 1999, failing which Power shall have no
further purchase rights in LanSource. It is understood that Power will own
Twenty-Five (25%) Per Cent of LanSource, should it complete the aforementioned
right to purchase.
7. All of the proceeds received by you pursuant to Paragraph 1, through
Paragraph 6, hereof inclusive (less any fees owing thereon and deducted
therefrom) shall be deemed to be the absolute property of LanSource and shall
remain in LanSource as working capital.
8. Provided Power has acquired a 25% ownership acquisition in LanSource in the
manner hereinbefore set out, Power shall have the right to purchase an
additional Twenty Six (26%) Per Cent ownership interest from you in LanSource
by delivering the sum of Twenty Million ($20,000,000.00) to you on or before
September 30, 2000. Any monies received by you pursuant to this Paragraph
shall remain the sole and absolute property of Bisnaire, it being understood
that Power will own Fifty-One (51%) Per Cent of LanSource, should it complete
the purchase set out in this Paragraph.
9. In the event that you elect to sell any portion of your ownership interest in
LanSource which is not the subject matter of this Letter to an arm's length
third party prior to September 30, 2000, then, provided that Power has made all
of the payments set out in Paragraph 1, through Paragraph 6, inclusive in the
manner therein set out, Power shall have the ongoing right to purchase such
ownership interest from you on the exact terms and conditions as you were
prepared to accept from any such third party. The right of first refusal
contained in this Paragraph shall only apply to you should you elect to sell
more than 10% of your remaining interest in LanSource in any single transaction.
9. On the signing of this Letter, you shall receive 1,200,000 shares of Power,
which shares shall be subject to a one year hold pursuant to S.E.C. Rule 144.
The aforementioned shares on delivery shall become the absolute property of
Bisnaire.
10. On the completion by Power of the 12.5% purchase pursuant to Paragraph 6,
hereof, Bisnair shall receive 1,200,000 shares of Power, subject to a one year
hold pursuant to S.E.C. Rule 144. The aforementioned shares shall on
delivery become the absolute property of Bisnaire.
11. This Letter shall constitute the entire agreement between the parties and
the parties shall be not be bound by any representations, warranties, promises,
agreements or inducements not embodied in this Letter. In the event that Power
fails to make any of the payments contained in this Letter within the time
prescribed or should Power be in default of any of the other provisions of this,
then all of the uncompleted rights of Power as may be contained in this Letter
shall immediately terminate and LanSource shall be deemed to have been released
from any further obligations in this matter and this paragraph shall
constitute Power's full and final release to LanSource in this matter.
12. All monetary references in this Letter shall be in certified funds and
shall be deemed to have been expressed in Canadian Dollars. This Letter may not
to be assigned, transferred to, or relied upon by any third parties. Time
shall be of the essence in all respects. Communication and acceptance of this
Letter may be made by telefax and shall be binding on the parties in such event.
This transaction shall be governed by the Laws of the Province of Ontario.
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<PAGE>
In the event that the foregoing proposal is acceptable, then we require that
you sign this Letter in the space provided by no later than midnight eastern
standard time today.
We look forward to a successful business relationship.
Power Direct Inc.
/s/ Jack Sha
per JACK SHA
I have authority to bind the Corporation
Agreed and accepted to this 15th day of February, 1999
LanSource Technologies Inc.
per
I have authority to bind the Corporation
/s/ Marc Bisnaire
- -------------------
Marc Bisnaire
E-29
GREETING CARD LOTTO(TM)
PROPRIETARY TECHNOLOGY USAGE
LICENSE AGREEMENT
PREAMBLE
This Agreement made effective the 28th day of April, 1999, is made and entered
into by and between POWER DIRECT, INC., a corporation incorporated in the State
of Delaware, USA, having an office at 4291 Meridian Street, Bellingham, WA 98226
("Power") and COMPTE DE SIERGE ACCOMODATIVE CORP, doing business as E-CARD
GAMING SYSTEMS, INC., a corporation incorporated in Panama City, Panama
("E-Card") whereby E-Card at the direction of its directors shall license Power
to utilize certain Proprietary Technology in connection with a Greeting Card
Lotto(TM).
ARTICLE 1 TITLE
This Proprietary Technology Usage License Agreement for providing the Greeting
Card Lotto(TM) operated by Power may hereinafter be referred to as the "License
Agreement" or "Agreement".
ARTICLE 2 RECITALS
A. WHEREAS, Power (Power Direct, Inc.) is a public company participating on
the OTC Bulletin Board with its primary business in investment and joint
ventures; and,
B. WHEREAS, E-Card (E-Card Gaming Systems, Inc.) is a private company
specializing in designing gaming software systems for the Greeting Card
Lotto(TM) to be operated on the Internet; and,
C. WHEREAS, Power will have a worldwide exclusive license in perpetuity to
operate the said Greeting Card Lotto(TM), however with no legal right to
any sub license, unless with consent of E-Card and on similar terms and
conditions to the terms and conditions contained in this agreement, and;
D. WHEREAS, E-Card is ready, willing and able to license the Greeting Card
Lotto(TM) to Power, upon the basis that E-Card will be providing the
Proprietary Technology to operate the Greeting Card Lotto(TM); and,
E. WHEREAS, Power has had the opportunity to evaluate the potential of the
methods and apparatus for a Greeting Card Lotto(TM), along with having had
the opportunity to evaluate the potential for meeting the profit objectives
of the Greeting Card Lotto(TM), desires a
E-30
<PAGE>
Greeting Card Lotto(TM) License Agreement - Page 2 of 19
- --------------------------------------------------------------------------------
license be granted by E-Card.
NOW THEREFORE, in consideration of the premises, other good and valuable
consideration, the receipt and sufficiency is hereby acknowledged by the
parties, and the mutual covenants and agreements recited hereinafter, the
parties hereto agree as follows:
Section 2.1 Definitions
In this Agreement, the Preamble, Recitals, this Section and the Schedules
hereto, unless the context otherwise requires:
1. "Agreement" means this License Agreement and all Schedules attached hereto,
2. "Power" means Power Direct Inc., a publicly traded corporation formed in
the State of Delaware, USA, their successors and assigns:
3. "E-Card" means COMPTE DE SIERGE ACCOMODATIVE CORP doing business as E-Card
Gaming Systems Inc., a corporation formed in Panama City, Panama;
4 "Business Day" means a day other than a Saturday, Sunday, statutory holiday
or day that is declared by any governmental authority to be a civic holiday
in the jurisdiction in which an event contemplated hereby is to take place;
5 "Greeting Card Lotto(TM)" means the proprietary software and systems owned
and operated by E-Card;
6. "License Fee" means the portion of gross sale revenue, defined as five
percent (5%) of the gross revenue of the lotto paid to E-Card by Power as
licensee of the said Greeting Card Lotto(TM).
7. "External Audit" means the annual audit to be conducted by an independent
Certified Public Accountant firm selected by Power at its expense;
8. "Lotto," means Greeting Card Lotto(TM), including, without limitation, the
following:
(a) production and communication of the Greeting Card Lotto(TM) utilizing
all or any portion of the Proprietary Technology;
(b) organization of secure accounting of virtual lottery tickets,
processing of lottery winners;
(c) the development, planning and operation of one or more lotteries to be
operated and such other business opportunities as may arise pursuant
to
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the Proprietary Technology in accordance with this Agreement;
(d) all other permitted lottery activities pursuant to applicable law and
permits and licenses derived thereunder for each jurisdiction;
9. "Country of Domicile" means Panama including all geographical territory
under the control of the Sovereignty of the country of Panama or any other
suitable alternatives.
10. "Lottery Parameters" shall refer to Lotto design and procedures which
establish and define the prize structure, lottery rules and other
parameters for the Lotto;
11. "Gross Revenue" shall mean any and all gross revenue from the Lotto due
and/or paid, from whatever source derived, to E-Card without duplication,
which can be attributed in any manner to some portion of the Proprietary
Technology, i.e, the Proprietary Technology forms at least a part of the
consideration, whether expressly recited or not, for the revenue paid.
Specific examples of Gross Revenue, without intending to limit the
scope of its definition, include the gross ticket (Lotto) dollar
volume. etc.
12. "Internal Audit" means the quarterly audit to be conducted by a auditor
appointed by E-Card at its expense;
13. "Startup Budget" means the approved startup budget with respect to the
Lotto as Attached in Schedule"A" hereunder;
l4. "Person" means any individual, partnership, limited partnership, syndicate,
sole proprietorship, company or corporation with or without share capital,
unincorporated association, trust trustee, executor, administrator or other
legal personal representative, regulatory body or agency, government or
governmental agency, authority or entity however designated or constituted.
15. "Proprietary System(s)" shall by definition, and by agreement of the
parties hereto, also include
1. the Greeting Card Lotto(TM) Software as described in this Agreement
dated effective the 28th day of April, 1999, between Power and E-Card;
2. any device, system, system component, method or process that may be
used for purchasing Greeting Card Lotto(TM).
16. "Proprietary Technology" means all technology and confidential information
considered by Power/E-Card to be proprietary technology (including without
limitation, Proprietary Systems) and all other information and/or know how
of any kind whatsoever, however
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developed, acquired or used by Power and/or the E-Card used to operate the
Lotto excluding any information already known to the public and in the
public domain.
17. "Greeting Card Lotto(TM)" is the U.S. trademark in application to be
granted to E-Card in reference to the Proprietary Technology;
18. "Operation Center" means the Lottery command and control center located in
the appropriate location to be determined.
19. "$" means currency of the United States of America.
Section 2.2 Capitalized Terms.
Subsequent capitalized terms not defined heretofore are defined in the
specific sections in which they are referenced.
Section 2.3 Interpretation.
The captions and the emphasis of the defined terms have been inserted for
convenience and do not define the scope of any provision.
Section 2.4 Compliance with Laws.
The parties shall conduct their affairs in strict accordance with all
applicable laws and regulations and that such policies will govern their conduct
with respect to the transaction contemplated by this Agreement in all respects.
Section 2.5 Time of the Essence of the Agreement.
Unless otherwise specifically provided in this Agreement, time will be of
the essence of this Agreement and of the transactions contemplated by this
Agreement.
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ARTICLE 3 REPRESENTATIONS AND WARRANTIES AND GRANT OF LICENSE FOR GREETING CARD
LOTTO AND GRANT OF RIGHT OF FIRST REFUSAL:
Section 3.1 Representations and Warranties of POWER.
POWER warrants and represents to E-Card, and acknowledges that in reliance
thereon Power may warrant and represent to E-Card and/or their Related Entities
the following:
1. POWER is a corporation in good standing under the laws of USA;
2. POWER has final authority and capacity to execute this Agreement:
3. POWER is authorized to enter into this Agreement and carry out its
terms to the full extent required.
Section 3.2 Representations and Warranties of E-Card.
E-Card warrants and represents to Power as follows:
1. E-Card has the power and capacity to provide the Proprietary Technology for
the Greeting Card Lotto(TM) as contemplated herein;
2. E-Card is authorized to enter into and execute this Agreement on behalf of
itself;
3. E-Card is authorized to carry out the terms of this Agreement to the full
extent in respect to the granting of license rights herein;
4. Neither the execution and delivery of this Agreement, nor granting of
exclusive license rights contemplated herein will violate any of the terms
and provisions of the memorandum or bylaws or articles of incorporation of
E-Card, or its Related Entities, or any order, decree, statute, by-law,
regulation, covenant, and agreement;
5. E-Card and its employees shall at all times conduct Greeting Card Lotto(TM)
development in accordance with all applicable laws worldwide.
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Section 3.3 GRANT OF LICENSE FOR GREETING CARD LOTTO(TM).
Section 3.4 Grant of Exclusive Licenses.
Subject to the terms and conditions of this Agreement, E-Card grants an
exclusive use only license, in perpetuity, worldwide, to Power to the extent
necessary to conduct the Greeting Card Lotto(TM).
Section 3.5 Grant of Exclusive Sub-Licenses.
Subject to the terms and conditions of this Agreement, Power may with the
consent of E-Card grants sub license to third parties with new terms agreeable
to E-Card in respect to the Proprietary Technology, to the extent necessary to
conduct a Greeting Card Lotto(TM) in accordance with the Lotto Parameters.
Section 3.6 Proprietary Technology.
Save and except for the technology associated with Greeting Cart Lotto(TM)
that is and shall remain proprietary to E-Card, to the extent that E-Card, will
expend time, effort, money to make enhancements to the Proprietary Technology,
that involve the use or enhancement of the Proprietary Technology resulting in
new technology, the parties hereby acknowledge that such new technology shall
not extinguish or derogate from the original Proprietary Technology of E-card
and that all proprietary right, title and interest in and to the new technology
and enhanced Proprietary Technology shall be the properties of E-Card.
Section 3.7 Preservation of Data.
All data complied in connection with the Proprietary Technology will be
copied or otherwise preserved and archived on storable media by E-Card to ensure
that all Proprietary Technology in the form of data is backed up in the case of
any loss or damage to the original data for the benefit of the parties and
delivered from time to time upon written request by any party.
Section 3.8 Grant of Right of First Refusal to Acquire Proprietary Technology.
E-Card shall not sell, assign, transfer, convey, encumber or other
hypothecate the Proprietary Technology to any Person except as specified in this
Section 3.8. In the event E-Card desires to sell, assign, transfer, convey,
encumber or otherwise hypothecate the Proprietary Technology, or any portion
thereof, to any Person, E-Card shall give first to Power notice (hereinafter
described) of E-Card's desire to sell, assign, transfer, convey, encumber or
otherwise hypothecate the Proprietary Technology, or any part thereof, and Power
shall have the right to purchase such Proprietary Technology, on the terms and
subject to the terms and subject to the conditions specified in this Section
3.8.
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1. Notice shall be given by E-Card to Power and shall consist of an offer to
sell to Power the Proprietary Technology, or portion thereof, that E-Card
then desires to sell, assign, transfer, convey, encumber or otherwise
hypothecate, to which shall be attached a statement of intention to sell,
assign, transfer, convey, encumber or otherwise hypothecate, as the case
may be, the name and address of any prospective purchaser, assignee,
transferee, or mortgagee, as the case may be; and the terms and conditions
of such sale, assignment, transfer, conveyance, encumbrance, or other
hypothecation ("Notice").
2. Power shall have the option for sixty (60) days after receipt of the Notice
to purchase all or any portion of the Proprietary Technology that E-Card
then desires to sell, assign, transfer, convey, encumber or other
hypothecate, at the price and on the terms and subject to the conditions
specified in the Notice. Within twenty (20) business days after receipt of
Notice, Power shall deliver to E-Card a written election to purchase such
Proprietary Technology.
3. The purchase price of the Proprietary Technology that E-Card desires to
sell, assign, transfer, convey, encumber or otherwise hypothecate shall be
the lesser of (i) that purchase price specified in the Notice or (ii) the
purchase price as specified in Paragraph (6) of this Section 3.8.
4. In the event the Proprietary Technology which E-Card desires to sell,
assign, transfer, convey, encumber or otherwise hypothecate is not
purchased by Power pursuant to the option specified in Paragraph (2) of
this Section 3.8, E-Card shall have no obligation to sell any of the
Proprietary Technology to Power, but, rather E-Card of such Proprietary
Technology in any lawful manner on the same terms and conditions as
specified in the Notice; provided, however, E-Card shall not sell, assign,
transfer, convey, encumber or otherwise hypothecate any Proprietary
Technology to any other person or on terms and conditions different than
those specified in the Notice without first giving Power the option for
that period specified in Paragraph (2) of this Section 31.8 to purchase the
Proprietary Technology, on the terms and conditions specified in this
Section 3.8.
5. The closing of any purchase and sale of the Proprietary Technology pursuant
to the provisions of this Section 3.8 shall take placed at the principal
office of Power at such date designated by Power, which date shall not be
later than the last day of the sixty (60) day option period described in
Paragraph (2) of this Section 3.8.
6. Purchase Price.
(a) The purchase price for the Proprietary Technology sold pursuant to
this Agreement shall be it "fair market value" as determined pursuant
to this Paragraph (6) as of the date of the event causing the purchase
and sale.
(b) The "fair market value" of the Proprietary Technology shall be
determined
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by an independent appraiser selected jointly by the parties. The
determination of fair market value by that appraiser shall obligate,
and be conclusive for, all parties to this Agreement.
(c) If the parties are unable to agree on the selection of an appraiser
within thirty (30) days after the event causing purchase and sale,
each party shall select an independent appraiser within twenty (20)
days after expiration of that thirty (30) day period. The two (2)
appraisers so selected shall each independently appraise the
Proprietary Technology and, if the difference in those two (2)
appraisals does not exceed five percent (5%) of the lower of those two
(2) appraisals, the fair market value shall be conclusively deemed to
equal the average of those (2) appraisals. If either party fails to
select an independent appraiser within the time required by this
Paragraph (6), the fair market value of the Proprietary Technology
shall be conclusively deemed to equal the appraisal of the appraiser
timely selected by the other party.
(d) If the difference between the two (2) appraisals referred to above
exceeds five percent (5%) of the lower of those two (2) appraisals,
the two (2) appraisers selected shall select a third (3rd) appraiser
who shall also independently appraise the Proprietary Technology and
whose appraisal shall be conclusively deemed to be the fair market
value of the Proprietary Technology.
(e) The parties shall share and pay equally the fees and expenses of any
appraiser named jointly, but each party shall be responsible for the
fees and expenses of any appraiser named solely by that party. Each
party shall bear and pay that party's expenses in presenting evidence
to the appraisers.
(f) In determining that purchase price, the appraisers appointed pursuant
to this Agreement shall consider all opinions and relevant evidence
submitted to them by the parties, or otherwise obtained by them, and
shall specify their determination in writing together with their
opinions and the considerations on which the opinions are based, with
a signed counterpart to each party, within sixty (60) days after
commencing appraisal.
Section 3.9 Bankruptcy or Insolvency of E-Card.
In the event E-Card files for bankruptcy or similar protection pursuant to
the bankruptcy laws of the United States of America or any other jurisdiction,
not withstanding the provisions of Paragraph 7.1 of this Agreement, such event
shall be considered conclusively by all parties as the deliver by E-Card to
Power of the Notice, and in which event Power shall have the right to purchase
the Proprietary Technology on the terms and subject to the conditions specified
by the provisions of Section 3.8.
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ARTICLE 4 REVENUE STREAM
Section 4.1 Revenue Stream.
The parties agree that in partial consideration for the forgoing licenses
Power shall agree that a non-refundable running License Fee shall be payable by
E-Card directly to Power on the basis of a Revenue Stream from the Greeting Card
Lotto(TM) Operations.
An amount of five percent (5%) Gross Revenue shall be paid to E-Card,
including, without limitation, revenue derived from any and all things of
value (paid directly or indirectly), for the right to support, sponsor or
play the Lotto, and for the right to use in any way Proprietary Systems or
any other portion of the Proprietary Technology.
Section 4.2 Payment Terms.
The parties agree that the applicable amount payable shall be tendered to
E-Card in successive weekly payments by close of business within the next five
(5) Business Days (excluding any statutory holiday) of each and every week in
which payment is being calculated and received in the Power bank account, and
remitted to such bank designated by E-Card in accordance with E-Card's
instructions and in U.S. Dollars at the bank information to be specified by
written notice.
Section 4.3 Statement of Ticket Sales.
Each remittance shall be Accompanied by a weekly statement of Gross Revenue
and Gross Receipts for each Lottery which shall be subject to verification by
Power's designated accountants and which statement shall disclose the total
Gross Revenue and total Net Revenue, the method used to calculate the ticket
sales, other non-gaming revenue and payment, and the amount due Power. All such
statements shall be in a form determined in accordance with generally accepted
accounting principles and acceptable to E-Card (See also Comprehensive Audit and
Accounting, Procedures in Article 11 below).
ARTICLE 5 NO ABATEMENT
Section 5.1 No Abatement.
The parties hereto agree that there shall be no abatement or reduction of
the monies due from the Power from E-Card for any reason.
Section 5.2 Access to Business and Records.
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At all times during the subsistence of this Agreement the duly authorized
representatives of Power shall, at their sole risk and expense and at reasonable
intervals and times, have access to Power and to all records and other data and
information relating to the Lotto which is in the possession of the Power.
Section 5.3 Notice of Disputes.
Either party shall provide the other party with written notice of any
material dispute or matter as between Power or E-Card.
Section 5.4 Non-disclosure Except as Required by Law.
All information and data concerning or derived from the Operation of the
Lotto shall be kept confidential and, except to the extent required by law or by
regulation or policy of any securities commission, stock exchange or other
regulatory body, shall not be disclosed to any person in strict confidence
without the prior consent of both parties, which consent shall not unreasonably
be withheld.
ARTICLE 6 ACQUISITION OF REVENUE STREAM
Section 6.1 Cash Payments
1. A cash payment in total Canadian Currency of $300,000.00 is to be paid
to E-Card by Power as part al payment for the purchase of a license.
2. These payments are to be made in three equal installments with the
timing as shown herein:
First Payment Upon Signing this document.
Second Payment Upon completion of Alpha Testing.
Third Payment Upon completion of Beta Testing.
Section 6.2 Stock Payments.
A stock payment of 6,000,000 Shares (Six Million Shares) of Power common
restricted stock with a one year hold period in two equal installments with
3,000,000 shares to be paid upon signing of this agreement, and the remaining
3,000,000 shares to be paid upon commencing operations.
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ARTICLE 7 TERMINATION AND RELATED MATTERS
Section 7.1 Termination for Insolvency.
Any entry by Power into an agreement and/or general assignment for the
benefit of creditors, voluntary or involuntary, or, in the event Power does not
exercise its option to purchase the Proprietary Technology granted by the
provisions of Section 3.8 of this Agreement, any petition by E-Card for
reorganization or other relief under the bankruptcy laws of the United States of
America, or any other jurisdiction, shall result in an immediate termination of
all rights granted, licensed or assigned hereunder, from E-Card to Power without
cost to or further consideration from Power.
Section 7.2 Termination for Material Default.
Subject to Section 13.1 (FORCE MAJEUR), a non-defaulting party may
terminate this Agreement upon the occurrence of any material default or breach
by the defaulting party of any as follows:
1. the non-defaulting party will notify the defaulting party in writing of the
occurrence of a material default of this Agreement;
2. the defaulting party will have a period of ten (10) days from delivery of
the written notice in which to either:
(a) correct or remedy the material default of this Agreement in a manner
satisfactory to the non-defaulting party acting reasonably;
(b) provide to the non-defaulting party a plan in writing to remedy or
correct the default of this Agreement which is acceptable to the
non-defaulting party acting reasonably;
Section 7.3 Right to Cure Material Default.
Subject to Article 18 (Arbitration) below, if the defaulting party fails to
correct or remedy the material default of this Agreement or provide the
non-defaulting party with an acceptable plan for the remedy or the correction of
the material default of this Agreement, the non-defaulting party may terminate
this Agreement upon ten (10) days written notice to the defaulting party.
Section 7.4 Surrender in Case of Termination
Should a termination take effect, Power shall within Twenty (20) Business
Days promptly return to E-Card all documents and other material containing or in
any way relating to
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Proprietary Technology.
Section 7.5 Survival of Obligations.
In the event of any termination, all obligations of the parties existing
prior to termination and all obligations, whether known or unknown at the time
of termination, stemming from the act or omissions of a given party while this
Agreement was in force and effect, shall remain an obligation of the given party
until discharged.
ARTICLE 8 SUBLICENSING/ASSIGNMENT/LIENS/ENCUMBRANCES
Section 8.1 No Charge or Encumbrance.
Power agrees not to, or not to purport to, assign, pledge, cause any lien,
encumbrance or more generally any cloud of title whatsoever to affect all or any
part of the Proprietary Technology. The parties hereto agree and understand that
the purpose of this clause is to insure that in case of any termination of
rights licensed hereunder, as provided herein, title to the licensed rights
respecting the Proprietary Technology will be free and clear of any cloud on
title.
ARTICLE 9 REPORTING / ACCOUNTING / AUDIT / PAYMENTS
Section 9.l Monthly Reporting.
Power shall make daily online and monthly written reports, as provided
herein, available to E-Card stating as to each period including but not limited
to the amount of Gross Revenue. and the amount due to E-Card for the License Fee
under the terms of this Agreement,
Section 9.2 Audit and Records.
Power and shall keep true and accurate records and books of account, in
sufficient detail to enable the fees payable to Power hereunder to be
determined, showing the annual audited summary of Gross Revenue including a
summary of amounts paid pursuant to Article 4 hereof during the course of this
Agreement, which records and books of account shall be open for inspection and
independent audit by the other parties, or a duly appointed agent of a party
upon reasonable advance notice and during Power's usual business hours. In the
event a party has such independent audit performed and it reveals that Power has
underpaid E-Card by at least $10,000 (Ten Thousand Dollars), then Power shall
reimburse the party that undertook such audit for the reasonable costs of such
audit.
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Section 9.3 Certification of Reports.
Each monthly report contemplated herein shall be accompanied by a written
certification from an authorized officer of Power as to the accuracy of the
report.
Section 9.4 Nil Report.
Should no sums be due a report shall nevertheless be rendered to document
the facts and circumstances surrounding the no sums due situation.
Section 9 Report Due Date.
All monthly reports due hereunder shall be filed within 20 days after the
close of each month.
ARTICLE 10 TERM
Section 10.1 Term.
Unless earlier terminated according to the provisions herein, this
agreement shall continue in force and effect in perpetuity.
ARTICLE 11 CONFIDENTIALITY
Section 11.1 Non-disclosure.
All information disclosed or furnished by one party to the other, whether
orally or in writing, in connection with the transaction contemplated hereunder
shall be deemed to be proprietary and confidential information of the disclosing
party, save and except to the extent that such confidential information must be
disclosed by law. The receiving party agrees that for the term of this Agreement
plus a period of seven (7) years after the date of earlier termination of this
Agreement, it shall not disclose any proprietary and confidential information to
any third party nor use the information for any purpose other than acting in the
best interest of and to protect the interest of each party hereto.
Section 11.2 Permitted disclosure.
The provisions of Section 12.1 notwithstanding, the receiving party may
disclose any such information without the prior written consent of the
other party, if such disclosure is required lawfully by any governmental
agency, court of competent jurisdiction or is otherwise required to be
disclosed by law, but only to the extent of such requirement; provided,
however; that before making any such disclosure, such party will provide to
the other party prior written notice of such
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contemplated disclosure and an adequate opportunity to interpose objections
to such disclosure or to take such other action as is necessary to assure
the confidential nature of such information.
ARTICLE 12 ARBITRATION/CONSTRUCTION/APPLICABLE LAW
Section 12.1 AAA
Any controversy or claim arising out of or relating to this Agreement or
breach thereof, shall be settled by arbitration in accordance with the
International Arbitration Rules of the American Arbitration Association, in
Seattle, Washington, or such other jurisdiction neutral to both parties within
the United States that the parties shall in writing agree, and judgment upon the
award rendered by the arbitrator may be entered in any court having jurisdiction
thereof.
Section 12.2 Attornment.
By the execution of this Agreement each of the parties irrevocably and
unconditionally, with respect to any matter or thing arising out of or
pertaining to this Agreement; hereby attorns and submits to the jurisdiction of
the arbitration hearing to be conducted under the International Arbitration
Rules of the American Arbitration Association in Seattle, Washington, by this
reference thereto,
Section 12.3 Selection of Arbitrators.
The arbitration shall be before three neutral arbitrators all of whom shall
be of the State Bar of Washington, actively engaged in the practice of law for a
1east ten ( 10) years to be selected in accordance with the International
Arbitration Rules of the American Arbitration Association and shall proceed
under the expedited procedures of the said Rules, irrespective of the amount in
dispute.
Section 12.4 Choice of Law and Attornment.
The parties further agree to be bound by the laws of the State of
Washington, but are hereby deemed to have submitted to the said jurisdiction of
the American Arbitration Association in Seattle, Washington, by this reference
thereto, which shall apply the laws of the State of Washington in the
interpretation of this Agreement.
Section 12.5 Remedies.
3. Authority
The arbitrators shall have the authority to award any remedy or relief that
a court
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of the State of Washington could order or grant, including, without
limitation, specific performance of any obligation created under the
Agreement, the awarding of punitive damages, the issuance of an injunction,
or the imposition of sanctions for abuse or frustration of the arbitration
process.
4. Damages Inadequate.
Each of the parties confirm that damages at law may be an inadequate remedy
for a breach or threatened breach of this Agreement and agrees that in the
event of a breach or threatened breach of any provision the respective
rights and obligations hereunder shall be enforceable by specific
performance, injunction pending an arbitration hearing, or other equitable
remedy that may be granted pending an arbitration hearing to maintain the
status quo.
5. Escrow
Pending the outcome of the arbitration, the parties shal1 place in escrow
with the American Arbitration Association as escrow agent the monies or
subject matter in dispute. The escrow agent shall be entitled to release
such monies or subject matter in dispute as directed by the arbitrators in
the award, unless the parties agree otherwise in writing.
ARTICLE 13 FORCE MAJEURE
Section 13.1 Force Majeure
Each party shall be excused from any breach or default with respect to this
Agreement to the extent that the party was prevented from performance by reason
of anything beyond the party's control and not reasonably avoidable such as a
strike or other labor disturbance, act of any governmental authority or agency,
fire, flood, wind, storm or any act of God or the act or omission of any party
not controlled by that party. No party shall be liable to the other party for
any delay in or failure of performance under this Agreement due to a Force
Majeure. Any such delay in or failure of performance shall not constitute
default or give rise to any liability for damages. The existence of such causes
of delay or failure shall extend the period of performance to such extent as is
mutually determined by the parties to be necessary to enable complete
performance by a party if reasonable diligence is exercised after the causes or
delay or failure have been removed.
ARTICLE 14 NOTICES
Section 14.1 Notice Requirements.
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6. All notices for the purpose of this Agreement shall be deemed to be
properly served when in writing and sent by tele-copier or facsimile, to
the other party at the address set forth in the opening paragraph of this
Agreement, or to such substitute address as such party may from time to
time designate in writing to the other.
7. Each party shall cause all notices which may in any way affect the
obligations and responsibilities of the other party to be directed or
forwarded to that other party as the case may be and agrees to forward all
notices effecting the Proprietary Technology that may be received from
third parties to the other party.
8. An accidental omission in the giving of, or failure to give, a notice
required by this Agreement will not invalidate or affect in any way the
legality of any meeting or other proceeding in respect of which such notice
was or was intended to be given.
9. A party may change its address by giving written notice of such change to
the other.
10. A document sent by telex or facsimile will be deemed to be received on the
first Business Day after valid transmission.
ARTICLE 15 INDEMNITY FOR MATERIAL BREACH
Section 15.1 Mutual Indemnities.
Each party shall indemnify defend and hold the other harmless from and
against all claims, demands, losses, costs, expenses, obligations, liabilities,
damages, recoveries and deficiencies including interest, penalties and
reasonable attorney's fees, that the other may incur as a result of any material
breach by other of any terms, representations or warranties hereof.
ARTICLE 16 NON-WAIVER
Section 16.1 No Waiver.
The failure by either party to enforce at any time any of the provisions of
this Agreement, or any rights in respect thereto, or to exercise any election
herein provided, shall in no way be considered to be a waiver of such
provisions, rights or elections, or in any way to affect the validity of this
Agreement. The exercise by a party of any of its rights herein or any of its
elections under the terms of covenants herein shall not preclude or prejudice
that party from exercising the same or any other right it may have under this
Agreement or law, irrespective of any previous action or proceeding taken by
that party hereunder.
ARTICLE 17 INVALIDITY/ILLEGALITY OF PART AGREEMENT
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Section 17.1 Entire Agreement/Written Modification.
This Agreement sets forth the entire intent of and understanding between
the parties hereto with respect to the subject matter hereof, supersedes all
prior discussions, negotiations and Agreements between them, and may be amended
only by a written agreement signed by all parties.
Section 17.2 Partial Invalidity/Severability.
If any provision of this Agreement or any part of any provision (in this
section call the "Offending Provision") is declared or becomes unenforceable,
invalid or illegal for any reason whatsoever including, without limiting the
generality of the foregoing, a decision by any competent courts, legislation,
statutes, bylaws or regulations or any other requirements having the force of
law, then the remainder of this Agreement will remain in full force and effect
as if this Agency Agreement has been executed without the Offending Provision,
but amended so as to be capable of being interpreted in a manner that is most
consistent with the original intention of the parties as stated herein.
ARTICLE 18 FURTHER ASSURANCES
Section 18.1 Further Assurances.
The parties hereby covenant and agree to do the things, to attend the
meetings and to execute the further documents, Agreements, and assurances that
may be deemed necessary or advisable from time to time in order to carry out the
terms and conditions of this Agreement in accordance with their true intent.
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ARTICLE 19 INTERPRETATION
Section 19.1 Interpretation of Agreement.
For all purposes of this Agreement except as otherwise expressly provided
or as the context otherwise requires:
1. the headings will be considered as provided for convenience only and as not
forming a part of this Agreement, and will not be used to interpret, define
or limit the scope, extent or intent of this Agreement or any of its
provisions:
2. the word "including", when following any general term or statement, is not
to be construed as limiting the general term or statement to the specific
items or matters set forth or to similar items or matters but rather as
referring to all other items or matters that could reasonably fall within
the broadest possible scope of the general term or statement;
3. accounting terms, not otherwise defined have the meanings assigned to them
in accordance with generally accepted U.S. GAAP;
4. a reference to a statute includes every regulation made pursuant thereto,
all amendments to the statute or to any such regulation in force from time
to time, and any statute or regulation which supplements or supersedes such
statutes or any such regulation;
5. a reference to an entity includes any entity that is a successor to such
entity;
6. words importing the masculine gender include the feminine or neuter, words
in the singular include the plural, and for greater certainty, End Users
includes all its Related Entities formed at the relevant time, and vice
versa.
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<PAGE>
Greeting Card Lotto(TM) License Agreement - Page 19 of 19
- --------------------------------------------------------------------------------
ARTICLE 20 EXECUTION
Section 20.1 Counterparts.
This Agreement may be executed in one or more counterparts and/or via one
document exchanged between the parties and/or their attorneys, Federal Express
or facsimile machine. Each part or facsimile shall for all purposes be deemed an
original.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
at Bermuda, British Columbia and California effective as of the date first
written above.
COMPTE DE SIERGE ACCOMODATIVE CORP
doing business as E-CARD GAMING SYSTEMS, INC.
By /s/ Conrado Beckerman
------------------------------------
Conrado Beckerman, Director
POWER DIRECT, INC.,
By /s/ Jack Sha
------------------------------------
Jack Sha, President
By /s/ Michael Wright
------------------------------------
Michael Wright, Chairman
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