U.S. Securities and Exchange Commission
Washington, D.C. 20549
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Form 10SB
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GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL
BUSINESS ISSUERS UNDER SECTION 12(B) OR (G) OF THE
SECURITIES EXCHANGE ACT OF 1934
PowerSource Corporation
(Name of Small Business Issuer in its charter)
---------------------
Nevada 61-1180504
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3660 Wilshire Boulevard, Suite 1104
Los Angeles, California 90010
(Address of principal executive office) (Zip Code)
(213) 383-4443
(Registrant's Telephone Number)
Securities to be registered under Section 12(g) of the Act:
Common Shares
================================================================================
<PAGE>
United States
Securities and Exchange Commission
Washington, D.C. 20549
ATT: Bill Underhill,
Examiner
Re: PowerSource Corporation
File No: 1-15071
Form 10-SB; Amendment # 1
Filed June 30, 1999
Dear Mr. Underhill:
The following is an Amendment No.2 to the Registration Statement on form
10SB12G. This Amendment includes responses to the sections of the comment letter
dated September 9, 1999 from Richard K. Wulff, chief of the Office of Small
Business Policy at the Securities and Exchange Commission ("SEC").
Sincerely,
E.Douglas Mitchell
/s/ -----------------
E. Douglas Mitchell
President
<PAGE>
PowerSource Corporation
TABLE OF CONTENTS
Part I
GENERAL
Paragraph Page
1 CURRENT ACTIVITIES AND NECESSARY MATERIAL EVENTS.................7
Acquisition of Opportunities
1 POSSIBLE ENERGY SOURCE ACQUSITION................................7
2 INDUSTRY.........................................................8
3 OTHER POSSIBLE M&A TRANSACTIONS..................................8
4 MARKETING MATERIALS..............................................8
5 REPORTING OBLIGATIONS
Form of Acquisition
1 LOAN FINANCING...................................................9
2, 3& 4 OTHER POSSIBLE M&A TRANSACTIONS..................................9
Business Development
1&2 CURRENT ACTIVITIES.............................................9
3 PROCUREMENT AGENT BID STATUS....................................9
4 FINANCING EFFORTS..............................................11
5 MARKET INFORMATION SOURCES.....................................11
6 PUBLIC NEWS COVERAGE...........................................11
7 506 REGULATION D OFFERING STATUS...............................11
8 PRIVATE SALE OF STOCK..........................................11
9&10 LOAN FINANCING.................................................11
Management
1 MANAGEMENT STOCK...............................................12
Market For Common Stock
1 TRADING MARKET.................................................12
Description of Property
1&2 HEADQUARTERS...................................................12
Executive Compensation
1 EMPLOYMENT AGREEMENTS..........................................12
2 SALARIES.......................................................12
3 POTENTIAL FINDERS FEES.........................................12
<PAGE>
Protected Territories - District
1 MARKETING AGREEMENTS...........................................13
Trademark and Licenses
1 TRADEMARK APPLICATION STATUS...................................13
Principal Stockholders
1 PRINCIPAL STOCKHOLDERS DESCRIPTION.............................13
2 SOLE INVESTOR POWER............................................13
Recent Sales of Unrestricted Securities
1 RECENT SECURITY SALE...........................................13
2 EXEMPTION......................................................14
Respond to Exhibit Section
1 FLOW OF EXHIBITS...............................................14
Part II
ACCOUNTING COMMENTS
Financial Statements as of December 31, 1998
1 LETTER OF CREDIT................................................14
2 ACCOUNTS RECEIVABLE TERMS.......................................14
3 OIL PROPERTIES VALUATION........................................14
4 STATEMENT OF EQUITY.............................................14
5 EARNINGS PER SHARE..............................................14
Financial Statements as of March 31, 1999
1 DEFERRED INTEREST...............................................14
2 ORGANIZATION EXPENSE............................................14
3 OFFICERS SALARIES...............................................14
4 NOTES PAYABLE CASH FLOW.........................................15
5 ACCOUNTANT'S LETTER.............................................15
<PAGE>
F/S
1. FINANCIAL STATEMENTS YEAR ENDED 12-31-1998 AND 1997......... F-17 - F-28
2. FINANCIAL STATEMENT FOR THE THREE MONTH ENDED MARCH,31-1999..F-29 - F-42
3. FINANCIAL STATEMENT FOR THE SIX MONTH ENDED JUNE 30, 1999....F-53 - F-57
SIGNATURE PAGE.........................................................
Part III
Exhibits and Material Contracts
The Following Documents are Filed as Part of This Amendment No 2:
Exhibit Page
1 Prestige Capital Letter.............................................61
1(a) Prestige Capital Agreement..........................................62
1(b) Frontier Pacific Insurance Bond.....................................68
2 Press Release Dated July 1..........................................72
2(a) Press Release Dated August 10.......................................75
3 RH Underwriting Agreement...........................................77
4 Private Placement Memorandum........................................81
5 Senator Associates Note............................................128
6 NASD Letter........................................................129
7 Commercial Lease...................................................130
8 Selling Agreement for Premier Energy Group LLP
and Paramount Energy Group LLP.....................................158
8(a) Selling Agreement for Energy District 111 LLC......................166
9 Statement re: computation of per share earnings....................173
10 Letter Reguarding a Former Accountant..............................174
EX-27 UT Summary Financial Info .........................................175
<PAGE>
Part I
General
Paragraph 1
CURRENT ACTIVITIES AND NECESSARY MATERIAL EVENTS
PowerSource is currently submitting customers that have accepted the Company as
their new energy provider. Approximately 1,000 customers have now completed the
switching process to move from their existing electric utility to the services
offered by PowerSource. This conversion rate was accomplished during a testing
phase conducted by the Company's four major telemarketing organizations using a
limited number of agents. The ability to obtain the number of customers
necessary to make the Company profitable over a long term is dependent on the
continued success of the marketing efforts. The Company's breakeven point is
estimated at about 5,000 customers. PowerSource's ability to realize revenue is
dependent on successful implementation of the following steps:
1. Secure a line of credit for purchasing power -- PowerSource has bean
successful in obtaining sufficient financing in order to conduct a full - scale
business. PowerSource have entered into secured $3,000,000 financing agreement
with Prestige Capital Corporation, who is specializing in the lending business
against accounts receivables. This agreement has been signed on October 12,
1999. This financial agreement is provided in Exhibit 1. In addition,
PowerSource has successfully obtained a surety bond needed to satisfy Automated
Power Exchange requirements for purchasing power in California. A bond for
$150,000 was obtained from Frontier Pacific Insurance Company on September 9,
1999. The surety bond agreement is provided in Exhibit 16-4(o).
2. Test the billing and collection systems with the Utility Distribution
Companies (UDCs) -- PowerSource is testing billing and collection mechanisms in
order to use the UDCs for revenue generation. While these software services are
provided by an experienced vendor, until actual payments start to accumulate in
a PowerSource bank account some uncertainty remains that this system will
experience problems thereby creating delays in payments to PowerSource.
3. Prepare for update of a new Electronic Data Interface (EDI) protocol -- In
order to standardize the transfer of electronic information between Electric
Service Providers (ESPs) and the UDCs, an update in protocols has been
coordinated between all parties for almost a six-month period. A full testing
schedule will be required before the conversion of the existing system to the
new system. The vendors used by PowerSource have been active in these activities
since their inception. Nevertheless, changes of this type have the potential to
disrupt operations by unexpected problems and may cause the potential for a
delay of payments due PowerSource.
4. Maintain continued expansion of marketing activities - PowerSource now has
five telemarketing organizations under contract, one firm that uses door-to-door
sales personnel, and one firm specializing in "affinity" marketing to large
non-profit associations. While these independent sales groups are expected to
meet or exceed the current sales projections anticipated by PowerSource, until
sales are actually achieved there is a risk of not obtaining these goals.
5. Continue influx of investor funds to fuel expansion -- New customer growth is
dependent on obtaining investor funds to pay the up-front commissions demanded
by marketers. The availability of these funds is uncertain and dependent on
general economic conditions of the financial markets and on the specific
continued economic interest of investors in PowerSource. The success of the
private placement currently underway will materially influence the Company's
rate of revenue growth. If only minimum amount of funding is raised, the Company
will have limited marketing resources resulting in limited revenue.
Acquisition of Opportunities
- ----------------------------
Paragraph 1
POSSIBLE ENERGY SOURCE ACQUISITION
In the second quarter of 1999, PowerSource was evaluating a possible acquisition
of a renewable energy source in a form of a wind turbine project. The Company
engaged in a standard due diligence and negotiations process, which was
subsequently terminated in the proposal stage, prior to reaching any
satisfactory understandings or agreements of any nature with the selling party.
Currently, the Company is not engaged in any negotiations related to an
acquisition or merger of the above mentioned or any other renewable energy
source.
<PAGE>
Paragraph 2
INDUSTRY
The restructuring of the electric utility industry in California allows Electric
Service Providers like PowerSource to provide its customers with power derived
only from resources that are less harmful to the environment and renewable in
nature. The use of these resources helps clean up California's air, reduces
greenhouse emissions and supports in-state energy industries. The California
Energy Commission selects the specific resources that comply with these
environmental standards. This agency has determined that the following resources
should be included in the renewable category: biomass, digester gas, geothermal,
small hydro, landfill gas, municipal solid waste, photovoltaic, solar thermal,
waste tire, and wind. By purchasing from this group of energy resources,
PowerSource is able to participate along with 14 other companies in the over $75
million pool set aside for discounts to customers using green energy.
Paragraph 3
OTHER POSSIBLE M&A TRANSACTIONS
In addition, PowerSource at this time is not contemplating any other acquisition
or merger transactions, including using the Company as a vehicle for a reverse
acquisition or merger.
Paragraph 4
MARKETING MATERIALS
In its search for business opportunities, PowerSource intends to use the
Company's standard promotional material, including a full-color marketing
brochures, an Internet Website, as well as information contained in a sales
training manual and a public/investor relations packet in the future.
Paragraph 5
RREPORTING OBLIGATIONS
Disclosure re: the Company's reporting obligations under the Securities Exchange
Act of 1934, particularly with regard to the requirement for certified financial
statements.
On June 4, 1999, PowerSource Corporation ("Company") filed a Registration
Statement on Form 10-SB ("Registration Statement") with the Securities and
Exchange Commission ("SEC"). On June 30, 1999, the Company filed Amendment No. 1
to its Registration Statement on Form 10-SB. Although the SEC still has not
cleared all of the comments which have resulted from the review by the SEC of
the Registration Statement and Amendment No. 1 thereto, as a result of the
nature of the Registration Statement, the Registration Statement automatically
became effective on or about August 3, 1999, that is, 60 days after filing with
the SEC. The Company is now a "reporting issuer", i.e., a public company, and is
required to make certain regular disclosures by filing quarterly, annual and,
when appropriate, other reports with the SEC, which must be filed
electronically.
Form 10-K is an annual report to the SEC which covers substantially all of the
information in the 1933 Act Form S-1 registration statement, other than
information on underwriting and the use of proceeds. The report is due 90 days
after the Company's fiscal year end. The Form 10-K includes the full audited
financial statements for the year under report as well as certain prior
financial information.
Form10-Q is a quarterly report containing unaudited financial information and,
if certain types of nonrecurring events occur during the reporting period (for
example, the commencement of significant litigation), these events must be
reported on Form 10-Q. This report is due 45 days after the end of each of the
first three fiscal quarters.
As the Company's common stock constitutes a class of equity securities
registered pursuant to Section 12 of the Securities Exchange Act of 1934
("Exchange Act"), (I) any officer or director of the Company, or (ii) any
beneficial owner of more than 10% of the Company's issued and outstanding shares
of common stock are now required to report their transactions involving the
Company's equity securities to the SEC.
More significantly, certain provisions of the Exchange Act, commonly referred to
informally as the "Williams Act", deal generally with tender offers. The
"Williams Act" is actually a series of amendments to the Exchange Act,
principally Sections 13 (d) and (e), which impose certain disclosure obligations
on persons who beneficially own more than 5 % of a class of equity security
registered pursuant to Section 12 of the Exchange Act, and Sections 14(d) and
(e), which relate to tender offers for a class of registered securities, if the
person making the tender offer would be a beneficial owner of more than 5 % of
that class of stock after consummation of the tender offer. These provisions
also provide the SEC with power to regulate purchases of the Company's
securities by the Company and its control persons.
<PAGE>
There are elaborate and extensive rules and disclosure forms promulgated
pursuant to these provisions. All 5 % shareholders are required to file initial
reports pursuant to these provisions on Schedule 13D. Followup reports will be
required promptly to specify any material change in shareholdings. Those persons
who are already 5% shareholders must file a Schedule 13G forty-five days after
the first calendar year end when they become subject to the Williams Act
reporting requirements. Additional filings on Schedule 13G are due on each
succeeding February 14 if there has been a change in the reported information
during the year. Material changes in shareholdings in the interim period will
trigger additional Schedule 13D filing requirements.
Form of Acquisition
- -------------------
Paragraph 1
LOAN FINANCING
The Company may possibly borrow funds and use the proceeds therefrom to make
payments to the Company's promoters, management or their affiliates or
associates, if the need arises in the future.
Paragraphs 2, 3 & 4
OTHER POSSIBLE M&A TRANSACTIONS
None of the Company's officers, directors, promoters, their affiliates or
associates have had any preliminary contact or discussions, and there are no
present plans, proposals, arrangements or understandings with any
representatives of the owners of any business or company, including entities in
which the Company's promoters, management, their affiliates or associates
directly or indirectly have an ownership interest, regarding the possibility of
any acquisition or merger transaction.
The Company's original bylaws, dated February 15, 1990, specified at Article
III, paragraph 4, that the Company was authorized to enter into any kind of
contract or agreement that the Company may deem advisable, including agreements
with its officers or employees. Article III, paragraph 5 authorizes the Company
to purchase, or otherwise acquire, in whole or in part, the business, good will,
rights, franchises, and property of any kind. Article III, paragraph 7
authorizes the Company to enter into contracts of every kind. Article III,
paragraph 7 authorizes the Company to enter into contracts of every kind for any
lawful purpose, with any person or firm, without restriction.
Although the Company's bylaws were amended on or about May 12, 1998, these
specific provisions were never repealed, and remain the Company's corporate
policy.
Moreover, the Company, a Nevada corporation, is governed by the Nevada General
Corporation Law ("NGCL"). Section 78.140 of the NGCL specifies restrictions on
transactions involving interested directors or officers. A related party
transaction between the Company and its officers or directors, or another
corporation, firm or association in which one or more of its directors or
officers are either (1) directors or officers or (2) financially interested, is
specifically authorized, as long as the interest or affiliation of that officer
or director (or affiliate of same) is disclosed to the board of directors of the
Company, and the board of directors ratify the contract or transaction in good
faith by a vote sufficient for that purpose without counting the vote or votes
of the interested directors.
A related party transaction between the Company and an officer or director, or
affiliate of same, is also authorized when the stockholders, with full knowledge
of the related party transaction, approve or ratify the contract or transaction.
In either case, however, the related party contract or transaction must be fair
to the Company at the time it is authorized or approved.
Business Development
Paragraph 1 & 2
CURRENT ACTIVITIES
The Company's current business operations are concentrating on securing new
residential and small commercial accounts, completing the billing and collection
systems with the UDCs and preparing a new EDI protocol, expanding marketing
activities, and coordinating the private placement. The completion of the
Company's short-term goals leading to revenue generation within the next 12
months depends on the Company's ability to raise funds for marketing activities.
Paragraph 3
PROCUREMENT AGENT BID STATUS
In December 1998, in response to the City of Santa Monica's Request for
Qualifications and Proposals, PowerSource submitted a proposal to become the
procurement agent for Santa Monica's energy. The proposal included the
development and implementation of an energy efficiency planning program for the
City and its constituents, the purchase of power from renewable sources, and the
installation of distributed solar power within the City. The Company presented
the proposal as part of a vendor team, which included the Solar Utility Company,
Gottfried Technologies, Princeton Development Corporation, and Flack & Kurtz
Engineers. The City of Santa Monica has recently made a selection of its energy
consulting firm in response to multiple proposals it has received. The decision
favored a competing party unaffiliated with PowerSource, and as a result the
Company is no longer involved in this project.
<PAGE>
Paragraph 4
FINANCING EFFORTS
As stated in GENERAL section of Paragraph 1, section 1 of this filing,
PowerSource has obtained a sufficient funding for purchase of power. The Company
does not have adequate capital to implement its marketing program at this time
Company has signed-up over 1800 new costumers of which about 1000 of them has
been already connected to PowerSource. PowerSource need to switch about 5000
costumers in order to achieve a breakeven point. The 506 Regulation D offering
has resulted in sale of 40,400 shares of Common Stock to date, raising $101,000.
Paragraph 5
MARKET INFORMATION SOURCES
The Company's management based its beliefs as to the nature and extent of the
Company's proposed energy markets, and the growth of the industry, on
information published and disseminated by (1) Itron Company (2) the California
Energy Commission and (3) Edison Electrical Institute, a prominent industry
trade groups. Itron is a global leader in data collection and management. Itron
Company conducted research through 10 focus groups and a nationwide survey. This
information has bean gathered from Itron Press Releases published in 1997. Itron
Press Release Archive area contains the data of Itron press releases that have
been released during the past year only.
Paragraph 6
PUBLIC NEWS COVERAGE
The Company is unaware of any independent news articles, which may have appeared
concerning the Company and its business and services in the last six months.
However, in the same time period, the Company produced 2 press releases on July
1 and August 10, 1999, copies of which are provided in Exhibits 2 and 2(a),
respectively.
Paragraph 7
506 REGULATION D OFFERING STATUS
The original 506 Regulation D underwriting agreement with Nexcore Capital was
terminated. The Company subsequently reorganized the private placement
commencing on February 5, 1999 and raising $101,000 until present date. Recently
the Company signed an underwriting agreement with RH Investment Corp., included
in Exhibit 3, for which the prospectus is being amended. A copy of the private
placement memorandum is provided in Exhibit 4.
Paragraph 8
PRIVATE SALE OF STOCK
Between January 1 and December 31, 1998, approximately 80,000 shares of
PowerSource were issued to approximately 270 shareholders of Kensington Company,
Inc., a fully reporting company, which used to own 100% of the shares of
American Gas Corporation (subsequently renamed to PowerSource). The preferred
stock was issued to Kensington International Holding Corporation in exchange for
oil and gas equipment and other assets, which were appraised at fair market
value at the time of exchange at $535,000.
Paragraph 9 & 10
LOAN FINANCING
The Company has a $67,700 short-term note loan from Senator Associates Ltd. The
annual interest rate on the loan is 7%. An agreement with Senator Associates
Ltd. is provided in Exhibit 5.
The Articles of Incorporation and Bylaws of the Company do not contain any
limitation on the amount or percentage of indebtedness, funded or otherwise, the
Company might incur. The more the Company's assets are leveraged, the greater
the risk that short-term fluctuations in the Company's operations might have a
material adverse affect on the Company's ability to acquire additional
financing, when and if required. Typically, the more the Company becomes
leveraged, the greater the increase in debt service. Such an increase in debt
service could adversely affect the Company's ability to make distributions to
its stockholders and result in an increased risk of default on its obligations.
Business loans are typically secured by (1) accounts receivables, and (2) other
physical assets of the borrower. In the event of a default on a secured
obligation, the Company might lose significant physical assets or contracts
vital to the Company's continued operations, which might force the Company into
insolvency. The Board of Directors of the Company will determine policies with
respect to financing or refinancing of assets and policies with respect to
borrowings by the Company.
<PAGE>
Management
Paragraph 1
MANAGEMENT STOCK
As part of its independent sales organization incentive program, the Company has
authorized 1,000,000 Class C Warrants to purchase 1,000,000 shares of the
Company's Common Stock exercisable for a purchase price of $2.50 per share, and
exercisable for a period to be determined by the Company's Board of Directors
upon the grant of those warrants. No Class C Warrants are currently issued or
outstanding. As part of its employee and consultant incentive program, the
Company has authorized 1,000,000 Class D Warrants of the Company's Common Stock
exercisable for a purchase price of $.10 per share, and exercisable for a period
to be determined when the Warrants are granted. A total of 350,000 Class D
Warrants are currently issued and outstanding.
The Company anticipates Company securities issued to management in the future
will be (1) pursuant to a qualified or non-qualified stock option plan approved
and adopted by the Company's board of directors and thereafter approved by the
Company's stockholders; or (2) as compensation for deferred or unpaid salary,
but only upon a finding by the Company's board of directors that such
compensation is fair and reasonable and that the issuance of such securities is
in the best interests of the Company.
Market For Common Stock
- -----------------------
Paragraph 1
TRADING MARKET
PowerSource currently has no plans, proposals, arrangements or understandings
with any person relating to the development of a trading market in any of the
Company's securities, other than being allowed to trade on pink-sheets by the
NASD per letter dated 05.20.99 included in Exhibit 6.
Description of Property
- -----------------------
Paragraph 1 & 2
HEADQUARTERS
PowerSource executive offices are located at 3660 Wilshire Boulevard, Suite
1104, Los Angeles, California. The offices are part of a professional business
center building suitable for common business activities and adequate for up to
15 employees. The Company has a straight commercial lease agreement for the
premises, a copy of which is provided in Exhibit 7.
Executive Compensation
- ----------------------
Paragraph 1
EMPLOYMENT AGREEMENTS
At the present time, the Company has no employment agreements with any of its
five full-time employees, however such agreements are being currently
contemplated and will be filed in the future.
Paragraph 2
SALARIES
Three executive officers have been paid salaries in the range of $3,000-4,000
per month. The salaries are expected to increase as funds become available.
The Company currently compensates its executive officers significantly less than
the market rates for persons with similar background, education, and experience.
The Company anticipates that, as the Company generates additional revenues, or
raises additional operating capital through the offer and sale of securities, or
otherwise, the Company's board of directors will authorize an increase in the
compensation paid to the Company's executive officers to comport with industry
norms.
Paragraph 3
POTENTIAL FINDERS FEES
The Company's board of directors has broad power to take any action which the
board, in good faith and pursuant to the prudent business standard, deems
appropriate and in the best interests of the Company. Therefore, a potential
exists that the board of directors, promoters or their affiliates or associates,
subject, however, to the various restrictions placed upon related party
transactions and transactions with interested officers, directors, and their
affiliates specified in the NGCL, as specified above.
<PAGE>
Protected Territories - District
- --------------------------------
Paragraph 1
MARKETING AGREEMENTS
Two of the five limited liability partnerships have been cancelled. The three
remaining limited liability partnerships are: Energy District 111 LLC, Premier
Energy Group LLP, and Paramount Energy Group LLP.
Trademarks and Licenses
- -----------------------
Paragraph 1
TRADEMARK APPLICATION STATUS
A service mark application filed with the United States Department of Commerce,
Patent and Trademark Office on August 2, 1998 has been declined on August 24,
1999 due to prior existence of similar names, albeit in unrelated industries.
The Company is contemplating a new filing under a different name in the near
future.
Principal Stockholders
- ----------------------
Paragraph 1
PRINCIPAL STOCKHOLDER DESCRIPTION
Advanced Legal Management Company, Inc., a principal stockholder of PowerSource
is a consulting and management services firm for small business clients.
Advanced Legal Management does not employ any attorneys or provide any legal
services for its clients.
Paragraph 2
SOLE INVESTOR POWER
Each of the Company's principal stockholders has sole investment power and sole
voting power.
Recent Sales of Unregistered Securities
- ---------------------------------------
Paragraph 1
RECENT SECURITY SALES
Recent sales of the Company's securities were under the 506 Regulation D
exemption and included the following:
-------------------------------- ------ -------- --------
Shareholder Name ............ Number of ShaAmount Paid Date Purchased
---------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Elizabeth Mangham Haugen ........ 2,000 $ 5,000 10/08/98
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Kevin Boyle ..................... 6,000 $ 15,000 09/29/98
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Stephen Zukerman ................ 2,000 $ 5,000 11/20/98
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Kenneth Showalter ............... 2,000 $ 5,000 11/30/98
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Bill Russell .................... 2,000 $ 5,000 12/16/98
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Gary Glasband ................... 6,000 $ 15,000 11/25/98
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Kiran Kamdar .................... 10,000 $ 25,000 04/23/99
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Aditya Raman .................... 400 $ 1,000 04/23/99
--------------------------------- ------ -------- --------
--------------------------------- ------ -------- --------
Bernard Kegan ................... 10,000 $ 25,000 06/25/99
--------------------------------- ------ -------- --------
-------------------------------- ------ -------- --------
Total ........................... 40,400 $101,000
--------------------------------- ------ -------- --------
<PAGE>
Paragraph 2
EXEMPTION
The Company's private placement offering is exempted under Regulation D and is
reserved only for accredited investors. All investors received a private
placement memorandum along with information about requirements to qualify as
accredited investors.
Respond to Exhibit Section
Paragraph 1
FLOW OF EXHIBITS
The exhibits erroneously referred to as 3(l), 3(n) and 15-4(f) were in the
exhibit section under 16-4(i), 16-4(l) and 16-4(f), respectively. 16-4(i) is a
form of a marketing agreement; 16-6(l) contains the price, terms and conditions
of the PowerGreen 100 and PowerGreen 25 products; 16-4(f) is a copy of an
agreement with Automated Power Exchange, one of PowerSource's principal energy
suppliers.
Part II
ACCOUNTING COMMENTS
12/31/98 Financial Statements
- -----------------------------
Paragraph 1
LETTER OF CREDIT
The $26,000 is correctly identified as an asset on the Balance Sheet, and is
offset with a liability recorded as part of the agreement with Senator
Associates (please see Note 6), resulting in a zero effect with the advantage of
additional disclosure.
Paragraph 2
ACCOUNTS RECEIVABLE TERMS
For a complete disclosure of the terms of account receivable repayment, revenue
recognition policy and other issues resulting from the marketing territory sale,
please refer to the sample Selling Agreement in Exhibit 8 and 8(a).
Paragraph 3
OIL PROPERTIES VALUATION
The Investment In Oil and Gas Properties, including rolling stock, pipelines,
pumping and other equipment, is properly recorded at its fair market value of
$535,000, which was officially appraised at the time of exchange for 5,350
shares of $100 par value Preferred Stock. At the time of the transaction, the
Preferred Stock had no established market value.
Paragraph 4
STATEMENT OF EQUITY
The 1997 Statement of Equity is provided in the Financial Schedule
Paragraph 5
EARNINGS PER SHARE
The EPS figure is included in the Statements of Income and Retained Earnings in
the Financial Scchedule.
3/31/99 Financial Statements
- ----------------------------
Paragraph 2
DEFERRED INTEREST
Deferred Interest is recorded as an asset in correspondence to the interest
portion of the lease payments, which are recognized as a liability in the Note
Payable account according to GAAP rules. The total obligation, including the
lease amount and interest payments, is recognized as a liability, therefore the
assets include not only the equipment leased, but also Deferred Interest
according to the terms of the lease.
Paragraph 3
ORGANIZATION EXPENSE
The Organization Expense, which includes legal fees, licensing fees, and certain
other organization costs, is being amortized according to GAAP rules using the
straight-line method over a period of sixty months.
Paragraph 4
OFFICERS' SALARIES
The officers' salaries have been reclassified as a component of the operating
loss in the General & Administrative Expenses total of $95,597 in the Financial
Schedule.
<PAGE>
Paragraph 5
NOTES PAYABLE CASH FLOW
The Notes Payable line in the Statements of Cash Flows is correctly classified
as a financing activity in the original filing and the information included in
the Financial Schedule.
Paragraph 6
ACCOUNTANT'S LETTER
Pursuant to Item 304 of Regulation S-B, a letter reguarding former accountant,
has been provided in Exhibit 10.
<PAGE>
PART F/S
FINANCIAL STATEMENTS AND SUPPLEMENT DATA
Data Shedule EX-27 Article UT, appear at the end of this Registration PAGE- 175
- ----------
Powersource Corporation
Financial Statements
for the Year Ended December 31, 1998 and 1997
TABLE OF CONTENTS
Page
Independent Auditor's Report ..............................................F17
Financial Statements
Balance Sheet ......................................................F18-F19
Statement of Income and Retained Earnings ............................F20
Statement of Cash Flows ..............................................F21
Notes to Financial Statements ......... ............................F22-F25
Supplementary Information
Schedule 1-Selling Expenses ....... .................................F27
Schedule 2-General and Administrative Expenses ......................F28
Balance Sheet for the Three Months Ended March 31, 1999 ..................F29
<PAGE>
Bandari & Associates
an Accounting Corporation
12424 Wilshire Blvd., Suite 830 Los Angeles, Ca 90025
Tel: 310-447-1234 Fax: 310-447-0287
INDEPENDENT AUDITOR'S REPORT
To The Board of Director and Stockholders of
Powersource Corporation
Los Angeles, California
We have audited the accompanying balance sheet of PowerSource Corporation as of
December 31, 1998 and 1997 and the related statements of income, retained
earnings, and cash flows for the years then ended. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audit. We conduct
our audit in accordance with generally accepted auditing standards. Those
standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provide a reasonable basis for our opinion. In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of PowerSource Corporation as of
December 31, 1998 and 1997 and the results of its operations, and its cash flows
for the years then ended in conformity with generally accepted accounting
principles. The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 8 to the
financial statements, there is doubt as to the Company's ability to continue as
a going concern.
By /s/ Bandari & Associates
------------------------------------
March 5, 1999 Certified Public Accountants
<PAGE>
Powersource Corporation
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
ASSETS
- ------
1998 1997
---- ----
CURRENT ASSETS:
Cash and cash equivalents ......................... $ 620 $
----
Accounts receivable .............................. 199,500
----
Letter of credit ................................. 26,000
----
Total current assets ................... 226,120
----
EQUIPMENT, FIXTURE AND FURNITURE:
(net of accumulated depreciation of $ 2,024) ..... 8,640
----
OTHER ASSETS:
Organization expenses
(net of accumulated amortization $1,000) ......... 4,000
----
Investment in oil and gas properties ............. 535,000
----
Total other assets ..................... 539,000
----
$773,760 $
======== =
See Accompanying notes and accountant's report
<PAGE>
Powersource Corporation
BALANCE SHEET
DECEMBER 31, 1998 AND 1997
(Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
1998 1997
---- ----
CURRENT LIABILITIES:
Accounts payable ................................. $ 36,028 $
------
Payroll tax payable
542 ------
Interest payable
5,600 ------
Notes payable .................................... 116,000
------- ------
Total current liabilities .............. 158,170
------
STOCKHOLDER'S EQUITY:
Common stock, par value $ .001,
50,000,000 shares authorized, 5,408,161
shares issued and outstanding including ....... 1,356
5,408
Paid-in Capital in excess of par value ........... 128,781
------
Preferred stock, par value $ 100
5,350 shares issued and outstanding ........... 535,000
------
Retained earnings (accumulated deficit) .......... (53,599) (1,356)
------- ------
Total stockholder's equity ............. 615,590
-------
$ 773,760 $
========= =
See Accompanying notes and accountant's report
Powersource Corporation
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1998 AND 1997
1998 1997
---- ----
REVENUES:
Net sales ...................................... $ 210,000 $ 3,544
Cost of sales .................................. 3,036
Total revenues ............................ 210,000 508
------- ---
EXPENSES:
Selling expenses ............................... 26,911 ---
General and administrative expenses ............ 231,088 ---
-------
Total expenses ............................ 257,999 ---
-------
Income from operation ..................... (47,999) 508
OTHER INCOME (EXPENSE)
Gain on sales of equipment 800
Interest expense ............................... (5,600)
------
Income before provision for income taxes .. (53,599) 1,308
PROVISION FOR INCOME TAXES ........................... 800
Net income ................................ (54,399) 1,308
RETAINED EARNINGS - JANUARY 1, 1998 .................. (1,356) (2,664)
PRIOR PERIOD ADJUSTMENT .............................. 1,356
-----
RETAINED EARNINGS - DECEMBER 31, 1998 ................ $ (54,399) $(1,356)
========= =======
Earnings (loss) per Common Share (0.010) 0.0010
See Accompanying notes and accountant's report
<TABLE>
Powersource Corporation
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1998
<CAPTION>
COMMON PAID-IN
STOCK CAPITAL IN PREFERRED RETAINED
SHARES AMOUNT EXCESS OF PAR STOCK EARNINGS TOTAL
------ ------ ------------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1998 ...................... 1,356,000 $ 1,356 1,268,475 $(1,698,336) $(1,356)
Forgivness of Due to parent company .......... (1,356) (1,268,475) 1,698,338 428,505
---------- ---------- ----------
BALANCE ON DECEMBER 31,1997......................... 1,356,000 1,356 $ (1,356) $ 0
Founders shares issued May 12, 1998.......... 3,642,004 3,642 -- -- -- --
Sales of option shares pursuant to ...........
Re organization agreement: Feb. 12, 1998 ..... 169,157 169 $ 42,310 -- -- 42,479
---------- ---------- ----------
Sale of 5,350 shares pursuant to
Re organization agreement: Feb. 12,1998 ...... -- -- $ 535,000 535,000
---------- ---------- ----------
Sales of additional option shares from Sep. 16
Through Dec. 31, 1998 241,000 241 86,471 86,712
Prior period adjustment ...................... 1,356 1,356
Net income ................................... -- -- -- -- (53,599) (53,599)
BALANCE ON DECEMBER 31, 1998 ...................... 5,408,161 $ 5,408 $ 128,781 $ 535,000 $ (54,399) $ 614,790
See Accompanying notes and accountant's report ========= ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
Powersource Corporation
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
CASH FLOWS FROM OPERATING ACTIVITIVES:
1998 1997
---- ----
Net income ................................... $ (53,599) 508
Adjustment to reconcile net income to
net cash provide (used) by
operating activities:
Amortization ................................... 1,000
Depreciation .................................. 2,024
Decrease (increase) in:
Accounts receivable ............................(199,500)
Note receivable ................................ (26,000)
Organization expenses .......................... (5,000)
Increase (decrease) in:
Accounts payable .............................. 36,028
Payroll tax payable ........................... 542
Interest payable ............................... 5,600
-----
Net cash provided(used)by operating activities..(238,905) 508
-------- ---
CASH FLOWS FROM INVESTING ACTIVITIES:
Gain on sale of equipment...................... -- 800
Acquisition of assets .......................... (10,664)
Investment in oil and gas property ............ (535,000)
Net cash provided(used)by investing activities .(545,664) 800
-------- ---
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable ................................. 116,000
Issuing common stock ........................... 134,189
Issuing preferred stock ....................... 535,000
-------
Net cash provided(used)by financing activities ..785,189 0
-------- -
NET DECREASE IN CASH AND CASH EQUIVALENTS ...........620 1308
CASH AND CASH EQUIVALENTS - BEGINING OF THE YEAR. 0 (1308)
-
CASH AND CASH EQUIVALENTS - END OF YEAR........ $ 620 0
======= =======
See Accompanying notes and accountant's report
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
REPORTING ENTITY
- -----------------
PowerSource Corporation (a Nevada Corporation), formerly known as American Gas
Corporation, was originally formed in March of 1990. PowerSource Corporation is
registered electric service provider and through the assistance of certain other
companies, has procured permits to provide electric service to residential,
commercial and industrial customers located in the state of California.
USE OF ESTIMATES
- ------------------
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and reported
revenues and expenses. Actual results could differ from those estimates.
PROPERTY AND EQUIPMENT
- -----------------------
Property and equipment are stated at cost. Depreciation is provided principally
on the straight- line method over cost recovery periods prescribed by Internal
Revenue Service, which approximated the useful lives of the assets. The
estimated useful lives are as follows:
Machinery and equipment ......... 5 - 15 years
Furniture and fixtures .......... 7 years
Computer equipment and software . 5 years
Vehicles and automotive equipment 7 years
Leasehold improvements are amortized by the straight-line method over a period
of 31.5 years for book and tax purposes. Expenditures for maintenance and
repairs are charged to operations as incurred, while renewals and betterment are
capitalized.
ORGANIZATION EXPENSES
- ----------------------
Organization expenses include legal fees, licensing fees, and certain other
organization costs, which will be amortized using the straight-line method over
a period of five years.
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Continued)
INCOME TAXES
- ------------
The Company recognizes the tax effect of transactions in the year in which such
transactions enter into determination of net income regardless of when they are
reported for tax purposes. The Company has adopted the Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes) in computing deferred
income taxes. Deferred income taxes, when shown, result primarily from different
depreciation methods for book and tax purposes.
2 LETTER OF CREDIT
As a requirement to provide electricity, Senator Associates Ltd, (a Hungarian
corporation) on behalf of the Company executed, and delivered a Letter of Credit
in the sum of $26,000 to be placed with Bankers Trust, (a U.S. bank), as trustee
for the benefit of Automated Power Exchange Inc. This amount is used to recover
for any unpaid balance in the event that the Company defaults in its payment.
This amount cannot be drawn as long as the Company is in business with Automated
Power Exchange Inc.
3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following
Furniture and Fixtures ........... $ 1,906
Office Equipment ................. 8,758
10,664
Less: Accumulated depreciation ... (2,024)
$ 8,640
4 INVESTMENT IN OIL AND GAS PROPERTIES
In February 1998, PowerSource Ltd. (a Nevada Corporation) entered into a plan of
reorganization with American Gas Corporation (a Nevada Corporation), then a
wholly owned subsidiary of Kensington International Holding Corporation AKA The
Kensington Company, Inc. (a Minnesota Corporation and referred to hereinafter as
"Kensington" ), a fully reporting public company. Kensington retained fifteen
(15%) percent (200,000 shares of the then issued common stocks) and was granted
5,350 shares of American Gas Corporation's series A, $100 par value, preferred
stock. The series A preferred stock is convertible to common stock, in five
years, at $10 per share. On May 12, 1998, American Gas Corporation's name was
changed to PowerSource.
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Continued)
4 INVESTMENT IN OIL AND GAS PROPERTIES (Continued)
On May 12, 1998, American Gas Corporation's name was changed to PowerSource
corporation and became the Company. The acquisition was accounted for under the
purchase method of accounting. As of the date of acquisition, the Company has
recorded an investment in oil and gas properties as follows:
Equipment ........................................ $300,000
Pipelines ........................................ 200,000
Rights of Way .................................... 35,000
------
$535,000
========
This value has been estimated by an appraisal and management of the Company and
its realization is contingent upon the Company's investment of about $100,000 as
stated below in note (7) commitments. To date the Company has not invested any
funds and has not entered into any contract for the proposed improvement.
5 COMMON STOCK WARRANTS
PowerSource Corporation has a total of four class of common stock warrants. The
warrants range in exercise prices from $.10 per share to $6.50 per share and
expire anywhere from 60 days from the date of issue through July 1, 1999.
6 NOTES PAYABLE
Notes payable as of December 31, 1998 consisted of the following:
Note payable to Senator Associates, Ltd. .....
is unsecured with interest as 7%, all interest
and principal due on Septemeber 10, 1999 ..... $ 80,000.00
Letter of credit from Bankers Trust .......... 26,000.00
Note payable to German Teitelbaum
is unsecured and noninterest bearing ......... 10,000.00
---------
principle due on Aug 1, 1999 ................. $ 116,000.00
==============
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE YEAR ENDED DECEMBER 31, 1998
(Continued)
7 COMMITMENTS
The management has committed to invest an estimated amount of $100,000 on the
Rosewood gas field to bring the lease and easement current, clean and repair the
wells and pipelines, install a new compressor and reconnect to the Texas Gas
Pipeline. The company currently pays $2,104 per month. The lease, including
options, extends through March 31, 2000.
Future minimum payments under the lease as of December 31, 1998, are as follows:
Period ending December 31, 1999 $ 25,248
March 31, 2000 6,312
-----
Total $ 31,560
===============
8 GOING CONCERN
As shown in the accompanying financial statements, the Company incurred a net
loss of $26,599 for the period ended December 31, 1998. As of December 31, 1998,
only one of 42 districts has been sold generating a revenue of $210,000.
Although the Company has indicated that it will try to increase sales, the
current factors create an uncertainty as to the Company's ability to continue as
a going concern.
As of the date of this report, commitments on Note 7 has not been fulfilled.
<PAGE>
Powersource Corporation
SUPPLEMENTARY INFORMATION
FOR THE YEAR ENDED DECEMBER 31, 1998
<PAGE>
Powersource Corporation
SCHEDULE 1 - SELLING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
Percent of
Amount Net Sales
------ ---------
Advertising ....................................... $ 8,116 3.86%
Automatic power exchange .......................... 1,000 0.48%
Entertainment & travel ............................ 13,545 6.45%
Sales commissions ................................. 4,250 2.02%
----- ----
TOTAL ........................................... $26,911 12.81%
======= =====
See Accompanying notes and accountant's report
<PAGE>
Powersource Corporation
SCHEDULE 2 - GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998
Percent of
Amount Net sales
------ ---------
Amortization expense .................................. $ 1,000 0.48%
Auto expenses ......................................... 1,332 0.63%
Bank charges .......................................... 959 0.46%
Computer expense ...................................... 1,346 0.64%
Consulting fee ........................................ 29,955 14.26%
Dues & subscriptions .................................. 383 0.18%
Depreciation .......................................... 2,024 0.96%
Insurance ............................................. 846 0.40%
Legal & professional services ......................... 90,130 42.92%
License & permits ..................................... 3,080 1.47%
Office expenses ....................................... 1,005 0.48%
Office supplies ....................................... 3,141 1.50%
Outside services ...................................... 26,900 12.81%
Parking ............................................... 2,410 1.15%
Postage and delivery .................................. 5,827 2.77%
Printing and reproductions ............................ 21,789 10.38%
Repair & maintenance .................................. 250 0.12%
Rent .................................................. 19,275 9.18%
Salary ................................................ 9,023 4.30%
Taxes-Payroll ......................................... 668 0.32%
Telephone ............................................. 9,745 4.64%
----- ----
TOTAL ......................................... $231,088 110.04%
======== ======
See Accompanying notes and accountant's report
<PAGE>
Powersource Corporation
Financial Statements
for the Three Months Ended March 31, 1999
<PAGE>
Powersource Corporation
FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
TABLE OF CONTENTS
Page
Accountants' Report ..................................................F30
Financial Statements
Balance Sheet ................................................F32-F33
Statement of Income and Retained Earnings ................... F-34
Statement of Cash Flows ..................................... F-35
Notes to Financial Statements ......... ......................F36-F39
Supplementary Information
Schedule 1-Selling Expenses ....... .......................... F41
Schedule 2-General and Administrative Expenses ............... F42
<PAGE>
TO THE SHAREHOLDERS
Powersource Corporation.
Los Angeles, California
We have compiled the accompanying balance sheet of PowerSource Corporation.( the
Company) as of March 31, 1999 and the related statement of income and retained
earnings for the three months then ended and the accompanying supplementary
information contained in the schedules of selling, and general and
administrative expenses which are presented only for supplementary analysis
purposes, in accordance with the Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of PowerSource Corporation. A compilation is
limited to presenting in the form of financial statements information that is
the representation of management. We have not audited or reviewed the
accompanying financial statements and, accordingly, do not express an opinion or
any other form of assurance on them.
June 25,1999
By/s/Bob Bandari, C.P.A.,M.B.A.
---------------------------
Bob Bandari, C.P.A.,M.B.A.
Certified Public Accountants
<PAGE>
Powersource Corporation
BALANCE SHEET
March 31, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 11,899
Accounts receivable ........................ 70,225
Deferred interest .......................... 23,424
Letter of credit ........................... 26,000
------
Total current assets ............. 131,548
EQUIPMENT, FIXTURE AND FURNITURE:
(net of accumulated depreciation of $ 2,530) 70,832
OTHER ASSETS:
Organization expenses
(net of accumulated amortization $1,250) ... 3,750
Investment in oil and gas properties ....... 535,000
-------
Total other assets ............... 538,750
-------
$741,130
========
<PAGE>
Powersource Corporation
BALANCE SHEET
March 31, 1999
(Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 29,525
Payroll tax payable .................................... 1,409
Interest payable ....................................... 7,000
Notes payable .......................................... 102,090
Notes payable - Computer System (Current Portion) ...... 15,967
------
Total current liabilities .................... 155,991
LONG-TERM LIABILITIES
Notes payable - Computer System (Net of current portion) 70,903
STOCKHOLDER'S EQUITY:
Common stock, par value $ .001,
50,000,000 shares authorized, 5,408,411
shares issued and outstanding including ............. 5,408
Paid-in Capital in excess of par value ................. 138,782
Preferred stock, par value $ 100
5,350 shares issued and outstanding ................. 535,000
Retained earnings (accumulated deficit) ................ (164,954)
--------
Total stockholder's equity ................... 514,236
-------
$ 741,130
=========
<PAGE>
Powersource Corporation
STATEMENT OF INCOME AND RETAINED EARNINGS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
REVENUES:
Net sales ................................... $ 0
-----------
Cost of sales
Total revenues ......................... 0
EXPENSES:
Selling expenses ............................ 12,540
General and administrative expenses ......... 95,597
------
Total expenses ......................... 108,137
------
Income from operation .................. (108,137)
OTHER INCOME (EXPENSE)
Interest expense ............................ (2,418)
------
Income before provision for income taxes (110,555)
PROVISION FOR INCOME TAXES ........................ 800
---
Net income ............................. (111,355)
RETAINED EARNINGS - DECEMBER 31, 1998 ............. (53,599)
-------
RETAINED EARNINGS - MARCH 31, 1999 ................ $(164,954)
=========
<PAGE>
Powersource Corporation
STATEMENT OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
CASH FLOWS FROM OPERATING ACTIVITIVES:
Net income ................................................ $(111,355)
Adjustment to reconcile net income to net
cash provide (used) by operating activities:
Amortization ................................... 250
Depreciation ................................... 506
Decrease (increase) in:
Accounts receivable ............................ 129,275
Note receivable ................................ (23,424)
Increase (decrease) in:
Accounts payable ............................... (6,503)
Payroll tax payable ............................ 867
Interest payable ............................... 1,400
Notes payable .................................. 2,057
-----
Net cash provided (used) by operating activities (6,927)
======
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets .............................. (62,698)
-------
Net cash provided (used) by investing activities (62,698)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable ..................................... 70,903
Additional paid in capital ........................ 10,001
------
Net cash provided (used) by financing activities 80,904
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 11,279
CASH AND CASH EQUIVALENTS - JANUARY 31, 1999 .............. 620
--- ---- ---
ASH AND CASH EQUIVALENTS - MARCH 31, 1999 ................. $ 11,899
=== ==== =========
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Entity
----------------
PowerSource Corporation (a Nevada Corporation), formerly known as American Gas
Corporation, was originally formed in March of 1990. PowerSource Corporation is
registered electric service provider and through the assistance of certain other
companies, has procured permits to provide electric service to residential,
commercial and industrial customers located in the state of California.
Use of Estimates
----------------
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and reported
revenues and expenses. Actual results could differ from those estimates.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided principally
on the straight- line method over cost recovery periods prescribed by Internal
Revenue Service, which approximated the useful lives of the assets. The
estimated useful lives are as follows:
Machinery and equipment ..................... 5 - 15 years
Furniture and fixtures ...................... 7 years
Computer equipment and software.............. 5 years
Vehicles and automotive equipment............ 7 years
Leasehold improvements are amortized by the straight-line method over a period
of 31.5 years for book and tax purposes. Expenditures for maintenance and
repairs are charged to operations as incurred, while renewals and betterment are
capitalized.
Organization Expenses
---------------------
Organization expenses include legal fees, licensing fees, and certain other
organization costs, which will be amortized using the straight-line method over
a period of five years.
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Continued)
INCOME TAXES
------------
The Company recognizes the tax effect of transactions in the year in which such
transactions enter into determination of net income regardless of when they are
reported for tax purposes. The Company has adopted the Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes) in computing deferred
income taxes. Deferred income taxes, when shown, result primarily from different
depreciation methods for book and tax purposes.
2 LETTER OF CREDIT
As a requirement to provide electricity, Senator Associates Ltd, (a Hungarian
corporation) on behalf of the Company executed, and delivered a Letter of Credit
in the sum of $26,000 to be placed with Bankers Trust, (a U.S. bank), as trustee
for the benefit of Automated Power Exchange Inc. This amount is used to recover
for any unpaid balance in the event that the Company defaults in its payment.
This amount cannot be drawn as long as the Company is in business with Automated
Power Exchange Inc.
3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following
Furniture and Fixtures ....... $ 8,758
Office Equipment ............. 64,604
------
TOTAL 73,362
Less: Accumulated depreciation (2,530)
------
TOTAL $ 70,832
========
4 INVESTMENT IN OIL AND GAS PROPERTIES
In February 1998, PowerSource Ltd. (a Nevada Corporation) entered into a plan of
reorganization with American Gas Corporation (a Nevada Corporation), then a
wholly owned subsidiary of Kensington International Holding Corporation AKA The
Kensington Company, Inc. (a Minnesota Corporation and referred to hereinafter as
"Kensington" ), a fully reporting public company. Kensington retained fifteen
(15%) percent (200,000 shares of the then issued common stocks) and was granted
5,350 shares of American Gas Corporation's series A, $100 par value, preferred
stock. The series A preferred stock is convertible to common stock, in five
years, at $10 per share. On May 12, 1998, American Gas Corporation's name was
changed to PowerSource
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Continued)
4 INVESTMENT IN OIL AND GAS PROPERTIES (Continued)
corporation and became the Company. The acquisition was accounted for under the
purchase method of accounting. As of the date of acquisition, the Company has
recorded an investment in oil and gas properties as follows:
Equipment ............................................. $300,000
Pipelines ............................................. 200,000
Rights of Way.......................................... 35,000
Total $535,000
This value has been estimated by an appraisal and management of the Company and
its realization is contingent upon the Company's investment of about $100,000 as
stated below in note (7) commitments. To date the Company has not invested any
funds and has not entered into any contract for the proposed improvement.
5 COMMON STOCK WARRANTS
PowerSource Corporation has a total of four class of common stock warrants. The
warrants range in exercise prices from $.10 per share to $6.50 per share and
expire anywhere from 60 days from the date of issue through July 1, 1999.
6 NOTES PAYABLE
Notes payable as of March 31, 1999 consisted of the following:
Note payable to Senator Associates, Ltd.
is unsecured with interest as 7%, all interest
and principal due on Septemeber 10, 1999 ..... $ 75,000.00
Letter of credit from Bankers Trust .......... 26,000.00
Note payable to German Teitelbaum
is unsecured and noninterest bearing ......... 1,090.00
principle due on Aug 1, 1999
Total $ 102,090.00
==============
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE THREE MONTHS ENDED MARCH 31, 1999
(Continued)
7 LONG TERM NOTES PAYABLE
Note payable to Comprehensive Leasing $1774.08
per month plus interest accrued at 29.07% collaterized
by computer system with a net book value of
$60,713.47
$ 86,870
Less amount due within one year (15,967)
--------
$ 70,903
=======
8 COMMITMENTS
The management has committed to invest an estimated amount of $100,000 on the
Rosewood gas field to bring the lease and easement current, clean and repair the
wells and pipelines, install a new compressor and reconnect to the Texas Gas
Pipeline.
The company currently pays $2,104 per month. The lease, including options,
extends through March 31, 2000.
Future minimum payments under the lease as of March 31, 1999, are as follows:
Period ending December 31, 1999 $ 25,248
March 31, 2000 6,312
-----
Total $ 31,560
=======
<PAGE>
Powersource Corporation
SUPPLEMENTARY INFORMATION
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<PAGE>
Powersource Corporation
SCHEDULE 1 - SELLING EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Amount
------
Advertising ................................................ $ 4,988
Entertainment & travel ..................................... 7,552
-----
TOTAL .................................................... $12,540
=======
<PAGE>
Powersource Corporation
SCHEDULE 2 - GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE THREE MONTHS ENDED MARCH 31, 1999
Amount
------
Amortization expense .................................... $ 250
Auto expenses ........................................... 1,941
Bank charges ............................................ 634
Computer expense ........................................ 271
Consulting fee .......................................... 35,884
Depreciation ............................................ 506
Dues & subscriptions .................................... 356
Gifts ................................................... 300
Insurance ............................................... 232
Lease-equipment ......................................... 150
Legal & professional services ........................... 5,511
License & permits ....................................... 185
Office expenses ......................................... 278
Office supplies ......................................... 1,559
Outside services
Parking ................................................. 1,089
Postage and delivery .................................... 2,616
Printing and reproductions .............................. 8,165
Penalty ................................................. 182
Repair & maintenance .................................... 1,071
Rent .................................................... 6,435
Salaries-Office ......................................... 6,019
Salaries-Officers....................................... 15,125
Taxes-Business .......................................... 311
Taxes-Payroll ........................................... 2,822
Telephone ............................................... 3,705
-------
TOTAL ........................................... $ 95,597
=======
<PAGE>
POWERSOURCE CORPORATION
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<PAGE>
Powersource Corporation
FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
TABLE OF CONTENTS
Page
Accountants' Report ............................................. F43
Financial Statements
Balance Sheet .............................................. F46- F47
Statement of Income and Retained Earnings ................... F48
Statement of Cash Flows ..................................... F49
Statement of Changes in Stockholder's Equity.................. F50
Notes to Financial Statements ......... ...................... F51-F54
Supplementary Information
Schedule 1-Selling Expenses ....... .......................... F56
Schedule 2-General and Administrative Expenses ............... F57
<PAGE>
TO THE SHAREHOLDERS
Powersource Corporation.
Los Angeles, California
We have compiled the accompanying balance sheet of PowerSource Corporation.( the
Company) as of June 30, 1999 and the related statement of income and retained
earnings for the three months then ended and the accompanying supplementary
information contained in the schedules of selling, and general and
administrative expenses which are presented only for supplementary analysis
purposes, in accordance with the Statements on Standards for Accounting and
Review Services issued by the American Institute of Certified Public
Accountants. All information included in these financial statements is the
representation of the management of PowerSource Corporation.
A compilation islimited to presenting in the form of financial statements
information that is the representation of management. We have not audited or
reviewed the accompanying financial statements and, accordingly, do not express
an opinion or any other form of assurance on them.
October 21,1999
By/s/Bob Bandari, C.P.A.,M.B.A.
---------------------------
Bob Bandari, C.P.A.,M.B.A.
Certified Public Accountants
<PAGE>
Powersource Corporation
BALANCE SHEET
June 30, 1999
ASSETS
CURRENT ASSETS:
Cash and cash equivalents .................. $ 29,826
Accounts receivable ........................ 182,100
Letter of credit ........................... 26,000
------
Total current assets ............. 237,926
EQUIPMENT, FIXTURE AND FURNITURE:
(net of accumulated depreciation of $ 9,100) 58,543
OTHER ASSETS:
Organization expenses
(net of accumulated amortization $1,500) ... 3,500
Investment in oil and gas properties ....... 535,000
Deferred interest .......................... 20,368
-------
Total other assets ............... 558,868
-------
$855,337
========
<PAGE>
Powersource Corporation
BALANCE SHEET
June 30, 1999
(Continued)
LIABILITIES AND STOCKHOLDER'S EQUITY
CURRENT LIABILITIES:
Accounts payable ....................................... $ 29,527
Payroll tax payable .................................... 596
Interest payable ....................................... 8,400
Notes payable - Computer System (Current Portion) ...... 21,289
------
Total current liabilities .................... 59,812
LONG-TERM LIABILITIES
Notes payable - Computer System (Net of current portion) 53,222
Notes payable .......................................... 93,700
Total long-term liabilities .................. 146,922
STOCKHOLDER'S EQUITY:
Common stock, par value $ .001,
50,000,000 shares authorized, 5,408,411
shares issued and outstanding including ............. 5,408
Paid-in Capital in excess of par value ................. 221,959
Preferred stock, par value $ 100
5,350 shares issued and outstanding ................. 535,000
Retained earnings (accumulated deficit) ................ (113,764)
--------
Total stockholder's equity ................... 648,603
-------
$ 855,337
=========
<PAGE>
Powersource Corporation
STATEMENT OF INCOME AND ACCUMULATED DEFICIT
FOR THE SIX MONTHS ENDED JUNE 30, 1999
REVENUES:
Net sales ................................... $ 210,000
Cost of sales................................ 0
-
Total revenues ......................... 210,000
EXPENSES:
Selling expenses ............................ 17,889
General and administrative expenses ......... 245,330
------
Total expenses ......................... 263,330
------
Loss from operation .................. (53,219)
OTHER INCOME (EXPENSE)
Interest expense ............................ (5,346)
------
5
Loss before provision for income taxes (58,565)
PROVISION FOR INCOME TAXES ........................ 800
---
Net loss ............................. (59,365)
ACCUMULATED DIFICIT - JANUARY 1, 1999 ............. (54,399)
-------
ACCUMULATED DIFICIT - JUNE 30, 1999 ................ $(113,764)
=========
<PAGE>
Powersource Corporation
STATEMENT OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
CASH FLOWS FROM OPERATING ACTIVITIVES:
Net income ................................................ $ (59,365)
Adjustment to reconcile net income to net
cash provide (used) by operating activities:
Amortization ................................... 500
Depreciation ................................... 7,076
Decrease (increase) in:
Accounts receivable ............................ 17,400
Deferred interest .............................. (20,368)
Increase (decrease) in)
Accounts payable ............................... (6,500)
Payroll tax payable ............................ 53
Interest payable ............................... 2,800
Income tax payable.............................. (800)
Loan payable................................... 74,511
-----
Net cash provided (used) by operating activities 15,307
======
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of assets .............................. (56,979)
-------
Net cash provided (used) by investing activities (56,979)
-------
CASH FLOWS FROM FINANCING ACTIVITIES:
Notes payable ..................................... (22,300)
Additional paid in capital ........................ 93,178
------
Net cash provided (used) by financing activities 70,878
NET INCREASE IN CASH AND CASH EQUIVALENTS ................. 29,206
CASH AND CASH EQUIVALENTS - JANUARY 1, 1999 .............. 620
--- ---- ---
ASH AND CASH EQUIVALENTS - JUNE 30, 1999 ................. $ 29,826
=== ==== =========
<PAGE>
<TABLE>
Powersource Corporation
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
AS OF DECEMBER 31, 1998
<CAPTION>
COMMON PAID-IN
STOCK CAPITAL IN PREFERRED RETAINED
SHARES AMOUNT EXCESS OF PAR STOCK EARNINGS TOTAL
------ ------ ------------- ----- -------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance January 1, 1999 ...................... 5,408,161 $ 5,408 128,781 535,000 $(54,399) $ 614,790
Changes in paid in capital.................... 93,178 93,178
Net loss .............................. -- -- -- -- (59,365) (59,365)
BALANCE ON DECEMBER 31, 1998 ...................... 5,408,161 $ 5,408 $ 221,959 $ 535,000 $ (113,764) $ 648,603
========= ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Reporting Entity
----------------
PowerSource Corporation (a Nevada Corporation), formerly known as American Gas
Corporation, was originally formed in March of 1990. PowerSource Corporation is
registered electric service provider and through the assistance of certain other
companies, has procured permits to provide electric service to residential,
commercial and industrial customers located in the state of California.
Use of Estimates
----------------
Management uses estimates and assumptions in preparing financial statements.
Those estimates and assumptions affect the reported amounts of assets and
liabilities, disclosure of contingent assets and liabilities, and reported
revenues and expenses. Actual results could differ from those estimates.
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is provided principally
on the straight- line method over cost recovery periods prescribed by Internal
Revenue Service, which approximated the useful lives of the assets. The
estimated useful lives are as follows:
Machinery and equipment ..................... 5 - 15 years
Furniture and fixtures ...................... 7 years
Computer equipment and software.............. 5 years
Vehicles and automotive equipment............ 7 years
Leasehold improvements are amortized by the straight-line method over a period
of 31.5 years for book and tax purposes. Expenditures for maintenance and
repairs are charged to operations as incurred, while renewals and betterment are
capitalized.
Organization Expenses
---------------------
Organization expenses include legal fees, licensing fees, and certain other
organization costs, which will be amortized using the straight-line method over
a period of five years.
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Continued)
INCOME TAXES
------------
The Company recognizes the tax effect of transactions in the year in which such
transactions enter into determination of net income regardless of when they are
reported for tax purposes. The Company has adopted the Statement of Financial
Accounting Standards No. 109 (Accounting for Income Taxes) in computing deferred
income taxes. Deferred income taxes, when shown, result primarily from different
depreciation methods for book and tax purposes.
2 LETTER OF CREDIT
As a requirement to provide electricity, Senator Associates Ltd, (a Hungarian
corporation) on behalf of the Company executed, and delivered a Letter of Credit
in the sum of $26,000 to be placed with Bankers Trust, (a U.S. bank), as trustee
for the benefit of Automated Power Exchange Inc. This amount is used to recover
for any unpaid balance in the event that the Company defaults in its payment.
This amount cannot be drawn as long as the Company is in business with Automated
Power Exchange Inc.
3 PROPERTY AND EQUIPMENT
Property and equipment consist of the following
Furniture and Fixtures ....... $ 8,758
Office Equipment ............. 58,885
------
TOTAL 67,643
Less: Accumulated depreciation (9,100)
------
TOTAL $ 58,543
========
4 INVESTMENT IN OIL AND GAS PROPERTIES
In February 1998, PowerSource Ltd. (a Nevada Corporation) entered into a plan of
reorganization with American Gas Corporation (a Nevada Corporation), then a
wholly owned subsidiary of Kensington International Holding Corporation AKA The
Kensington Company, Inc. (a Minnesota Corporation and referred to hereinafter as
"Kensington" ), a fully reporting public company. Kensington retained fifteen
(15%) percent (200,000 shares of the then issued common stocks) and was granted
5,350 shares of American Gas Corporation's series A, $100 par value, preferred
stock. The series A preferred stock is convertible to common stock, in five
years, at $10 per share. On May 12, 1998, American Gas Corporation's name was
changed to PowerSource
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Continued)
4 INVESTMENT IN OIL AND GAS PROPERTIES (Continued)
corporation and became the Company. The acquisition was accounted for under the
purchase method of accounting. As of the date of acquisition, the Company has
recorded an investment in oil and gas properties as follows:
Equipment ............................................. $300,000
Pipelines ............................................. 200,000
Rights of Way.......................................... 35,000
Total $535,000
This value has been estimated by an appraisal and management of the Company and
its realization is contingent upon the Company's investment of about $100,000 as
stated below in note (7) commitments. To date the Company has not invested any
funds and has not entered into any contract for the proposed improvement.
5 COMMON STOCK WARRANTS
PowerSource Corporation has a total of four class of common stock warrants. The
warrants range in exercise prices from $.10 per share to $6.50 per share and
expire anywhere from 60 days from the date of issue through July 1, 1999.
6 NOTES PAYABLE
Notes payable as of March 31, 1999 consisted of the following:
Note payable to Senator Associates, Ltd.
is unsecured with interest as 7%, all interest
and principal due on Septemeber 10, 1999 ..... $ 67,700.00
Letter of credit from Bankers Trust .......... 26,000.00
Total $ 93,700.00
==============
<PAGE>
Powersource Corporation
NOTES TO FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED JUNE 30, 1999
(Continued)
7 LONG TERM NOTES PAYABLE
Note payable to Comprehensive Leasing $1774.08
per month plus interest accrued at 29.07% collaterized
by computer system with a net book value of
$60,713.47
$ 74,511
Less amount due within one year 21,289
--------
$ 53,222
=======
8 COMMITMENTS
The management has committed to invest an estimated amount of $100,000 on the
Rosewood gas field to bring the lease and easement current, clean and repair the
wells and pipelines, install a new compressor and reconnect to the Texas Gas
Pipeline.
The company currently pays $2,104 per month. The lease, including options,
extends through March 31, 2000.
Future minimum payments under the lease as of March 31, 1999, are as follows:
Period ending December 31, 1999 $ 12,624
March 31, 2000 6,312
-----
Total $ 18,936
=======
<PAGE>
Powersource Corporation
SUPPLEMENTARY INFORMATION
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<PAGE>
Powersource Corporation
SCHEDULE 1 - SELLING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Percent of
Amount Net Sales
------ ------
Advertising ........................... $ 4,988 2.61%
Entertainment & travel ................ 7,552 5.91%
-----
TOTAL ............................... $17,889 10.89%
======= =======
<PAGE>
POWERSOURCE CORPORATION
SCHEDULE 2 - GENERAL AND ADMINISTRATIVE EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 1999
Percent of
Amount Net sales
-------------------------
Alamr & Security $ 100 0.05%
Amortization expense 500 0.24%
Auto expenses 4,112 1.96%
Bank charges 760 0.36%
Computer expense 1,635 0.78%
Consulting fee 38,678 18.42%
Depreciation 7,076 3.37%
Dues & subscriptions 4,891 2.33%
Gifts 446 0.21%
Insurance 1,836 0.87%
Lease-equipment 150 0.07%
Legal & professional services 5,478 2.61%
License & permits 972 0.46%
Marketing 964 0.46%
Office expenses 2,596 1.24%
Office supplies 3,696 1.76%
Outside service 68,842 32.78%
Parking 2,218 1.06%
Postage and delivery 4,607 2.19%
Printing and reproductions 10,602 5.05%
Professional service 27,353 13.03%
Penalty 182 0.09%
Repair & maintenance 2,473 1.18%
Rent 15,030 7.16%
Salaries-Office 11,337 5.40%
Salaries-Officers 15,125 7.20%
Taxes-Business 311 0.15%
Taxes-Payroll 3,902 1.86%
Telephone 9,153 4.36%
Wire fee 305 0.15%
TOTAL $ 245,330 116.82%
======== ========
<PAGE>
1 SIGNATURE/POWER OF ATTORNEY
-----------------------------
Pursuant to the requirements of Section 12(g) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized on May 25, 1999.
POWER SOURCE CORPORATION
By: /s/ Douglas Mitchell
----------------
Douglas Mitchell President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated on May 25, 1999.
POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose
signature appears below constitutes and appoints Douglas Mitchell, and each of
them, his or her true and lawful attorney-in fact and agent, with full power of
substitution and resubstitution, for him or her and in his or her name, place
and stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement, and to file the same,
with all exhibits thereto, and other documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done, as fury to all intents and purposes as he
might do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or his substitutes, may lawfully do or cause to be
done by virtue thereof.
By /s/ Roman Gordon
-----------------
Roman Gordon Chairman of the Board of Directors
By /s/ Illya Bond
-----------------
Illya Bond Director
By /s/ German Teitelbaum Director
-----------------
German Teitelbaum
By /s/ Mark Haggerty Director
-----------------
Mark Haggerty
<PAGE>
Part III
Exhibits and Material Contracts
The Following Documents are Filed as Part of This Amendment No 2:
Exhibit Page
1 Prestige Capital Letter...............................................61
1(a) Prestige Capital Agreement..........................................62
1(b) Frontier Pacific Insurance Bond.....................................68
2 Press Release Dated July 1..........................................72
2(a) Press Release Dated August 10.......................................75
3 RH Underwriting Agreement...........................................77
4 Private Placement Memorandum........................................81
5 Senator Associates Note............................................128
6 NASD Letter........................................................129
7 Commercial Lease...................................................130
8 Selling Agreement for Premier Energy Group LLP
and Paramount Energy Group LLP.....................................158
8(a) Selling Agreement for Energy District 111 LLC......................166
9 Statement re: computation of per share earnings....................173
10 Letter Reguarding a Former Accountant..............................174
EX-27 UT Summary Financial Info .........................................175
<PAGE>
Part III
Exhibits and Material Contracts
The Following Documents are Filed as Part of This Amendment No 2:
Exhibit 1
Prestige Capital Letter
Prestige Capital Corporation
October 12, 1999
Roman Gordon
Chairman
PowerSource Corporation
3660 Wilshire Blvd., Suite 1104
Los Angeles, CA 90010
Dear Mr. Gordon,
This is to confirm with you that as of October 12, 1999, PowerSource Corporation
and Prestige Capital Corporation have entered into a secured financing
agreement. Under the terms of this agreement, Prestige Capital Corporation has
extended to PowerSource Corporation a line of credit of up to $3,000,000. All
advances under this agreement will be fully secured by PowerSource Corporation
accounts receivable. I look forward to a strong mutually beneficial relationship
between our organizations.
Sincerely,
/s/ Harvey L. Kaminski
Harvey L. Kaminski
President
Exhibit 1(a)
Prestige Capital Agreement
Prestige Capital Corporation
2 EXECUTIVE DRIVE FORT LEE, NEW JERSEY O7024 (201) 944-4455
Purchase and Sale Agreement
1. ASSIGNMENT. PRESTIGE CAPITAL CORPORATION ("Prestige") hereby buys and POWER
SOURCE CORPORATION ("Seller") hereby sells, transfers and assigns all of
Seller's right, title and interest in and to those specific accounts receivable
owing to Seller as set forth on the assignment forms provided by Prestige (the
"Assignments") together with all rights of action accrued or to accrue thereon,
including without limitation, full power to collect, sue for, compromise, assign
or in any other manner enforce collection thereof in Prestige's name or
otherwise. (All of Seller's accounts receivable and contract rights which are
presently or at any time hereafter assigned by Seller, and accepted by Prestige,
are collectively referred to as the "Accounts".)
<PAGE>
2. DISCOUNT. Prestige's purchase of the Accounts from Seller is at a discount
fee of TEN percent ( 10%) from the face value of each Account.
3. RESERVE. Upon Prestige's receipt and acceptance of each Agreement, Prestige
shall pay to Seller SEVENTY percent (70%) of the net value of the Accounts
therein described (the "Down Payment"). Prestige will hold in reserve the
difference between the Purchase Price (hereinafter defined) and the Down Payment
(the "Reserve") and will pay to Seller the Reserve, less any sums due Prestige
hereunder, on the Friday following the week in which all Accounts set forth on
the applicable Assignment have been collected in good funds, charged back and/or
deemed collected by Prestige due to an account debtor's (hereinafter defined)
insolvency. For purposes of this Agreement, the term "Purchase Price" shall mean
the net face value of Accounts, less: Prestige's discount fee described in
paragraph 2 above; returns, credits, allowances and discounts on the shortest
or, at Prestige's option, on alternative terms of sale offered by Seller to
account debtors; and less all other sums charged or chargeable to Seller's
account.
4. REBATES. As an inducement to Seller to facilitate the prompt payment of the
Account s from Seller's customers ("account debtor"), Prestige agrees to return
to Seller, a rebate of SIX percent ( 6 %), if the Accounts are paid to Prestige
within 30 days, a rebate of FIVE percent ( 5%) if the Accounts are paid to
Prestige within 45 days, a rebate of FOUR percent (4%) if the Accounts are paid
to Prestige within 60 days, a rebate of TWO percent (2%) if the Accounts are
paid to Prestige within 90 days.
5. WARRANTIES, REPRESENTATIONS AND COVENANTS. As an inducement for Prestige's
entering into this Agreement and with full knowledge that the truth and accuracy
of the warranties, representations and covenants in this Agreement are being
relied upon by Prestige, instead of the delay of a complete credit
investigation, Seller warrants, represents and covenants that:
(a) Seller is properly licensed and authorized to operate the business of
electric service provider;
(b) Seller is the sole and absolute owner of the Accounts and has the full legal
right to make said sale assignment and transfer:
(c) The correct amount of each Account will be set forth on the Assignments;
(d) Each Account is an accurate and undisputed statement of indebtedness from
and account debtor for a sum certain, without offset or counterclaim and which
is due and payable in ninety days or less;
(e) Each Account is an accurate statement of a bona fide sale, delivery and
acceptance of merchandise or performance of service by Seller to an account
debtor;
(f) Seller does not own, control or exercise dominion in any way whatsoever,
over the business of any account debtor;
(g) All financial records, statements, books or other documents shown to
Prestige by Seller at any time either before or after the signing of this
Agreement are true and accurate;
(h) Seller will not under any circumstances or in any manner whatsoever,
interfere with any of Prestige's rights under this Agreement;
(i) Seller has not and will not, at any time, permit any lien, security interest
or encumbrance to be created upon any of its accounts receivable
(j) Seller will not change or modify the terms of the Accounts with any account
debtor unless Prestige first consents in writing;
(k) Seller will notify Prestige in writing in advance of: any change in Seller's
place of business; Seller having or acquiring more than one place of business;
any change in Seller's chief executive office; and/or any change in the office
or offices where Seller's books and records concerning accounts receivables are
kept;
(l) Seller will immediately notify Prestige of any proposed or actual change of
the Seller's and/or account debtor's identity, legal entity or corporate
structure.
(m) All invoices will state plainly on their face that the Accounts represented
thereby have been sold and assigned to Prestige and are payable only and
directly to Prestige; and
(n) No Account shall be on a bill-and-hold, guaranteed sale, sale-and-return,
sale on approval, consignment or any other repurchase or return basis;
<PAGE>
The warranties, representations, and covenants contained in this paragraph 5
shall be continuous and be deemed to be renewed each time Seller assigns
Accounts to Prestige. Notwithstanding the provisions contained in paragraph 6 of
this Agreement, Prestige shall have recourse against the Seller in the event
that any of the warranties, representations and covenants set forth in this
paragraph 5 are breached.
6. NO RECOURSE. Prestige shall have recourse against Seller in all instances
except if payments are not received due to the "Insolvency" of an account debtor
within 120 days of an invoice date. For purposes of the foregoing, Insolvency
shall be deemed to have occurred only when: (a) a voluntary or involuntary
bankruptcy proceeding for the relief of an account debtor under either Chapter 7
or Chapter 11 shall have been instituted in a United States Bankruptcy Court;
(b) a receiver is appointed for the whole or any part of the property of an
account debtor; (c) an account debtor's assets shall have been sold under a writ
of execution or attachments, or a writ of execution shall have been returned
unsatisfied; (d) an account debtor shall have absconded; or e) an account
debtor's assets shall have been sold under levy by any taxing authority or by a
landlord.
7. CHARGE-BACK. In the event that ay Account is not paid within 90 days of
invoice date for any reason whatsoever (other than as a result of an account
debtor's Insolvency ), including , without limitation, any alleged defense,
counterclaim, offset, dispute or other claim (real or merely asserted) whether
arising from or relating to the sale of goods or rendition of services or
arising from or relating to any other transactions or occurrence, then in any
such event Prestige shall have the right to chargeback such Account to Seller.
No chargeback shall be deemed a reassignment to Seller of the Account involved.
Seller acknowledges that all amounts chargeable to Seller's account under this
Agreement shall be payable by Seller on demand.
8. NOTICE OF DISPUTE. Seller must immediately notify Prestige of any dispute
between any account debtor and Seller.
9. SETTLEMENT OF DISPUTE. Prestige may, at its option, settle any dispute with
any account debtor. Such settlement does not relieve Seller of any of its
obligations under this Agreement.
10. SOLE PROPERTY. Once Prestige has purchased the Accounts, the payment from
account debtors relative to the Accounts is the sole property of Prestige. Any
interference by Seller with this payment will result in civil and/or criminal
liability.
11. SECURITY INTEREST. As a further inducement for Prestige to enter into this
Agreement, and as security for the prompt performance, observance and payment of
all obligations owing by Seller to Prestige herein, Seller hereby grants to
Prestige a continuing security interest in and lien upon the following (herein
collectively referred to as the "Collateral": all accounts, instruments,
documents, chattel paper and general intangibles (as such terms are defined in
the Uniform Commercial Code), whether now owned or hereafter created or acquired
by Seller, wherever located, and all replacements and substitutions therefore,
accessions thereto, and products and proceeds thereof, and all property of
Seller at any time in Prestige's possessions.
12. FINANCING STATEMENTS. Seller will, at its expense perform all acts and
execute all documents requested by Prestige at any time to evidence, perfect,
maintain and enforce Prestige's security interest and other rights in the
Collateral and the priority thereof. Upon request, at any time and from time to
time, Seller will execute and deliver to Prestige one or more UCC financing
statements (in form and substance satisfactory to Prestige and its counsel).
13. HOLD IN TRUST. Seller will hold in trust and safekeeping, as the property of
Prestige and immediately turn over to Prestige, the identical check or other
form of payment received by Seller if payment on the Accounts comes into
Seller's possession. Should Seller come into possession of a check comprising
payments owing to both Seller and Prestige, Seller shall turn over said check to
Prestige. Thereafter, Prestige will refund Seller's portion, if any, to Seller.
14. FINANCIAL RECORDS. Seller will furnish to Prestige financial statements and
such other information as is, from time to time, requested by Prestige.
15. BOOK ENTRY. Seller will immediately, upon the sale of the Accounts, make the
proper entry on its books and records disclosing the absolute sale of the
Accounts to Prestige.
16. POWER OF ATTORNEY. In order to implement this Agreement, Seller irrevocably
appoints Prestige its special attorney in fact or agent with power to:
(a) Strike out Seller's address on any correspondence to any account debtor and
put on Prestige's address;
(b) Receive and open all mail addressed to Seller via Prestige's address;
<PAGE>
(c) Endorse the name of Seller or Seller's trade name on any checks or other
evidences of payment that may come into the possession of Prestige in connection
with the Accounts;
(d) In Seller's name, or otherwise demand, sue for, collect any and all monies
due in connection with the Accounts; and
(e) Compromise, prosecute or defend any action, claim or proceeding relative to
the Accounts; The authority granted to Prestige shall remain in full force and
effect until the Accounts are paid in full and the entire indebtedness of Seller
to Prestige is discharged.
17. NOTIFICATIONS, VERIFICATION OF ACCOUNTS
(a) Without in any way limiting the terms and provisions of paragraph 5 (m)
hereinabove, Prestige may at any time and from time to time, in its sole
discretion, notify any account debtor to make payment on any of Seller's open
invoices to Prestige;
(b) Prestige, may at any time verify the Accounts utililizing an audit control
company, any agent of Prestige or any other means deemed appropriate by
Prestige.
18. NO ASSUMPTION. Nothing contained in this Agreement shall be deemed to impose
any duty or obligation upon Prestige in favor of any account debtor and/or any
other party in connection with the Accounts.
19. FUTURE ASSIGNMENTS. Seller may from time to time, at Seller's option, sell,
transfer and assign different Accounts to Prestige. The future sale of any
Accounts shall be subject to and governed by this Agreement and such Accounts
shall be identified by separate and subsequent Assignments.
20. DISCRETION. Nothing contained in this Agreement shall be construed to impose
any obligation upon Prestige to purchase Accounts from Seller. Prestige shall at
its sole discretion determine which Accounts it shall purchase. Further,
Prestige shall have the absolute right at any time to cease accepting any
further assignments from Seller.
21. LEGAL FEES; EXPENSES. Seller will pay on demand any and all collection
expenses and reasonable attorney's fees that Prestige incurs in the event it
should become necessary for Prestige to enforce its rights under this Agreement.
In addition, Seller will pay on demand all costs and expenses incurred by
Prestige in connection with the preparation, execution and delivery of this
Agreement and any supplement or modification thereof, and in any way relating to
the transactions contemplated by this Agreement, including, without limitation,
all reasonable attorneys' fees, Federal Express costs (or similar expenses),
wire transfer costs, certified mail costs, facsimile transmission costs and lien
search costs.
22. BINDING ON FUTURE PARTIES. This Agreemetn shall inure to the benefit of and
is binding upon the heirs, executors, administrators, successors and assigns of
the parties hereto, except that Seller may not assign or transfer any or all of
its rights and obligations under this Agreement to any party without the prior
written consent of Prestige.
23. WAIVER; ENTIRE AGREEMENT. No failure or delay on Prestige's part in
exercising any right, power or remedy granted to Prestige herein, will
constitute or operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right set forth herein. This
Agreement contains the entire agreement and understanding of the parties hereto
and no amendment, modification or waiver of, or consent with respect to, any
provision of this Agreement, will in any event be effective unless the same is
in writing and signed and delivered by Prestige.
24. NEW JERSEY LAW. This agreement shall be deemed executed in the State of New
Jersey and, in all respects, shall be governed and construed in accordance with
the laws of the State of New Jersey.
25. INDEMNITY. Seller shall hold Prestige harmless from and against any action
or other proceeding brought by any account debtor against Prestige arising from
Prestig's collecting or attempting to collect any of the Accounts.
26. TERMS. This Agreement will remain in effect until October 15, 2000 (the
"Term"). Thereafter, the Term will be automatically extended for successive
periods of one (1) year unless either party provides the other with a written
notice of cancellation at least sixty (60) days prior to the expiration of the
initial Term or any renewal Term; provided, however , Prestige may cancel this
Agreement at any time upon sixty (60) days notice to Seller.
<PAGE>
In the event of abreach by Seller of any term or provision of this Agreement or
upon Seller's Insolvency or the Insolvency of any guarantor of Seller's
obligations herein, Prestige shall have the right to cancel this Agreement
without notice to Seller, and all of Seller's obligations to Prestige herein
shall be immediately due and payable. In the event of cancellation, the
provisions of this Agreement shall remain in full force and effect until all of
the Accounts have been paid in full.
27. JURY WAIVER. The parties hereto hereby mutually waive trial by jury in the
event of any litigation with respect to any matter connected with this
agreement.
Executed this 6th day of October, 1999 .
POWER SOURCE CORPORATION
By:/s/ E.Douglas Mitchell
E. DOUGLAS MITCHELL, President
Accepted this 12th day of October , 1999
PRESTIGE CAPITAL CORPORATION
By: /s/ Harvey L. Kaminski
Harvey L. Kaminski, President
Each of the undersigned hereby personally guarantees and shall be jointly and
severally liable for any damages suffered by Prestige Capital Corporation by
virtue of the breach of any warranty, representation or covenant made by Seller
in paragraph 5 above. Each of the undersigned also personally waives presentment
for payment, demand, protest, notice of dishonor and notice of every nature
whatsoever.
By: /s/ E. Douglas Mitchell
E. DOUGLAS MITCHELL Individually
By: /s/ Roman Gordon
ROMAN GORDON Individually
<PAGE>
Exhibit 1(b)
Frontier Pacific Insurance Bond
SURETY BOND
WITNESSETH: This Surety Bond given by PowerSource Corporation and Frontier
Pacific Insurance Company and servally bound unto Automated Power Exchange, Inc.
as Obligee, in the amount of $ 150,000.00 (U.S.) for the payment of which the
Principal and Surety bind themselves, their heirs, executors, administrators,
successors, assigns or other legal representatives.
WHEREAS, the Principal and Obligee have entered into a Automated Power Exchange
Service and Participation Agreement (the "Service Agreement"), and a Automated
Power Exchange Master Terms and Conditions of Service (as such terms and
conditions may be amended, modified or supplemented from time to time, (the "APX
Terms"), pursuant to which the Principal may from time to time use the services
of the Obligee for the purchase and sale of electric power (hereinafter referred
to as "Transactions"); and ,
WHEREAS, the Principal has promised to pay the Obligee any indebtedness arising
from such Transactions, as bills are rendered, and shall be in Default unless
payment is made within the time required under the agreement; and,
WHEREAS, the Surety promises to pay to the Obligee any amounts in Default on any
Transactions where the Transactions occur during the term of this Bond, and
WHEREAS, upon Default or failure to remit pursuant to a demand for deposit
within the required timeframe, the Obligee shall provide notice to the Surety
and the Surety shall render payment to the Obligee with one (1) business day of
receipt of such notice,
NOW, THEREFORE, the condition of the obligation is such that if the Principal
shall pay or cause to be paid to the Obligee, within the time required under the
agreement, all amounts arising from such Transactions or deposit demands that
may at any time hereafter be due and owing to the Obligee by the Principal, then
this obligation shall be null and void, otherwise to remain in full force and
effect.
This bond is subject to the following terms, limitations and conditions:
1. Notwithstanding anything herein to the contrary, the term of this bond shall
be indefinite commencing 9/09/99.
2. The Surety shall have the right to terminate its liability hereunder at any
time by giving notice in writing to the Obligee and stating therein the
effective date of such termination which date shall not be less than ninety (90)
days after receipt of said termination notice by the Obligee. Such notice shall
not limit or terminate any obligation of Surety arising under the Agreement in
respect to any obligations arising from any transactions entered into prior to
the date of such termination by Surety. Written notice of termination shall be
sent by certified mail, return receipt requested, to Automated Power Exchange,
10455-3 Bandley Drive, Cupertino, CA 95104, attention: Russ Kinsch.
3. It is understood and agreed between the Principal and Obligee that upon the
receipt of Surety's ninety (90) day written notice of termination as provided
above, the Obligee may demand a deposit from the Principal in the amount of
$150,000.00 . Only written notice to the Principal at least ten (10) days prior
to the termination or expiration of Surety's bond. It is also understood and
agreed between the Principal and Obligee that the deposit must be remitted to
the Obligee within one business day of receipt of such notice.
4. That no proceeding in law or in equity may be brought under this bond unless
the same shall be commenced and process served prior to the expiration of two
(2) years from the date of cancellation of this bond.
<PAGE>
IN WITNESS THEREOF, said Principal and said Surety have caused these presents to
be duly signed and sealed this 9th day of September 1999.
PowerSource Corporation, a Nevada Corporation
3660 Wilshire Blvd., Suite 1104 Principal
Los Angeles, CA 90010
By: /s/ Roman Gordon
Roman Gordon Chairman
(Seal)
4250 Executive Square, Suite 200 Frontier Pacific Insurance Company,
La Jolla, CA 92037 a California Corporation
(Seal)
Nancy Wibbens, Attorney-In-Fact
By: /s/ Nancy Wibbens
Nancy Wibbens
10455 - Bandley Drive
Automated Power Exchange, Inc., a California corporation Obligee
Cupertino, CA 95014
(Seal)
Bond No. 7496FP
POWER OF ATTORNEY
Know All Men By These Presents: That FRONTIER PACIFIC INSURANCE COMPANY, a
California Corporation, having its principal office, in La Jolla, California,
pursuant to the following resolution, adopted by the Board of Directors of the
Corporation on the 15th day of November, 1991.
"RESOLVED, that the Chairman of the Board, the President, or any Vice President
be, and hereby is, authorized to appoint Attorneys-in-Fact to represent and act
for and on behalf of the Company to execute bonds, undertakings, recognizances
and other contracts of indemnity and writings obligatory in the nature thereof,
and to attach thereto the corporate seal of the Company, in the transaction of
its surety business;
"RESOLVED, that the signatures and attestations of such officers and the seal of
the Company may be affixed to any such Power of Attorney or to any certificate
relating thereto by facsimile, and any such Power of Attorney or certificate
bearing such facsimile, and any such Power of Attorney or certificate bearing
such facsimile signatures or facsimile seal shall be valid and binding upon the
Company when so affixed with respect to any bond, undertaking, recognizance or
other contract of indemnity or writing obligatory in the nature thereof;
"RESOLVED, that any such Attorney-in-Fact delivering a secretarial certification
that the foregoing resolutions still be in effect may insert in such
certification the date thereof, said date to be not later than the date of
delivery thereof by such Attorney-in-Fact."
This Power of Attorney is signed and sealed in facsimile under and by the
authority of the above Resolution.
DOES HEREBY MAKE, CONSTITUTE AND APPOINT:
OF, in the State of its true and lawful Attorney(s)-in Fact with full power and
authority hereby conferred in its name, place and stead to sign, execute,
acknowledge and deliver in its behalf, and as its act and deed, without power of
redelegation, as follows:
Bonds guaranteeing the fidelity of persons holding places of public or private
trust; guaranteeing the performance of contracts other than insurance policies;
and executing or guaranteeing bonds and undertakings required or permitted in
all actions or proceedings or by law allowed; IN AN AMOUNT NOT TO EXCEED THREE
MILLION FIVE HUNDRED THOUSAND ($3,500,000.00) DOLLARS; and to bind FRONTIER
PACIFIC INSURANCE COMPANY thereby as fully and to the same extent as if such
bond or undertaking was signed by the duly authorized officers of FRONTIER
PACIFIC INSURANCE COMPANY, and all the acts of said Attorney (s)-in-Fact
pursuant to the authority herein given are hereby ratified and confirmed.
<PAGE>
In Witness Whereof, FRONTIER PACIFIC INSURANCE COMPANY of LaJolla, California,
has caused this Power of Attorney to be signed by its Vice President and its
Corporate seal to be affixed this 9th day of September , 1999.
FRONTIER PACIFIC INSURANCE COMPANY
BY:/s/David E. Cambell
DAVID E. CAMPBELL, Vice President
STATE OF CALIFORNIA)
COUNTY OF SAN DIEGO)
On 9/09/99 before me, Nydia Ortiz, personally appeared David E. Campbell,
personally known to me or proved to me on the basis of satisfactorily evidence
to be the person whose name is subscribed to the within instrument and
acknowledged to me that he executed the same in his authorized capacity, and
that by his signature on the instrument the person(s) acted, executed the
instrument.
WITNESS my hand and official seal
Signature of Notary Corporation Acknowledgement
I, the undersigned, Joseph P. Loughlin, Secretary of FRONTIER PACIFIC INSURANCE
COMPANY, do hereby certify that the original POWER OF ATTORNEY, of which the
foregoing is a full, true and correct copy, is in full force and effect.
IN WITNESS WHEREOF, I have hereunto subscribed my name as Joseph P. Loughlin,
Secretary, and affixed the Corporate Seal of the Corporation this 9th day of
September, 19 99 .
By: /s/ Joseph P. Loughlin
Joseph P. Loughlin, Secretary
<PAGE>
Exhibit 2
Press Release Dated July 1, 1999
POWERSOURCE CORPORATION COMPLETES MAJOR FINANCING MILESTONE
LOS ANGELES, July 1 /PRNewswire/ -- PowerSource Corporation, "PowerSource," (OTC
Bulletin Board: PSRE) is a licensed Electric Service Provider with the
California Public Utilities Commission and registered with the California Energy
Commission as a renewable energy provider. Today it successfully completed a
critical financial milestone that allows the company to rapidly expand in this
newly deregulated industry. "PowerSource can now fully proceed to acquire and
service new customers," states its President, Douglas Mitchell.
PowerSource has relied on source of funds that includes a combination of: (1)
selling exclusive marketing districts to investors, and (2) 506 private
placements offerings.
On June 4, 1999 PowerSource filed form 10SB-12g with the SEC, to be a fully
reporting Public Company and to qualify for trading on OTC BB. This filing can
be reviewed on EDGAR data base at http://www.freeedgar.com/.
The sale of exclusive marketing districts is being spearheaded by Premium
Placement (Laguna Hills, CA). The sales of these exclusive marketing districts
has reached a level to allow the company to begin full operations.
The private placement offering is being coordinated through Nexcore Capital,
Inc. (San Diego, CA). This offering, for accredited investors only, is being
sold in units of 2,000 shares of common stock (at $2.50 per share) and 1,000
Class B Warrants (exercisable at $3.50 per share). Each unit is being sold at
$5,000 per unit with a total of 1,000 units available.
While additional opportunities still exist for investors to purchase said units,
the time is limited. The Private Placement Memorandum of the 506 offering can be
reviewed on the company's web side or http://www.dsm.com/.
EquiTrade (Lake Forest, CA 800.266.1170) is the exclusive marketmaker for
PowerSource during its initial sixty-day trading period. The most recent market
transaction for PowerSource common stock occurred at $5 3/8 per share.
PowerSource Corporation Begins Major Expansion
PowerSource is marketing its PowerGreen100, a 100% clean and renewable energy
program. "Electricity generation is a big contributor to air and water
pollution," says Mitchell. The US Department of Energy states that electricity
generated by fossil fuels for a single home puts more carbon dioxide into the
air than two average cars. "That's two cars too many," said Illya Bond,
PowerSource's CEO. "PowerSource provides homes and small businesses with 100%
clean energy which will help us fight air and water pollution."
PowerSource's new growth prospects are based on a series of recently signed
marketing agreements with several large firms. One of these agreements was with
Jones Boys Sales Promotion Co., the oldest marketing firm in the U.S. Jones Boys
is currently servicing more than sixty newspapers nationwide and has three call
centers in Ohio, Las Vegas and Southern California. PowerSource has used the
brokering services of Telecom Consortium Inc. of Alabama to sign marketing
agreements with five additional firms: Wildwood Communications; Ever Increasing
Entertainment; ABCOM; Power Marketing; and Fall Circle. PowerSource also has
under contract two firms that rely on sale crews to canvass neighborhoods and
educate homeowners about green energy. These two firms, Heartline Power and
Telesys Communications have experienced great success with the door-to-door
approach. "This combination of marketing firms should average of over 5,000 new
customers per month," says PowerSource President Douglas Mitchell. This number
of customers switching to PowerSource represents $300,000 in gross revenues a
month. "At this rate of growth, PowerSource would have 60,000 customers this
time next year and gross revenue of approximately $15 million."
Additional information about PowerSource may be found on its web site:
http://www.mypower.com/
This announcement shall not constitute an offer to sell or the solicitation of
an offer to buy the securities described above in any jurisdiction where such
offer or solicitation would not be permitted by law.
<PAGE>
Financial statements made by Power Source Corporation other than historical
facts are "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and
as that term is defined in the Private Securities Litigation Reform Act of 1995.
The Company intends that such statements about the Company's future
expectations, including future revenues and earnings, and all other
forward-looking statements be subject to the safe harbors created thereby. Since
these statements (future operational, results and sales) involve risks and
uncertainties and are subject to change at any time, the Company's actual
results could differ materially from expected results. SOURCE PowerSource
Corporation 07/01/99
CONTACT: Illya Bond, CEO of PowerSource Corporation, 877-697-6937 Web site:
http://www.freeedgar.com/, http://www.dsm.com/, http://www.mypower.com/ (PSRE)
<PAGE>
Exhibit 2(a)
Press Release dated August 10, 1999.
POWERSOURCE CORPORATION RECEIVES FUNDING FOR ITS FIRST MARKETING DISTRICT
LOS ANGELES, Aug. 10 /PRNewswire/ -- PowerSource Corporation, "PowerSource,"
(OTC Bulletin Board: PSRE) has received funding for its first marketing
District. This District is one of 39 similar geographic regions throughout
California affiliated with PowerSource through limited liability partnerships.
Each partnership offers its investors the exclusive right to a portion of the
revenues from electric power sales within its chosen District. In exchange for
investor funds, PowerSource provides turnkey electricity marketing and
provisions the purchase and delivery of its clean, renewable electric power for
residential and small commercial customers in the District.
The fee paid to PowerSource for the rights to a single District is $240,000.
This fee allows investors to receive thirty-five percent (35%) of the adjusted
gross profit for that District for a period of not less than twenty-five (25)
years.
This first District (referred to as 107A) is located in Los Angeles County.
Effective immediately, the Company began marketing its renewable "green"
electricity in this District. In addition, several others Districts are now in
the final stages of completing partnership agreements.
This announcement shall not constitute an offer to sell or the solicitation of
an offer to buy the securities described above in any jurisdiction where such
offer or solicitation would not be permitted by law.
Financial statements made by Power Source Corporation other than historical
facts are "forward-looking" statements within the meaning of Section 27A of the
Securities Act of 1933, Section 21E of the Securities Exchange Act of 1934, and
as that term is defined in the Private Securities Litigation Reform Act of 1995.
The Company intends that such statements about the Company's future
expectations, including future revenues and earnings, and all other
forward-looking statements be subject to the safe harbors created thereby. Since
these statements (future operational, results and sales) involve risks and
uncertainties and are subject to change at any time, the Company's actual
results could differ materially from expected results. SOURCE PowerSource
Corporation 08/10/99
CONTACT: Illya Bond, CEO of PowerSource Corporation, 877-MY-POWER
Web site: http://www.mypower.com/ (PSRE)
<PAGE>
Exhibit 3
RH Underwriting Agreement
INVESTMENT BANKING AGREEMENT
This Investment Banking Agreement (the "Agreement") is made and entered into
this eleventh day of September, 1999, between Power Source Corp. ("Company"), on
the one hand, and RH Investment Corporation which is a member in good standing
of the National Association of Securities Dealers, Inc. ("Banker"), on the other
hand.
In consideration of and for the mutual promises and covenants contained herein,
and for other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties agree as follows:
1. PURPOSE: Company hereby employs Banker to render investment banking services
to Company relating to financial planning and capital procurement for the
Company, upon the terms and conditions as set herein. Specifically, Banker will
assist the Company on a best efforts basis to raise up to FIVE MILLION DOLLARS
and NO/1OO ($5,000,000) ("Bridge Financing"). It is our intention to use as our
investment vehicle, for the Bridge Financing, a Reg D Private Offering. Banker
intends to structure the private offering as common stock with an attached
warrant exercisable at the public offering price of the existing Shares. The
final structure of the Private Offering will be detailed in a separate
agreement. Fees paid to Banker for the Private Offering shall be detailed in a
separate agreement. The Banker will undertake a due diligence review of the
Company to verify the feasibility of the project. In addition, upon the
successful conclusion of the Bridge Financing, Banker intends to assist the
Company on a best efforts basis as Managing Underwriter, in the formation of a
selling syndicate and a secondary public offering.
However, Banker is under no obligation by virtue of this Agreement to undertake
any offering on behalf of the Company, and the details and commitment for any
such undertaking will be pursuant to a separate agreement entered into by the
Parties.
2. TERMS: This Agreement shall be effective for a period of six months from the
execution of this document and either party may terminate this agreement upon
thirty days written notification.
3. DUTIES OF THE BANKER:
a) In performing its duties pursuant to this Agreement, Bank shall provide
Company with the benefits of its reasonable judgement and efforts. Banker and
its employees and agents shall be given reasonable access to Company's officers,
premises and records.
b) The Company ackowledges that Banker will sponsor the Company, so that it may
attend the Regional Investment Bankers Quarterly Investment Conference, November
16-18, 1999 to be held in Newport Beach, California. Specific expenses relating
to travel, lodging, meals, entertainment, etc. for the duration of the
Conference, shall be the responsibility of the Company.
<PAGE>
4. COMPENSATION:
a) For this accommodation and other valued services rendered by the Banker to
the Company pursuant to this Agreement, upon execution hereof, the Company shall
pay to Banker a fee of FIVE THOUSAND DOLLARS AND NO CENTS ($5,000) prior to
Banker performing its due diligence, and for ongoing consu1tation and services.
This initial retainer shall be paid by Company as TWENTY FIVE HUNDRED DOLLARS
AND NO CENTS ($2,500.00) in cash or check and the balance in the equivalent of
TWENTY FIVE HUNDRED DOLLARS AND NO CENTS ($2,500.00) of the Company's publicly
trading stock.. Said stock shall be delivered to Banker in "free and clear" form
without encumbrances that would disable Banker from selling said stock any time
at its discretion. In addition, Company shall pay to Banker FIVE THOUSAND
DOLLARS AND NO CENTS ($5,000.00), on the fifteenth of each and every month, with
payment in the form specified for the initial retainer (see above), commencing
on October 15, 1999, for ongoing consultation and financial advice. Said monthly
payments shall continue up to the date of the commencement of the public
offering. A pro rata amount shall be calculated for the final monthly payment.
b) Company shall reimburse Banker for out-of-pocket expenses (including without
limitation reasonable attorney's fees and industry experts) incurred by Banker
in connection with the services rendered by Banker pursuant to his Agreement
within 15 days after each written invoice detailing such expenses is delivered
to Company by Banker. Any expenditure in excess of ONE THOUSAND DOLLARS AND NO
CENTS ($1,000.00) will require Company approval.
5. PROPRIETARY INFORMATION: Banker agrees that it will not sell, use in any
manner, not authorized in writing by Company, or disclose any of the Company's
trade secrets or any other proprietary information obtained by Banker during its
employment by Company pursuant to this Agreement including & without
limitations, information concerning the Cornpany's current or any future and
proposed operations, services or products ("Confidential Information").
Confidential information shall not include information or material that (i) is
now or later becomes generally known to the public (other that as a result of a
breach of this Agreement); (ii) is independently developed by Banker without use
of the Confidential Information; (iii) is lawfully obtained by Banker from a
third party who has lawfully obtained such information; (iv) is later published
or generally disclosed to the public by the Company ; (v) is already kmown or
available to the Banker at the time of its disclosure, (vi) is approved for
release by prior written authorization of Company; or (vii) is required to be
disclosed pursuant to any applicable statute, law, rule or regulation of any
governmental authority or pursuant to any order of any court of competent
jurisdiction, provided that Banker shall advise Company of the requirement for
disclosure in sufficient time to apply for such legal protection as may be
available with respect to the confidentiality of the Confidential Information.
6. RIGHT OF FIRST REFUSAL: In consideration for the services to be rendered by
the Banker pursuant to this Agreement, company agrees that, for a period of
three years following the date of this Agreement, Banker shall have the first
refusal to be the Company's exclusive Banker with respect to any offer or sale
of securities by Company, whether by means of public or private offering or a
transaction pursuant to Regulation S under the Securities Act of 1933, as
amended.
7. AVAILABIL1TY OF INFORMATION. It is understood and agreed between the Company
and Banker that all documents and other information relating to the Company's
affairs will be made available upon request to Banker and its counsel, and
copies of any such documents will be furnished upon request to Banker or its
counsel.
8 CONFLICT WITH LAW: It is understood that if any provision of this Agreement
conflicts with the Securities Act of 1933, as amended, any rule or regulation
under such Securities Act, the blue sky laws of any state in which the proposed
offering is to be qualified, the National Association of Securities Dealers,
Inc., or any other governmental authority either federal or state, possessing
jurisdiction over the sale and issuance of such securities, the Company shall
meet with Banker and amend this Agreement to comply with such regulation.
8. ARBITRATION.. Any Controversy or claim arising out of or relating to the
compensation to be paid by Company or the services rendered by Banker pursuant
to the terms of this Agreement, or otherwise related to the compliance by either
party with its obligations hereunder, shall be settled by binding arbitration in
Los Angeles, California, in accordance with the rules of the American
Arbitration Association, and iudgement on the award rendered by the
arbitrator(s) may be entered by any court having jurisdiction thereof. Any party
to this Agreement may submit to arbitration any controversy or claim.
9. ASSIGNMENT.. This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law) without the prior written consent of
the other party, but, subject to the foregoing limitation, this Agreement shall
be binding upon and inure to the benefit of the respective successors, assigns
and legal representatives of the parties.
<PAGE>
10. CAPTIONS: The headings of the sections of this Agreement are intended solely
for convenience of reference and are not intended and shall not be deemed for
any purpose whatever to modify or explain or place any consruction upon any of
the provisions of this Agreement.
11. ATTORNEY'S FEES: in the event any party hereto shall institute an action to
enforce any rights hereunder, the prevailing party in such action shall be
entitled and the arbitrator(s) or Court shall award, in addition to any other
relief awarded by the arbitrator(s) or the Court, reasonable attorneys fees,
costs and expenses as the arbitrator(s) or the Court may award.
12. ENTIRE AGREEMENT: This Agreement constitutes the entire agreement between
the parties hereto pertaining to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understanding of the parties, and there
are no representations, warranties or other agreements between the parties in
connection with the amendment, waiver or termination of the Agreement shall be
binding unless executed in writing by the parties hereto. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any provision hereof (whether or not similar), nor shall waiver constitute a
continuing waiver.
13. NOTICE: Any notice, instruction or communication required or permitted to be
given under this Agreement to any party shall be in writing and shall be deemed
received when personally delivered by the Federal Express or any other reputable
overnight delivery service, or three days after deposit in the United States
mail by certified or express mail, return receipt requested first class postage
prepaid, to the address specified herein or otherwise as such party may request
by written notice.
14. GOVERNING LAWS: The parties hereto hereby agree that this Agreement shall be
governed by the Laws of the State of California.
15. INDEMNIFICATION: The undersigned, as agent for Company agrees to hold
harmless the Banker and all of its affi1iates, attorneys, accountants,
associates, employees, officers, directors and/or agents from any liability,
claims, costs, damages, losses or expenses incurred or sustained by it or them
as a result of Banker's actions, advice, consultations, representations,
introductions, performances or the lack thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement this day and
year first above written.
POWERSOURCE CORP
By: /s/ Illya Bond
Ilya Bond - CEO
Date: September 11,1999
RH INVESTMENT CORP.
By: /s/ Stuart S. Greenberg
Stuart S. Greenberg
Managing Director Investment Banking Division
Date: September 11,1999
<PAGE>
Exhibit 4
Private Placement Memorandum
----------
CONFIDENTIAL PRIVATE PLACEMENT MEMORANDUM
PURSUANT TO RULE 506
OF THE SECURITIES ACT OF 1933
PowerSource Corporation
$5,000,000
1,000 Units
Each Unit Consisting of 2,000 Shares of Common Stock at $2.50 per Share and
1,000 Class B Warrants Exercisable at $3.50 per Share
OFFERING PRICE: $5,000 PER UNIT
For Accredited Investors Only
<PAGE>
PowerSource Corporation
$5,000,000
1,000 Units
$5,000 Per Unit
Each Unit Consisting of 2,000 Shares of Common Stock at $2.50 per Share and
1,000 Class B Warrants Exercisable at $3.50 per Share
For Accredited Investors Only
PowerSource Corporation (the "Company") is a Nevada corporation formed in
1990 under the name American Gas Corporation. Since its inception, the Company
has operated as an energy company in the Midwest. The Company recently relocated
to California to take advantage of a new California law that allows California
residents and businesses to choose their own utility suppliers. The Company is a
registered electric service provider (registration # 1237) with the California
Public Utilities Commission, has met the necessary criteria to be a Registered
Renewable Provider (registration # CEC-91237), and is eligible to receive
funding from the Renewable Technology Program. The Company is also licensed by
the Federal Energy Regulatory Commission as a Wholesale Electric Power & Energy
Transactions Marketer/Public Utility Company (docket # ER98-3052-000). The
Company plans to act as an energy aggregator to provide individuals and business
with the opportunity to pool together into a common buying group to make larger,
more economical purchases of energy. See "BUSINESS."
The Company's principal investment objectives are to:
1. Earn profits by purchasing and selling energy, and by pooling
individuals and businesses together to make larger, more economical purchases of
energy.
2. Increase the value of the Company's stock and eventually file with the
Securities and Exchange Commission to become a public reporting company.
The Company is offering 1,000 units (the "Units") consisting of 2,000,000
shares of Common Stock (the "Shares") and 1,000,000 Common Stock purchase
warrants (the "Warrants"). The Company's stock currently is not liquid but may
become publicly traded in the future. The Company has filed an Information
Statement pursuant to Rule 15c2-11 and may commence trading on the pink sheets
as a nonreporting company. See "DESCRIPTION OF SECURITIES."
THIS INVESTMENT INVOLVES SIGNIFICANT RISKS AND SHOULD ONLY BE CONSIDERED BY
PERSONS WHO CAN AFFORD TO LOSE THEIR ENTIRE INVESTMENT. SEE "RISK FACTORS."
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY
OF THIS MEMORANDUM. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Offering Selling Proceeds to
Price(2) Commissions Company(4)
Per Unit ......................... $ 5,000 $ 500 $ 4,500
Total Minimum (1) ................ 100,000 10,000 90,000
Total Maximum (5) ................ 5,000,000 500,000 4,500,000
*See footnotes on the following page.
The Date of This Memorandum is February 5, 1999.
<PAGE>
1. This offering will terminate on February 5, 2000, unless extended by the
Company for up to an additional 180 days (the "Sales Termination Date").
Subscription funds will be deposited in to PowerSource Corp. account at
Washington Mutual Bank, 3660 Wilshire Blvd., Los Angeles, California 90010. The
offering will continue until the earlier of (i) the sale of a total of
$5,000,000 of Units, or (ii) the Sales Termination Date. See "TERMS OF THE
OFFERING."
2. The minimum investment for investors is $10,000. The Company may accept less
than the minimum investment from a limited number of investors. The Company may
sell fractional Units. See "TERMS OF THE OFFERING."
3. The Units will be offered on a "best-efforts" basis. Selling commissions will
be paid with respect to Units sold. See "PLAN OF DISTRIBUTION."
4. The amounts shown are before deducting organization and offering costs to the
Company, which include legal, accounting, printing and other costs incurred in
the offering of the Units. See "USE OF PROCEEDS" and "PLAN OF DISTRIBUTION."
5. The Units will be sold only to Accredited Investors, as that term is defined
in Regulation D promulgated under the Securities Act of 1933, as amended. The
Company has the option to increase the maximum amount of the offering by up to
an additional $500,000 for a total maximum offering of $5,500,000. The
additional capital may be raised at any time up to the Sales Termination Date.
The additional capital would be available for the purpose of developing
electricity marketing opportunities for the Company. See "USE OF PROCEEDS."
CITY NATIONAL INVESTMENTS IS ACTING SOLELY AS ESCROW HOLDER IN CONNECTION WITH
THE OFFERING OF THE UNITS AND MAKES NO RECOMMENDATION WITH RESPECT TO THIS
OFFERING. NORTH AMERICAN TRUST COMPANY HAS MADE NO INVESTIGATION REGARDING THE
OFFERING, THE COMPANY, OR ANY PERSON OR ENTITY INVOLVED IN THE OFFERING.
- --------------------------------------------------------------------------------
<PAGE>
THE OFFER AND SALE OF THE UNITS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). NO UNITS MAY BE RESOLD, ASSIGNED OR
OTHERWISE TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN
EFFECT, OR THE COMPANY HAS RECEIVED EVIDENCE SATISFACTORY TO IT THAT SUCH
TRANSFER DOES NOT INVOLVE A TRANSACTION REQUIRING REGISTRATION UNDER THE ACT AND
IS IN COMPLIANCE WITH THE ACT.
THE UNITS HAVE NOT BEEN QUALIFIED UNDER CERTAIN STATE SECURITIES LAWS IN
RELIANCE UPON THE APPLICABLE EXEMPTIONS FROM REGISTRATION FOR PRIVATE OFFERS AND
SALES OF SECURITIES. NO UNITS MAY BE SOLD, ASSIGNED OR OTHERWISE TRANSFERRED
UNLESS THE COMPANY HAS RECEIVED EVIDENCE SATISFACTORY TO IT THAT SUCH TRANSFER
DOES NOT INVOLVE A TRANSACTION REQUIRING QUALIFICATION UNDER SAID STATE
SECURITIES LAWS AND IS IN COMPLIANCE WITH SUCH LAWS.
THIS MEMORANDUM IS NOT KNOWN TO CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT,
NOR TO OMIT MATERIAL FACTS WHICH IF OMITTED, WOULD MAKE THE STATEMENTS HEREIN
MISLEADING. IT CONTAINS A FAIR SUMMARY OF THE MATERIAL TERMS OF DOCUMENTS
PURPORTED TO BE SUMMARIZED HEREIN. HOWEVER, THIS IS A SUMMARY ONLY AND DOES NOT
PURPORT TO BE COMPLETE. ACCORDINGLY, REFERENCE SHOULD BE MADE TO THE
CERTIFICATION OF RIGHTS, PREFERENCES AND PRIVILEGES AND OTHER DOCUMENTS REFERRED
TO HEREIN, COPIES OF WHICH ARE ATTACHED HERETO OR WILL BE SUPPLIED UPON REQUEST,
FOR THE EXACT TERMS OF SUCH AGREEMENTS AND DOCUMENTS.
THIS MEMORANDUM DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION
IN WHICH SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NO PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS CONCERNING THE
COMPANY OTHER THAN THOSE CONTAINED IN THIS MEMORANDUM, AND IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON.
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS MEMORANDUM, OR OF
ANY PRIOR OR SUBSEQUENT COMMUNICATIONS FROM THE COMPANY OR ANY OF ITS EMPLOYEES,
AGENTS OR AFFILIATES, AS INVESTMENT, LEGAL OR TAX ADVICE. EACH INVESTOR SHOULD
CONSULT HIS OWN COUNSEL, ACCOUNTANT AND OTHER PROFESSIONAL ADVISORS AS TO LEGAL,
TAX AND OTHER RELATED MATTERS CONCERNING HIS INVESTMENT.
THE PRIVATE PLACEMENT OF THESE SECURITIES IS BEING MADE IN RELIANCE ON THE
EXEMPTION FROM REGISTRATION AVAILABLE IN RULE 506 OF REGULATION D PROMULGATED
UNDER SECTION 4(2) OF THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT TO
THE NATIONAL SECURITIES MARKET IMPROVEMENT ACT OF 1996.
<PAGE>
STATE NOTICE REQUIREMENTS
1. FOR CALIFORNIA RESIDENTS: THE SALE OF THE SECURITIES WHICH ARE THE
SUBJECT OF THIS OFFERING HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND IS BEING MADE PURSUANT TO THE
EXEMPTION FROM QUALIFICATION UNDER THE NATIONAL SECURITIES MARKET IMPROVEMENT
ACT OF 1996 OR, IN THE ALTERNATIVE, PURSUANT TO THE EXEMPTION AVAILABLE IN
SECTION 25102(f) OF THE CALIFORNIA CORPORATIONS CODE FOR PRIVATE PLACEMENTS.
2. FOR FLORIDA RESIDENTS: THESE SECURITIES HAVE NOT BEEN REGISTERED WITH
THE FLORIDA DIVISION OF SECURITIES. EACH FLORIDA RESIDENT WHO SUBSCRIBES FOR THE
PURCHASE OF SECURITIES HEREIN HAS THE RIGHT, PURSUANT TO SECTION
517.061(11)(a)(5) OF THE FLORIDA SECURITIES ACT, TO WITHDRAW HIS SUBSCRIPTION
FOR SUCH PURCHASE AND RECEIVE A FULL REFUND OF ALL MONIES PAID WITHIN THREE
BUSINESS DAYS AFTER THE EXECUTION OF THE SUBSCRIPTION AGREEMENT OR PAYMENT FOR
THE PURCHASE HAS BEEN MADE, WHICHEVER IS LATER. WITHDRAWAL WILL BE WITHOUT ANY
FURTHER LIABILITY TO ANY PERSON. TO ACCOMPLISH THIS WITHDRAWAL, A SUBSCRIBER
NEED ONLY SEND A LETTER OR TELEGRAM TO THE COMPANY AT ITS ADDRESS SET FORTH IN
THE TEXT OF THIS MEMORANDUM, INDICATING HIS INTENTION TO WITHDRAW. SUCH LETTER
OR TELEGRAM SHOULD BE SENT AND POSTMARKED PRIOR TO THE END OF THE AFOREMENTIONED
THIRD BUSINESS DAY. IT IS ADVISABLE TO SEND SUCH LETTER BY CERTIFIED MAIL,
RETURN RECEIPT REQUESTED, TO ENSURE THAT IT IS RECEIVED AND ALSO TO EVIDENCE THE
TIME IT WAS MAILED. IF THE REQUEST IS MADE ORALLY (IN PERSON OR BY TELEPHONE TO
THE COMPANY AT THE NUMBER LISTED IN THE TEXT OF THIS MEMORANDUM), A WRITTEN
CONFIRMATION THAT THE REQUEST HAS BEEN RECEIVED SHOULD BE REQUESTED.
SEE THE SUBSCRIPTION AGREEMENT FOR OTHER STATE NOTICES, IF APPLICABLE.
<PAGE>
TABLE OF CONTENTS
Page
INVESTOR SUITABILITY STANDARDS.............................................4
INVESTMENT SUMMARY.........................................................4
USE OF PROCEEDS............................................................7
RISK FACTORS...............................................................8
BUSINESS..................................................................14
CAPITALIZATION............................................................20
DIVIDEND POLICY...........................................................21
DILUTION..................................................................22
MANAGEMENT................................................................22
PRINCIPAL STOCKHOLDERS....................................................27
DESCRIPTION OF SECURITIES.................................................27
ERISA CONSIDERATIONS .....................................................29
TERMS OF THE OFFERING.....................................................30
PLAN OF DISTRIBUTION......................................................32
ADDITIONAL INFORMATION....................................................32
FINANCIAL STATEMENTS......................................................34
EXHIBITS
SUBSCRIPTION DOCUMENTS................................................... A
<PAGE>
NVESTOR SUITABILITY STANDARDS
Units will be sold only to a person who has either (i) a net worth (or
joint net worth with the purchaser's spouse) of at least $1,000,000 or (ii) an
annual gross income in the last two years of at least $200,000, and expected
gross income in the current year of at least $200,000 (or joint annual gross
income with spouse of $300,000), or (iii) otherwise meets the requirements for
an Accredited Investor as defined in Rule 501 of Regulation D promulgated under
Section 4(2) of the Securities Act of 1933, as amended. See the Purchaser
Qualification Questionnaire in the Subscription Documents in Exhibit A to this
Memorandum. In the case of sales to fiduciary accounts (Keogh Plans, Individual
Retirement Accounts (IRAs) and Qualified Pension/Profit Sharing Plans or
Trusts), the above suitability standards must be met by the fiduciary account,
the beneficiary of the fiduciary account, or by the donor who directly or
indirectly supplies the funds for the purchaser of Units. Investor suitability
standards in certain states may be higher than those described in this
Memorandum. These standards represent minimum suitability requirements for
prospective investors, and the satisfaction of such standards does not
necessarily mean that an investment in the Company is suitable for such persons.
The Company has the discretion to sell less than the minimum investment to
a limited number of investors. The Company has the option, exercisable in its
sole discretion, at any time prior to the Sales Termination Date, to redeem
Units purchased by investors who purchase less than the minimum investment. The
redemption price would equal the original purchase price of the Units. See
"TERMS OF THE OFFERING."
Each investor must represent in writing that he meets the applicable
requirements set forth above and in the Subscription Agreement, including, among
other things, that (i) he is purchasing the Units for his own account, for
investment and not with a view toward distribution, and (ii) he has such
knowledge and experience in financial and business matters that he is capable of
evaluating without outside assistance the merits and risks of investing in the
Units, or he and his purchaser representative together have such knowledge and
experience that they are capable of evaluating the merits and risks of investing
in the Units. Broker-dealers and other persons participating in the offering
must make a reasonable inquiry in order to verify an investor's suitability for
an investment in the Company.
INVESTMENT SUMMARY
The following summary is qualified in its entirety by the more detailed
information and financial statements appearing elsewhere or incorporated by
reference in this Memorandum and its Exhibits. Each prospective investor is
urged to carefully read this Memorandum and its Exhibits in their entirety
including but not limited to the risk factors.
The Company
PowerSource Corporation (the "Company" or "PowerSource") is a Nevada
corporation formed in 1990 under the name American Gas Corporation. Since its
inception, the Company has operated as an energy company in the Midwest. In
1992, Kensington International Holding Corporation ("Kensington"), a fully
reporting public company, acquired American Gas Corporation. Subsequently,
American Gas Corporation reorganized into PowerSource Corporation. The Company
recently relocated to California to take advantage of California Assembly Bill
1890 which permits California residents and business to choose their utility
suppliers. The California electric industry is estimated to be a $22 billion
dollar per year business and PowerSource intends to capture a share of the
market.
<PAGE>
PowerSource is a registered electric service provider (registration # 1237)
with the California Public Utilities Commission ("PUC"). The Company has also
met the necessary criteria to be a Registered Renewable Provider (registration #
CEC-91237), and is eligible to receive funding from the Renewable Technology
Program. On July 13, 1998, the Federal Energy Regulatory Commission licensed the
Company as a Wholesale Electric Power & Energy Transactions Marketer/ Public
Utility Company (docket # ER98-3052-000), which automatically became effective
on August 14, 1998. When filling documents with Federal Energy Regulatory
Commission, the Company requested a waiver of various Commission regulations. In
particular, the Company requested that the Commission grant blanket approval
under 18 CFR Part 34 of all future issuances of securities by the Company. On
July 10, 1998, pursuant to delegated authority, the Director, Division of
Applications, Office of Electric Power Regulation, granted the Company's request
for blanket approval of issuances of securities effective August 10, 1998.
The Company anticipates that energy deregulation will be similar to
telephone deregulation. Currently, only the State of California licenses and
permits sales of power by independent providers other than utilities. By being
licensed at the federal level, as well as with the California PUC, PowerSource
is positioned eventually to sell power in states other than California if those
states adopt deregulation legislation. Furthermore, PowerSource can purchase
power from sources in any jurisdiction. With the defeat of Proposition 9 in
California in November 1998, energy deregulation and the related opportunities
remain intact.
PowerSource plans to act as an energy aggregator to provide individuals and
business with the opportunity to pool together into a common buying group to
make larger, more economical purchases of energy. The Company intends to market
to various types of organizations, including business associations, membership
retailers, homeowners associations, chambers of commerce, churches,
municipalities, cause-related groups, and other non-profit organizations.
PowerSource also intends to promote environmentally friendly, renewable energy
sources such as wind and solar power. With this group buying approach,
PowerSource anticipates that it will have an opportunity to earn profits
initially from operations in California, and eventually throughout the United
States if energy deregulation evolves nationwide. In marketing power to
residential customers and small business owners, PowerSource will endeavor to
offer a comprehensive package of services to earn additional revenue, including
telecommunications, Internet access, cable, home warranty plans and energy
management systems. The primary sources of the Company's revenues are expected
to be from the resale of energy purchased on a wholesale basis, from the sale of
other services, and from the sale of territories to independent affiliated and
unaffiliated marketing companies. In the future, the Company may buy back
marketing territories from affiliated marketing companies through exchange
offers (i.e. exchanging shares of the Company's common stock for the outstanding
securities of the marketing companies). See "BUSINESS."
In December 1998, PowerSource submitted a proposal to the City of Santa
Monica, in response to the City's Request for Qualifications and Proposals, to
be the procurement agent for Santa Monica's energy. The proposal includes the
development and implementation of an energy efficiency planning program for the
City and its constituents, the purchase of power from renewable sources, and the
installation of distributed solar power in the City.
<PAGE>
The Company presented the proposal as part of a vendor team composed of the
Solar Utility Company, Gottfried Technologies, Princeton Development Corporation
and Flack & Kurtz Engineers. The City of Santa Monica has not made a selection
for its energy consulting firm and there is no assurance that PowerSource will
be chosen. PowerSource is also evaluating the possible acquisition of renewable
energy sources, including a wind turbine project. To date, the Company has not
entered into an agreement for the acquisition of such a facility and there is no
assurance regarding if or when such an acquisition will be made.
The Company's executive offices are located at 3660 Wilshire Boulevard, Suite
1104, Los Angeles, California. The telephone number is (213) 383-4443.
Risk Factors
Investors should carefully consider the various risk factors regarding the
Company before investing in the Units. See "RISK FACTORS."
...............................................................................
The Offering
Common Stock outstanding (1)..............................5,167,161 shares(1)
Common Stock offered by the Company.......................2,000,000 shares
Warrants offered by the Company (2)..................... 1,000,000 warrants(2)
Common Stock outstanding after
the offering of Shares and the exercise
of all of the Warrants (3)................................8,167,161 shares (3)
Preferred Stock outstanding...................................5,350 shares (4)
Proposed Trading Symbol (5).........................................PSRE
________________________________________
(1) These shares are primarily owned by Kensington, German Teitelbaum,
Advanced Legal Management, and Magnum Real Estate. See "PRINCIPAL STOCKHOLDERS."
(2) Each Warrant entitles the holder to purchase one share of the Company's
Common Stock for a price of $3.50 per share at any time until December 31, 1999.
Does not reflect the exercise of any other outstanding warrants or the grant and
exercise of any other authorized class of warrants. See "DESCRIPTION OF
SECURITIES - Warranties."
(3) The total number of shares of the Company's Common Stock assumes the
maximum number of Units are sold and the maximum number of Warrants are
exercised.
<PAGE>
(4) See "DESCRIPTION OF SECURITIES - Preferred Stock."
(5) The Company has filed an Information Statement pursuant to Rule 15c2-11
of the Securities and Exchange Act and may commence trading on the pink sheets
as a nonreporting company. The Company will not be permitted to trade on the OTC
Bulletin Board until it becomes a fully reporting company with the Securities
and Exchange Commission. The Company is in the process of preparing its
application to become a fully reporting company.
USE OF PROCEEDS
The minimum gross proceeds from the sale of Units is $250,000 and the
maximum gross proceeds from the sale of the Units is $5,000,000. The minimum net
proceeds from the offering are expected to be approximately $210,000 and the
maximum net proceeds from the offering are expected to be approximately
$4,200,000, after the payment offering costs including selling commissions to
Nexcore Capital, Inc. ("Nexcore") and printing, mailing, legal, and accounting
costs to Fulcrum Enterprises, Inc. ("Fulcrum"), an affiliate of Nexcore, and to
independent professionals. See "PLAN OF DISTRIBUTION." Management anticipates
that the net proceeds will be used as follows, however, the net proceeds from
this offering may be allocated differently in management's discretion:
ESTIMATED USE MINIMUM MAXIMUM
Initial Power Purchasing (1) $ 116,250 $ 2,240,000
Working Capital (2) $ 62,500 $ 750,000
Marketing (3) $ 650,000
General Corporate Purposes (2) $ 200,000
Financial Public Relations (3) $ 7,500 $ 150,000
SEC Registration Statement (4) $ 18,750 $ 100,000
Legal & Accounting (2) $ 5,000 $ 110,000
TOTAL $ 210,000 $ 4,200,000
(1) Assumes the Company will successfully enter into Power Marketing
Contracts with end users of electricity. The amount shown is for the purchase of
electricity at wholesale prices from various utilities and Power Exchanges.
(2) Working capital, general corporate purposes, and legal and accounting
reflect funds allocated to pay for daily expenditures incurred in the Company's
business operations, and general and administrative overhead for the
twelve-month period following the closing of this offering.
(3) Represents estimates of retaining a full-time financial public
relations firm to assist the Company with its public and investor relations
plan, placement of corporate media, design of Company brochures and annual
report, and planning of the annual shareholders' meetings.
(4) The actual expenditures for the registration statement expected to be
filed by the Company with the Securities and Exchange Commission depends on
whether the Company files a Form 10 under the Securities Exchange Act of 1934,
as amended, or a Form S-1 or SB-2 under the Securities Act of 1933, as amended.
The budget for the Form 10 is expected to range from $25,000 to $35,000, and the
budget for the Form S-1 or SB-2 is expected to be $100,000. The Form S-1 or SB-2
would enable the Company to register additional shares for sale to the public to
raise more capital, while the Form 10 would register the Company as public
reporting but would not include additional shares for sale. The Company expects
to file a Form S-1 or SB-2 registration statement. The amount of capital to be
raised from that filing, and the timing of the filing, is not known at this
time. The Company has prepared an Information Statement pursuant to Rule 15c2-11
of the Securities Exchange Act of 1934, as amended, in the event that its stock
commences to trade on the pink sheets as a nonreporting company prior to filing
its registration statement to become a reporting company with the Securities and
Exchange Commission under the Exchange Act. See "RISK FACTORS."
<PAGE>
RISK FACTORS
The purchase of the Units is speculative and involves a high degree of risk
and significant dilution. Prospective investors should carefully consider all of
the information contained in this Memorandum and, in particular, the following
factors which could adversely affect the operations and prospects of the
Company, before making a decision to purchase the Units.
Cautionary Statements
The following cautionary statements are made pursuant to the Private
Securities Litigation Reform Act of 1995 in order for the Company to avail
itself on the "safe harbor" provisions of that Act. The discussions and
information in this Memorandum may contain both historical and forward-looking
statements. To the extent that the Memorandum contains forward-looking
statements regarding the financial condition, operating results, business
prospects, or any other aspect of the Company, please be advised that the
Company's actual financial condition, operating results, and business
performance may differ materially from that projected or estimated by the
Company in forward-looking statements. The Company has attempted to identify, in
context, certain of the factors it currently believes may cause actual future
experience and results to differ from the Company's current expectations. The
differences may be caused by a variety of factors, including but not limited to,
the inability to purchase power at economical rates, the inability to make a
profit on the resale of power, the inability to effectively aggregate power
customers in order to lower the Company's electricity purchasing costs, the
inability to resell power, the loss of necessary government licenses, adverse
economic conditions, failure of billing and power purchasing computer programs,
intense competition, including entry of new competitors, adverse federal, state,
and local government regulation, inadequate capital, unexpected costs, lower
revenues and net income than forecast, loss of customers, price increases for
advertising, labor, and supplies, failure to obtain customers, the risk of
litigation and administrative proceedings involving the Company and its
employees, the possible acquisition of new businesses that do not perform as
anticipated, the possible fluctuation and volatility of the Company's operating
results and financial condition, adverse publicity and news coverage, inability
to carry out marketing and sales plans, changes in interest rates, inflationary
factors, and other specific risks that may be alluded to in this Memorandum or
in other reports issued by the Company.
New Industry
California is one of the first states to deregulate the electric industry
to create competition in that industry. The California electricity industry is
estimated to be a $22 billion per year business, of which residential customers
are estimated to account for $9.5 billion. Management believes that the Company
has a window of opportunity to develop a nationwide network dedicated to
providing electricity at competitive rates. There is no assurance, however, that
the Company will be successful in developing any network of electricity
suppliers and purchasers.
<PAGE>
No Operating History
The Company recently commenced its business operations with respect to the
marketing of electricity. There can be no assurance at this time that the
Company will operate profitably or that it will have adequate working capital to
meet its obligations as they become due. The Company believes that its success
will depend in large part on its ability to pool individuals and businesses
together into a common buying group to make larger, more economical purchases of
energy. The Company must implement sophisticated purchasing and billing hardware
and software systems to conduct its business. As a result, the Company expects
to incur operating losses in the initial stages of this business. There is no
assurance that a malfunction of or failure to properly develop or operate one or
more of its computer systems will not have a material adverse affect on the
Company.
Impracticability of Exhaustive Investigation
Because of the Company's limited resources, it is unlikely that the Company
will conduct an exhaustive investigation and analysis of a power marketing
opportunity before the Company commits its capital or other resources.
Management decisions may be made without detailed feasibility studies,
independent analysis, and market surveys which the Company would likely conduct
if the Company had sufficient resources. Management decisions will be
particularly dependent on information provided by the promoter, owner, sponsor
or others associated with a particular power marketing opportunity seeking the
Company's participation.
No Assurance of Profitability
The Company's business is speculative and dependent upon the acceptance of
the Company's products and the effectiveness of its marketing program. There can
be no assurance that the Company will be successful or that its business will
earn any revenues or profit.
Risks Relating to Marketing Companies
The net sales indicated on the Statement of Income and Retained Earnings
for the Nine Months and Fifteen Days Ended September 15, 1998 for the Company
reflect accounts receivable from affiliated distributors recorded on the accrual
basis of accounting and have not been realized by the Company in cash. The
Company sells geographic territories in California to independent affiliated and
unaffiliated marketing companies in consideration for a single one time payment.
The Company also expects to earn revenues by selling power to the distributors'
customers at a profit. The accounts receivable on the Company's financial
statements represent the one time initial payment obligation of the distributors
to the Company. There is no assurance that such accounts receivable will be
collected by the Company, or that the distributors will be able to make those
payments. See "BUSINESS - Protected Territories - Districts." There is no
assurance that the Company will earn significant revenues or that investors will
not lose their entire investment.
Competition
Since the passage of recent utility deregulation laws by the California
legislature, the market for electrical power in the State of California is
intensely competitive. The market is also intensely competitive throughout the
United States. The Company's principal competitors include large utility
<PAGE>
companies and a myriad of other independent licensed purchasers and sellers of
electrical power. These competitors have longer operating histories, greater
name recognition, larger installed customer bases, and substantially greater
financial, technical, and marketing resources than the Company. The Company
believes that the principal factors affecting competition in its proposed market
include name recognition, the ability to aggregate customers and purchase and
sell power at a profit, the ability to attract and service customers, and the
ability to find low cost, reliable suppliers. Other than licensing requirements
and the time necessary to enter the market, there are no significant proprietary
or other barriers of entry that could keep potential competitors from providing
competing services in the Company's proposed market. There can be no assurance
that the Company will be able to compete successfully in the future, or that
future competition will not have a material adverse effect on the business,
operating results, and financial condition of the Company.
Management of Growth
To manage growth effectively, the Company will need to continue to improve
its operational, financial and management information systems and to hire,
train, motivate and manage a growing number of employees. Competition is intense
for qualified technical, marketing and management personnel. There can be no
assurance that the Company will be able to effectively achieve or manage any
future growth, and its failure to do so could have a material adverse effect on
the Company's financial condition and results of operations.
Government Regulation
The Company's business is subject to extensive federal, state and local
laws that affect purchasers and sellers of power and businesses in general.
These laws and regulations include those governing health, safety, working
conditions, the rights of employees, employment discrimination, wrongful
termination, product advertising, wages, hours, taxes, licensing and other
matters. The California Public Utilities Commission and the Federal Energy
Regulatory Commission regulate the purchase and sale of power and therefore
regulate the Company's business. A company may not engage in the business of
purchasing and selling power without federal and state government licenses. If
the Company ever loses its federal and state government licenses, it would be
precluded from engaging in its business and investors would likely lose their
entire investment in the Company.
................................................................................
No Cumulative Voting
Holders of the Company's Common Stock are entitled to one vote per Share on
each matter submitted to vote at any meeting of shareholders. Consequently, the
holders of a majority of the Shares present at a meeting of shareholders may be
able to elect all of the directors of the Company. Presently, current management
collectively controls a majority of the issued and outstanding shares of the
Company's Common Stock.
"Best Efforts" Offering
The Units are being offered on a "best efforts" basis by the Company and no
individual, firm, or corporation has agreed to purchase any of the Units. No
assurance can be given that any or all of the Units will be sold. Once the
minimum subscription of $100,000 is achieved, investors subscription funds will
be used by the Company for its offering costs and operations.
<PAGE>
No refunds will be given if an inadequate amount of money is raised from this
offering to enable the Company to conduct its business. If only a small potion
of the Units are placed, then the Company may not have sufficient capital to
operate. There is no assurance that the Company could obtain additional
financing or capital from any source, or that such financing or capital would be
available to the Company on terms acceptable to it. Under such circumstances,
investors in the Units could lose their entire investment in the Company.
Dependence on Key Personnel
The Company's success is substantially dependent on the performance of its
executive officers and key employees. Given the Company's early stage of
development in the electricity marketing business, the Company is dependent on
its ability to retain and motivate high quality personnel. Although the Company
believes it will be able to engage qualified personnel for such purposes, an
inability to do so could materially adversely affect the Company's ability to
market, sell, and enhance its services. The loss of one or more of its key
employees or the Company's inability to hire and retain other qualified
employees could have a material adverse effect on the Company's business.
................................................................................
Management Compensation Not Determined at Arm's Length
The compensation for management is at the sole discretion of the Board of
Directors, but in any case will not be determined at arm's length. In addition,
in the face of competing demands for their time, certain officers and directors
who have other businesses may grant priority to their other full time positions
rather than to the Company, creating conflicts of interest and causing an
adverse material impact on the Company's business and operations. See "RISK
FACTORS - Conflicts of Interest."
Insider Control
The officers and directors of the Company, collectively, control more than
five percent of the issued and outstanding Common Stock of the Company. Certain
executive officers of the Company may enter into employment or consulting
agreements with the Company pursuant to which they are entitled to certain cash
payments upon termination following a change in control of the Company under
certain circumstances.
Dilution - Authorized Shares
The Company is authorized to issue up to 50,000,000 shares of Common Stock,
par value $.001 per share, and up to 100,000 shares of Preferred Stock, $100 per
share. The Board of Directors has the authority to cause the Company to issue
more shares of its Common or Preferred Stock, and to determine the rights,
preferences, and privileges of such stock, without the consent of any of the
Company's stockholders. Additionally, in the future the Company may adopt Stock
Option and Compensation Plans that permit the Company to grant stock options to
officers, directors, and employees. The Company anticipates that it may be
required to grant such options in order to recruit and retain qualified
executives for various managerial positions. Consequently, the Shareholders may
experience more dilution in their ownership of the Company in the future.
<PAGE>
No Assurance That Dividends Will Be Paid
The Company does not currently anticipate declaring and paying dividends to
its Shareholders in the near future. It is the Company's current intention to
apply net earnings, if any, in the foreseeable future to increasing its capital
base and marketing. Prospective investors seeking or needing dividend income or
liquidity should therefore not purchase the Units. There can be no assurance
that the Company will ever have sufficient earnings to declare and pay dividends
to the holders of the Company's Common Stock, and in any event, a decision to
declare and pay dividends is at the sole discretion of the Company's Board of
Directors.
Shares Eligible for Future Sale
The Shares of the Company's Common Stock issued and outstanding prior to
this offering are "restricted securities," as that term is defined under Rule
144 promulgated under the Securities Act of 1933, as amended. In general, under
Rule 144, a person (or persons whose Units are aggregated) who has satisfied a
one year holding period may under certain circumstances sell without
registration under the Act within any three-month period the number of Shares
which does not exceed the greater of one percent of the then issued and
outstanding Common Stock or the average weekly trading volume of such stock
during the four calendar weeks prior to such sale. Rule 144 also permits, under
certain circumstances, the sale of Shares without any quantity limitation by a
person who has satisfied a two-year holding period and who is not, and has not
been for the preceding three months, an affiliate of the Company. If the
Company's stock becomes publicly traded (of which there is no assurance), the
sale of a significant number of shares in the public market over a short period
of time could adversely affect the market price of the Shares should an active
trading market develop.
No Market for the Securities - Lack of Liquidity
The Units and Shares and Warrants included in the Units (collectively, the
"Securities") are not registered under the Securities Act of 1933, as amended,
and may not be resold unless such Securities are subsequently registered
thereunder or an exemption from such registration is available. The Securities
are being offered pursuant to Rule 506 promulgated under Section 4(2) of the
Securities Act of 1933, as amended. There is no assurance that any public market
for the Securities will develop. There is no assurance that the Company's stock
will eventually be accepted for trading on the pink sheets, the OTC Bulletin
Board, a NASDAQ market or on any other stock exchange. While the Company has
prepared an information statement pursuant to Rule 15c2-11 in preparation for
becoming a public nonreporting company, no public trading market exists for the
Companyss stock and there is no assurance that a public market will ever
develop. Furthermore, the Company will not initially be a public reporting
company under the Securities Exchange Act of 1934, as amended, and there is no
assurance as to if or when it will become a public reporting company. In order
to become a public reporting company, the Company must have audited financial
statements and must file a Form 10 with the Securities Exchange Commission. The
Company must become a public reporting company in order to be listed for trading
on the OTC Bulletin Board, and must satisfy additional financial standards to be
listed on the NASDAQ Small Capital Market. Shareholders may not be able to
liquidate their investments in the event of emergency or for any other reason.
The Securities may not be acceptable as collateral for a loan. A purchase of
Units should be considered only as a long-term investment.
<PAGE>
Broker-Dealer Sales of Company Securities
Broker-dealer practices in connection with transactions in "penny stocks"
are regulated by certain rules adopted by the Securities and Exchange
Commission. Penny stocks generally are equity securities with a price of less
than $5.00 (other than securities registered on certain national securities
exchanges or quoted on NASDAQ provided that current price and volume information
with respect to transaction in such securities is provided by the exchange or
system). The rules require that a broker-dealer, prior to a transaction in a
penny stock not otherwise exempt from the rules, deliver a standardized risk
disclosure document that provides information about penny stocks and the risks
in the penny stock market. The broker-dealer also must provide the customer with
current bid and offer quotations for the penny stock, the compensation of the
broker-dealer and its salesperson in connection with the transaction and monthly
account statements showing the market value of each penny stock held in the
customer's account. In addition, the rules generally require that prior to a
transaction in a penny stock, the broker-dealer must make a special written
determination that the penny stock is a suitable investment for the purchaser
and receive the purchaser's written agreement to the transaction. These
disclosure requirements may have the effect of reducing the liquidity of penny
stocks. If the Company's securities become publicly traded (of which there is no
assurance) and subject to the penny stock rules, Shareholders may find it more
difficult to sell their securities.
Determination of Offering Price
The offering price of the Units and exercise price of Warrants were
arbitrarily determined by the Company and do not bear any relationship to the
assets, results of operations or book value of the Company, or to any other
historically-based criteria of value.
Financial Projections
Financial projections concerning the estimated operating results of the
Company may be included with the Memorandum. If such projections are provided,
only those in writing and authorized by the Company may be relied upon by
prospective purchasers of Shares. Any projections would be based on certain
assumptions which could prove to be inaccurate and which would be subject to
future conditions which may be beyond the control of the Company, such as
general industry conditions. The Company may experience unanticipated costs, or
anticipated revenues may not materialize, resulting in lower revenues than
forecasted. There is no assurance that the results illustrated in any financial
projections will in fact be realized by the Company. Any financial projections
would be prepared by management of the Company and would not be examined or
compiled by independent certified public accountants. Counsel to the Company has
had no participation in the preparation or review of any financial projections
prepared by the Company. Accordingly, neither the independent certified public
accountants nor counsel to the Company would be able to provide any level of
assurance on them.
Uninsured Losses
There is no assurance that the Company will not incur uninsured liabilities
and losses as a result of the conduct of its business. The Company plans to
maintain comprehensive liability and property insurance at customary levels. The
Company will also evaluate the availability and cost of business interruption
insurance. However, should uninsured losses occur, the Shareholders could lose
their invested capital.
<PAGE>
Liabilities
The Company may have liabilities to affiliated or unaffiliated lenders,
including but not limited to the officers and directors of the Company. These
liabilities would represent fixed costs which would be required to be paid
regardless of the level of business or profitability experienced by the Company.
There is no assurance that the Company will be able to pay all of its
liabilities. Furthermore, the Company is always subject to the risk of
litigation from licensees, suppliers, employees, and others because of the
nature of its business. Litigation can cause the Company to incur substantial
expenses and, if cases are lost, judgments, and awards can add to the Company's
costs.
Conflicts of Interest
The officers and directors of the Company are also officers and directors
of other entities which are not affiliates of the Company. Such nonaffiliates
may be involved in business enterprises now or in the future similar to those
conducted by the Company.
No Trademark Protection
The Company has not been issued any registered trademarks for its
"PowerSource" trade name. The Company recently filed trademark and tradename
applications with the United States Office of Patents and Trademarks for its
proposed tradenames and trademarks. No assurance can be given that the Company
will be successful in obtaining any trademarks, or that the trademarks, if
obtained, will afford the Company any protection or competitive advantages.
BUSINESS
General
PowerSource Corporation (the "Company") is a Nevada corporation formed in
1990 under the name American Gas Corporation. Since its inception, the Company
has operated as an energy company in the Midwest. In 1992, Kensington
International Holding Corporation ("Kensington"), a fully reporting public
company, acquired American Gas Corporation. Subsequently, American Gas
Corporation reorganized into PowerSource Corporation. The Company recently
relocated to California to take advantage of California Assembly Bill 1890 which
permits California residents and business to choose their utility suppliers. The
Company has developed a comprehensive program that the Company believes will
allow it to capture and retain market share nationally. The Company intends to
generate revenue through buying and selling power by aggregating residential and
small business consumers into a common buying group and using the group's
collective buying power to purchase electricity. PowerSource's mission is to
promote and advocate the delivery of the lowest priced power available to its
customers.
For the past several months, the Company has been surveying the potential
market for the Company's services, seeking merger or acquisition targets, and
negotiating working capital commitments. Presently, the Company has not entered
into any agreements with potential merger and acquisition targets, and there is
no assurance that the Company will enter into any mergers, acquisitions or other
business combinations with other companies.
<PAGE>
Company History
The Company was incorporated on March 13, 1990 under the name American Gas
Corporation, in the State of Nevada at which time the Board of Directors
authorized the Company to issue 1,356,000 shares of Common Stock. On May 12,
1998, by resolution of the Board of Directors of the Company, the following
subsequent actions were taken:
1. Authorization for the Company to change its name to PowerSource Corporation.
2. Authorization to issue 3,811,161 shares of Common Stock, which are issued and
outstanding.
3. Authorization to issue 5,350 preferred shares to its parent company in
consideration for the conveyance of tangible equipment to the Company, which are
issued and outstanding.
4. Election of new directors and officers.
5. Authorization for the Company to file the necessary documentation with the
Securities and Exchange Commission in order for the Company to become a
"reporting" company pursuant to Section 13 or 15(d) of the Securities Act of
1933.
6. Authorization for the appointment of auditors and a transfer agent for the
Company, which has been accomplished. See "FINANCIAL STATEMENTS" and
"DESCRIPTION OF SECURITIES - Transfer Agent."
7. Authorization for the issuance of restricted shares of Common Stock to the
Company's new officers, directors, consultants and others as compensation for
their services.
................................................................................
On November 24, 1998, the Board of Directors adopted additional resolutions
which provide for (1) the authorization for the Company to offer the Units for
sale to prospective investors in accordance with the terms of this Memorandum.
<PAGE>
Industry Regulation
Electric Service Providers ("ESPs") are regulated by the California Public
Utilities Commission ("CPUC") and power marketers are regulated by the Federal
Energy Regulatory Commission. ESP's must be licensed by CPUC in order to provide
energy services. The following are some of the requirements and tasks which must
be accomplished by ESP's in compliance with CPUC regulations.
Renewable Energy
Assembly Bill 1890 (AB 1890), enacted on September 23, 1996, provides $540
million for the support of renewable electricity generation technologies. These
funds will be collected from the ratepayers of the three largest investor owned
utilities in California from 1998 through March 31, 2001 to support existing,
new, and emerging renewable electricity generation technologies. As part of the
requirement of AB 1890, the California Energy Commission ("Energy Commission")
submitted a report to the California Legislature with recommendations for
allocating the $540 million. Senate Bill 90 (SB 90), enacted on October 12,
1997, places the $540 million into the Renewable Resource Trust Fund and directs
the distribution of funds through four accounts: Existing Renewable Resources
Account, New Renewable Resources Account, Emerging Renewable Resources Account,
and Customer-Side Renewable Resource Purchases Account (which is divided into
the Customer Credit Subaccount and Consumer Education). One of the licenses
granted to PowerSource by CPUC is a Renewable Energy Provider License. With this
license the Company is eligible to receive funding from the Renewable Technology
Program. There is no assurance that the Company will satisfy the requirements
for a grant of any such funds or that it will participate in the Renewable
Technology Program.
Overview of Customer Credit
The Customer Credit Subaccount is designed to allow end-use customers to
receive a rebate from the Renewable Resource Trust Fund ( 14% of the overall
funds are allocated to this subaccount, for a total of $75.6 million). The funds
will be paid to registered renewable providers that deliver power from
registered in-state renewable suppliers pursuant to direct-access contracts or
contracts for differences. The providers will in turn pass the rebate along to
customers, who will receive a credit on their electricity bill. Funds will be
distributed through a cents-per-kilowatt-hour (kWh) credit. Providers will be
reimbursed for credit they pass onto consumers based on the cent-per-kWh credit
level for eligible renewable power. For the first six months of this program,
the credit level will be set at 1.5 cents-per-kWh (the maximum allowable) in
order to provide a stable market signal. Any one non-residential or non-small
commercial customer may receive no more than $1,000 per year. Further, the
combined non-residential and non-small commercial class may not receive more
than $15 million from the Customer Credit Account.
Current Operations
To date the Company has devoted substantially all of its efforts and
resources to its development as a power marketer. The Company has leased
facilities, hired and trained personnel, purchased computer software and power
communication equipment, and developed operations and procedure manuals. The
Company's future revenues are expected to be derived from the sale of
electricity and revenue sharing, and from the sale of exclusive geographic
marketing territories to distributors. To date the Company has not received any
revenues from power marketing, and has accounts receivable from the sale of
territories to marketing companies.
<PAGE>
The Company has obtained the following federal and state licenses and
achieved the following milestones in order to engage in the business of
purchasing and selling power to residential and commercial users:
o Registered ESP with CPUC License # 1237
o Registered Renewable Provider with CPUC License # CEC-91237
o Registered with California Edison Company Agreement # 1237
o Registered with Federal Energy Regulatory Commission Docket No. ER98-3052-000
o Registered with San Diego Gas & Power Company Agreement # 38
o Registered with Pacific Gas & Power Company Agreement # 1237
o Registered with Automated Power Exchange
o Obtained Certified Scheduling Coordinator
o Completed Enrollment Process
Completed ESP Service Agreement
Selected All Options for Services
Completed Participant Info Form (PIF)
Completed Credit Application
o Completed EDI Forms & Agreements
Completed Trading Partner Agreement
Completed Trading Partner Profile (814) - DASR's
Completed Trading Partner Profile (810/824/820) - Billing
Completed Electronic Payments Agreement - Payment
o Submitted Direct Access Service Requests
Selected DASR transmission method (PIF)
Supplied e-mail address CSV (PIF)
Conducted Interface testing
o Completed Billing Compliance Process
Selected Bill Transmission Method (PIF)
Selected Payment Method (PIF)
Obtained SCE Compliance Package
Scheduled Transmission of Data
Submitted data in acceptable format
Received SCE approval
Marketing Strategy for the United States
- ----------------------------------------
The Company plans to use a platform for value-added services such as home
energy management, home security applications, and wireless telecommunications,
to market its power to residential and commercial users. Itron Company conducted
research through ten focus groups and a nationwide survey. The focus groups were
carried out in five geographically dispersed cities. Participants, who included
99 homeowners whose annual household incomes were $35,000 or more, were asked
about their understanding of the changing picture of utility regulation, the
risks involved in switching to new electricity suppliers, and the value of home
security and home energy management offerings. The main objective of the focus
groups was to try to determine whether the bundling of electricity with
value-added services would help utilities retain customers in a competitive
market.
<PAGE>
Hypotheses derived from the analysis of focus-group responses were then
tested through a nationwide telephone survey of adults in 1,000 households
randomly selected using random-digit-dialing techniques. Survey participants
were asked about the likelihood of their switching electricity providers and
about their interest in receiving home energy management and home security
services from their utility providers. Survey data indicates that a significant
market for home security and home energy management services exists and that
electric utilities that bundle these services are likely to retain almost 50
percent of customers who otherwise would have chosen other providers with the
implementation of customer choice.
Environmental Market
- --------------------
In last year's pilot marketing test in four Massachusetts cities, 66% of
the 4,727 retail and small business customers opted to buy their electricity
based on price and 31% chose an environmental alternative. Surveys in other
industries indicate that millions of consumers are willing to pay a premium for
environmentally responsible products and services. In order to attract customers
who have environmental concerns, the Company plans to offer environmentally
responsible products and services.
Delivering Energy and Services to Supermarkets and Grocery Stores
Grocery stores and supermarkets represent one of the largest and most
important customer segments in the energy services marketplace. There are
approximately 127,000 grocery stores and supermarkets in the United States, with
combined annual sales of over $425 billion. After labor costs, energy
expenditures are the leading operating expense for most supermarkets and grocery
stores. These facilities are highly attractive customers for electricity
providers: typical electric usage measures 30 to 50 kWh per square foot per
year, and average summer load factors are typically 70 to 90 percent-among the
highest in the entire commercial sector. The Company intends to target
supermarkets and grocery stores.
Delivering Energy and Services to Schools and Universities
Schools and universities continually struggle with tight budgets and
inefficient aging facilities that are costly to operate and maintain. These
constraints create an opportunity for utilities and others to forge long-term
partnerships with educational institutions to solve their infrastructure and
energy challenges. Educational facilities are a substantial market. Educational
institutions in the United States and Canada pay more than $7 billion per year
for energy, and face over $170 billion in capital renewal deferred maintenance.
An organization representing 350 public school districts and colleges in
California has already negotiated gas procurement for its members and has issued
an RFP to supply 400 MW of electricity to its members. The Company intends to
forge alliances with schools and universities to take advantage of this market.
<PAGE>
Delivering Energy and Services to Semiconductor and Related High-Tech Industries
Makers of semiconductor chips and thin-film products like hard disks,
floppy disks, and other mass-storage media have entered a period of rapid
growth, change, and retooling. These high-tech manufacturing facilities require
significant use of expensive, power-sensitive, and energy-intensive clean rooms.
The current construction and retooling boom in this sector creates a window of
opportunity for energy service providers to capitalize on efficiency and energy
service improvements as part of a long-term strategy. Global sales in
semiconductors are projected to increase from $129 billion in 1998 to about $1
trillion by 2005. Electric power is a considerable expense. Electricity
represents nearly 40 percent of the operating expense of most high-tech
manufacturing facilities, a cost that is expected to grow as production
standards change. The Company intends to pursue these types of companies as
customers for power.
Protected Territories - Districts
The Company has entered into marketing agreements with five affiliated
limited liability partnerships (the "Partnerships") for eight geographic
territories pursuant to which the Partnerships have agreed to make payments to
the Company in consideration for the exclusive right to sell the Company's power
in certain geographic territories in the State of California. Under the
marketing agreements, each Partnership has agreed to pay a one time up front fee
to the Company of $210,000-$240,000 for its exclusive right to sell the
Company's power in a particular specified geographic territory. The Partnership
also agrees to utilize its best efforts to obtain customers for the Company's
power in those geographic areas, and to purchase all power for its customers
from the Company at the Company's prevailing rates. Several of the Partnerships
are in the process of raising capital to finance the marketing programs planned
by them for the Company's power, which is expected to be available for sale as
soon as the Company raises sufficient capital from this offering to commence
purchasing power. There is no assurance that any of the Partnerships will be
able to raise adequate capital to implement their planned marketing programs, or
that they will be able to make payments to the Company or otherwise perform
their other obligations to the Company under the marketing agreements. See "RISK
FACTORS." In the future, the Company may buy back these marketing territories
from the Partnerships through exchange offers (i.e. exchanging shares of the
Company's common stock for the outstanding limited liability partnership units).
The repurchase price for the units may equal 125% or more of the fair market
value of the units or the then stock value of the Company at the time of
exchange.
PowerSource has also designed a new program for entrepreneurs in the energy
brokerage business. PowerSource plans to train brokers so that it can develop a
network of independent Energy Service Providers ("ESPs"). The heart of the
program is expected to consist of comprehensive training and continuing support
as the brokers develop their own businesses. Brokers trained by PowerSource will
have no further financial obligation to PowerSource. ESPs will be able to
purchase power from the Company and will receive a commission on every sale they
make. The customer will pay no more for power than if the customer had purchased
the power directly from the Company. Individuals who are accepted into the
program will begin with a comprehensive training course at PowerSource corporate
headquarters in Los Angeles, California. The instructors are anticipated to be
highly skilled professionals with many years of experience in the industry.
Brokers receive reference manuals and computer software. If any state requires
additional licensing, the Company will assist with the process. After completion
of the program, a senior training instructor is planned to be available for
consultation during normal business hours.
<PAGE>
These services are planned to be provided as long as the power broker is in
business. PowerSource plans to expand this program nationally. The Company
projects that utilizing power brokers will be more cost effective than
maintaining a large staff.
Competition
The Company is subject to intense competition in the business of purchasing
and selling power to residential and commercial users. The competitors include
established electric utility companies, other power providers, and independent
purchasers and resellers of electric power. These competitors generally have
longer operating histories, greater name recognition, larger installed customer
bases (the Company is a development stage company with no customers), and
substantially greater financial, technical, and marketing resources than the
Company. The Company estimates that in California, there are approximately 28
independent licensed power providers in addition to the established electric
utilities. The Company will also be competing for highly qualified technical and
managerial personnel since it must install a sophisticated power purchasing and
billing computer program for its business. There is no assurance that the
Company will be able to compete successfully in the power provision business, or
in recruiting qualified personnel. See "RISK FACTORS - Competition."
Government Regulation
As a licensed purchaser and reseller of energy, the Company is subject to
extensive government regulation from federal and state government agencies. The
California Public Utilities Commission ("CUPC") regulates utilities and other
purchasers and sellers of power at the state level. To date, the State of
California is the only jurisdiction which has substantially deregulated the
utility industry. At the federal level, the Federal Energy Regulatory Commission
(FERC) regulates the purchase and sale of energy and power. The Company has
received licenses from the CPUC and FERC. See "BUSINESS - Industry Regulation
and "BUSINESS - Current Operations." The Company is also subject to extensive
federal, state, and local government regulation applicable to businesses in
general. See "RISK FACTORS - Government Regulation."
Seasonality
The Company's operations may be affected by seasonal fluctuations. Energy
usage typically increases during particularly cold and warm weather.
Employees
As of the date of this Offering the Company has six full time permanent
employees.
Property
Commencing April 1, 1998, the Company entered into a sublease for
approximately 2,100 square feet of office space located at 3660 Wilshire
Boulevard., Suite 1104 Los Angeles, California 90010 for its corporate offices
at an annual rent of approximately $24,000, plus a pro rata share of building
operating costs.
<PAGE>
<TABLE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
September 15, 1998 and as adjusted to give effect to the sale by the Company of
1,000,000 Units offered by this Memorandum and the application of the net
proceeds from this offering as described under "USE OF PROCEEDS."
<CAPTION>
As Adjusted As Adjusted
As Adjusted As Adjusted
Actual for Minimum Units(2) For Maximum Units (2)
------ -------------------- ---------------------
<S> <C> <C> <C>
Indebtedness: Long-term indebtedness $ 0 $ 0 $ 0
Stockholders' Equity:
Preferred Stock, par value $100 per share,
100,000 shares authorized
5,350 shares issued and outstanding (1) $ 535,000 $ 525,000 $ 535,000
Common Stock, par value $.001 per share,
50,000,000 shares authorized
5,167,161 issued and outstanding
5,267,161 as adjusted for Minimum (2)
7,167,161 as adjusted for Maximum (3) .. $ 47,477 $ 257,477 $4,247,477
Retained Earnings (4) ........................ $ 65,237 $ 65,237 $ 65,237
Total Stockholders' Equity ................... $ 647,714 $ 857,714 $4,847,714
---------- ---------- ----------
Total Capitalization ......................... $ 647,714 $ 857,714 $4,847,714
========== ========== ==========
- ----------
<FN>
(1) The outstanding Preferred Stock was issued to Kensington International
Holding Corporation in consideration for tangible equipment contributed by
Kensington to the Company. There is no assurance regarding the actual value of
that equipment. See "FINANCIAL STATEMENTS."
(2) Reflects the net proceeds from the sale of 50 Units (which is expected
to result in estimated net capital of $210,000). The offering costs are
estimated to be $40,000 and are deducted from stockholders' equity. Does not
reflect the exercise of any Warrants or any other outstanding warrants. See
"PLAN OF DISTRIBUTION." See "BUSINESS - History of the Company."
(3) Reflects the net proceeds from the sale of 1,000 Units (which is
expected to result in estimated net capital of $4,200,000). The offering costs
are estimated to be $800,000 and are deducted from stockholders' equity. Does
not reflect the exercise of any Warrants or any other outstanding warrants. See
"PLAN OF DISTRIBUTION." See "BUSINESSS - History of the Company."
(4) Includes $1,750,000 of accounts receivable due from affiliated
marketing companies which have partially been realized in cash by the Company.
Retained earnings would be a significant deficit if these accounts receivable
are not collected. See "RISK FACTORS - Risks Relating to Distribution Companies
and "FINANCIAL STATEMENTS."
</FN>
</TABLE>
<PAGE>
DIVIDEND POLICY
The Company has not declared or paid any cash dividends and does not intend
to pay cash dividends in the foreseeable future on the shares of its Common
Stock. Cash dividends, if any, that may be paid in the future to holders of
Common Stock will be payable when, as, and if declared by the Board of Directors
of the Company, based upon the Board's assessment of the financial condition of
the Company, its earnings, its need for funds, the effect of outstanding
preferred stock, to the extent the preferred stock has a prior claim to
dividends, and other factors including any applicable laws. The Company is not
currently a party to any agreement restricting the payment of dividends. See
"DESCRIPTION OF SECURITIES."
DILUTION
As of September 15, 1998, the net tangible book value of the Company was
approximately $647,714 or approximately $.13 per share of Common Stock. Net
tangible book value per share consists of total assets less intangible assets
and liabilities, divided by the total number of shares of Common Stock
outstanding. Without giving effect to any changes in such net tangible book
value after September 15, 1998, other than to give effect to the sale of 50
Units, the minimum number of Units being offered by the Company in this
Memorandum, the pro forma net tangible book value at September 15, 1998 would
have been $857,714 or approximately $.16 per share. Thus, as of September 15,
1998, the net tangible book value per share of Common Stock owned by the
Company's current stockholders would have increased by approximately $.03
without any additional investment on their part and the purchasers of the Units
would incur dilution of approximately $2.34 per share from the purchase price of
the Units. Without giving effect to any changes in such net tangible book value
after September 15, 1998, other than to give effect to the sale of 1000 Units,
the maximum number of Units being offered by the Company in this Memorandum, the
pro forma net tangible book value at September 15, 1998 would have been
$4,847,714 or approximately $.68 per share. Thus, as of September 15, 1998, the
net tangible book value per share of Common Stock owned by the Company's current
stockholders would have increased by approximately $.55 without any additional
investment on their part and the purchasers of the Units would incur dilution of
approximately $1.82 per share from the purchase price of the Units. The
calculation of dilution does not reflect the exercise of any Warrants.
"Dilution" means the difference between the public offering price and the pro
forma net tangible book value per share after giving effect to the offering.
Holders of Common Stock may be subjected to additional dilution if any
additional securities are issued as compensation or to raise additional
financing. The following table illustrates the dilution which investors
participating in this offering will incur and the benefit to current
stockholders as a result of this offering.
<PAGE>
Minimum Maximum
Units Offered Units Offered
------------- -------------
Private Placement Price per $2.50 $2.50
Share (1)
Net Tangible Book Value per Share $ .13 $ .13
before Offering
Increase in Net Tangible Book Value
per Share Attributable to Shares $ .03 $ .55
Offered hereby
Pro Forma Net Tangible Book Value per
Share after Offering $ .16 $ .68
Dilution of Net Tangible Book Value
per Share to Purchasers in this $2.34 $1.82
Offering
(1) Before deduction of offering expenses.
MANAGEMENT
Directors and Executive Officers
The following table lists the officers and directors of the Company as of
January 1, 1999:
Name Position
E. Douglas Mitchell President
Illya Bond Chief Executive Officer, and Director
German Teitelbaum Chief Financial Officer, Secretary, and Director
Roman Gordon Chairman of the Board
E. Douglas Mitchell, age 52, the President of the Company. Mr. Mitchell has
over twenty years of expirience in the electric industry. His expirience
includes supervising a group of professionals that purchased power supplies for
San Diego Gas & Electric and was also a Manager on energy and regulatory issues
both nationally and internationally. Mr. Mitchell, as a Manager of Regulatory
Policy, actively promoted electric industry before electric utility regulators
and legislators in eight western states.
Illya Bond, age 49, has been Chief Executive Officer, and a director of the
Company since its name change in May 1998. Mr. Bond has over 25 years experience
in the investment-banking industry. He has participated in the underwriting of
over $1 billion in real estate, alternative energy, and synfuel projects;
working through the nation's largest broker/dealer firms, including Merrill
Lynch and Dean Witter. Additionally, Mr. Bond assisted in the formation and
capitalization of several domestic banks, savings and loans, and insurance
companies, taking several of these firms public in the process, through initial
public offerings and mergers. Mr. Bond participated in the following energy
projects either as corporate developer, sponsor, or general partner: 7MW
Photovolatic Solar Power Plant located in Carissa Plains, California; two of the
world's largest ethanol generating plants located in the States of Iowa
(5,000,000 gallons per month) and Nebraska (10,000,000 gallons per month); and
Offshore Insurance Company (domiciled in New Zealand) specializing in property
and casualty insurance risks. Mr. Bond received his Bachelors Degree from the
University of California, Los Angeles.
<PAGE>
German Teitelbaum, age 32, has been the Chief Financial Officer, Secretary,
and a director of the Company since its name change in May 1998. Mr. Teitelbaum
has over ten years experience in the theoretical foundations of
electrotechnology and international trades. Prior to joining the Company, Mr.
Teitelbaum worked for Hydro Utility Company where he was responsible for
applications of the physical foundations of electrotechnology and internal
combustion engines. He participated in the development of industrial and
aviation projects, storage facilities, and marketing organizations. Mr.
Teitelbaum graduated from Aerospace University in 1989 and holds a Bachelors
Degree in Industrial Economics and Electronics.
Roman Gordon, age 48, has been a Chairman of the Company since its name
change in May 1998. Mr. Gordon has over 15 years combined experience in energy
risk management and business management. Mr. Gordon was the Vice President of
Operations for Express Oil Company where he participated in oil market
evaluation and environmental compliance. Previously, Mr. Gordon was the Chief
Executive Officer of BioSystem, Inc. where he developed and implemented
marketing plans and a comprehensive and customized Ayurvedic health program for
national and international markets. From 1992 until 1994, Mr. Gordon was an
officer of America Pacific Insurance Company where he was responsible for
managing an advertising budget, building relationships with surplus line
brokers, product development, generation of marketing plans, and growth
initiatives. Mr. Gordon has experience in the fields of planning, development,
and operations of the bulk power systems, as well as planning and analytical
studies. He has performed many duties, including but not limited to management,
marketing, training, operations and administration. Mr. Gordon received his
bachelor degree in 1974 from Politechnical University in Civil Engineering.
Executive Utility Committee and Key Consultants
The following table lists the members of the Company's Executive Utility
Committee as of January 1, 1999 and key consultants retained by the Company. The
Executive Utility Committee is comprised of high level professionals experienced
in the power industry, computer industry, legal industry, international
business, and engineering who will render advice to the Company from time to
time upon the request of the Company's Board of Directors.
Name Area of Expertise
Mark Haggerty Attorney
Illya Goldin Technical Support Supervisor
Ahmad Moradi Computer Science Engineer
Attorney and Engineer
Michael Y. Vaiman Load Forcasting
<PAGE>
Mark E. Haggerty has been in the private practice of law since 1973 in the
areas of municipal bonds, utilities, securities, and business law. From 1973
through 1985, Mr. Haggerty was a vice president and director of a twelve person
law firm. From 1985 through 1987, Mr. Haggerty, was a Registered General
Securities Representative and Legal Consultant with Miller & Schroeder
Financial, Inc. While at Miller & Schroeder, Mr. Haggerty acted as financial
advisor to governmental entities such as Milwaukee, Ohio Housing Authority and
Minneapolis Airports Commission. From 1987 through 1993, Mr. Haggerty owned his
own firm providing consulting services to Johnson Controls, Bull HN, and Peoples
Gas of Chicago on energy and co-generation projects, including electrical and
gas energy savings programs for customers such as the Chicago Housing Authority
and Sara Lee foods. In 1993 Mr. Haggerty became the President of the Kensington
Company, a public energy company. As Chairman and Chief Executive Officer of a
subsidiary of Kensington, Mr. Haggerty hired new management and converted five
years of losses into annual after tax net profits of more than 10% of the
subsidiary's gross annual sales during the years of 1995, 1996, and 1997. In
1996, Mr. Haggerty was elected to serve as one of seven commissioners of
Hennepin County Parks. In 1995, Mr. Haggerty became the Chairman and Chief
Executive Officer of American Gas Corporation. Mr. Haggerty received his Juris
Doctor from the University of Minnesota Law School in 1973 and has his Series 7
and 63 securities licenses with the NASD.
Illya Goldin heads the Company's technical support department. He has over
15 years of experience in the electrical industry and is a licensed electrical
contractor in the State of California. Mr. Goldin's responsibilities include the
evaluation and provision of metering technology, communication of real time
metering information, site diagnostics to identify and prevent service problems,
innovative cost-of-service analysis, and power quality monitoring.
Ahmad Moradi received his Bachelors Degree at Florida Atlantic University
(FAU) in engineering and international business. In 1989, he received his Ph.D.
in Management Information Systems from LaSalla University in Louisiana. During
the past seven years, Dr. Moradi has been a director, officer, and consultant of
a several companies. Currently, Dr. Moradi is the President of g4, Inc., a
consulting firm, and a director of Dunhil-Medinet-Worldwide, Inc. and several
other public companies. He is also the owner and shareholder of several private
and public companies.
Michael Y. Vaiman is the President and principal engineer of V&R Company,
an energy systems research company. Dr. Vaiman has published more than 65
articles devoted to issues of power system stability and control. He has also
developed several software applications. Dr. Vaiman received his Masters in
electrical engineering from Kaunas Polytechnic University in 1961, his Ph.D. in
electrical engineering from Moscow University of Transportation Engineering in
1969, and his Doctor of Technical Sciences from St. Petersburg Polytechnic
University in 1986.
...............................................................................
<PAGE>
Executive Compensation
No executive officer of the Company has received any compensation from the
Company in excess of $100,000. Upon the availability of funds, the Company
expects to commence paying the following salaries to the Company's executive
officers:
Name Position Salary
Douglas Mitchell President $ 80,000
Illya Bond Chief Executive Officer $120,000
German Teitelbaum Chief Financial Officer & Secretary $120,000
Roman Gordon Chairman of the Board $120,000
The compensation payable to the Company's executive officers will generally
not exceed that which is customarily paid in the industry by companies of
comparable size and in the same geographic areas. Directors receive no cash
compensation for their services to the Company as directors, but are reimbursed
for expenses actually incurred in connection with attending meetings of the
Board of Directors, and may receive a cash fee for attending meetings, as well.
The officers of the Company have accrued some portion of their salaries as of
the date of this memorandum.
Employment Agreements
The Company has not entered into any employment agreements with its
executive officers or other employees to date. The Company may enter into
employment agreements with them in the future. A stock incentive program for the
directors, executive officers, employees and key consultants of the Company will
be established pursuant to which authorized and unissued stock equal to a
certain percentage, estimated to be 10%, of the issued and outstanding Common
Stock of the Company will be reserved for issuance to members of management of
the Company, as determined by the Compensation Committee (to be formed) of the
Board of Directors.
Board of Directors
The Company's Board of Directors presently consists of three members. The
Bylaws of the Company generally provide for majority approval of disinterested
directors in order to adopt resolutions, including any borrowings by the Company
or the issuance of any additional Common Stock.
The Board of Directors intends to appoint an Audit Committee. The Audit
Committee will be authorized by the Board of Directors to review, with the
Company's independent accountants, the annual financial statements of the
Company prior to publication, and to review the work of, and approve non-audit
services performed by, such independent accountants. The Audit Committee will
make annual recommendations to the Board for the appointment of independent
public accountants for the ensuing year. The Audit Committee will also review
the effectiveness of the financial and accounting functions and the
organization, operation and management of the Company.
<PAGE>
Limitation of Liability and Indemnification
Under the Nevada General Corporation Law and the Company's Articles of
Incorporation, the Company's directors will have no personal liability to the
Company or its stockholders for monetary damages incurred as the result of the
breach or alleged breach by a director of his "duty of care". This provision
does not apply to the directors' (i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of law, (ii) acts or omissions
that a director believes to be contrary to the best interests of the corporation
or its shareholders or that involve the absence of good faith on the part of the
director, (iii) approval of any transaction from which a director derives an
improper personal benefit, (iv) acts or omissions that show a reckless disregard
for the director's duty to the corporation or its shareholders in circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of serious injury to the
corporation or its shareholders, (v) acts or omissions that constituted an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the corporation or its shareholders, or (vi) approval of an unlawful
dividend, distribution, stock repurchase or redemption. This provision would
generally absolve directors of personal liability for negligence in the
performance of duties, including gross negligence. The effect of this provision
in the Company's Articles of Incorporation is to eliminate the rights of the
Company and its stockholders (through stockholder's derivative suits on behalf
of the Company) to recover monetary damages against a director for breach of his
fiduciary duty of care as a director (including breaches resulting from
negligent or grossly negligent behavior) except in the situations described in
clauses (i) through (vi) above. This provision does not limit nor eliminate the
rights of the Company or any stockholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director's duty of care.
In addition, the Company's Articles of Incorporation provide that if Nevada law
is amended to authorize the future elimination or limitation of the liability of
a director, then the liability of the directors will be eliminated or limited to
the fullest extent permitted by the law, as amended. The Nevada General
Corporation Law grants corporations the right to indemnify their directors,
officers, employees and agents in accordance with applicable law. The Company's
Bylaws provide for indemnification of such persons to the full extent allowable
under applicable law. These provisions will not alter the liability of the
directors under federal securities laws.
The Company intends to enter into agreements to indemnify its directors and
officers, in addition to the indemnification provided for in the Company's
Bylaws. These agreements, among other things, indemnify the Company's directors
and officers for certain expenses (including attorneys' fees), judgments, fines,
and settlement amounts incurred by any such person in any action or proceeding,
including any action by or in the right of the Company, arising out of such
person's services as a director or officer of the Company, any subsidiary of the
Company or any other company or enterprise to which the person provides services
at the request of the Company. The Company believes that these provisions and
agreements are necessary to attract and retain qualified directors and officers.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended, may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the Company has
been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
<PAGE>
PRINCIPAL STOCKHOLDERS
<TABLE>
The following table lists the shareholders of the Company who beneficially
own 5% or more of the outstanding stock of the Company and their respective
holdings of Common Stock in the Company as of January 1, 1999:
<CAPTION>
Percentage of Percentage of
Percentage of Ownership Ownership Ownership after
Name and Address Number of Before Offering After Minimum Maximum Offering
Of Shareholder Shares Owned Of Units Offering of Units (1) of Units (1)
-------------- ------------ -------- --------------------- ------------
<S> <C> <C> <C> <C>
Kensington International (2) 265,328 5.1% 5.1% 3.7%
German Teitelbaum 1,132,002 21.9% 21.5% 15.8%
Advanced Legal Management 1,240,002 24.0% 23.5% 17.3%
Magnum Real Estate 1,134,001 21.9% 21.5% 15.8%
- ----------
<FN>
(1) Does not reflect the exercise of any Warrants or other outstanding
warrants. See "DESCRIPTION OF SECURITIES - Warrants."
(2) In September 1992, Kensington International Holding Corporation
acquired all of the issued and outstanding shares of American Gas Corporation,
which eventually changed its name to PowerSource Corporation. Subsequently new
shares of Common Stock were issued to insiders, including Kensington, pursuant
to subscription documents for $0.001 per share. In addition, on February 12,
1998, Kensington was issued 5,350 shares of Series A Convertible Preferred Stock
of the Company along with 150,000 Class "A" Warrants in consideration for the
contribution of tangible oil and gas equipment to the Company. The figure on the
table does not include the outstanding Preferred Stock or warrants owned by
Kensington. See "DESCRIPTION OF SECURITIES."
- ----------
</FN>
</TABLE>
<PAGE>
DESCRIPTION OF SECURITIES
General
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, par value $.001 per share, of which 5,167,161 are presently
issued and outstanding, and 100,000 shares of Preferred Stock, par value $100
per share, of which 5,350 are presently issued and outstanding. A maximum of
8,167,161 shares of Common Stock will be issued and outstanding upon the
issuance of all Units and exercise of all Warrants.
Common Stock
The Company is authorized to issue 50,000,000 shares of Common Stock, par
value $.001 per share. Holders of Common Stock are entitled to dividends when,
as and if declared by the Board of Directors out of funds available therefor,
subject to any priority as to dividends for preferred stock that may be
outstanding. See "DIVIDEND POLICY." Holders of Common Stock are entitled to cast
one vote for each share held at all stockholder meetings for all purposes,
including the election of directors. The holders of more than 50% of the Common
Stock issued and outstanding and entitled to vote, present in person or by
proxy, constitute a quorum at all meetings of stockholders. The vote of the
holders of a majority of Common Stock present at such a meeting will decide any
question brought before such meeting, except for certain actions such as
amendments to the Company's Articles of Incorporation, mergers or dissolutions
which require the vote of the holders of a majority of the outstanding Common
Stock. Upon liquidation or dissolution, the holder of each outstanding share of
Common Stock will be entitled to share equally in the assets of the Company
legally available for distribution to such stockholder after payment of all
liabilities and after distributions to preferred stockholders legally entitled
to such distributions. Holders of Common Stock do not have any preemptive,
subscription or redemption rights. The holders of the Common Stock do not have
cumulative voting rights. All outstanding Shares of Common Stock are fully paid
and nonassessable. The holders of the Common Stock do not have any registration
rights with respect to the stock.
Warrants
The Units include a total of 1,000,000 Class B Warrants to purchase
2,000,000 shares of the Company's Common Stock for a purchase price of $3.50 per
share, exercisable at any time until December 31, 1999. The Warrants include
customary anti-dilution provisions providing for price and amount adjustments in
the event of stock splits, reverse stock splits, recapitalizations, stock
dividends and similar transactions. No adjustments are made for the issuance of
additional shares of capital stock by the Company.
The Company has also authorized four other classes of Warrants: The Company
issued 150,000 Class A Warrants to Kensington International Holding Corporation
("Kensington") to purchase 150,000 shares of the Company's Common Stock for a
purchase price of $.10 per share, exercisable at any time until February 12,
2001. As part of its independent sales organization incentive program, the
Company has authorized 1,000,000 Class C Warrants to purchase 1,000,000 shares
of the Company's Common Stock exercisable for a purchase price of $2.50 per
share, and exercisable for a period to be determined by the Company's Board of
Directors upon the grant of those warrants. No Class C Warrants are currently
issued or outstanding. As part of its employee and consultant incentive program,
the Company has authorized 1,000,000 Class D Warrants of the Company's Common
Stock exercisable for a purchase price of $.10 per share, and exercisable for a
period to be determined when the Warrants are granted. A total of 350,000 Class
D Warrants are currently issued and outstanding. The Company has also authorized
400,000 Class E Warrants of the Company's Common Stock exercisable for a
purchase price of $3.50 per share, and exercisable for a period of five years
from the date of issuance. See "PLAN OF DISRIBUTION." In addition, the
Kensington shareholders have 400,000 options to purchase stock at $2.50 per
share, exercisable at any time until July 1,1999.
<PAGE>
Preferred Stock
The Company is authorized to issue 100,000 shares of Preferred Stock, par
value $100 per share, having such rights, preferences and privileges, and issued
in such series, as are determined by the Company's Board of Directors. To date,
5,350 shares of Preferred Stock are issued and outstanding, which are held by
Kensington International Holding Corporation. Each outstanding share of Series A
Convertible Preferred Stock had an original purchase price and has a liquidation
preference of $100. Each outstanding share of Preferred Stock is convertible
into a share of Common Stock at a price of $10.00 per share at any time until
February 2003. Accordingly, if all 5,350 shares of Series A Convertible
Preferred Stock were converted, a total of 53,500 shares of Common Stock would
be issued to Kensington."
ERISA CONSIDERATIONS
General Fiduciary Obligations. Trustees and other fiduciaries of qualified
retirement plans or IRAs that are set up as part of a plan sponsored and
maintained by an employer, as well as trustees and fiduciaries of Keogh Plans
under which employees, in addition to self-employed individuals, are
participants (together, "ERISA Plans"), are governed by the fiduciary
responsibility provisions of Title 1 of the Employee Retirement Income Security
Act of 1974 ("ERISA"). An investment in Shares by an ERISA Plan must be made in
accordance with the general obligation of fiduciaries under ERISA to discharge
their duties (i) for the exclusive purpose of providing benefits to participants
and their beneficiaries; (ii) with the same standard of care that would be
exercised by a prudent man familiar with such matters acting under similar
circumstances; (iii) in such a manner as to diversify the investments of the
plan, unless it is clearly prudent not do so; and (iv) in accordance with the
documents establishing the plan. Fiduciaries considering an investment in the
Units should accordingly consult their own legal advisors if they have any
concern as to whether the investment would be inconsistent with any of these
criteria.
Fiduciaries of certain ERISA Plans which provide for individual accounts
(for example, those which qualify under Section 401(k) of the Code, Keogh Plans
and IRAs) and which permit a beneficiary to exercise independent control over
the assets in his individual account, will not be liable for any investment loss
or for any breach of the prudence or diversification obligations which results
from the exercise of such control by the beneficiary, nor will the beneficiary
be deemed to be a fiduciary subject to the general fiduciary obligations merely
by virtue of his exercise of such control. On October 13, 1992, the Department
of Labor issued regulations establishing criteria for determining whether the
extent of a beneficiary's independent control over the assets in his account is
adequate to relieve the ERISA Plan's fiduciaries of their obligations with
respect to an investment directed by the beneficiary. Under the regulations, the
beneficiary must not only exercise actual, independent control in directing the
particular investment transaction, but also the ERISA Plan must give the
participant or beneficiary a reasonable opportunity to exercise such control,
and must permit him to choose among a broad range of investment alternatives.
<PAGE>
Limited Transactions. Trustees and other fiduciaries making the investment
decision for any qualified retirement plan, IRA or Keogh Plan (or beneficiaries
exercising control over their individual accounts) should also consider the
application of the prohibited transactions provisions of ERISA and the Code in
making their investment decision. Sales and certain other transactions between a
qualified retirement plan, IRA or Keogh Plan and certain persons related to it
(e.g., a plan sponsor, fiduciary, or service provider) are prohibited
transactions. The particular facts concerning the sponsorship, operations and
other investments of a qualified retirement plan, IRA or Keogh Plan may cause a
wide range of persons to be treated as parties in interest or disqualified
persons with respect to it. Any fiduciary, participant or beneficiary
considering an investment in Shares by a qualified retirement plan IRA or Keogh
Plan should examine the individual circumstances of that plan to determine that
the investment will not be a prohibited transaction. Fiduciaries, participants
or beneficiaries considering an investment in the Shares should consult their
own legal advisors if they have any concern as to whether the investment would
be a prohibited transaction.
Special Fiduciary Considerations. Regulations issued on November 13, 1986,
by the Department of Labor (the "Final Plan Assets Regulations") provide that
when an ERISA Plan or any other plan covered by Code Section 4975 (e.g., an IRA
or a Keogh Plan which covers only self-employed persons) makes an investment in
an equity interest of an entity that is neither a "publicly offered security"
nor a security issued by an investment company registered under the Investment
Company Act of 1940, the underlying assets of the entity in which the investment
is made could be treated as assets of the investing plan (referred to in ERISA
as "plan assets"). Programs which are deemed to be operating companies or which
do not issue more than 25% of their equity interests to ERISA Plans are exempt
from being designated as holding "plan assets." Management anticipates that the
Company would clearly be characterized as an "operating company" for the
purposes of the regulations, and that it would therefore not be deemed to be
holding "plan assets."
Classification of the assets of the Company as "plan assets" could
adversely affect both the plan fiduciary and management. The term "fiduciary" is
defined generally to include any person who exercises any authority or control
over the management or disposition of plan assets. Thus, classification of
Company assets as plan assets could make the management a "fiduciary" of an
investing plan. If assets of the Company are deemed to be plan assets of
investor plans, transactions which may occur in the course of its operations may
constitute violations by the management of fiduciary duties under ERISA.
Violation of fiduciary duties by management could result in liability not only
for management but for the trustee or other fiduciary of an investing ERISA
Plan. In addition, if assets of the Company are classified as "plan assets,"
certain transactions that the Company might enter into in the ordinary course of
its business might constitute "prohibited transactions" under ERISA and the
Code.
Reporting of Fair Market Value. Under Code Section 408(i), as amended by
the Tax Reform Act of 1986, IRA trustees must report the fair market value of
investments to IRA holders by January,31 of each year. The Service has not yet
promulgated regulations defining appropriate methods for the determination of
fair market value for this purpose. In addition, the assets of an ERISA Plan or
Keogh Plan must be valued at their "current value" as of the close of the plan's
fiscal year in order to comply with certain reporting obligations under ERISA
and the Code. For purposes of such requirements, "current value" means fair
market value where available. Otherwise, current value means the fair value as
determined in good faith under the terms of the plan by a trustee or other named
fiduciary, assuming an orderly liquidation at the time of the determination.
<PAGE>
The Company does not have an obligation under ERISA or the Code with respect to
such reports or valuation although management will use good faith efforts to
assist fiduciaries with their valuation reports. There can be no assurance,
however, that any value so established (i) could or will actually be realized by
the IRA, ERISA Plan or Keogh Plan upon sale of the Shares or upon liquidation of
the Company, or (ii) will comply with the ERISA or Code requirements.
TERMS OF THE OFFERING
Securities Offered
The Company is offering shares of Common Stock and Warrants (collectively,
"Units") for a purchase price of $5,000 per Unit with a two Unit minimum
($10,000). The minimum offering is $250,000 and the maximum offering is
$5,000,000, subject to the Company's option, exercisable in its sole discretion,
to increase the maximum offering to $5,500,000. The Company reserves the right
in its sole discretion to accept less than the minimum investment from a limited
number of investors. The Company will have the unrestricted right to reject
tendered subscriptions for any reason and to sell fractional Units. In the event
the Units available for sale are oversubscribed, they will be sold to those
investors subscribing first, provided they satisfy the applicable investor
suitability standards. At any time until the Sales Termination, the Company will
have the right in its sole discretion to redeem any Units purchased by investors
who purchase less than the minimum investment (i.e., $5,000), for a redemption
price equal to the original purchase price of the Units. See "INVESTOR
SUITABILITY STANDARDS."
The purchase price for the Units will be payable in full upon subscription.
Subscription funds which are accepted will be deposited into an interest bearing
escrow account at North American Trust Company, 225 Broadway, Fifth Floor, San
Diego, California 92101. Upon receipt of the minimum gross offering proceeds
($250,000), (i) subscription funds will be released from escrow (the "Initial
Closing") and deposited into the Company's operating account, and (ii) Unit
investors will become shareholders. Interest earned, if any, on subscription
funds while in escrow will be distributed pro rata to the Unit investors as soon
as practicable after the Initial Closing, to the extent interest exceeds the
escrow costs.
The offering will continue after the Initial Closing. New subscription
funds which are thereafter accepted will be deposited either into the
subscription escrow account. If the Initial Closing does not occur by the Sales
Termination Date (defined below), then all funds received with subscriptions
will be returned to subscribers without deduction and with interest earned to
the extent that interest exceeds the escrow costs. No Units will be issued until
there has been an Initial Closing.
Subscription Period
The offering of Units will terminate on June 30, 1999, unless the Company
extends the offering for up to an additional 180 days (the "Sales Termination
Date"). The Sales Termination Date may occur prior to June 30, 1999 if
subscriptions for the maximum number of Units have been received and accepted by
the Company before such date. Subscriptions for Units must be received and
accepted by the Company on or before such date to qualify the subscriber for
participation in the Company.
<PAGE>
Subscription Procedures
Completed and signed subscription documents and subscription checks should
be sent to the Company at the following address: Nexcore Capital, Inc., 5850
Oberlin Drive, Suite 215, San Diego, California 92121, Attention: Jay S. Potter,
President. Subscription checks should be made payable to "PowerSource Escrow."
If a subscription is rejected, all funds will be returned to subscribers within
ten days of such rejection without deduction or interest. Upon acceptance by the
Company of a subscription, a confirmation of such acceptance will be sent to the
subscriber.
Investor Suitability Standards
Units will be sold only to a person who has either (i) a net worth (or
joint net worth with the purchaser's spouse) of at least $1,000,000 or (ii) an
annual gross income in the last two years of at least $200,000, and expected
gross income in the current year of at least $200,000 (or joint annual gross
income with spouse of $300,000), or (iii) otherwise meets the requirements for
an Accredited Investor as defined in Rule 501 of Regulation D promulgated under
Section 4(2) of the Securities Act of 1933, as amended. See the Purchaser
Qualification Questionnaire in the Subscription Documents in Exhibit A to this
Memorandum. In the case of sales to fiduciary accounts (Keogh Plans, Individual
Retirement Accounts (IRAs) and Qualified Pension/Profit Sharing Plans or
Trusts), the above suitability standards must be met by the fiduciary account,
the beneficiary of the fiduciary account, or by the donor who directly or
indirectly supplies the funds for the purchaser of Units. Investor suitability
standards in certain states may be higher than those described in this
Memorandum. These standards represent minimum suitability requirements for
prospective investors, and the satisfaction of such standards does not
necessarily mean that an investment in the Company is suitable for such persons.
Each investor must represent in writing that he meets the applicable
requirements set forth above and in the Subscription Agreement, including, among
other things, that he has such knowledge and experience in financial and
business matters that he is capable of evaluating without outside assistance the
merits and risks of investing in the Units, or he and his purchaser
representative together have such knowledge and experience that they are capable
of evaluating the merits and risks of investing in the Units. Broker-dealers and
other persons participating in the offering must make a reasonable inquiry in
order to verify an investor's suitability for an investment in the Company.
Transferees of Units will be required to meet the above suitability standards.
Interim Investments
Company funds not needed on an immediate basis to fund Company operations
may be invested in government securities, money market accounts, deposits or
certificates of deposit in commercial banks or savings and loan associations,
bank repurchase agreements, funds backed by government securities, short-term
commercial paper, or in other similar interim investments.
<PAGE>
PLAN OF DISTRIBUTION
The Units are being offered by the Company on a best-efforts basis.Cash
sales commission of 15% will be paid to officers, directors and employees, to
NASD registered broker/dealers and other qualified personnel. As additional
incentive compensation for each Unit sold, company issued 400 Class E Warrants
exercisable for a period of 5 years at an exercise price of $3.50 per share. The
shares issuable upon exercise of the Class E Warrants will have piggyback
registration rights such that they will be registered on the first registration
statement filed by the Company under the Securities Act of 1933, as amended.
Certain consultents of the Company, in exchange for cash equal to 4% of the
gross proceeds of the offering, will provide the Company with administrative,
consulting, blue sky, investor relations, and due diligence services. The
Company has reserved an additional 2% of the gross proceeds of the offering for
other offering costs which may be incurred in connection with the offer and sale
of the Units. See "USE OF PROCEEDS".
The Company has reserved an additional 2% of the gross proceeds of
the offering for other offering costs which may be incurred in connection with
the offer and sale of the Units. See "USE OF PROCEEDS."
ADDITIONAL INFORMATION
This Memorandum does not purport to restate all of the relevant provisions
of the documents referred to or pertinent to the matters discussed herein, all
of which must be read for a complete description of the terms relating to an
investment in the Company. Such documents are available for inspection during
regular business hours at the office of the Company, and upon written request,
copies of documents not annexed to this Memorandum will be provided to
prospective investors. Each prospective investor is invited to ask questions of,
and receive answers from, representatives of the Company. Each prospective
investor is invited to obtain such information concerning the terms and
conditions of this offering, to the extent the Company possesses the same or can
acquire it without unreasonable effort or expense, as such prospective investor
deems necessary to verify the accuracy of the information referred to in this
Memorandum. Arrangements to ask such questions or obtain such information should
be made by contacting the Company's President at the executive offices of the
Company. The telephone number of the Company for this purpose is (213) 383-4443.
Please be advised that prospective investors may not rely on any oral or written
representations that are inconsistent with this Memorandum.
The offering of the Common Stock is made solely by this Memorandum and the
exhibits hereto. The prospective investors have a right to inquire about and
request and receive any additional information they may deem appropriate or
necessary to further evaluate this offering and to make an investment decision.
Representatives of the Company may prepare written responses to such inquiries
or requests if the information requested is available. The use of any documents
other than those prepared and expressly authorized by the Company in connection
with this offering are not to be relied upon by prospective investors.
<PAGE>
ONLY INFORMATION OR REPRESENTATIONS CONTAINED HEREIN MAY BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY. NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
MEMORANDUM IN CONNECTION WITH THE OFFER BEING MADE HEREBY, AND IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY. INVESTORS ARE CAUTIONED NOT TO RELY UPON ANY
INFORMATION NOT EXPRESSLY SET FORTH IN THIS MEMORANDUM. THE INFORMATION
PRESENTED IS AS OF THE DATE ON THE COVER HEREOF UNLESS ANOTHER DATE IS
SPECIFIED, AND NEITHER THE DELIVERY OF THIS MEMORANDUM NOR ANY SALE HEREUNDER
SHALL CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE INFORMATION
PRESENTED SUBSEQUENT TO SUCH DATE(S).
<PAGE>
AMENDMENT
TO POWERSOURCE CORPORATION
PRIVATE PLACEMENT MEMORANDUM
as of August 8, 1999
1. Termination Date
This offering will terminate on December 31, 1999, and has been extended by the
Company for up to an additional 180 days (the "Sales Termination Date").
2. Minimum subscription level
Once the minimum subscription level of $100,000 is attained, funds will be used
for the company's expenses and the offering will continue until the earlier of
(i) the sale of a total of $5,000,000 of Units, or (ii) the Sales Termination
Date.
3. Broker-dealer
The Units will be offered on a "best-efforts" basis by RH Investment Corporation
("RH"), a broker-dealer registered with the National Association of Securities
Dealers, Inc. ("NASD"). RH will be paid selling commissions with respect to
Units sold by it. The Company will indemnify RH with respect to disclosures made
in the Memorandum.
4. Securities Offered
The Company is offering shares of Common Stock and Warrants (collectively,
"Units") for a purchase price of $5,000 per Unit with a one Unit minimum
($5,000). The minimum offering is $100,000 and the maximum offering is
$5,000,000, subject to the Company's option, exercisable in its sole discretion,
to increase the maximum offering to $5,000,000. The Company reserves the right
in its sole discretion to accept less than the minimum investment from a limited
number of investors. The Company will have the unrestricted right to reject
tendered subscriptions for any reason and to sell fractional Units. In the event
the Units available for sale are oversubscribed, they will be sold to those
investors subscribing first, provided they satisfy the applicable investor
suitability standards. At any time until the Sales Termination, the Company will
have the right in its sole discretion to redeem any Units purchased by investors
who purchase less than the minimum investment (i.e., $5,000), for a redemption
price equal to the original purchase price of the Units. See "INVESTOR
SUITABILITY STANDARDS."
(i) The minimum gross offering proceeds of ($100,000) as of this date have been
deposited into the Company's operating account, and (ii) Unit investors will
become shareholders. The offering will continue until Closing of the offering.
New subscription funds which are thereafter accepted will be deposited directly
into the Company's operating account.
5. Plan of Distribution
The Units are being offered by the Company on a best-efforts basis through
registered broker-dealers who are members of the National Association of
Securities Dealers, Inc., including RH Securities Corporation ("RH"). The
Company has entered into a selling agreement with RH that designates RH as the
exclusive agent for the Company in connection with this offering. RH is a
California corporation organized to be a registered member of the National
Association of Securities Dealers, Inc. ("NASD"). RH is currently a member of
the NASD. To the extent Units are sold by RH, it will earn selling commissions
equal to 10% of the purchase price of the Units sold by it. As additional
incentive compensation for each Unit sold, RH or its designee will be issued 400
Class E Warrants exercisable for a period five years at an exercise price of
$3.50 per share. The shares issuable upon exercise of the Class E Warrants will
have piggyback registration rights such that they will be registered on the
first registration statement filed by the Company under the Securities Act of
1933, as amended. RH will retain services of a Consulting Company and in
exchange for cash equal to 3% of the gross proceeds of the offering, Consulting
Company will provide RH with administrative, consulting, blue sky, investor
relations, and due diligence services. RH and Consulting Company are indemnified
by the Company with respect to this Offering pursuant to the selling agreement
between the Company and RH.
This AMENDMENT dated September 7, 1999
<PAGE>
EXHIBIT A
SUBSCRIPTION DOCUMENTS
Name of Investor:_______________________________________________
(Print)
PowerSource Corporation
3660 Wilshire Boulevard, Suite 1104
Los Angeles, California 90010
Attention: Illya Bond, President
Re: POWERSOURCE CORPORATION - 1,000 Units (the "Units") - Each Unit
---------------------------------------------------------------------------
Consisting of 2,000 Shares of Common Stock (the "Shares") and 1,000 Warrants
- --------------------------------------------------------------------------------
(the "Warrants")
- ----------------
Gentlemen:
1. Subscription. The undersigned hereby tenders this subscription and
applies to purchase the number of Units in PowerSource Corporation (the
"Company") indicated below, pursuant to the terms of this Subscription
Agreement. The undersigned further sets forth statements upon which you may rely
to determine the suitability of the undersigned to purchase the Units. The
undersigned understands that the Units are being offered pursuant to the
Confidential Private Placement Memorandum, dated January 12, 1999 and its
exhibits (the "Memorandum"). In connection with this subscription, the
undersigned represents and warrants that the personal, business and financial
information contained in the Purchaser Questionnaire is complete and accurate,
and presents a true statement of the undersigned's financial condition.
2. Representations and Understandings. The undersigned hereby makes the
following representations, warranties and agreements and confirms the following
understandings:
(i) The undersigned has received a copy of the Memorandum, has reviewed it
carefully, and has had an opportunity to question representatives of the Company
and obtain such additional information concerning the Company as the undersigned
requested.
(ii) The undersigned has sufficient experience in financial and business
matters to be capable of utilizing such information to evaluate the merits and
risks of the undersigned's investment, and to make an informed decision relating
thereto; or the undersigned has utilized the services of a purchaser
representative and together they have sufficient experience in financial and
business matters that they are capable of utilizing such information to evaluate
the merits and risks of the undersigned's investment, and to make an informed
decision relating thereto.
(iii) The undersigned has evaluated the risks of this investment in the
Company, including those risks particularly described in the Memorandum, and has
determined that the investment is suitable for him. The undersigned has adequate
financial resources for an investment of this character, and at this time he
could bear a complete loss of his investment. The undersigned understands that
any projections which may be made in the Memorandum are mere estimates and may
not reflect the actual results of the Company's operations.
(iv) The undersigned understands that the Units are not being registered
under the Securities Act of 1933, as amended (the "1933 Act") on the ground that
the issuance thereof is exempt under Section 4(2) of the 1933 Act and Rule 506
of Regulation D promulgated thereunder, and that reliance on such exemption is
predicated in part on the truth and accuracy of the undersigned's
representations and warranties, and those of the other purchasers of Units.
<PAGE>
(v) The undersigned understands that the Units are not being registered
under the securities laws of certain states on the basis that the issuance
thereof is exempt as an offer and sale not involving a public offering in such
state. The undersigned understands that reliance on such exemptions is
predicated in part on the truth and accuracy of the undersigned's
representations and warranties and those of other purchasers of Units. The
undersigned covenants not to sell, transfer or otherwise dispose of a Unit
unless such Unit has been registered under the applicable state securities laws,
or an exemption from registration is available.
(vi) The undersigned (i) has a net worth (or joint net worth with the
purchaser's spouse) of at least $1,000,000, or (ii) has an annual gross income
in the last two years of at least $200,000, and expected gross income in the
current year of at least $200,000 (or joint annual gross income with spouse of
$300,000), or (iii) otherwise meets the requirements for an Accredited Investor
as defined in Rule 501 of Regulation D promulgated under Section 4(2) of the
Securities Act of 1933, as amended, or (iv) is the beneficiary of a fiduciary
account, or, if the fiduciary of the account or other party is the donor of
funds used by the fiduciary account to make this investment, then such donor,
who meets the requirements of either (i), (ii) or (iii) above.
(vii) The undersigned understands that the Units are not being registered
under the securities laws of any state on the basis that the issuance thereof is
exempt as an offer and sale to purchasers in such state meeting certain investor
suitability standards with respect to income, net worth, knowledge and
sophistication. The undersigned understands that reliance on such exemptions is
predicated in part on the truth and accuracy of the undersigned's
representations and warranties and those of other purchasers of Units. The
undersigned covenants not to sell, transfer or otherwise dispose of a Unit
unless such Unit has been registered under the applicable state securities laws,
or an exemption from registration is available.
(viii) The undersigned has no need for any liquidity in his investment and
is able to bear the economic risk of his investment for an indefinite period of
time. The undersigned has been advised and is aware that: (a) there is no public
market for the Units and it is not likely that any public market for the Units
will develop; (b) it may not be possible to liquidate the investment readily;
(c) the undersigned must bear the economic risk of his investment in the Units
for an indefinite period of time because the Units have not been registered
under the 1933 Act and applicable state law or an exemption from such
registration is available; (d) a legend as to the restrictions on
transferability of the Units referred to herein will be made on the document
evidencing the Unit, and (e) a notation in the appropriate records of the
Company will be made with respect to any restrictions on transfer of Units.
(ix) All contacts and contracts between the undersigned and the Company
regarding the offer and sale to him of Units have been made within the state
indicated below his signature on the signature page of this Subscription
Agreement and the undersigned is a resident of such state.
(x) The undersigned has relied solely upon the Memorandum and independent
investigations made by him or his purchaser representative with respect to the
Units subscribed for herein, and no oral or written representations beyond the
Memorandum have been made to the undersigned or relied upon by the undersigned.
(xi) The undersigned agrees not to transfer or assign this subscription or
any interest therein.
(xii) The undersigned hereby acknowledges and agrees that, except as may be
specifically provided herein, the undersigned is not entitled to withdraw,
terminate or revoke this subscription.
(xiii) If the undersigned is a partnership, corporation or trust, it has
been duly formed, is validly existing, has full power and authority to make this
investment, and has not been formed for the specific purpose of investing in the
Units. This Subscription Agreement and all other documents executed in
connection with this subscription for Units are valid, binding and enforceable
agreements of the undersigned.
<PAGE>
(xiv) The undersigned meets any additional suitability standards and/or
financial requirements which may be required in the jurisdiction in which he
resides, or is purchasing in a fiduciary capacity for a person or account
meeting such suitability standards and/or financial requirements, and he is not
a minor.
(xv) The undersigned has a pre-existing business relationship with an
officer, director, employee, consultant or other affiliate of the Company, and
was not offered these securities by any form of general solicitation, cold
calling or public advertisement.
3. Indemnification. The undersigned hereby agrees to indemnify and hold
harmless the Company and all of its affiliates, attorneys, accountants,
employees, officers, directors, Shareholders and agents from any liability,
claims, costs, damages, losses or expenses incurred or sustained by them as a
result of the undersigned's representations and warranties herein being untrue
or inaccurate, or because of a breach of this agreement by the undersigned.
4. Taxpayer Identification Number/Backup Withholding Certification. Unless
a subscriber indicates to the contrary on the Subscription Agreement, he will
certify that his taxpayer identification number is correct and, if not a
corporation, IRA, Keogh, or Qualified Trust (as to which there would be no
withholding), he is not subject to backup withholding on interest or dividends.
If the subscriber does not provide a taxpayer identification number certified to
be correct or does not make the certification that the subscriber is not subject
to backup withholding, then the subscriber may be subject to twenty percent
(20%) withholding on interest or dividends paid to the holder of the Units.
5. Governing Law. This Subscription Agreement will be governed by and
construed in accordance with the laws of the State of California. The venue for
any legal action under this Agreement will be in the proper forum in the City of
Los Angeles, State of California.
6. Arbitration. Any dispute under this Subscription Agreement will be
resolved by binding arbitration under the then prevailing rules of the American
Arbitration Association in the City of Los Angeles, State of California.
<PAGE>
The undersigned has (have) executed this Subscription Agreement on this day
of , 19 , at
.
------------------ -------------------
Signature (1) Signature (2)
Printed Name Printed Name
Social Security or Social Security or
Tax Identification Number Tax Identification Number
Street Address Street Address
City, State and Zip Code City, State and Zip Code
Number of Units.................................................................
Dollar Amount of Shares (At $5,000 per Unit)....................................
PLEASE MAKE CHECKS PAYABLE TO: "POWERSOURCE ESCROW."
MANNER IN WHICH TITLE IS TO BE HELD:
___ Community Property * ___ Individual Property
___ Joint Tenancy with ___ Separate Property
___ Right of Survivorship* ___ Tenants-in-Entirety*
___ Individual Retirement Acct. ___ Tenants-in-Common*
___ Pension or Profit Sharing Plan ___ Keogh Plan
___ Corporate or Partnership** ___ Fiduciary for a Minor
___ Trust or Fiduciary Capacity
___ (trust documents must accompany this form)
___ Other (Please indicate)
*Signature of all parties required.
**In the case of partnership, state names of all partners.
- --------------------------------------------------------------------------------
SUBSCRIPTION ACCEPTED:
POWERSOURCE CORPORATION
By:
Illya Bond, President DATE
<PAGE>
POWERSOURCE CORPORATION
PURCHASER QUESTIONNAIRE
PowerSource Corporation
3660 Wilshire Boulevard, Suite 1104
Los Angeles, California 90010
Attention: Illya Bond, President
Re: PowerSource Corporation
Gentlemen:
The following information is furnished to you in order for you to determine
whether the undersigned is qualified to purchase Units (the "Units") in the
above referenced company pursuant to Section 4(2) of the Securities Act of 1933,
as amended (the "Act"), Regulation D promulgated thereunder, and appropriate
provisions of applicable state securities laws I understand that you will rely
upon the following information for purposes of such determination, and that the
Units will not be registered under the Act in reliance upon the exemption from
registration provided by Section 4(2) of the Act, Rule 506 of Regulation D, and
appropriate provisions of applicable state securities laws.
ALL INFORMATION CONTAINED IN THIS QUESTIONNAIRE WILL BE TREATED
CONFIDENTIALLY. However, I agree that you may present this questionnaire to such
parties as you deem appropriate if called upon to establish that the proposed
offer and sale of the Units is exempt from registration under the Act or meets
the requirements of applicable state securities laws.
I hereby provide you with the following representations and information:
1. Name:
2. Residence Address & Telephone No:
3. Mailing Address:
4. Employer and Position:
5. Business Address & Telephone No:
6. Business or Professional Education & Degree:
<PAGE>
7. Prior Employment (5 years):
EMPLOYER
NATURE OF DUTIES
DATES-OF-EMPLOYMENT
8. Prior Investments of Purchaser:
Amount (Cumulative)
Capital Stock Up to $ 50,000 to Over
None $50,000 $250,000 $250,000
Bonds Up to $ 50,000 to Over
None $50,000 $250,000 $250,000
Other Up to $ 50,000 to Over
None $50,000 $250,000 $250,000
9. Based on the definition of an "Accredited Investor" which appears below,
I am an Accredited Investor. I understand that the representations contained in
this section are made for the purpose of qualifying me as an accredited investor
as the term is defined by the Securities and Exchange Commission for the purpose
of selling securities to me. I hereby represent that the statement or statements
initialed below are true and correct in all respects.
I am an Accredited Investor because I fall within one of the following
categories:
(INITIAL APPROPRIATE CATEGORY)
- --- A natural person whose individual net worth, or joint net worth with that
person's spouse, at the time of his purchase exceeds $1,000,000;
- --- A natural person who had an individual income in excess of $200,000 in each
of the two most recent years and who reasonably expects an income in excess
of $200,000 in the current year;
- --- My spouse and I have had joint income for the most two recent years in
excess of $300,000 and we expect our joint income to be in excess of
$300,000 for the current year;
- --- Any organization described in Section 501(c)(3) of the Internal Revenue
Code, or any corporation, Massachusetts Business Trust or partnership not
formed for the specific purpose of acquiring the securities offered, with
total assets in excess of $5,000,000;
- --- A bank as defined in Section 3(a)(2) of the Securities Act whether acting
in its individual or fiduciary capacity; insurance company as defined in
Section 2(12) of the Securities Act, investment company registered under
the Investment Company Act of 1940 or a business development company as
defined in Section 2(1)(48) of that Act; or Small Business Investment
Company licensed by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958;
<PAGE>
- --- A private business development company as defined in Section 202(a)(22) of
the Investment Advisers Act of 1940;
- --- An employee benefit plan within the meaning of Title I of the Employee
Retirement Income Security Act of 1974, if the investment decision is to be
made by a plan fiduciary, as defined in Section 3(21) of such Act, which is
either a bank, insurance company, or registered investment adviser, or if
the employee benefit plan has total assets in excess of $5,000,000;
- --- An entity in which all of the equity owners are Accredited Investors under
the above paragraph.
10. Financial Information:
(a) My net worth (exclusive of home, home furnishings and personal
automobiles) is $ _______________.
(b) My net worth including home, home furnishings and personal automobiles
is $ ________________.
(c) My gross income during the preceding two years is:
1997: $ _______________
1998: $ _______________
(d) My anticipated gross income in 1999 is $ _______________.
(e) (1) I have such knowledge and experience in financial, tax and business
matters that I am capable of utilizing the information made available to me in
connection with the offering of the Units to evaluate the merits and risks of an
investment in the Units, and to make an informed investment decision with
respect to the Units. I do not desire to utilize a Purchaser Representative in
connection with evaluating such merits and risks. I understand, however, that
the Company may request that I use a Purchaser Representative.
_______________ Initial Here
(2) I intend to use the services of the following named person(s) as
Purchaser Representative(s) in connection with evaluating the merits and risks
of an investment in the Units and hereby appoint such person(s) to act as my
Purchaser Representative(s) in connection with my proposed purchase of Units:
_______________ Initial Here
List name(s) of Purchaser Representative(s), if applicable.
<PAGE>
11. Except as indicated below, any purchases of the Units will be solely
for my account, and not for the account of any other person or with a view to
any resale or distribution thereof.
12. I represent to you that the information contained herein is complete
and accurate and may be relied upon by you. I understand that a false
representation may constitute a violation of law, and that any person who
suffers damage as a result of a false representation may have a claim against me
for damages. I will notify you immediately of any material change in any of such
information occurring prior to the closing of the purchase of Units, if any, by
me.
Name (Please Print)..............................
Signature.........................................
Executed at.......................................
(City) ...........................................
(State)...........................................
on this__________ day of____________ , 19_____
- --------------------------------------------------------------------------------
Exhibit 5
Senator Associates Note
AGREEMENT # 1.1198
This Agreement is made this 10th day of March 1998, by and between PowerSource
Corporation, a Nevada Corporation, thereafter referred to as "PS" 8306 Wilshire
Blvd., Ste. 634, Beverly Hills, California 90211 and Senator Associates Ltd, a
Hungarian Corporation, (hereinafter known as "Senator") Korpona # 4 Budapest,
Hungary PS and Senator are hereinafter referred to as the "Parties"
1. Senator shall loan to PS the sum of $150,000 U.S. Dollars in the following
manner
A. $100,000 is to be wired to the PS's bank account over a period of time not to
exceed ninety (90) days on as needed monthly basis.
B. Senator shall also execute and deliver to PS a Letter of Credit in the sum of
$50,000 to be placed in trust with an authorized Trustee for Automated Power
Exchange.
2. PS agrees to repay to Senator the aforementioned funds of $150,000 within a
twelve month period of time on the following basis:
A. PS shall pay 7% interest per annum on the aforementioned borrowed funds as a
balloon payment at the end of the loan period, not to exceed twelve months.
B. PS shall remit to Senator 25% of gross sales revenues on "as received" basis
until such time as the entire loan proceeds are remitted, not to exceed twelve
months.
3. In the event of any natural disaster. such as war floods, earthquakes, and
acts of God, the Parties agree that a moratorium on payment from PS to Senator
or from Senator to PS under this Agreement will be suspended for a period of
ninety days or until such time as any officially declared state of emergency may
be lifted.
4. The parties also agree that should any dispute arise from this Agreement then
the Parties shall submit to binding arbitration form the Swede Arbitration
Association, located in Stockholm, Sweden.
5. It is expressly understood by the Parties that this is a Corporate Agreement,
and that any present or future Officers, Directors, and/or shareholders are not
personally liable for the debt referenced in this Agreement, and further more
they shall be indemnified by the Corporation for any such attacks on their
integrity.
Agreed and accepted,
By:/s/Mador Shandor
-------------------
Mador Shandor
Senator Associates, Ltd.
Korponai #4
Budapest, Hungary
Funds transfer from
Central European International Bank
Account # 034557-500
PowerSource Corporation
8306 Wilshire Blvd., Suite 634
Beverly Hills, CA 90211
Funds transfer to
Great Western Bank
Account # 0108330645
By:/s/Roman Gordon
-------------------
Roman Gordon
Exhibit 6
NASD Letter
October 15, 1999
Mr. Brian McDonald
Equitrade Securities Corporation
23736 Bircher Drive
Lake Forest, CA 92630
re: PowerSource Corp. Common Stock (MRD199808387)
Dear Mr. McDonald:
The staff has reviewed the information submitted by Equitrade Securities
Corporation ("EQUI") pursuant to NASD Rule 6740 and Rule 15c2-11 under the
Securities Exchange Act of 1934 in connection with the above-referenced security
(ies).
This letter will confirm that on May 20, 1999, acting in reliance upon the
information contained in the filing, we have cleared EQUI's request for an
unpriced quotation on the NQB Pink Sheets for PowerSource Corp. Common Stock. If
EQUI decides to enter a priced quotation (bid or offer) in this security in any
quotation medium, EQUI must supplement its filing with the Form 211. This
supplemental filing must include the basis and factors for EQUI's priced
quotation and be received by the NASD three days before the priced entry appears
in a quotations medium (See Notice to Members 90-40).
Please be advised that in clearing EQUI's filing it should not be assumed that
any federal, state, or self-regulatory requirements other than Rule 6740 and
Rule 15c2-11 have been considered. Furthermore, this clearance should not be
construed as indicating that the NASD has passed upon the accuracy or adequacy
of the documents contained in your Rule 15c2-11 submission. For members who
receive clearance to enter quotations on the OTC Bulletin Board, the Market
Operations Unit will contact EQUI within 24 hours of receipt of this letter. If
you have any questions regarding this matter, please contact the undersigned at
(302) 212-8129.
Very Truly Yours,
By: /s/David W. McClarin
- ------------------------
David W. McClarin
Compliance Examiner
OTC Compliance Unit
cc: National Quotations Bureau
Exhibit 7
Commercial Lease
HOBART BUILDING OFFICE LEASE
THIS OFFICE LEASE ("Lease"), dated march 23, 1998, is made and entered into by
and between Runvee Hobart ltd.,("Landlord") and PowerSource ,a Nevada
Corporation as ("Tenant") upon the following terms and conditions:
ARTICLE I - DEFINITIONS
Unless the context otherwise specifies or requires, the following terms shall
have the meanings specified herein;
1.01 Building. The term "Building" shall mean that certain office building
located at 3660 Wilshire Boulevard, Los Angeles, California 90010 commonly known
as Wilshire Hobart together with any related land, improvements, parking
facilities, common areas, driveways, sidewalks and landscaping.
1.02 Premises. The term "Premises" shall mean Suite , as more particularly
outlined on the drawing attached hereto as Exhibit A and incorporated herein by
reference. As used herein, "Premises" shall not include any storage area in the
Building, which shall be leased or rented pursuant to separate agreement.
1.03 Rentable Area of the Premises. The term "Rentable Area of the Premises"
shall mean 2042 rentable square feet, which Landlord and Tenant have stipulated
as the Rentable Area of the Premises. Tenant acknowledges that the Rentable Area
of the Premises includes the usable area, without deduction for columns or
projections, multiplied by a load factor to reflect a share of certain areas,
which may include lobbies, corridors, mechanical, utility, janitorial, boiler
and service rooms and closets, restrooms and other public, common and service
areas of the Building.
1.04 Lease Term. The term "Lease Term" shall mean the period between the
Commencement Date and the Expiration Date (as such terms are hereinafter
defined), unless sooner terminated as otherwise provided in this Lease.
1.05 Commencement Date. Subject to adjustment as provided in Article 3, the term
"Commencement Date" shall mean April 1, 1998.
1.06 Expiration Date. Subject to adjustment as provided in Article 3, the term
"Expiration Date" shall mean March 31, 2000.
1.07 Base Rent. Subject to adjustment as provided in Article 4, the term "Base
Rent" shall mean the sum of $ 25,729.20 per annum, which sum shall be adjusted
from time to time as set forth in Article 3.
1.08 Omitted Intentionally
1.09 Security Deposit.
The termSecurity Deposit" shall mean $2,144.10 Dollars($0).
1.10 Tenant's Permitted Use. The term "Tenant's Permitted Use" shall mean
General Office and no other use.
1.11 Business Hours. The term "Business Hours" shall mean the hours of 8:30 A.M.
to 6:00 P.M., Monday through Friday (federal and state holidays excepted) and
Saturday 9:00 A.M. to 1 P.M. Holidays are defined as the following: New Years
Day, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas
Day, and to the extent of utilities or services provided by union members
engaged at the Building, such other holidays observed by such unions.
1.12 Landlord's Address For Notices. The term "Landlord' s Address for Notices"
shall mean Runvee Hobart ltd., 3660 Wilshire Blvd., Los Angeles, Ca 90010
1.13 Tenant's Address for Notices. The term "Tenant's Address for Notices" shall
mean 3660 Wilshire Blvd., Suite 1104 Los Angeles, CA 90010
1.14 Broker. The term "Broker" shall mean Wilshire Pacific Realty
1.15 Guarantor. The term "Guarantor" shall mean .
1.16 Tenant's Parking Stalls: The term "Tenant's Parking Stalls" shall mean 6
automobiles, non-exclusive right to park: on the parking lot of the Building, as
provided in Article 2.
<PAGE>
ARTICLE II - PREMISES
2.01 Lease of Premises. Landlord hereby leases the Premises to Tenant, and
Tenant hereby leases the Premises from Landlord, upon all of the terms,
covenants and conditions contained in this Lease. On the Commencement Date
described herein, Landlord shall deliver the Premises to Tenant in substantial
conformance with the Work Letter Agreement attached hereto as Exhibit B.
2.02 Acceptance of Premises. Tenant acknowledges that Landlord has not made any
representation or warranty with respect to the condition of the Premises or the
Building or with respect to the suitability or fitness of either for the conduct
of Tenan's Permitted Use or for any other purpose. Prior to Tenant's taking
possession of the Premises, Landlord or its designee and Tenant will walk the
Premises for the purpose of reviewing the condition of the Premises (and the
condition of completion and workmanship of any tenant improvements which
Landlord is required to construct in the Premises pursuant to this Lease); after
such review, Tenant shall execute a Suite Acceptance Letter, in the form of
Exhibit E attached hereto, accepting the Premises. Except as is expressly set
forth in this Section 2.02 or the Work Letter Agreement attached hereto, if any,
or as may be expressly set forth in Suite Acceptance Letter or in the Addendum,
Tenant agrees to accept the Premises in its "as is" said physical condition
without any agreements, representations, understandings or obligations on the
part of Landlord to perform any alterations, repairs or improvements (or to
provide any allowance for same).
ARTICLE III - TERM
3.01 Except as otherwise provided in this Lease, the Lease Term shall be for the
period described in Section 1.04 of this Lease, commencing on the Commencement
Date described in Section 1.05 of this Lease and ending on the Expiration Date
described in Section 1.06 of this Lease; provided, however, that, if, for any
reason, Landlord is unable to deliver possession of the Premises on the date
described in Section 1.05 of this Lease, Landlord shall not be liable for any
damage caused thereby, nor shall the Lease be void or voidable, but, rather, the
Lease Term shall commence upon, and the Commencement Date shall be the date that
possession of the Premises is so tendered to Tenant (except for Tenant-caused
delays which shall not be deemed to delay commencement of the Lease Term), and,
unless Landlord elects otherwise, the Expiration Date described in Section 1.06
of this Lease shall be extended by an equal number of days.
ARTICLE IV - RENTAL
4.01 Definitions. As used herein,
(A) "Base Year" shall mean calendar year 2000.
(B) "Property Taxes" shall mean the aggregate amount of all real estate taxes,
assessments (whether they be general or special), sewer rents and charges,
transit taxes, taxes based upon the receipt of rent and any other federal, state
or local governmental charge, general, special, ordinary or extraordinary (but
not including income or franchise taxes, capital stock, inheritance, estate,
gift, or any other taxes imposed upon or measured by Landlord's gross income or
profits, unless the same shall be imposed in lieu of real estate taxes or other
ad valorem taxes), which Landlord shall pay or become obligated to pay in
connection with the Building, or any part thereof. Property Taxes shall also
include all fees and costs, including attorneys' fees, appraisals and
consultants' fees, incurred by Landlord in seeking to obtain a reassessment,
reduction of, or a limit on the increase in, any Property Taxes, regardless of
whether any reduction or limitation is obtained. Property Taxes for any calendar
year shall be Property Taxes which are due for payment or paid in such year,
rather than Property Taxes which are assessed or become a lien during such year.
Property Taxes shall include any tax, assessment, levy, imposition or charge
imposed upon Landlord and measured by or based in whole or in part upon the
Building or the rents or other income from the Building, to the extent that such
items would be payable if the Building was the only property of Landlord subject
to same and the income received by Landlord from the Building was the only
income of Landlord. Property Taxes shall also include any personal property
taxes imposed upon the furniture, fixtures, machinery, equipment, apparatus,
systems and appurtenances of Landlord used in connection with the Building.
(C) "Operating Expenses" shall mean all costs, fees, disbursements and expenses
paid or incurred by or on behalf of Landlord in the operation, ownership,
maintenance, insurance, management, replacement and repair of the Building
(excluding Property Taxes) including without limitation:
(i) Premiums for property, earthquake, casualty, liability, rent interruption or
other types of insurance carried by Landlord.
<PAGE>
(ii) Salaries, wages and other amounts paid or payable for personnel including
the Building manager, superintendent, operation and maintenance staff, and other
employees of Landlord involved in the maintenance and operation of the Building,
including contributions and premiums towards fringe benefits, unemployment,
disability and worker's compensation insurance, pension plan contributions and
similar premiums and contributions and the total charges of any independent
contractors or property managers engaged in the operation, repair, care,
maintenance and cleaning of any portion of the Building.
(iii) Cleaning expenses, including without limitation janitorial services,
window cleaning, and garbage and refuse removal.
(iv) Landscaping expenses, including without limitation irrigating, trimming,
mowing, fertilizing, seeding, and replacing plants.
(v) Heating, ventilating, air conditioning and steam/utilities expenses,
including fuel, gas, electricity, water, sewer, telephone, and other services.
(vi) Subject to the provisions of Section 4.01(C)(xii) below, the cost of
maintaining, operating, repairing and replacing components of equipment or
machinery, including without limitation heating, refrigeration, ventilation,
electrical, plumbing, mechanical, elevator, escalator, sprinklers, fire/life
safety, security and energy management systems, including service contracts,
maintenance contracts, supplies and parts.
(vii) Other items of repair or maintenance of elements of the Building.
(viii) The costs of policing, security and supervision of the Building.
(ix) Fair market rental and other costs with respect to the management office
for the Building.
(x) The cost of the rental of any machinery or equipment and the cost of
supplies used in the maintenance and operation of the Building.
(xi) Audit fees and the cost of accounting services incurred in the preparation
of statements referred to in this Lease and financial statements, and in the
computation of the rents and charges payable by tenants of the Building.
(xii) Capital expenditures (a) made primarily to reduce Operating Expenses, or
to comply with any laws or other governmental requirements, or (b) for
replacements (as opposed to additions or new improvements) of non-structural
items located in the common areas of the property required to keep such areas in
good condition; provided, all such permitted capital expenditures (together with
reasonable financing charges) shall be amortized for purposes of this Lease over
the shorter of (i) their useful lives, (ii) the period during which the
reasonably estimated savings in Operating Expenses equals the expenditures, or
(iii) three (3) years.
(xiii) Legal fees and expenses.
(xiv) Payments under any easement, operating agreement, declaration, restrictive
covenant, or instrument pertaining to the sharing of costs in any planned
development.
(xv) A fee for the administration and management of the Building as reasonably
determined by Landlord from time to time.
Operating Expenses shall not include costs of alteration of the premises of
tenants of the Building, depreciation charges, interest and principal payments
on mortgages, ground rental payments, real estate brokerage and leasing
commissions, expenses incurred in enforcing obligations of tenants of the
Building, salaries and other compensation of executive officers of the managing
agent of the Building senior to the Building manager, costs of any special
service provided to any one tenant of the Building but not to tenants of the
Building generally, and costs of marketing or advertising the Building.
(D) If the Building does not have ninety five percent (95%) occupancy during an
entire calendar year, including the Base Year, then the variable cost component
of "Property Taxes" and "Operating Expenses" shall be equitably adjusted so that
the total amount of Property Taxes and Operating Expenses equals the total
amount which would have been paid or incurred by Landlord had the Building been
ninety five percent (95%) occupied for the entire calendar year. In no event
shall Landlord be entitled to receive from Tenant and any other tenants in the
Building an aggregate amount in excess of actual Property Taxes and Operating
Expenses as a result of the foregoing provision.
<PAGE>
4.02 Base Rent.
(A) During the Lease Term, Tenant shall pay to Landlord as rental for the
Premises the Base Rent described in Section 1.07 above, subject to the following
annual adjustments (herein called the "Rent Adjustments"):
(B) Annual Adjustments of Base Rent.
(a) Tax and Operating Expense Adjustment. During each calendar year, the Base
Rent payable by Tenant to Landlord, shall be increased by (collectively, the
"Tax and Operating Expense Adjustment"): (i) Tenant's Percentage Share of the
dollar increase, if any, in Property Taxes for such year over Property Taxes for
the Base Year; and (ii) Tenant's Percentage Share of the dollar increase, if
any, in any category of Operating Expenses paid or incurred by Landlord during
such year over the respective category of Operating Expenses paid or incurred by
Landlord during the Base Year. A decrease in Property Taxes or any category of
Operating Expenses below the Base Year amounts shall not decrease the amount of
the Base Rent due hereunder or give rise to a credit in favor of Tenant.
(b) CPI Adjustment. During each calendar year, the Base Rent payable by Tenant
to Landlord, shall be adjusted to reflect increases in the Consumer Price Index
as follows:
(i) Definitions. The following terms shall have the following meanings:
(A) "Index" means the "Consumer Price Index - All Urban Consumers - Los
Angeles/Long Beach/Anaheim Metropolitan Area" compiled by the U.S. Department of
Labor, Bureau of Labor Statistics, (1967 = 100). If a substantial change is made
in the Index, the revised Index shall be used, subject to such adjustments as
Landlord may reasonably deem appropriate in order to make the revised Index
comparable to the prior Index. If the Bureau of Labor Statistics ceases to
publish the Index, then the successor or most nearly comparable index, as
reasonably determined by Landlord, shall be used, subject to such adjustments as
landlord may reasonably deem appropriate in order to make the new index
comparable to the Index.
(B) "CPI Adjustment Date" means January 1 of the year in which the third
anniversary of the Commencement Date falls, and January 1 of every year
thereafter.
(C) "CPI Base" means the initial Base Rent amount set forth in Section 4.02(A).
(ii) Computation of Adjustment. Effective as of each CPI Adjustment Date, the
Base Rent shall be adjusted to an amount to be determined by multiplying the CPI
Base by a fraction, the numerator of which shall be the Index for the calendar
month in which the Commencement Date occurs. Such fraction shall not exceed, for
any CPI Adjustment Date, an amount in excess of one hundred percent, multiplied
by the number of CPI Adjustment Dates that have then occurred (including the
present one). The Base Rent shall never be reduced as a result of an adjustment
pursuant to this paragraph. Landlord shall give Tenant written notice indicating
the adjusted Base Rent and the method of computation, and, on or before the
first day of the first calendar month following Tenant's receipt of such written
notice, Tenant shall pay to Landlord an amount equal to the underpayment of Base
Rent by Tenant for the period from the CPI Adjustment Date until such date.
4.03 Tax and Operating Expense Adjustment Procedure; Estimates. The Tax and
Operating Expense Adjustment specified in Section 4.02(B)(a) shall be determined
and paid as follows:
(A) During each calendar year subsequent to the Base Year, Landlord shall give
Tenant written notice of its estimate of any increased amounts payable under
Section 4.02(B)(a) for that calendar year. On or before the first day of each
calendar month during the calendar year, Tenant shall pay to Landlord
one-twelfth (1/12th) of such estimated amounts; provided, however, that, not
more often than quarterly, Landlord may, by written notice to Tenant, revise its
estimate for such year, and subsequent payments by Tenant for such year shall be
based upon such revised estimate.
(B) Within one hundred twenty (120) days after the close of each calendar year
or as soon thereafter as is practicable, Landlord shall deliver to Tenant a
statement of that year's Property Taxes and Operating Expenses, and the actual
Tax and Operating Expense Adjustment to be made pursuant to Section 4.02(B)(a)
for such calendar year, as determined by Landlord (the "Landlord's Statement")
and such Landlord's Statement shall be binding upon Tenant, except as provided
in Section 4.04 below. If the amount of the actual Tax and Operating Expense
Adjustment is more than the estimated payments for such calendar year made by
Tenant, Tenant shall pay the deficiency to Landlord upon receipt of Landlord's
Statement. If the amount of the actual Tax and Operating Expense Adjustment is
less than the estimated payments for such calendar year made by Tenant, any
excess shall be credited against Rent (as hereinafter defined) next payable by
Tenant under this Lease or, if the Lease Term has expired, any excess shall be
paid to Tenant. No delay in providing the statement described in this
subparagraph (B) shall act as a waiver of Landlord's right to payment under
Section 4.02(B)(a) above.
<PAGE>
(C) If this Lease shall terminate on a day other than the end of a calendar
year, the amount of the Tax and Operating Expense Adjustment to be paid pursuant
to Section 4.02(B)(a) that is applicable to the calendar year in which such
termination occurs shall be prorated on the basis of the number of days from
January 1 of the calendar year to the termination date bears to 365. The
termination of this Lease shall not affect the obligations of Landlord and
Tenant pursuant to Section 4.03(B) to be performed after such termination.
4.04 Review of Landlord's Statement. Provided that Tenant is not then in default
beyond any applicable cure period of its obligations to pay Base Rent,
additional rent described in Section 4.02(B), or any other payments required to
be made by it under this Lease and provided further that Tenant strictly
complies with the provisions of this Section 4.04, Tenant shall have the right,
once each calendar year, to reasonably review supporting data for any portion of
a Landlord's Statement (provided, however, Tenant may not have an audit right to
all documentation relating to Building operations as this would far exceed the
relevant information necessary to properly document a pass-through billing
statement, but real estate tax statements, and information on utilities,
repairs, maintenance and insurance will be available), in accordance with the
following procedure:
(A) Tenant shall, within ten (10) business days after any such Landlord's
Statement is delivered, deliver a written notice to Landlord specifying the
portions of the Landlord's Statement that are claimed to be incorrect, and
Tenant shall simultaneously pay to Landlord all amounts due from Tenant to
Landlord as specified in the Landlord's Statement. Except as expressly set forth
in subsection (C) below, in no event shall Tenant be entitled to withhold,
deduct, or offset any monetary obligation of Tenant to Landlord under the Lease
(including, without limitation, Tenant's obligation to make all payments of Base
Rent and all payments of Tenant's Tax and Operating Expense Adjustment) pending
the completion of and regardless of the results of any review of records under
this Section 4.04. The right of Tenant under this Section 4.04 may only be
exercised once for any Landlord's Statement, and if Tenant fails to meet any of
the above conditions as a prerequisite to the exercise of such right, the right
of Tenant under this Section 4.04 for a particular Landlord's Statement shall be
deemed waived.
(B) Tenant acknowledges that Landlord maintains its records for the Building at
Landlord's manager's corporate offices presently located at the address set
forth in Section 1.12 and Tenant agrees that any review of records under this
Section 4.04 shall be at the sole expense of Tenant and shall be conducted by an
independent firm of certified public accountants of national standing. Tenant
acknowledges and agrees that any records reviewed under this Section 4.04
constitute confidential information of Landlord, which shall not be disclosed to
anyone other than the accountants performing the review and the principals of
Tenant who receive the results of the review. The disclosure of such information
to any other person, whether or not caused by the conduct of Tenant, shall
constitute a material breach of this Lease.
(C) Any errors disclosed by the review shall be promptly corrected by Landlord,
provided, however, that if Landlord disagrees with any such claimed errors,
Landlord shall have the right to cause another review to be made by an
independent firm of certified public accountants of national standing. In the
event of a disagreement between the two accounting firms, the review that
discloses the least amount of deviation from the Landlord's Statement shall be
deemed to be correct. In the event that the results of the review of records
(taking into account, if applicable, the results of any additional review caused
by Landlord) reveal that Tenant has overpaid obligations for a preceding period,
the amount of such overpayment shall be credited against Tenant's subsequent
installment obligations to pay the estimated Tax and Operating Expense
Adjustment. In the event that such results show that Tenant has underpaid its
obligations for a preceding period, Tenant shall be liable for Landlord's actual
accounting fees, and the amount of such underpayment shall be paid by Tenant to
Landlord with the next succeeding installment obligation of estimated Tax and
Operating Expense Adjustment.
4.05 Payment. Concurrently with the execution hereof, Tenant shall pay Landlord
Base Rent for the first calendar month of the Lease Term. Thereafter the Base
Rent described in Section 1.07, as adjusted in accordance with Section 4.02,
shall be payable in advance on the first day of each calendar month. If the
Commencement Date is other than the first day of a calendar month, the prepaid
Base Rent for such partial month shall be prorated in the proportion that the
number of days this Lease is in effect during such partial month bears to the
total number of days in the calendar month. All Rent, and all other amounts
payable to Landlord by Tenant pursuant to the provisions of this Lease, shall be
paid to Landlord, without notice, demand, abatement, deduction or offset, in
lawful money of the United States at Landlord's office in the Building or to
such other person or at such other place as Landlord may designate from time to
time by written notice given to Tenant. No payment by Tenant or receipt by
Landlord of a lesser amount than the correct Rent due hereunder shall be deemed
to be other than a payment on account; nor shall any endorsement or statement on
any check or any letter accompanying any check or payment be deemed to effect or
evidence an accord and satisfaction; and Landlord may accept such check or
payment without prejudice to Landlord's right to recover the balance or pursue
any other remedy in this Lease or at law or in equity provided.
<PAGE>
4.06 Late Charge; Interest. Tenant acknowledges that the late payment of Base
Rent or any other amounts payable by Tenant to Landlord hereunder (all of which
shall constitute additional rental to the same extent as Base Rent) will cause
Landlord to incur administrative costs and other damages, the exact amount of
which would be impracticable or extremely difficult to ascertain. Landlord and
Tenant agree that if Landlord does not receive any such payment on or before ten
(10) days after the date the payment is due, Tenant shall pay to Landlord, as
additional rent, (a) a late charge equal to five percent (5%) of the overdue
amount to cover such additional administrative costs; and (b) interest on the
delinquent amounts at the lesser of the maximum rate permitted by law if any or
twelve percent (12%) per annum from the date due to the date paid.
4.07 Additional Rent. For purposes of this Lease, all amounts payable by Tenant
to Landlord pursuant to this Lease, whether or not denominated as such, shall
constitute Base Rent. Any amounts due Landlord shall sometimes be referred to in
this Lease as "Rent".
4.08 Additional Taxes. Notwithstanding anything in Section 4.01(B) to the
contrary, Tenant shall reimburse Landlord upon demand for any and all taxes
payable by or imposed upon Landlord upon or with respect to: any fixtures or
personal property located in the Premises; any leasehold improvements made in or
to the Premises by or for Tenant; the Rent payable hereunder, including, without
limitation, any gross receipts tax, license fee or excise tax levied by any
governmental authority; the possession, leasing, operation, management,
maintenance, alteration, repair, use or occupancy of any portion of the Premises
(including without limitation any applicable possessory interest taxes); or this
transaction or any document to which Tenant is a party creating or transferring
an interest or an estate in the Premises.
ARTICLE V - SECURITY DEPOSIT
5.01 Upon the execution of this Lease, Tenant shall deposit with Landlord the
Security Deposit described in Section 1.09 above. The Security Deposit is made
by Tenant to secure the faithful performance of all the terms, covenants and
conditions of this Lease to be performed by Tenant. If Tenant shall default with
respect to any covenant or provision hereof, Landlord may use, apply or retain
all or any portion of the Security Deposit to cure such default or to compensate
Landlord for any loss or damage which Landlord may suffer thereby. If Landlord
so uses or applies all or any portion of the Security Deposit, Tenant shall
immediately upon written demand deposit cash with Landlord in an amount
sufficient to restore the Security Deposit to the full amount hereinabove
stated. Landlord shall not be required to keep the Security Deposit separate
from its general accounts and Tenant shall not be entitled to interest on the
Security Deposit. Within thirty (30) days after the expiration of the Lease Term
and the vacation of the Premises by Tenant, the Security Deposit, or such part
as has not been applied to cure the default, shall be returned to Tenant.
ARTICLE VI - USE OF PREMISES
6.01 Tenants Permitted Use. Tenant shall use the Premises only for Tenant's
Permitted Use as set forth in Section 1.10 above and shall not use or permit the
Premises to be used for any other purpose. Tenant shall, at its sole cost and
expense, obtain all governmental licenses and permits required to allow Tenant
to conduct Tenant's Permitted Use. Landlord disclaims any warranty that the
Premises are suitable for Tenant's use and Tenant acknowledges that it has had a
full opportunity to make its own determination in this regard.
6.02 Compliance With Laws and Other Requirements.
(A) Tenant shall cause the Premises to comply in all material respects with all
laws, ordinances, regulations and directives of any governmental authority
having jurisdiction including, without limitation, any certificate of occupancy
and any law, ordinance, regulation, covenant, condition or restriction affecting
the Building or the Premises which in the future may become applicable to the
Premises (collectively "Applicable Laws").
(B) Tenant shall not use the Premises, or permit the Premises to be used, in any
manner which: (a) violates any Applicable Law; (b) causes or is reasonably
likely to cause damage to the Building or the Premises; (c) violates a
requirement or condition of any fire and extended insurance policy covering the
Building and/or the Premises, or increases the cost of such policy; (d)
constitutes or is reasonably likely to constitute a nuisance, annoyance or
inconvenience to other tenants or occupants of the Building or its equipment,
facilities or systems; (e) interferes with, or is reasonably likely to interfere
with, the transmission or reception of microwave, television, radio, telephone
or other communication signals by antennae or other facilities located in the
Building; or (f) violates the Rules and Regulations described in Article XIX.
6.03 Hazardous Materials.
(A) No Hazardous Materials, as defined herein, shall be Handled, as also defined
herein, upon, about, above or beneath the Premises or any portion of the
Building by or on behalf of Tenant, its subtenants or its assignees, or their
respective contractors, clients, officers, directors, employees, agents, or
invitees. Any such Hazardous Materials so Handled shall be known as Tenant's
Hazardous Materials. Notwithstanding the foregoing, normal quantities of
Tenant's Hazardous Materials customarily used in the conduct of general
administrative and executive office activities (e.g., copier fluids and cleaning
supplies) may be Handled at the Premises without Landlord's prior written
consent. Tenant's Hazardous Materials shall be Handled at all times in
compliance with the manufacturer's instructions therefor and all applicable
Environmental Laws, as defined herein.
(B) Notwithstanding the obligation of Tenant to indemnify Landlord pursuant to
this Lease, Tenant shall, at its sole cost and expense, promptly take all
actions required by any Regulatory Authority, as defined herein, or necessary
for Landlord to make full economic use of the Premises or any portion of the
Building, which requirements or necessity arises from the Handling of Tenant's
Hazardous Materials upon, about, above or beneath the Premises or any portion of
the Building. Such actions shall include, but not be limited to, the
investigation of the environmental condition of the Premises or any portion of
the Building, the preparation of any feasibility studies or reports and the
performance of any cleanup, remedial, removal or restoration work. Tenant shall
take all actions necessary to restore the Premises or any portion of the
Building to the condition existing prior to the introduction of Tenant's
Hazardous Materials, notwithstanding any less stringent standards or remediation
allowable under applicable Environmental Laws. Tenant shall nevertheless obtain
Landlord's written approval prior to undertaking any actions required by this
Section, which approval shall not be unreasonably withheld so long as such
actions would not potentially have a material adverse long-term or short-term
effect on the Premises or any portion of the Building.
(C) Tenant agrees to execute affidavits, representations, and the like from time
to time at Landlord's request stating Tenant's best knowledge and belief
regarding the presence of Hazardous Materials on the Premises.
(D) "Environmental Laws" means and includes all now and hereafter existing
statutes, laws, ordinances, codes, regulations, rules, rulings, orders, decrees,
directives, policies and requirements by any Regulatory Authority regulating,
relating to, or imposing liability or standards of conduct concerning public
health and safety or the environment.
(E) "Hazardous Materials" means: (a) any material or substance: (i) which is
defined or becomes defined as a "hazardous substance," "hazardous waste,"
"infectious waste," "chemical mixture or substance," or "air pollutant" under
Environmental Laws; (ii) containing petroleum, crude oil or any fraction
thereof; (iii) containing polychlorinated biphenyls (PCB's); (iv) containing
asbestos; (v) which is radioactive; (vi) which is infectious; or (b) any other
material or substance displaying toxic, reactive, ignitable or corrosive
characteristics, as all such terms are used in their broadest sense, and are
defined, or become defined by Environmental Laws; or (c) materials which cause a
nuisance upon or waste to the Premises or any portion of the Building.
(F) "Handle," "handle," "Handled," "handled," "Handling," or "handling" shall
mean any installation, handling, generation, storage, treatment, use, disposal,
discharge, release, manufacture, refinement, presence, migration, emission,
abatement, removal, transportation, or any other activity of any type in
connection with or involving Hazardous Materials.
(G) "Regulatory Authority" shall mean any federal, state or local governmental
agency, commission, board or political subdivision.
<PAGE>
ARTICLE VII - UTILITIES AND SERVICES
7.01 Building Services. As long as Tenant is not in monetary default under this
Lease, Landlord agrees to furnish or cause to be furnished to the Premises the
following utilities and services, subject to the conditions and standards set
forth herein:
(A) Non-attended automatic elevator service (if the Building has such equipment
serving the Premises), in common with Landlord and other tenants and occupants
and their agents and invitees.
(B) During Business Hours, such air conditioning, heating and ventilation as, in
Landlord's reasonable judgment, are required for the comfortable use and
occupancy of the Premises. Landlord may make available to Tenant heating,
ventilation or air conditioning in excess of that which Landlord shall be
required to provide hereunder upon such conditions as shall be determined by
Landlord from time to time. Landlord's fee for any such additional heating,
ventilation or air conditioning provided to Tenant, to be set by Landlord from
time to time, will be separate from and in addition to the Tax and Operating
Expenses Adjustment provide in Article IV.
(C) Water for drinking and rest room purposes.
(D) Reasonable janitorial and cleaning services, provided that the Premises are
used exclusively for office purposes and are kept reasonably in order by Tenant.
If the Premises are not used exclusively as offices, Landlord, at Landlord's
sole discretion, may require that the Premises be kept clean and in order by
Tenant, at Tenant's expense, to the satisfaction of Landlord and by persons
approved by Landlord; and, in all events, Tenant shall pay to Landlord the cost
of removal of Tenant's refuse and rubbish, to the extent that the same exceeds
the refuse and rubbish attendant to normal office usage.
(E) At all reasonable times, electric current of not less than 3.5 watts per
square foot for building standard lighting and fractional horsepower office
machines; provided, however, that (i) without Landlord's consent, Tenant shall
not install, or permit the installation, in the Premises of any computers, word
processors, electronic data processing equipment or other type of equipment or
machines which will increase Tenant's use of electric current in excess of that
which Landlord is obligated to provide hereunder (provided, however, that the
foregoing shall not preclude the use of personal computers or similar office
equipment); (ii) if Tenant shall require electric current which may disrupt the
provision of electrical service to other tenants, Landlord may refuse to grant
its consent or may condition its consent upon Tenant's payment of the cost of
installing and providing any additional facilities required to furnish such
excess power to the Premises and upon the installation in the Premises of
electric current meters to measure the amount of electric current consumed, in
which latter event Tenant shall pay for the cost of such meter(s) and the cost
of installation, maintenance and repair thereof, as well as for all excess
electric current consumed at the rates charged by the applicable local public
utility, plus a reasonable amount to cover the additional expenses incurred by
Landlord in keeping account of the electric current so consumed; and (iii) if
Tenant's increased electrical requirements will materially affect the
temperature level in the Premises or the Building, Landlord's consent may be
conditioned upon Tenant's requirement to pay such amounts as will be incurred by
Landlord to install and operate any machinery or equipment necessary to restore
the temperature level to that otherwise required to be provided by Landlord,
including but not limited to the cost of modifications to the air conditioning
system. Landlord shall not, in any way, be liable or responsible to Tenant for
any loss or damage or expense which Tenant may incur or sustain if, for any
reasons beyond Landlord's reasonable control, either the quantity or character
of electric service is changed or is no longer available or suitable for
Tenant's requirements. Tenant covenants that at all times its use of electric
current shall never exceed the capacity of the feeders, risers or electrical
installations of the Building. If submetering of electricity in the Building
will not be permitted under future laws or regulations, the Rent will then be
equitably and periodically adjusted to include an additional payment to Landlord
reflecting the cost to Landlord for furnishing electricity to Tenant in the
Premises.
Any amounts which Tenant is required to pay to Landlord pursuant to this Section
7.01 shall be payable upon demand by Landlord and shall constitute additional
rent.
<PAGE>
7.02 Interruption of Services. Landlord shall not be liable for any failure to
furnish, stoppage of, or interruption in furnishing any of the services or
utilities described in Section 7.01, when such failure is caused by accident,
breakage, repairs, strikes, lockouts, labor disputes, labor disturbances,
governmental regulation, civil disturbances, acts of war, moratorium or other
governmental action, or any other cause beyond Landlord's reasonable control,
and, in such event, Tenant shall not be entitled to any damages nor shall any
failure or interruption abate or suspend Tenant's obligation to pay Base Rent
and additional rent required under this Lease or constitute or be construed as a
constructive or other eviction of Tenant. Further, in the event any governmental
authority or public utility promulgates or revises any law, ordinance, rule or
regulation, or issues mandatory controls or voluntary controls relating to the
use or conservation of energy, water, gas, light or electricity, the reduction
of automobile or other emissions, or the provision of any other utility or
service, Landlord may take any reasonably appropriate action to comply with such
law, ordinance, rule, regulation, mandatory control or voluntary guideline and
Tenant's obligations hereunder shall not be affected by any such action of
Landlord. The parties acknowledge that safety and security devices, services and
programs provided by Landlord, if any, while intended to deter crime and ensure
safety, may not in given instances prevent theft or other criminal acts, or
ensure safety of persons or property. The risk that any safety or security
device, service or program may not be effective, or may malfunction, or be
circumvented by a criminal, is assumed by Tenant with respect to Tenant's
property and interests, and Tenant shall obtain insurance coverage to the extent
Tenant desires protection against such criminal acts and other losses, as
further described in this Lease. Tenant agrees to cooperate in any reasonable
safety or security program developed by Landlord or required by Law.
ARTICLE VIII - MAINTENANCE AND REPAIRS
8.01 Landlord's Obligations. Except as provided in Sections 8.02 and 8.03 below,
Landlord shall maintain the Building in reasonable order and repair throughout
the Lease Term; provided, however, that Landlord shall not be liable for any
failure to make any repairs or to perform any maintenance unless such failure
shall persist for an unreasonable time after written notice of the need for such
repairs or maintenance is given to Landlord by Tenant. Except as provided in
Article XI, there shall be no abatement of Rent, nor shall there be any
liability of Landlord, by reason of any injury or inconvenience to, or
interference with, Tenant's business or operations arising from the making of,
or failure to make, any maintenance or repairs in or to any portion of the
Building.
8.02 Tenant's Obligations. During the Lease Term, Tenant shall, at its sole cost
and expense, maintain the Premises in good order and repair (including, without
limitation, the carpet, wall-covering, doors, plumbing and other fixtures,
equipment, alterations and improvements, whether installed by Landlord or
Tenant). Further, Tenant shall be responsible for, and upon demand by Landlord
shall promptly reimburse Landlord for, any damage to any portion of the Building
or the Premises caused by (a) Tenant's activities in the Building or the
Premises; (b) the performance or existence of any alterations, additions or
improvements made by Tenant in or to the Premises; (c) the installation, use,
operation or movement of Tenant's property in or about the Building or the
Premises; or (d) any act or omission by Tenant or its officers, partners,
employees, agents, contractors or invitees.
8.03 Landlord's Rights. Landlord and its contractors shall have the right, at
all reasonable times and upon prior oral or telephonic notice to Tenant at the
Premises, other than in the case of any emergency in which case no notice shall
be required, to enter upon the Premises to make any repairs to the Premises or
the Building reasonably required or deemed reasonably necessary by Landlord and
to erect such equipment, including scaffolding, as is reasonably necessary to
effect such repairs.
ARTICLE IX - ALTERATIONS, ADDITIONS AND IMPROVEMENTS
9.01 Landlord's Consent; Conditions. Tenant shall not make or permit to be made
any alterations, additions, or improvements in or to the Premises
("Alterations") without the prior written consent of Landlord, which consent,
with respect to non-structural alterations, shall not be unreasonably withheld.
Landlord may impose as a condition to making any Alterations such requirements
as Landlord in its sole discretion deems necessary or desirable including
without limitation: Tenant's submission to Landlord, for Landlord's prior
written approval, of all plans and specifications relating to the Alterations;
Landlord's prior written approval of the time or times when the Alterations are
to be performed; Landlord's prior written approval of the contractors and
subcontractors performing work in connection with the Alterations; employment of
union contractors and subcontractors who shall not cause labor disharmony;
Tenant's receipt of all necessary permits and approvals from all governmental
authorities having jurisdiction over the Premises prior to the construction of
the Alterations; Tenant's delivery to Landlord of such bonds and insurance as
Landlord shall reasonably require; and Tenant's payment to Landlord of all costs
and expenses incurred by Landlord because of Tenant's Alterations, including but
not limited to costs incurred in reviewing the plans and specifications for, and
the progress of, the Alterations. Tenant is required to provide Landlord written
notice of whether the Alterations include the Handling of any Hazardous
Materials and whether these materials are of a customary and typical nature for
industry practices. Upon completion of the Alterations, Tenant shall provide
Landlord with copies of as-built plans. Neither the approval by Landlord of
plans and specifications relating to any Alterations nor Landlord's supervision
or monitoring of any Alterations shall constitute any warranty by Landlord to
Tenant of the adequacy of the design for Tenant's intended use or the proper
performance of the Alterations.
<PAGE>
9.02 Performance of Alterations Work. All work relating to the Alterations shall
be performed in compliance with the plans and specifications approved by
Landlord, all applicable laws, ordinances, rules, regulations and directives of
all governmental authorities having jurisdiction (including without limitation
Title 24 of the California Administrative Code) and the requirements of all
carriers of insurance on the Premises and the Building, the Board of
Underwriters, Fire Rating Bureau, or similar organization. All work shall be
performed in a diligent, first class manner and so as not to unreasonably
interfere with any other tenants or occupants of the Building. All costs
incurred by Landlord relating to the Alterations shall be payable to Landlord by
Tenant as additional rent upon demand. No asbestos-containing materials shall be
used or incorporated in the Alterations. No lead-containing surfacing material,
solder, or other construction materials or fixtures where the presence of lead
might create a condition of exposure not in compliance with Environmental Laws
shall be incorporated in the Alterations.
9.03 Liens. Tenant shall pay when due all costs for work performed and materials
supplied to the Premises. Tenant shall keep Landlord, the Premises and the
Building free from all liens, stop notices and violation notices relating to the
Alterations or any other work performed for, materials furnished to or
obligations incurred by or for Tenant and Tenant shall protect, indemnify, hold
harmless and defend Landlord, the Premises and the Building of and from any and
all loss, cost, damage, liability and expense, including attorneys' fees,
arising out of or related to any such liens or notices. Further, Tenant shall
give Landlord not less then seven (7) business days prior written notice before
commencing any Alterations in or about the Premises to permit Landlord to post
appropriate notices of non-responsibility. Tenant shall also secure, prior to
commencing any Alterations, at Tenant's sole expense, a completion and lien
indemnity bond satisfactory to Landlord for such work. During the progress of
such work, Tenant shall, upon Landlord's request, furnish Landlord with sworn
contractor's statements and lien waivers covering all work theretofore
performed. Tenant shall satisfy or otherwise discharge all liens, stop notices
or other claims or encumbrances within ten (10) days after Landlord notifies
Tenant in writing that any such lien, stop notice, claim or encumbrance has been
filed. If Tenant fails to pay and remove such lien, claim or encumbrance within
such ten (10) days, Landlord, at its election, may pay and satisfy the same and
in such event the sums so paid by Landlord, with interest from the date of
payment at the rate set forth in Section 4.06 hereof for amounts owed Landlord
by Tenant shall be deemed to be additional rent due and payable by Tenant at
once without notice or demand.
9.04 Lease Termination. Except as provided in this Section 9.04, upon expiration
or earlier termination of this Lease Tenant shall surrender the Premises to
Landlord in the same condition as existed on the date Tenant first occupied the
Premises, (whether pursuant to this Lease or an earlier lease), subject to
reasonable wear and tear. All Alterations shall become a part of the Premises
and shall become the property of Landlord upon the expiration or earlier
termination of this Lease, unless Landlord shall, by written notice given to
Tenant, require Tenant to remove some or all of Tenant's Alterations, in which
event Tenant shall promptly remove the designated Alterations and shall promptly
repair any resulting damage, all at Tenant's sole expense. All business and
trade fixtures, machinery and equipment, furniture, movable partitions and items
of personal property owned by Tenant or installed by Tenant at its expense in
the Premises shall be and remain the property of Tenant; upon the expiration or
earlier termination of this Lease, Tenant shall, at its sole expense, remove all
such items and repair any damage to the Premises or the Building caused by such
removal. If Tenant fails to remove any such items or repair such damage promptly
after the expiration or earlier termination of the Lease, Landlord may, but need
not, do so with no liability to Tenant, and Tenant shall pay Landlord the cost
thereof upon demand. Notwithstanding the foregoing to the contrary, in the event
that Landlord gives its consent, pursuant to the provisions of Section 9.01 of
this Lease, to allow Tenant to make an Alteration in the Premises, Landlord
agrees, upon Tenant's written request, to notify Tenant in writing at the time
of the giving of such consent whether Landlord will require Tenant, at Tenant's
cost, to remove such Alteration at the end of the Lease Term.
ARTICLE X - INDEMNIFICATION AND INSURANCE
10.01 Indemnification.
(A) Tenant agrees to protect, indemnify, hold harmless and defend Landlord and
any Mortgagee, as defined herein, and each of their respective partners,
directors, officers, agents and employees, successors and assigns, (except to
the extent of the losses described below are caused by the gross negligence of
Landlord, its agents and employees), from and against:
(i) any and all loss, cost, damage, liability or expense as incurred (including
but not limited to reasonable attorneys' fees and legal costs) arising out of or
related to any claim, suit or judgment brought by or in favor of any person or
persons for damage, loss or expense due to, but not limited to, bodily injury,
including death, or property damage sustained by such person or persons which
arises out of, is occasioned by or is in any way attributable to the use or
occupancy of the Premises or any portion of the Building by Tenant or the acts
or omission of Tenant or its agents, employees, contractors, clients, invitees
or subtenants except that caused by the sole active negligence or willful
misconduct of Landlord or its agents or employees. Such loss or damage shall
include, but not be limited to, any injury or damage to, or death of, Landlord's
employees or agents or damage to the Premises or any portion of the Building.
<PAGE>
(ii) any and all environmental damages which arise from: (i) the Handling of any
Tenant's Hazardous Materials, as defined in Section 6.03 or (ii) the breach of
any of the provisions of this Lease. For the purpose of this Lease,
"environmental damages" shall mean (a) all claims, judgments, damages,
penalties, fines, costs, liabilities, and losses (including without limitation,
diminution in the value of the Premises or any portion of the Building, damages
for the loss of or restriction on use of rentable or usable space or of any
amenity of the Premises or any portion of the Building, and from any adverse
impact on Landlord's marketing of space); (b) all reasonable sums paid for
settlement of claims, attorneys' fees, consultants' fees and experts' fees; and
(c) all costs incurred by Landlord in connection with investigation or
remediation relating to the Handling of Tenant's Hazardous Materials, whether or
not required by Environmental Laws, necessary for Landlord to make full economic
use of the Premises or any portion of the Building, or otherwise required under
this Lease. To the extent that Landlord is held strictly liable by a court or
other governmental agency of competent jurisdiction under any Environmental
Laws, Tenant's obligation to Landlord and the other indemnities under the
foregoing indemnification shall likewise be without regard to fault on Tenant's
part with respect to the violation of any Environmental Law which results in
liability to the indemnitee. Tenant's obligations and liabilities pursuant to
this Section 10.01 shall survive the expiration or earlier termination of this
Lease.
(B) Landlord agrees to protect, indemnify, hold harmless and defend Tenant from
and against any and all loss, cost, damage, liability or expense, including
reasonable attorneys, fees, with respect to any claim of damage or injury to
persons or property at the Premises, caused by the gross negligence of Landlord
or its authorized agents or employees.
(C) Notwithstanding anything to the contrary contained herein, nothing shall be
interpreted or used to in any way affect, limit, reduce or abrogate any
insurance coverage provided by any insurers to either Tenant or Landlord.
(D) Notwithstanding anything to the contrary contained in this Lease, nothing
herein shall be construed to infer or imply that Tenant is a partner, joint
venturer, agent, employee, or otherwise acting by or at the direction of
Landlord.
10.02 Property Insurance.
(A) At all times during the Lease Term, Tenant shall procure and maintain, at
its sole expense, "all-risk" property insurance, for damage or other loss caused
by fire or other casualty or cause including, but not limited to, vandalism and
malicious mischief, theft, water damage of any type, including sprinkler
leakage, bursting of pipes, explosion, in an amount not less than one hundred
percent (100%) of the replacement cost covering (a) all Alterations made by or
for Tenant in the Premises; and (b) Tenant's trade fixtures, equipment and other
personal property from time to time situated in the Premises. The proceeds of
such insurance shall be used for the repair or replacement of the property so
insured, except that if not so applied or if this Lease is terminated following
a casualty, the proceeds applicable to the leasehold improvements shall be paid
to Landlord and the proceeds applicable to Tenant's personal property shall be
paid to Tenant.
(B) At all times during the Lease Term, Tenant shall procure and maintain
business interruption insurance in such amount as will reimburse Tenant for
direct or indirect loss of earnings attributable to all perils insured against
in Section 10.02(A).
(C) Landlord shall, at all times during the Lease Term, procure and maintain
"all-risk" property insurance in the amount not less than ninety percent (90%)
of the insurable replacement cost covering the Building in which the Premises
are located and such other insurance as may be required by a Mortgagee or
otherwise desired by Landlord.
10.03 Liability Insurance.
(A) At all times during the Lease Term, Tenant shall procure and maintain, at
its sole expense, commercial general liability insurance applying to the use and
occupancy of the Premises and the business operated by Tenant. Such insurance
shall have a minimum combined single limit of liability of at least One Million
Dollars ($1,000,000) per occurrence and a general aggregate limit of at least
One Million Dollars ($1,000,000). All such policies shall be written to apply to
all bodily injury, property damage, personal injury losses and shall be endorsed
to include Landlord and its agents, beneficiaries, partners, employees, and any
deed of trust holder or mortgagee of Landlord or any ground lessor as additional
insureds. Such liability insurance shall be written as primary policies, not
excess or contributing with or secondary to any other insurance as may be
available to the additional insureds.
<PAGE>
(B) Prior to the sale, storage, use or giving away of alcoholic beverages on or
from the Premises by Tenant or another person, Tenant, at its own expense, shall
obtain a policy or policies of insurance issued by a responsible insurance
company and in a form acceptable to Landlord saving harmless and protecting
Landlord and the Premises against any and all damages, claims, liens, judgments,
expenses and costs, including actual attorneys' fees, arising under any present
or future law, statute, or ordinance of the State of California or other
governmental authority having jurisdiction of the Premises, by reason of any
storage, sale, use or giving away of alcoholic beverages on or from the
Premises. Such policy or policies of insurance shall have a minimum combined
single limit of One Million ($1,000,000) per occurrence and shall apply to
bodily injury, fatal or nonfatal; injury to means of support; and injury to
property of any person. Such policy or policies of insurance shall name Landlord
and its agents, beneficiaries, partners, employees and any mortgagee of Landlord
or any ground lessor of Landlord as additional insureds.
(C) Landlord shall, at all times during the Lease Term, procure and maintain
commercial general liability insurance for the Building in which the Premises
are located. Such insurance shall have minimum combined single limit of
liability of at least Two Million Dollars ($2,000,000) per occurrence, and a
general aggregate limit of at least Two Million Dollars ($2,000,000).
10.04 Workers' Compensation Insurance. At all times during the Lease Term,
Tenant shall procure and maintain Workers' Compensation Insurance in accordance
with the laws of the State of California, and Employer's Liability insurance
with a limit not less than One Million Dollars ($1,000,000) Bodily Injury Each
Accident; One Million Dollars ($1,000,000) Bodily Injury By Disease - Each
Person; and One Million Dollars ($1,000,000) Bodily Injury to Disease - Policy
Limit.
10.05 Policy Requirements. All insurance required to be maintained by Tenant
shall be issued by insurance companies authorized to do insurance business in
the State of California and rated not less than A-VIII in Best's Insurance
Guide. A certificate of insurance (or, at Landlord's option, copies of the
applicable policies) evidencing the insurance required under this Article X
shall be delivered to Landlord not less than thirty (30) days prior to the
Commencement Date. No such policy shall be subject to cancellation or
modification without thirty (30) days prior written notice to Landlord and to
any deed of trust holder, mortgagee or ground lessor designated by Landlord to
Tenant. Tenant shall furnish Landlord with a replacement certificate with
respect to any insurance not less than thirty (30) days prior to the expiration
of the current policy. Tenant shall have the right to provide the insurance
required by this Article X pursuant to blanket policies, but only if such
blanket policies expressly provide coverage to the Premises and Landlord as
required by this Lease.
10.06 Waiver of Subrogation. Each party hereby waives any right of recovery
against the other for injury or loss due to hazards covered by insurance or
required to be covered, to the extent of the injury or loss covered thereby. Any
policy of insurance to be provided by Tenant or Landlord pursuant to this
Article X shall contain a clause denying the applicable insurer any right of
subrogation against the other party.
10.07 Failure to Insure. If Tenant fails to maintain any insurance which Tenant
is required to maintain pursuant to this Article X, Tenant shall be liable to
Landlord for any loss or cost resulting from such failure to maintain. Tenant
may not self-insure against any risks required to be covered by insurance
without Landlord's prior written consent.
ARTICLE XI - DAMAGE OR DESTRUCTION
11.01 Total Destruction. Except as provided in Section 11.03 below, this Lease
shall automatically terminate if the Building is totally destroyed.
11.02 Partial Destruction of Premises. If the Premises are damaged by any
casualty and, in Landlord's opinion, the Premises (exclusive of any Alterations
made to the Premises by Tenant) can be restored to its pre-existing condition
within two hundred seventy (270) days after the date of the damage or
destruction, Landlord shall, upon written notice from Tenant to Landlord of such
damage, except as provided in Section 11.03, promptly and with due diligence
repair any damage to the Premises (exclusive of any Alterations to the Premises
made by Tenant, which shall be promptly repaired by Tenant at its sole expense)
and, until such repairs are completed, the Rent shall be abated from the date of
damage or destruction in the same proportion that the rentable area of the
portion of the Premises which is unusable by Tenant in the conduct of its
business bears to the total rentable area of the Premises. If such repairs
cannot, in Landlord's opinion, be made within said two hundred seventy (270) day
period, then Landlord may, at its option, exercisable by written notice given to
Tenant within thirty (30) days after the date of the damage or destruction,
elect to make the repairs within a reasonable time after the damage or
destruction, in which event this Lease shall remain in full force and effect but
the Rent shall be abated as provided in the preceding sentence; if Landlord does
not so elect to make the repairs, then either Landlord or Tenant shall have the
right, by written notice given to the other within sixty (60) days after the
date of the damage or destruction, to terminate this Lease as of the date of the
damage or destruction.
<PAGE>
11.03 Exceptions to Landlord's Obligations. Notwithstanding anything to the
contrary contained in this Article XI, Landlord shall have no obligation to
repair the Premises if either: (a) the Building in which the Premises are
located is so damaged as to require repairs to the Building exceeding twenty
percent (20%) of the full insurable value of the Building; or (b) Landlord
elects to demolish the Building in which the Premises are located; or (c) the
damage or destruction occurs less than two (2) years prior to the Termination
Date, exclusive of option periods; or (d) the damage or destruction is caused by
an uninsured event. Further, Tenant's Rent shall not be abated if either (i) the
damage or destruction is repaired within five (5) business days after Landlord
receives written notice from Tenant of the casualty, or (ii) Tenant, or any
officers, partners, employees, agents or invitees of Tenant, or any assignee or
subtenant of Tenant, is, in whole or in part, responsible for the damage or
destruction.
11.04 Waiver. The provisions contained in this Lease shall supersede any
contrary laws (whether statutory, common law or otherwise) now or hereafter in
effect relating to damage, destruction, self-help or termination, including
California Civil Code Sections 1932 and 1933.
ARTICLE XII - CONDEMNATION
12.01 Taking. If the entire Premises or so much of the Premises as to render the
balance unusable by Tenant shall be taken by condemnation, sale in lieu of
condemnation or in any other manner for any public or quasi-public purpose
(collectively "Condemnation"), and if Landlord, at its option, is unable or
unwilling to provide substitute premises containing at least as much rentable
area as described in Section 1.02 above, then this Lease shall terminate on the
date that title or possession to the Premises is taken by the condemning
authority, whichever is earlier.
12.02 Award. In the event of any Condemnation, the entire award for such taking
shall belong to Landlord. Tenant shall have no claim against Landlord or the
award for the value of any unexpired term of this Lease or otherwise. Tenant
shall be entitled to independently pursue a separate award in a separate
proceeding for Tenant's relocation costs directly associated with the taking,
provided such separate award does not diminish Landlord's award.
12.03 Temporary Taking. No temporary taking of the Premises shall terminate this
Lease or entitle Tenant to any abatement of the Rent payable to Landlord under
this Lease; provided, further, that any award for such temporary taking shall
belong to Tenant to the extent that the award applies to any time period during
the Lease Term and to Landlord to the extent that the award applies to any time
period outside the Lease Term.
ARTICLE XIII - RELOCATION
13.01 Relocation. Landlord shall have the right, at its option upon not less
than thirty (30) days prior written notice to Tenant, to relocate Tenant and to
substitute for the Premises described above other space in the Building
containing at least as much rentable area as the Premises described in Section
1.02 above. If Tenant is already in occupancy of the Premises, then Landlord
shall approve in advance the relocation expenses for purposes of reimbursement
for Tenant's reasonable moving and telephone relocation expenses and for
reasonable quantities of new stationery upon submission to Landlord of receipts
for such expenditures incurred by Tenant.
ARTICLE XIV - ASSIGNMENT AND SUBLETTING
14.01 Restriction. Without the prior written consent of Landlord, Tenant shall
not, either voluntarily or by operation of law, assign, encumber, or otherwise
transfer this Lease or any interest herein, or sublet the Premises or any part
thereof, or permit the Premises to be occupied by anyone other than Tenant or
Tenant's employees (any such assignment, encumbrance, subletting, occupation or
transfer is hereinafter referred to as a "Transfer"). For purposes of this
Lease, the term "Transfer" shall also include (a) if Tenant is a partnership,
the withdrawal or change, voluntary, involuntary or by operation of law, of a
majority of the partners, or a transfer of a majority of partnership interests,
within a twelve month period, or the dissolution of the partnership, (b) if
Tenant is a closely held corporation (i.e. whose stock is not publicly held and
not traded through an exchange or over the counter) or a limited liability
company, the dissolution, merger, consolidation, division, liquidation or other
reorganization of Tenant, or within a twelve month period: (i) the sale or other
transfer of more than an aggregate of 50% of the voting securities of Tenant
(other than to immediate family members by reason of gift or death) or (ii) the
sale, mortgage, hypothecation or pledge of more than an aggregate of 50% of
Tenant's net assets, and (c) any change by Tenant in the form of its legal
organization under applicable state law (such as, for example, a change from a
general partnership to a limited partnership or from a corporation to a limited
liability company). An assignment, subletting or other action in violation of
the foregoing shall be void and, at Landlord's option, shall constitute a
material breach of this Lease.
<PAGE>
Notwithstanding anything contained in this
Article XIV to the contrary, Tenant shall have the right to assign the Lease or
sublease the Premises, or any part thereof, to an "Affiliate" without the prior
written consent of Landlord, but upon at least twenty (20) days' prior written
notice to Landlord, provided that said Affiliate is not in default under any
other lease for space in a property that is managed by Landlord or its managing
agent. For purposes of this provision, the term "Affiliate" shall mean any
corporation or other entity controlling, controlled by, or under common control
with (directly or indirectly) Tenant, including, without limitation, any parent
corporation controlling Tenant or any subsidiary that Tenant controls. The term
"control," as used herein, shall mean the power to direct or cause the direction
of the management and policies of the controlled entity through the ownership of
more than fifty percent (50%) of the voting securities in such controlled
entity. Notwithstanding anything contained in this Article XIV to the contrary,
Tenant expressly covenants and agrees not to enter into any lease, sublease,
license, concession or other agreement for use, occupancy or utilization of the
Premises which provides for rental or other payment for such use, occupancy or
utilization based in whole or in part on the net income or profits derived by
any person from the property leased, used, occupied or utilized (other than an
amount based on a fixed percentage or percentages of receipts or sales), and
that any such purported lease, sublease, license, concession or other agreement
shall be absolutely void and ineffective as a conveyance of any right or
interest in the possession, use, occupancy or utilization of any part of the
Premises.
14.02 Notice to Landlord. If Tenant desires to assign this Lease or any interest
herein, or to sublet all or any part of the Premises, then at least thirty (30)
days but not more than one hundred eighty (180) days prior to the effective date
of the proposed assignment or subletting, Tenant shall submit to Landlord in
connection with Tenant's request for Landlord's consent:
(A) A statement containing (i) the name and address of the proposed assignee or
subtenant; (ii) such financial information with respect to the proposed assignee
or subtenant as Landlord shall reasonably require; (iii) the type of use
proposed for the Premises; and (iv) all of the principal terms of the proposed
assignment or subletting; and
(B) Four (4) originals of the assignment or sublease on a form approved by
Landlord and four (4) originals of the Landlord's Consent to Sublease or
Assignment and Assumption of Lease and Consent.
14.03 Landlord's Recapture Rights. At any time within twenty (20) business days
after Landlord's receipt of all (but not less than all) of the information and
documents described in Section 14.02 above, Landlord may, at its option by
written notice to Tenant, elect to: (a) sublease the Premises or the portion
thereof proposed to be sublet by Tenant upon the same terms as those offered to
the proposed subtenant; (b) take an assignment of the Lease upon the same terms
as those offered to the proposed assignee; or (c) terminate the Lease in its
entirety or as to the portion of the Premises proposed to be assigned or sublet,
with a proportionate adjustment in the Rent payable hereunder if the Lease is
terminated as to less than all of the Premises. If Landlord does not exercise
any of the options described in the preceding sentence, then, during the
above-described twenty (20) business day period, Landlord shall either consent
or deny its consent to the proposed assignment or subletting.
14.04 Landlord's Consent; Standards. Landlord's consent to a proposed assignment
or subletting shall not be unreasonably withheld; but, in addition to any other
grounds for denial, Landlord's consent shall be deemed reasonably withheld if,
in Landlord's good faith judgment: (i) the proposed assignee or subtenant does
not have the financial strength to perform its obligations under this Lease or
any proposed sublease; (ii) the business and operations of the proposed assignee
or subtenant are not of comparable quality to the business and operations being
conducted by other tenants in the Building; (iii) the proposed assignee or
subtenant intends to use any part of the Premises for a purpose not permitted
under this Lease; (iv) either the proposed assignee or subtenant, or any person
which directly or indirectly controls, is controlled by, or is under common
control with the proposed assignee or subtenant occupies space in the Building,
or is negotiating with Landlord to lease space in the Building; (v) the proposed
assignee or subtenant is disreputable; or (vi) the use of the Premises or the
Building by the proposed assignee or subtenant would, in Landlord's reasonable
judgment, impact the Building in a negative manner including but not limited to
significantly increasing the pedestrian traffic in and out of the Building or
requiring any alterations to the Building to comply with applicable laws; (vii)
the subject space is not regular in shape with appropriate means of ingress and
egress suitable for normal renting purposes; (viii) the transferee is a
government (or agency or instrumentality thereof) or (ix) Tenant has failed to
cure a default at the time Tenant requests consent tot the proposed Transfer.
<PAGE>
14.05 Additional Rent. If Landlord consents to any such assignment or
subletting, two-thirds (2/3) of the amount by which all sums or other economic
consideration received by Tenant in connection with such assignment or
subletting, whether denominated as rental or otherwise, exceeds, in the
aggregate, the total sum which Tenant is obligated to pay Landlord under this
Lease (prorated to reflect obligations allocable to less than all of the
Premises under a sublease) shall be paid to Landlord promptly after receipt as
additional Rent under the Lease without affecting or reducing any other
obligation of Tenant hereunder.
14.06 Landlord's Costs. If Tenant shall Transfer this Lease or all or any part
of the Premises or shall request the consent of Landlord to any Transfer, Tenant
shall pay to Landlord as additional rent Landlord's costs related thereto,
including Landlord's reasonable attorneys' fees and a minimum fee to Landlord of
Five Hundred Dollars ($500.00).
14.07 Continuing Liability of Tenant. Notwithstanding any Transfer, including an
assignment or sublease to an Affiliate, Tenant shall remain as fully and
primarily liable for the payment of Rent and for the performance of all other
obligations of Tenant contained in this Lease to the same extent as if the
Transfer had not occurred; provided, however, that any act or omission of any
transferee, other than Landlord, that violates the terms of this Lease shall be
deemed a violation of this Lease by Tenant.
14.08 Non-Waiver. The consent by Landlord to any Transfer shall not relieve
Tenant, or any person claiming through or by Tenant, of the obligation to obtain
the consent of Landlord, pursuant to this Article XIV, to any further Transfer.
In the event of an assignment or subletting, Landlord may collect rent from the
assignee or the subtenant without waiving any rights hereunder and collection of
the rent from a person other than Tenant shall not be deemed a waiver of any of
Landlord's rights under this Article XIV, an acceptance of assignee or subtenant
as Tenant, or a release of Tenant from the performance of Tenant's obligations
under this Lease. If Tenant shall default under this Lease and fail to cure
within the time permitted, Landlord is irrevocably authorized, as Tenant's agent
and attorney-in-fact, to direct any transferee to make all payments under or in
connection with the Transfer directly to Landlord (which Landlord shall apply
towards Tenant's obligations under this Lease) until such default is cured.
ARTICLE XV - DEFAULT AND REMEDIES
15.01 Events of Default By Tenant. The occurrence of any of the following shall
constitute a material default and breach of this Lease by Tenant:
(A) The failure by Tenant to pay Base Rent or make any other payment required to
be made by Tenant hereunder as and when due.
(B) The abandonment of the Premises by Tenant or the vacation of the Premises by
Tenant for fourteen (14) consecutive days (with or without the payment of Rent).
(C) The making by Tenant of any assignment of this Lease or any sublease of all
or part of the Premises, except as expressly permitted under Article XIV of this
Lease.
(D) The failure by Tenant to observe or perform any other provision of this
Lease to be observed or performed by Tenant, other than those described in
Sections 15.01(A), 15.01(B) or 15.01 (C) above, if such failure continues for
ten (10) days after written notice thereof by Landlord to Tenant; provided,
however, that if the nature of the default is such that it cannot be cured
within the ten (10) day period, no default shall exist if Tenant commences the
curing of the default within the ten (10) day period and thereafter diligently
prosecutes the same to completion. The ten (10) day notice described herein
shall be in lieu of, and not in addition to, any notice required under Section
1161 of the California Civil Code of Procedure or any other law now or hereafter
in effect requiring that notice of default be given prior to the commencement of
an unlawful detainer or other legal proceeding.
(E) The making by Tenant or its Guarantor of any general assignment for the
benefit of creditors, the filing by or against Tenant or its Guarantor of a
petition under any federal or state bankruptcy or insolvency laws (unless, in
the case of a petition filed against Tenant or its Guarantor the same is
dismissed within thirty (30) days after filing); the appointment of a trustee or
receiver to take possession of substantially all of Tenant's assets at the
Premises or Tenant's interest in this Lease or the Premises, when possession is
not restored to Tenant within thirty (30) days; or the attachment, execution or
other seizure of substantially all of Tenant's assets located at the Premises or
Tenant's interest in this Lease or the Premises, if such seizure is not
discharged within thirty (30) days.
(F) Any material misrepresentation herein, or material misrepresentation or
omission in any financial statements or other materials provided by Tenant or
any Guarantor in connection with negotiating or entering into this Lease or in
connection with any Transfer under Section 14.01.
15.02 Landlord's Right to Terminate Upon Tenant Default. In the event of any
default by Tenant as provided in Section 15.01 above, Landlord shall have the
right to terminate this Lease and recover possession of the Premises by giving
written notice to Tenant of Landlord's election to terminate this Lease, in
which event Landlord shall be entitled to receive from Tenant:
(A) The worth at the time of award of any unpaid Rent which had been earned at
the time of such termination; plus
(B) The worth at the time of award of the amount by which the unpaid Rent which
would have been earned after termination until the time of award exceeds the
amount of such rental loss Tenant proves could have been reasonably avoided;
plus
(C) The worth at the time of award of the amount by which the unpaid Rent for
the balance of the term after the time of award exceeds the amount of such
rental loss that Tenant proves could be reasonably avoided; plus
(D) Any other amount necessary to compensate Landlord for all the detriment
proximately caused by Tenant's failure to perform its obligations under this
Lease or which in the ordinary course of things would be likely to result
therefrom; and
(E) At Landlord's election, such other amounts in addition to or in lieu of the
foregoing as
may be permitted from time to time by applicable law.
<PAGE>
As used in subparagraphs (A) and (B) above, "worth at the time of award" shall
be computed by allowing interest on such amounts at the then highest lawful rate
of interest, but in no event to exceed one percent (1%) per annum plus the rate
established by the Federal Reserve Bank of San Francisco on advances made to
member banks under Sections of the Federal Reserve Act ("discount rate")
prevailing at the time of the award. As used in paragraph (C) above, "worth at
the time of award" shall be computed by discounting such amount by (i) the
discount rate of the Federal Reserve Bank of San Francisco prevailing at the
time of award plus (ii) one percent (1%).
15.03 Mitigation of Damages. If Landlord terminates this Lease or Tenant's right
to possession of the Premises, Landlord shall have no obligation to mitigate
Landlord's damages except to the extent required by applicable law. If Landlord
has not terminated this Lease or Tenant's right to possession of the Premises,
Landlord shall have no obligation to mitigate under any circumstances and may
permit the Premises to remain vacant or abandoned. If Landlord is required to
mitigate damages as provided herein: (i) Landlord shall be required only to use
reasonable efforts to mitigate, which shall not exceed such efforts as Landlord
generally uses to lease other space in the Building, (ii) Landlord will not be
deemed to have failed to mitigate if Landlord or its affiliates lease any other
portions of the Building or other projects owned by Landlord or its affiliates
in the same geographic area, before reletting all or any portion of the
Premises, and (iii) any failure to mitigate as described herein with respect to
any period of time shall only reduce the Rent and other amounts to which
Landlord is entitled hereunder by the reasonable rental value of the Premises
during such period. In recognition that the value of the Building depends on the
rental rates and terms of leases therein, Landlord's rejection of a prospective
replacement tenant based on an offer of rentals below Landlord's published rates
for new leases of comparable space at the Building at the time in question, or
at Landlord's option, below the rates provided in this Lease, or containing
terms less favorable than those contained herein, shall not give rise to a claim
by Tenant that Landlord failed to mitigate Landlord's damages.
15.04 Landlord's Right To Continue Lease Upon Tenant Default. In the event of a
default of this Lease and abandonment of the Premises by Tenant, if Landlord
does not elect to terminate this Lease as provided in Section 15.02 above,
Landlord may from time to time, without terminating this Lease, enforce all of
its rights and remedies under this Lease. Without limiting the foregoing,
Landlord has the remedy described in California Civil Code Section 1951.4
(Landlord may continue this Lease in effect after Tenant's default and
abandonment and recover Rent as it becomes due, if Tenant has the right to
Transfer, subject to reasonable limitations). In the event Landlord re-lets the
Premises, to the fullest extent permitted by law, the proceeds of any reletting
shall be applied first to pay to Landlord all costs and expenses of such
reletting (including without limitation, costs and expenses of retaking or
repossessing the Premises, removing persons and property therefrom, securing new
tenants, including expenses for redecoration, alterations and other costs in
connection with preparing the Premises for the new tenant, and if Landlord shall
maintain and operate the Premises, the costs thereof) and receivers' fees
incurred in connection with the appointment of and performance by a receiver to
protect the Premises and Landlord's interest under this Lease and any necessary
or reasonable alterations; second, to the payment of any indebtedness of Tenant
to Landlord other than Rent due and unpaid hereunder; third, to the payment of
Rent due and unpaid hereunder; and the residue, if any, shall be held by
Landlord and applied in payment of other or future obligations of Tenant to
Landlord as the same may become due and payable, and Tenant shall not be
entitled to receive any portion of such revenue.
15.05 Right of Landlord to Perform. All covenants and agreements to be performed
by Tenant under this Lease shall be performed by Tenant at Tenant's sole cost
and expense. If Tenant shall fail to pay any sum of money, other than Rent,
required to be paid by it hereunder or shall fail to perform any other act on
its part to be performed hereunder, Landlord may, but shall not be obligated to,
make any payment or perform any such other act on Tenant's part to be made or
performed, without waiving or releasing Tenant of its obligations under this
Lease. Any sums so paid by Landlord and all necessary incidental costs, together
with interest thereon at the lesser of the maximum rate permitted by law if any
or twelve percent (12%) per annum from the date of such payment, shall be
payable to Landlord as additional rent on demand and Landlord shall have the
same rights and remedies in the event of nonpayment as in the case of default by
Tenant in the payment of Rent.
15.06 Default Under Other Leases. If the term of any lease, other than this
Lease, heretofore or hereafter made by Tenant for any office space in the
Building shall be terminated or terminable after the making of this Lease
because of any default by Tenant under such other lease, such fact shall empower
Landlord, at Landlord's sole option, to terminate this Lease by notice to Tenant
or to exercise any of the rights or remedies set forth in Section 15.02.
<PAGE>
15.07 Non-Waiver. Nothing in this Article shall be deemed to affect Landlord's
rights to indemnification for liability or liabilities arising prior to
termination of this Lease or Tenant's right to possession of the Premises for
personal injury or property damages under the indemnification clause or clauses
contained in this Lease. No acceptance by Landlord of a lesser sum than the Rent
then due shall be deemed to be other than on account of the earliest installment
of such rent due, nor shall any endorsement or statement on any check or any
letter accompanying any check or payment as rent be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or pursue any other
remedy in the Lease provided. The delivery of keys to any employee of Landlord
or to Landlord's agent or any employee thereof shall not operate as a
termination of this Lease or a surrender of the Premises.
15.08 Cumulative Remedies. The specific remedies to which Landlord may resort
under the terms of the Lease are cumulative and are not intended to be exclusive
of any other remedies or means of redress to which it may be lawfully entitled
in case of any breach or threatened breach by Tenant of any provisions of the
Lease. In addition to the other remedies provided in the Lease, Landlord shall
be entitled to a restraint by injunction of the violation or attempted or
threatened violation of any of the covenants, conditions or provisions of the
Lease or to a decree compelling specific performance of any such covenants,
conditions or provisions.
15.09 Default by Landlord. Landlord's failure to perform or observe any of its
obligations under this Lease shall constitute a default by Landlord under this
Lease only if such failure shall continue for a period of thirty (30) days (or
the additional time, if any, that is reasonably necessary to promptly and
diligently cure the failure) after Landlord receives written notice from Tenant
specifying the default. The notice shall give in reasonable detail the nature
and extent of the failure and shall identify the Lease provision(s) containing
the obligation(s). If Landlord shall default in the performance of any of its
obligations under this Lease (after notice and opportunity to cure as provided
herein), Tenant may pursue any remedies available to it under the law and this
Lease, except that, in no event, shall Landlord be liable for punitive damages,
lost profits, business interruption, speculative, consequential or other such
damages. In recognition that Landlord must receive timely payments of Rent and
operate the Building, Tenant shall have no right of self-help to perform repairs
or any other obligation of Landlord, and shall have no right to withhold,
set-off, or abate Rent.
ARTICLE XVI - ATTORNEYS' FEES: COSTS OF SUIT
16.01 Attorneys Fees. If either Landlord or Tenant shall commence any action or
other proceeding against the other arising out of, or relating to, this Lease or
the Premises, the prevailing party shall be entitled to recover from the losing
party, in addition to any other relief, its actual attorneys' fees irrespective
of whether or not the action or other proceeding is prosecuted to judgment and
irrespective of any court schedule of reasonable attorneys' fees. In addition,
Tenant shall reimburse Landlord, upon demand, for all reasonable attorneys' fees
incurred in collecting Rent, resolving any actual default by Tenant, securing
indemnification as provided in Article X and paragraphs, 16.02, 23.01 and 25.01
herein or otherwise seeking enforcement against Tenant, its sublessees and
assigns, of Tenant's obligations under this Lease.
16.02 Indemnification. Should Landlord be made a party to any litigation
instituted by Tenant against a party other than Landlord, or by a third party
against Tenant, Tenant shall indemnify, hold harmless and defend Landlord from
any and all loss, cost, liability, damage or expense incurred by Landlord,
including attorneys' fees, in connection with the litigation.
ARTICLE XVII - SUBORDINATION AND ATTORNMENT
17.01 Subordination. This Lease, and the rights of Tenant hereunder, are and
shall be subject and subordinate to the interest of (i) all present and future
ground leases and master leases of all or any part of the Building; (ii) present
and future mortgages and deeds of trust encumbering all or any part of the
Building; (iii) all past and future advances made under any such mortgages or
deeds of trust; and (iv) all renewals, modifications, replacements and
extensions of any such ground leases, master leases, mortgages and deeds of
trust; provided, however, that any lessor under any such ground lease or master
lease or any mortgagee or beneficiary under any such mortgage or deed of trust
(any such lessor, mortgagee or beneficiary is hereinafter referred to as a
"Mortgagee") shall have the right to elect, by written notice given to Tenant,
to have this Lease made superior in whole or in part to any such ground lease,
master lease, mortgage or deed of trust (or subject and subordinate to such
ground lease, master lease, mortgage or deed of trust but superior to any junior
mortgage or junior deed of trust). Upon demand, Tenant shall execute,
acknowledge and deliver any instruments reasonably requested by Landlord or any
such Mortgagee to effect the purposes of this Section 17.01.
<PAGE>
Such instruments may contain, among other things, provisions to the effect that
such Mortgagee (hereafter, for the purposes of this Section 17.01, a "Successor
Landlord") shall (i) not be liable for any act or omission of Landlord or its
predecessors, if any, prior to the date of such Successor Landlord's succession
to Landlord's interest under this Lease; (ii) not be subject to any offsets or
defenses which Tenant might have been able to assert against Landlord or its
predecessors, if any, prior to the date of such Successor Landlord's succession
to Landlord's interest under this Lease; (iii) not be liable for the return of
any security deposit under the Lease unless the same shall have actually been
deposited with such Successor Landlord; (iv) be entitled to receive notice of
any Landlord default under this Lease plus a reasonable opportunity to cure such
default prior to Tenant having any right or ability to terminate this Lease as a
result of such Landlord default; (v) not be bound by any rent or additional rent
which Tenant might have paid for more than the current month to Landlord; (vi)
not be bound by any amendment or modification of the Lease or any cancellation
or surrender of the same made without Successor Landlord's prior written
consent; (vii) not be bound by any obligation to make any payment to Tenant
which was required to be made prior to the time such Successor Landlord
succeeded to Landlord's interest and (viii) not be bound by any obligation under
the Lease to perform any work or to make any improvements to the demised
Premises. Any obligations of any Successor Landlord under its respective lease
shall be non-recourse as to any assets of such Successor Landlord other than its
interest in the Premises and improvements.
17.02 Attornment. If the interests of Landlord under the Lease shall be
transferred to any superior Mortgagee or other purchaser or person taking title
to the Building by reason of the termination of any superior lease or the
foreclosure of any superior mortgage or deed of trust, Tenant shall be bound to
such Successor Landlord under all of the terms, covenants and conditions of the
Lease for the balance of the term thereof remaining and any extensions or
renewals thereof which may be effected in accordance with any option therefor in
the Lease, with the same force and effect as if Successor Landlord were the
landlord under the Lease, and Tenant shall attorn to and recognize as Tenant's
landlord under this Lease such Successor Landlord, as its landlord, said
attornment to be effective and self-operative without the execution of any
further instruments upon Successor Landlord's succeeding to the interest of
Landlord under the Lease. Tenant shall, upon demand, execute any documents
reasonably requested by any such person to evidence the attornment described in
this Section 17.02. Concurrently, upon written request from Tenant, and provided
Tenant is not in default under this Lease, Landlord agrees to use diligent,
commercially reasonable efforts to obtain a Non-Disturbance Agreement from the
Successor Landlord. Such Non-Disturbance Agreement may be embodied in the
Mortgagee's customary form of Subordination and Non-Disturbance Agreement. If,
after exerting diligent, commercially reasonable efforts, Landlord is unable to
obtain a Non-Disturbance Agreement from any such Mortgagee, Landlord shall have
no further obligation to Tenant with respect thereto.
17.03 Mortgagee Protection. Tenant agrees to give any Mortgagee, by registered
or certified mail, a copy of any notice of default served upon Landlord by
Tenant, provided that prior to such notice Tenant has been notified in writing
(by way of service on Tenant of a copy of Assignment of Rents and Leases, or
otherwise) of the address of such Mortgagee (hereafter the "Notified Party").
Tenant further agrees that if Landlord shall have failed to cure such default
within twenty (20) days after such notice to Landlord (or if such default cannot
be cured or corrected within that time, then such additional time as may be
necessary if Landlord has commenced within such twenty (20) days and is
diligently pursuing the remedies or steps necessary to cure or correct such
default), then the Notified Party shall have an additional thirty (30) days
within which to cure or correct such default (or if such default cannot be cured
or corrected within that time, then such additional time as may be necessary if
the Notified Party has commenced within such thirty (30) days and is diligently
pursuing the remedies or steps necessary to cure or correct such default). Until
the time allowed, as aforesaid, for the Notified Party to cure such default has
expired without cure, Tenant shall have no right to, and shall not, terminate
this Lease on account of Landlord's default.
ARTICLE XVIII - QUIET ENJOYMENT
18.01 Provided that Tenant performs all of its obligations hereunder, Tenant
shall have and peaceably enjoy the Premises during the Lease Term free of claims
by or through Landlord, subject to all of the terms and conditions contained in
this Lease.
ARTICLE XIX - RULES AND REGULATIONS
19.01 The Rules and Regulations attached hereto as Exhibit C are hereby
incorporated by reference herein and made a part hereof. Tenant shall abide by,
and faithfully observe and comply with the Rules and Regulations and any
reasonable and non-discriminatory amendments, modifications and/or additions
thereto as may hereafter be adopted and published by written notice to tenants
by Landlord for the safety, care, security, good order and/or cleanliness of the
Premises and/or the Building. Landlord shall not be liable to Tenant for any
violation of such rules and regulations by any other tenant or occupant of the
Building.
<PAGE>
ARTICLE XX - ESTOPPEL CERTIFICATES
20.01 Tenant agrees at any time and from time to time upon not less than ten
(10) days' prior written notice from Landlord to execute, acknowledge and
deliver to Landlord a statement in writing addressed and certifying to Landlord,
to any current or prospective Mortgagee or any assignee thereof, to any
prospective purchaser of the land, improvements or both comprising the Building,
and to any other party designated by Landlord, that this Lease is unmodified and
in full force and effect (of if there have been modifications, that the same is
in full force and effect as modified and stating the modifications); that Tenant
has accepted possession of the Premises, which are acceptable in all respects,
and that any improvements required by the terms of this Lease to be made by
Landlord have been completed to the satisfaction of Tenant; that Tenant is in
full occupancy of the Premises; that no rent has been paid more than thirty (30)
days in advance; that the first month's Base Rent has been paid; that Tenant is
entitled to no free rent or other concessions except as stated in this Lease;
that Tenant has not been notified of any previous assignment of Landlord's or
any predecessor landlord's interest under this Lease; the dates to which Base
Rent, additional rental and other charges have been paid; that Tenant, as of the
date of such certificate, has no charge, lien or claim of setoff under this
Lease or otherwise against Base Rent, additional rental or other charges due or
to become due under this Lease; that Landlord is not in default in performance
of any covenant, agreement or condition contained in this Lease; or any other
matter relating to this Lease or the Premises or, if so, specifying each such
default. If there is a Guaranty under this Lease, said Guarantor shall confirm
the validity of the Guaranty by joining in the execution of the Estoppel
Certificate or other documents so requested by Landlord or Mortgagee. In
addition, in the event that such certificate is being given to any Mortgagee,
such statement may contain any other provisions customarily required by such
Mortgagee including, without limitation, an agreement on the part of Tenant to
furnish to such Mortgagee, written notice of any Landlord default and a
reasonable opportunity for such Mortgagee to cure such default prior to Tenant
being able to terminate this Lease. Any such statement delivered pursuant to
this Section may be relied upon by Landlord or any Mortgagee, or prospective
purchaser to whom it is addressed and such statement, if required by its
addressee, may so specifically state. If Tenant does not execute, acknowledge
and deliver to Landlord the statement as and when required herein, Landlord is
hereby granted an irrevocable power-of-attorney, coupled with an interest, to
execute such statement on Tenant's behalf, which statement shall be binding on
Tenant to the same extent as if executed by Tenant.
ARTICLE XXI - ENTRY BY LANDLORD
21.01 Landlord may enter the Premises at all reasonable times to: inspect the
same; exhibit the same to prospective purchasers, Mortgagees or tenants;
determine whether Tenant is complying with all of its obligations under this
Lease; supply janitorial and other services to be provided by Landlord to Tenant
under this Lease; post notices of non-responsibility; and make repairs or
improvements in or to the Building or the Premises; provided, however, that all
such work shall be done as promptly as reasonably possible and so as to cause as
little interference to Tenant as reasonably possible. Tenant hereby waives any
claim for damages for any injury or inconvenience to, or interference with,
Tenant's business, any loss of occupancy or quiet enjoyment of the Premises or
any other loss occasioned by such entry. Landlord shall at all times have and
retain a key with which to unlock all of the doors in, on or about the Premises
(excluding Tenant's vaults, safes and similar areas designated by Tenant in
writing in advance), and Landlord shall have the right to use any and all means
by which Landlord may deem proper to open such doors to obtain entry to the
Premises, and any entry to the Premises obtained by Landlord by any such means,
or otherwise, shall not under any circumstances be deemed or construed to be a
forcible or unlawful entry into or a detainer of the Premises or an eviction,
actual or constructive, of Tenant from any part of the Premises. Such entry by
Landlord shall not act as a termination of Tenant's duties under this Lease. If
Landlord shall be required to obtain entry by means other than a key provided by
Tenant, the cost of such entry shall by payable by Tenant to Landlord as
additional rent.
<PAGE>
ARTICLE XXII
LANDLORD'S LEASE UNDERTAKINGS-EXCULPATION FROM PERSONAL LIABILITY;
TRANSFER OF LANDLORD'S INTEREST
22.01 Landlord's Lease Undertakings. Notwithstanding anything to the contrary
contained in this Lease or in any exhibits, Riders or addenda hereto attached
(collectively the "Lease Documents"), it is expressly understood and agreed by
and between the parties hereto that: (a) the recourse of Tenant or its
successors or assigns against Landlord with respect to the alleged breach by or
on the part of Landlord of any representation, warranty, covenant, undertaking
or agreement contained in any of the Lease Documents or otherwise arising out of
Tenant's use of the Premises or the Building (collectively, "Landlord's Lease
Undertakings") shall extend only to Landlord's interest in the real estate of
which the Premises demised under the Lease Documents are a part ("Landlord's
Real Estate") and not to any other assets of Landlord or its officers, directors
or shareholders; and (b) except to the extent of Landlord's interest in
Landlord's Real Estate, no personal liability or personal responsibility of any
sort with respect to any of Landlord's Lease Undertakings or any alleged breach
thereof is assumed by, or shall at any time be asserted or enforceable against,
Landlord, ________________________, or against any of their respective
directors, officers, employees, agents, constituent partners, beneficiaries,
trustees or representatives.
22.02 Transfer of Landlord's Interest. In the event of any transfer of
Landlord's interest in the Building, Landlord shall be automatically freed and
relieved from all applicable liability with respect to performance of any
covenant or obligation on the part of Landlord, provided any deposits or advance
rents held by Landlord are turned over to the grantee and said grantee expressly
assumes, subject to the limitations of this Section 22, all the terms, covenants
and conditions of this Lease to be performed on the part of Landlord, it being
intended hereby that the covenants and obligations contained in this Lease on
the part of Landlord shall, subject to all the provisions of this Section 22, be
binding on Landlord, its successors and assigns, only during their respective
periods of ownership.
ARTICLE XXIII - HOLDOVER TENANCY
23.01 If Tenant holds possession of the Premises after the expiration or
termination of the Lease Term, by lapse of time or otherwise, Tenant shall
become a tenant at sufferance upon all of the terms contained herein, except as
to Lease Term and Rent. During such holdover period, Tenant shall pay to
Landlord a monthly rental equivalent to two hundred percent (200%) of the Rent
Payable by Tenant to Landlord with respect to the last month of the Lease Term.
The monthly rent payable for such holdover period shall in no event be construed
as a penalty or as liquidated damages for such retention of possession. Without
limiting the foregoing, Tenant hereby agrees to indemnify, defend and hold
harmless Landlord, its beneficiary, and their respective agents, contractors and
employees, from and against any and all claims, liabilities, actions, losses,
damages (including without limitation, direct, indirect, incidental and
consequential) and expenses (including, without limitation, court costs and
reasonable attorneys' fees) asserted against or sustained by any such party and
arising from or by reason of such retention of possession, which obligations
shall survive the expiration or termination of the Lease Term.
ARTICLE XXIV - NOTICES
24.01 All notices which Landlord or Tenant may be required, or may desire, to
serve on the other may be served, as an alternative to personal service, by
mailing the same by registered or certified mail, postage prepaid, addressed to
Landlord at the address for Landlord set forth in Section 1.12 above and to
Tenant at the address for Tenant set forth in Section 1.13 above, or, from and
after the Commencement Date, to Tenant at the Premises whether or not Tenant has
departed from, abandoned or vacated the Premises, or addressed to such other
address or addresses as either Landlord or Tenant may from time to time
designate to the other in writing. Any notice shall be deemed to have been
served at the time the same was posted.
ARTICLE XXV - BROKERS
25.01 The parties recognize as the broker(s) who procured this Lease the firm(s)
specified in Section 1.14 and agree that Landlord shall be solely responsible
for the payment of any brokerage commissions to said broker(s), and that Tenant
shall have no responsibility therefor unless written provision to the contrary
has been made a part of this Lease. If Tenant has dealt with any other person or
real estate broker in respect to leasing, subleasing or renting space in the
Building, Tenant shall be solely responsible for the payment of any fee due said
person or firm and Tenant shall protect, indemnify, hold harmless and defend
Landlord from any liability in respect thereto.
<PAGE>
ARTICLE XXVI - ELECTRONIC SERVICES
26.01 Tenant's Lines. Tenant may, in a manner consistent with the provisions and
requirements of this Lease, install, maintain, replace, remove or use any
communications or computer or other electronic service wires, cables and related
devices (collectively the "Lines") at the Building in or serving the Premises,
provided: (a) Tenant shall obtain Landlord's prior written consent, which
consent may be conditioned as required by Landlord, (b) if Tenant at any time
uses any equipment that may create an electromagnetic field exceeding the normal
insulation ratings of ordinary twisted pair riser cable or cause radiation
higher than normal background radiation, the Lines therefor (including riser
cables) shall be appropriately insulated to prevent such excessive
electromagnetic fields or radiation, and (c) Tenant shall pay all costs in
connection therewith. Landlord reserves the right to require that Tenant remove
any Lines which are installed in violation of these provisions. Tenant shall
not, without the prior written consent of Landlord in each instance, grant to
any third party a security interest or lien in or on the Lines, and any such
security interest or lien granted without Landlord's written consent shall be
null and void.
26.02 Definition of Electronic Services. As used herein "Electronic Services
Provider" means a business which provides telephone, telegraph, telex, video,
other telecommunications or other services which permit Tenant to receive or
transmit information by the use of electronics and which require the use of
wires, cables, antennas or similar devices in or on the Building. The services
of Electronic Services Providers are sometimes referred to herein as "Electronic
Services."
26.03 No Right to Specific Services. Landlord shall have no obligation (i) to
install any Electronic Services equipment or facilities, (ii) to make available
to Tenant the services of any particular Electronic Services Provider, (iii) to
allow any particular Electronic Services Provider access to the Building, (iv)
to continue to grant access to an Electronic Services Provider once such
provider has been given access to the Building. Landlord may (but shall not have
the obligation to): (x) install new Lines at the property, (y) create additional
space for Lines at the property, and (z) adopt reasonable and uniform rules and
regulations with respect to Lines.
26.04 Limitation of Landlord's Responsibility. Tenant acknowledges and agrees
that all Electronic Services desired by Tenant shall be ordered and utilized at
the sole expense of Tenant. Unless Landlord otherwise requests or consents in
writing, all of Tenant's Electronic Services equipment shall be and remain
solely in the Tenant's premises and the telephone closet(s) on the floor(s) on
which the Tenant's premises is located, in accordance with rules and regulations
adopted by Landlord from time to time. Unless otherwise specifically agreed to
in writing, Landlord shall have no responsibility for the maintenance of
Tenant's Electronic Services equipment, including Lines; nor for any Lines or
other infrastructure to which Tenant's Electronic Services equipment may be
connected. Tenant agrees that, to the extent any Electronic Services are
interrupted, curtailed or discontinued, Landlord shall have no obligation or
liability with respect thereto and it shall be the sole obligation of Tenant at
its own expense to obtain substitute service. Except to the extent arising from
the intentional or grossly negligent acts of Landlord or Landlord's agents or
employees, Landlord shall have no liability for damages arising from, and
Landlord does not warrant that Tenant's use of any Lines will be free from the
following (collectively called "Line Problems"): (x) any eavesdropping or
wire-tapping by unauthorized parties, (y) any failure of any Lines to satisfy
Tenant's requirements, or (z) any shortages, failures, variations,
interruptions, disconnection's, loss or damage caused by the installation,
maintenance, replacement, use or removal of Lines by or for other tenants or
occupants at the property. Under no circumstances shall any Line Problems be
deemed an actual or constructive eviction of Tenant, render Landlord liable to
Tenant for abatement of Rent, or relieve Tenant from performance of Tenant's
obligations under this Lease. Landlord in no event shall be liable for damages
by reason of loss of profits, business interruption or other consequential
damage arising from any Line Problems.
26.05 Necessary Service Interruptions. Landlord shall have the right, upon
reasonable prior notice to Tenant, to interrupt or turn off Electronic Services
facilities in the event of emergency or as necessary in connection with
maintenance, repairs or construction at the Building or installation of
Electronic Services equipment for other Tenants of the Building or on account of
violation by the Electronic Services Provider or owner of the Electronic
Services equipment of any obligation to Landlord or in the event that Tenant's
use of the Electronic Services infrastructure of the Building materially
interferes with the Electronic Services of other tenants of the Building.
<PAGE>
26.06 Removal of Equipment, Wiring and Other Facilities. Any and all Electronic
Services equipment installed in the Tenant's Premises or elsewhere in the
Building by or on behalf of Tenant, including Lines, or other facilities for
Electronic Services reception or transmittal, shall be removed prior to the
expiration or earlier termination of the Lease term, by Tenant at its sole cost
or, at Landlord's election, by Landlord at Tenant's sole cost, with the cost
thereof to be paid as additional rent. Landlord shall have the right, however,
upon written notice to Tenant given no later than thirty (30) days prior to the
expiration or earlier termination of the Lease term (except that the notice
period shall extend to thirty (30) days beyond the date of termination of the
Lease if it is terminated by either party due to a default by the other), to
require Tenant to abandon and leave in place, without additional payment to
Tenant or credit against rent, any and all Electronic Services Lines and related
infrastructure, or selected components thereof, whether located in the Tenant's
premises or elsewhere in the Building.
26.07 New Provider Installations. In the event that Tenant wishes at any time to
utilize the services of an Electronic Services Provider whose equipment is not
then servicing the Building, no such Electronic Services Provider shall be
permitted to install its Lines or other equipment within the Building without
first securing the prior written approval of the Landlord. Landlord's approval
shall not be deemed any kind of warranty or representation by Landlord,
including, without limitation, any warranty or representation as to the
suitability, competence, or financial strength of the Electronic Services
Provider. Without limitation of the foregoing standard, unless all of the
following conditions are satisfied to Landlord's satisfaction, it shall be
reasonable for Landlord to refuse to give its approval: (i) Landlord shall incur
no current expense or risk or future expense whatsoever with respect to any
aspect of the Electronic Services Provider's provision of its Electronic
Services, including without limitation, the costs of installation, materials and
services; (ii) prior to commencement of any work in or about the Building by the
Electronic Services Provider, the Electronic Services Provider shall supply
Landlord with such written indemnities, insurance, financial statements, and
such other items as Landlord reasonably determines to be necessary to protect
its financial interests and the interests of the Building relating to the
proposed activities of the Electronic Services Provider; (iii) the Electronic
Services Provider agrees to abide by such rules and regulations, Building and
other codes, job site rules and such other requirements as are reasonably
determined by Landlord to be necessary to protect the interests of the Building,
the Tenants in the Building and Landlord, in the same or similar manner as
Landlord has the right to protect itself and the Building with respect to
proposed alterations as described in Article IX of this Lease; (iv) Landlord
reasonably determines that, considering other potential uses for space in the
Building, there is sufficient space in the Building for the placement of all of
the provider's equipment, conduit, Lines and other materials; (v) the Electronic
Services Provider agrees to abide by Landlord's requirements, if any, that
provider use existing Building conduits and pipes or use Building contractors
(or other contractors approved by Landlord); (vi) Landlord receives from the
Electronic Services Provider such compensation as is reasonably determined by
Landlord to compensate it for space used in the Building for the storage and
maintenance of the Electronic Services Provider's equipment, for the fair market
value of a Electronic Services Provider's access to the Building, for the use of
common or core space within the Building and the costs which may reasonably be
expected to be incurred by Landlord; (vii) the provider agrees to deliver to
Landlord detailed "as built" plans immediately after the installation of the
provider's equipment is complete; and (viii) all of the foregoing matters are
documented in a written license agreement between Landlord and the provider, the
form and content of which is reasonably satisfactory to Landlord."
26.08 Limit of Default or Breach. Notwithstanding any provision of the
proceeding paragraphs to the contrary, the refusal of Landlord to grant its
approval to any prospective Electronic Services Provider shall not be deemed a
default or breach by Landlord of its obligation under this Lease unless and
until Landlord is adjudicated to have acted recklessly or maliciously with
respect to Tenant's request for approval, and in that event, Tenant shall still
have no right to terminate the Lease or claim an entitlement to rent abatement,
but may as Tenant's sole and exclusive recourse seek a judicial order of
specific performance compelling Landlord to grant its approval as to the
prospective provider in question. The provisions of this paragraph may be
enforced solely by Tenant and Landlord, are not for the benefit of any other
party, and specifically but without limitation, no telephone or other Electronic
Services Provider shall be deemed a third party beneficiary of this Lease.
26.09 Installation and Use of Wireless Technologies. Tenant shall not utilize
any wireless Electronic Services equipment (other than usual and customary
cellular telephones), including antennae and satellite receiver dishes, within
the Tenant's premises, within the Building or attached to the outside walls or
roof of the Building, without Landlord's prior written consent. Such consent may
be conditioned in such a manner so as to protect Landlord's financial interests
and the interests of the Building, and the other tenants therein, in a manner
similar to the arrangements described in the immediately preceding paragraphs.
<PAGE>
26.10 Limitation of Liability For Equipment Interference. In the event that
Electronic Services equipment, Lines and facilities or satellite and antennae
equipment of any type installed by or at the request of Tenant within the
Tenant's premises, on the roof, or elsewhere within or on the Building causes
interference to equipment used by another party, Tenant shall cease using such
equipment, Lines and facilities or satellite and antennae equipment until the
source of the interference is identified and eliminated and Tenant shall assume
all liability related to such interference. Tenant shall cooperate with Landlord
and other parties, to eliminate such interference promptly. In the event that
Tenant is unable to do so, Tenant will substitute alternative equipment which
remedies the situation. If such interference persists, Tenant shall, at
Landlord's sole discretion, remove such equipment.
ARTICLE XXVII - PARKING
27.01 During the term of this Lease, Tenant shall be entitled to rent the number
of Tenant's Parking Stalls, if any, described in Section 1.16 of this Lease in
the parking facilities located within the Building; provided, however, that if
Tenant does not rent all of the Tenant's Parking Stalls allocated to Tenant
pursuant to Section 1.16, any change in the number of parking stalls actually
rented by Tenant shall require not less than thirty (30) days prior written
notice to Landlord. Such parking shall be on a non-assigned basis, and shall be
at such rates and upon such other terms and conditions as are published or
posted from time to time by Landlord (or, at Landlord's option, the operator or
lessee of the parking facilities). Tenant's visitors shall have the right to use
the parking facilities, subject to availability and to the rates, rules and
regulations governing visitor parking from time to time adopted by Landlord (or,
at Landlord's option, the operator or master lessee of the parking facilities).
ARTICLE XXVIII - MISCELLANEOUS
28.01 Entire Agreement. This Lease contains all of the agreements and
understandings relating to the leasing of the Premises and the obligations of
Landlord and Tenant in connection with such leasing. Landlord has not made, and
Tenant is not relying upon, any warranties, or representations, promises or
statements made by Landlord or any agent of Landlord, except as expressly set
forth herein. This Lease supersedes any and all prior agreements and
understandings between Landlord and Tenant and alone expresses the agreement of
the parties.
28.02 Amendments. This Lease shall not be amended, changed or modified in any
way unless in writing executed by Landlord and Tenant. Landlord shall not have
waived or released any of its rights hereunder unless in writing and executed by
Landlord.
28.03 Successors. Except as expressly provided herein, this Lease and the
obligations of Landlord and Tenant contained herein shall bind and benefit the
successors and assigns of the parties hereto.
28.04 Force Majeure. Landlord shall incur no liability to Tenant with respect
to, and shall not be responsible for any failure to perform, any of Landlord's
obligations hereunder if such failure is caused by any reason beyond the control
of Landlord including, but not limited to, strike, labor trouble, governmental
rule, regulations, ordinance, statute or interpretation, or by fire, earthquake,
civil commotion, or failure or disruption of utility services. The amount of
time for Landlord to perform any of Landlord's obligations shall be extended by
the amount of time Landlord is delayed in performing such obligation by reason
of any force majeure occurrence whether similar to or different from the
foregoing types of occurrences.
28.05 Survival of Obligations. Any obligations of Tenant accruing prior to the
expiration of the Lease shall survive the expiration or earlier termination of
the Lease, and Tenant shall promptly perform all such obligations whether or not
this Lease has expired or been terminated.
28.06 Light and Air. No diminution or shutting off of any light, air or view by
any structure now or hereafter erected shall in any manner affect this Lease or
the obligations of Tenant hereunder, or increase any of the obligations of
Landlord hereunder.
28.07 Governing Law. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
28.08 Severability. In the event any provision of this Lease is found to be
unenforceable, the remainder of this Lease shall not be affected, and any
provision found to be invalid shall be enforceable to the extent permitted by
law. The parties agree that in the event two different interpretations may be
given to any provision hereunder, one of which will render the provision
unenforceable, and one of which will render the provision enforceable, the
interpretation rendering the provision enforceable shall be adopted.
<PAGE>
28.09 Captions. All captions, headings, titles, numerical references and
computer highlighting are for convenience only and shall have no effect on the
interpretation of this Lease.
28.10 Interpretation. Tenant acknowledges that it has read and reviewed this
Lease and that it has had the opportunity to confer with counsel in the
negotiation of this Lease. Accordingly, this Lease shall be construed neither
for nor against Landlord or Tenant, but shall be given a fair and reasonable
interpretation in accordance with the meaning of its terms and the intent of the
parties.
28.11 Independent Covenants. Each covenant, agreement, obligation or other
provision of this Lease to be performed by Tenant are separate and independent
covenants of Tenant, and not dependent on any other provision of the Lease.
28.12 Number and Gender. All terms and words used in this Lease, regardless of
the number or gender in which they are used, shall be deemed to include the
appropriate number and gender, as the context may require.
28.13 Time is of the Essence. Time is of the essence of this Lease and the
performance of all obligations hereunder.
28.14 Joint and Several Liability. If Tenant comprises more than one person or
entity, or if this Lease is guaranteed by any party, all such persons shall be
jointly and severally liable for payment of rents and the performance of
Tenant's obligations hereunder. If Tenant comprises more than one person or
entity and fewer than all of the persons or entities comprising Tenant abandon
the Premises, Landlord, at its sole option, may treat the abandonment by such
person or entities as an event of default and exercise with respect to such
persons the rights and remedies provided in Article XV without affecting the
right or obligations of the persons or entities comprising Tenant which have not
abandoned the property.
28.15 Exhibits. Exhibits A (Outline of Premises), B (Work Letter Agreement), C
(Rules and Regulations), D (Guaranty) and E (Suite Acceptance Letter) are
incorporated into this Lease by reference and made a part hereof.
28.16 Offer to Lease. The submission of this Lease to Tenant or its broker or
other agent, does not constitute an offer to Tenant to lease the Premises. This
Lease shall have no force and effect until (a) it is executed and delivered by
Tenant to Landlord and (b) it is fully reviewed and executed by Landlord;
provided, however, that, upon execution of this Lease by Tenant and delivery to
Landlord, such execution and delivery by Tenant, shall, in consideration of the
time and expense incurred by Landlord in reviewing the Lease and Tenant's
credit, constitute an offer by Tenant to lease the Premises upon the terms and
conditions set forth herein (which offer to Lease shall be irrevocable for
twenty (20) business days following the date of delivery).
28.17 No Counterclaim; Choice of Laws. It is mutually agreed that in the event
Landlord commences any summary proceeding for non-payment of Rent, Tenant will
not interpose any counterclaim of whatever nature or description in any such
proceeding. In addition, Tenant hereby submits to local jurisdiction in the
State of California and agrees that any action by Tenant against Landlord shall
be instituted in the State of California and that Landlord shall have personal
jurisdiction over Tenant for any action brought by Landlord against Tenant in
the State of California.
28.18 Electrical Service to the Premises. Anything set forth in Section 7.01 or
elsewhere in this Lease to the contrary notwithstanding, electricity to the
Premises shall not be furnished by Landlord, but shall be furnished by the
approved electric utility company serving the Building. Landlord shall permit
Tenant to receive such service directly from such utility company at Tenant's
cost (except as otherwise provided herein) and shall permit Landlord's wire and
conduits, to the extent available, suitable and safely capable, to be used for
such purposes.
28.19 Rights Reserved by Landlord. Landlord reserves the following rights
exercisable without notice (except as otherwise expressly provided to the
contrary in this Lease) and without being deemed an eviction or disturbance of
Tenant's use or possession of the Premises or giving rise to any claim for
set-off or abatement of Rent: (i ) to change the name or street address of the
Building; (ii) to install, affix and maintain all signs on the exterior and/or
interior of the Building; (iii) to designate and/or approve prior to
installation, all types of signs, window shades, blinds, drapes, awnings or
other similar items, and all internal lighting that may be visible from the
exterior of the Premises and, notwithstanding the provisions of Article IX, the
design, arrangement, style, color and general appearance of the portion of the
Premises visible from the exterior, and contents thereof, including, without
limitation, furniture, fixtures, signs, art work, wall coverings, carpet and
decorations, and all changes, additions and removals thereto, shall, at all
times have the appearance of premises having the same type of exposure and used
for substantially the same purposes that are generally prevailing in comparable
office buildings in the area.
<PAGE>
Any violation of this provision shall be deemed a material breach of this Lease;
(iv) to change the arrangement of entrances, doors, corridors, elevators and/or
stairs in the Building, provided no such change shall materially adversely
affect access to the Premises; (v) to grant any party the exclusive right to
conduct any business or render any service in the Building, provided such
exclusive right shall not operate to prohibit Tenant from using the Premises for
the purposes permitted under this Lease; (vi) to prohibit the placement of
vending or dispensing machines of any kind in or about the Premises other than
for use by Tenant's employees; (vii) to prohibit the placement of video or other
electronic games in the Premises; (viii) to have access for Landlord and other
tenants of the Building to any mail chutes and boxes located in or on the
Premises according to the rules of the United States Post Office and to
discontinue any mail chute business in the Building; (ix) to close the Building
after normal business hours, except that Tenant and its employees and invitees
shall be entitled to admission at all times under such rules and regulations as
Landlord prescribes for security purposes; (x) to install, operate and maintain
security systems which monitor, by close circuit television or otherwise, all
persons entering or leaving the Building; (xi) to install and maintain pipes,
ducts, conduits, wires and structural elements located in the Premises which
serve other parts or other tenants of the Building; and (xii) to retain at all
times master keys or pass keys to the Premises.
IN WITNESS WHEREOF, the parties hereto have executed this lease as of the date
first above written.
LANDLORD: RUNVEE HOBART, Ltd.,
By:/s/ Roman Gordon
- -------------------
Roman Gordon
By:/s/ Illya Bond
- -------------------
Illya Bond
<PAGE>
Exhibit 8
Selling Agreement for Premier Energy Group LLP
----------
SELLING AGREEMENT
This Selling Agreement ("Agreement"), is entered into as of September 10th,
1998, by and among Power Source, a Nevada corporation, West Coast Energy, Inc.,
a Nevada corporation (collectively referred to hereafter as "Promoter") and
Power Capital Funding Group, Inc., a California corporation, ("Selling Agent").
Recitals
A. Promoter is a Nevada corporation which desires to establish, fund and
contract for the funding of one or more Colorado limited liability partnerships
(the "Partnership" or "Partnerships") to be managed by Promoter. If successfully
funded, each Partnership will acquire exclusive marketing, distribution and
reseller rights relating to the sale of electricity in certain territories
within the State of California. Additionally, funding of each Partnership will
be intended to provide working capital for each Partnership and to reimburse
offering expenses related to each Partnership.
B. Selling Agent is a California Corporation master independent sales
organization which desires to be retained by Promoter to identify other
independent sales organizations ("ISO"s) to market and sell limited liability
partnership interests in Promoter's Partnerships. Units in each such Partnership
are referred to herein as the "Units".
In consideration of the foregoing and following premises, promises,
representations, warranties, covenants and conditions, and for other good and
valuable consideration, the sufficiency, adequacy and receipt of which is hereby
acknowledged, the parties hereby agree as follows:
Agreement
1. Recitals. The Recitals are a material part of this Agreement.
2. Engagement of Selling Agent. Promoter hereby engages Selling Agent, and
Selling Agent hereby accepts the engagement by Promoter to identify independent
selling organizations ("ISO") to market and sell the Units pursuant to the terms
and conditions of and subject to the restrictions contained in this Agreement.
Selling Agent shall take whatever actions are reasonably necessary to assure
that Selling Agent's ISO's execute ISO contracts with Selling Agent and that
such ISO's comply with the terms of such ISO contracts. Selling Agent shall
handle all package requests from its ISO's and fulfill all such requests as it
deems appropriate. Selling Agent shall coordinate all customer service
activities between and among prospective and investing partners identified by or
through Selling Agent's ISO's.
3. Method of Sales. Selling Agent shall have the exclusive control over the
methods and means of identifying ISO's to sell the Units and may do so in any
way and through any medium that it desires, provided that Selling Agent complies
with the terms of this Agreement and any particular offering memorandum for
whatever Partnership(s) Selling Agent's ISO's are selling from time to time and
subject to the following limitations on the methods which ISO's identified and
contracted with by Selling Agent may sell the Units:
3.1. Advertising and Support. Selling Agent may offer or sell the Units by any
form of general solicitation or general advertising, including, but not limited
to the following:1) any advertisement, article, notice or other communication
published in any newspaper, magazine or similar media or broadcast over
television, radio or through the internet or online service providers; or 2) any
seminar or meeting whose attendees have been invited by any general solicitation
or general advertising. Promoter shall provide Selling Agent with training
support and investor promotional materials, including, without limitation,
brochures and support documents, etc.). Selling Agent is responsible for lead
generation, which may be supplemented by Promoter (television and cable
broadcast infomercials and network marketing programs (Multi-level marketing))
Any and all ISO inquiries to Promoter shall be referred by Promoter directly to
Selling Agent.
3.2. Offers and Sales of Units. Selling Agent represents and warrants that at
the time of selling the Units to a prospective purchaser Selling Agent will
possess a factual basis of evaluating a prospective offeree's financial
circumstances and sophistication to determine whether an investment in the Units
is appropriate for the prospective offeree in light of the merits and risks of
the investment in the Units. To that end, Selling Agent shall review any and all
subscription applications submitted to Selling Agent by any Selling Agent ISO's
to determine that such subscription applications have been properly completed,
executed and, if applicable, initialed and that any investor completing such
applications does, in fact, represents in such applications that such investor
qualifies to invest in the Partnership.
<PAGE>
3.3. Representations. Selling Agent shall instruct any prospective investor that
any and all representations with respect to the Units are contained in and
limited to the representations made in the offering memorandum for the
Partnership in which the prospective investor is contemplating investing.
Selling Agent shall instruct Selling Agent's ISO's to make no material
misstatement of fact and not to omit to state a material fact necessary to make
any statements by Selling Agent not misleading in connection with the offering
or sale of the Units.
3.4. Compliance With Applicable Laws. Selling Agent shall instruct Selling
Agent's ISO's to comply with any and all federal, state and local laws
applicable to their business and its activities in connection with this
Agreement.
3.5. Provision of Offering Materials. Any and all information provided to
prospective investors in the Units by Selling Agent shall be limited to the
offering memorandum, subscription agreements and limited liability partnership
agreement for the Partnership at issue and related materials provided to Selling
Agent by Promoter, and Selling Agent shall not provide any prospective investors
with any additional information not authorized in writing or directly provided
by Promoter in connection with the offering and sale of the Units.
3.6. Compliance Activities. Selling Agent acknowledges and agrees that the
performance of certain compliance activities regarding the independent sales
offices (ISO's) selling Partnership Units to investors and, if applicable,
regarding investor participation in the Partnership is a responsibility of
Selling Agent hereunder. Selling agent shall perform the following compliance
activities ("Compliance Activities"), which shall include, without limitation,
the following:
3.6.1. Selling Agent shall receive from the Partnership or, if applicable, its
escrow agent, a copy of each subscription application package (the
"Application") submitted by any person or entity submitting such an application
package for admission as a Partner in the Partnership (such persons are referred
to herein as "Prospective Partners");
3.6.3. Selling Agent shall review each Application to determine whether the
Prospective Partner submitting such application properly completed and executed
such Application;
3.6.3 Selling Agent shall examine each Application to determine whether the
Prospective Partner completing such Application meets the suitability and other
qualifications set forth in such Application and the Partnership Memorandum for
admission to the Partnership as a Partner.
3.6.4 Selling Agent shall contact each Prospective Partner submitting an
Application telephonically and obtain answers to all of the questions contained
in Exhibit "A" to this Agreement (the "Compliance Script") in a recorded
telephone conversation with each such Prospective Partner;
3.6.5 Within ten (10) days of receipt of each Application by Selling Agent,
Selling Agent shall communicate in writing to the Managing Partner of the
Partnership, to the attention of its president, whether each such Prospective
Partner is qualified to become a Partner in the Partnership. This communication
shall be in the form of Exhibit "B" attached hereto and incorporated herein by
this reference;
3.6.6 Selling Agent shall handle all communications, whether oral or written,
with ISO's selling the Partnership Units;
3.6.7 Selling Agent shall attempt to identify and contract with ISO's for sales
of the Partnership Units;
3.6.8 Selling Agent shall ensure that any and all ISO's selling the Partnership
Units execute and comply with the ISO Agreement attached hereto as Exhibit "C"
and incorporated herein by this reference;
3.6.9 Selling Agent shall, from time to time, conduct telephonic "reviews" with
the offices of ISO's selling the Partnership Units to ensure that such ISO's are
complying with the terms of their ISO Agreements with the Partnership and in the
sole discretion of Selling Agent, may, from time to time, make "field audit"
trips to the physical offices of ISO's;
3.6.9 Selling Agent shall work with Promoter in developing and securing
Promoter's approval of sales scripts and ancillary sales materials to be used by
the ISO's in selling the Units;
3.6.10 Selling Agent shall be telephonically available to Promoter to answer
questions during the Offering period; and
3.6.11 Selling Agent shall take such further actions as Selling Agent, Promoter
and the Partnership deem reasonably necessary in connection with and in
furtherance of this Agreement and Selling Agent's duties hereunder.
<PAGE>
4. Use of Promoter's Materials. The parties agree that Promoter exclusively will
provide to Selling Agent all marketing, promotional and distribution materials
to be used by Selling Agent in the marketing and sale of the Units. Promoter
will provide no other information or materials to Selling Agent. Notwithstanding
anything to the contrary herein, Selling Agent shall arrange for the preparation
of the offering memorandum and related materials for each Partnership, such as
the Exhibits to the offering memorandum (subscription agreements, tax opinions,
limited liability partnership agreements, etc.), and any promotional video,
glossy pocket folder with promotional attachments and/or Promoter approved sales
script.
5. Leads and Customer Lists. Promoter shall in no way control, the method of
client and lead generation engaged in by Selling Agent or ISO's except as
provided for in 3.1 above. All partners, Prospective Partners, customers, ISO's,
leads, customer lists and related name, address, contact, referral, phone
numbers and related information, whether provided or generated by Selling Agent
or Promoter, shall at all times remain the sole and exclusive confidential
proprietary information and property of Selling Agent, and shall not be used in
any way, directly or indirectly, by Promoter or its affiliates, principals,
attorneys, agents, subsidiaries, parent entities or assigns for any purpose not
authorized in advance, in writing by Selling Agent. Not withstanding the above,
Promoter may use such confidential proprietary information in discharging its
duties as managing partner of the partnerships.
6. Communications With Promoter. Promoter shall keep Selling Agent apprised in
writing of all material information affecting the sale of the Units of any
Partnership by Selling Agent or Selling Agent's ISO's pursuant to the terms of
this Agreement.
7. Receipt of Proceeds. All proceeds from the marketing and sale of Units by
Selling Agent will be remitted directly by the subscribing Partner to the
Partnership or, if applicable, the Partnership escrow agent, and not to Selling
Agent. Selling Agent shall not instruct any potential investor to remit any
funds directly to Selling Agent, and any funds received by Selling Agent from
any potential investor shall be forwarded via overnight courier for next day
delivery to the Partnership or the Partnership escrow agent, and no funds (or
portion thereof) so received by Selling Agent shall under any circumstances be
retained by Selling Agent.
8. Compensation. As full and exclusive compensation for the services provided by
Selling Agent hereunder, Promoter will grant to Selling Agent an exclusive,
freely transferable Five (5) year renewable option beginning on the effective
date of this Agreement and expiring on _______________, to acquire exclusive
rights to market, distribute and offer Power Source electricity owned or
controlled by Promoter in the State of California in any one or all of the
Districts and territories (the "District", "Districts", "Territories" or
"Territory" as the context may require) described in Exhibit "D" attached hereto
and incorporated herein by this reference. Selling Agent agrees with exclusive
minimum goal of one district minimum per month as follows, no minimum for first
90 days, one district sold each month thereafter. The option for each such
Territory may be exercised by Selling Agent or its assignees for the flat fee
price of $210,000.00 to be paid by Selling Agent or its assignee to Power
Source. In the event of the exercise of one or more of these options, the entity
exercising the option shall become a licensed local affiliate of West Coast
Energy Corporation and Power Source, with the exclusive right to offer Promoters
retail electric service and to market, distribute and offer Promoters
electricity in the Territory for a period of (_25_) years, with additional
rights to extend such initial period for five (5) successive five (5) year
terms.
Additional Compensation in Warrants. Power Source hereby grants Selling Agent
43,000 warrants (the "Warrant Grant"), each warrant granting the option to
Selling Agent, or its assigns, to purchase 1 share of the Common stock of Power
Source at $2.50 per share, provided that this Warrant Grant is subject to whole
or partial reversion to Power Source pursuant to the following condition
subsequent: For each Territory described in Exhibit "D" that is not funded by or
through Selling Agent or Selling Agent's ISO's on or before September 10, 2003
(the "Funding Date"), the number of warrants granted to Selling Agent by Power
Source in the Warrant Grant shall be reduced by 1,000. For example, in the event
that Selling Agent and/or its ISO's funded only twenty (20) of the forty-three
(43) Districts by the Funding Date, then the total number of warrants granted
pursuant to the Warrant Grant would be reduced from 43,000 to 20,000 (43,000
maximum Warrant Grant less (23 unfunded Territories x 1,000 warrants per
unfunded Territory).
9. Term. The term of this Agreement shall begin on the earlier of September
10th, 1998, or the date that the last party to execute this Agreement so
executes and continue until August, 2003, unless sooner terminated pursuant to
the terms of this Agreement. Upon the expiration of the Term, the Agreement
shall only be extended by the written Agreement of both parties. The terms and
conditions of this Agreement relating to non-circumvention, proprietary and
confidential information, any options granted hereunder and any representations
and/or warranties of Promoter shall survive termination of this Agreement.
<PAGE>
10. Early Termination. Either party may terminate this Agreement, with or
without cause, by giving the other party (180) days written notice of its
intention to so terminate. Upon early termination pursuant to this section, or
any other section, Promoter will return any and all materials provided to it by
Selling Agent within five (5) days of the effective date of termination.
Promoter shall not retain any copies of any materials provided to Promoter by
Selling Agent relating to the Units. In the event of termination of this
Agreement, Selling Agent will, as of the effective date of such termination,
cease all activities relating to the marketing and sale of Units.
11. Independent Contractor. Neither party shall be deemed to be an employee of
the other party, each party being an independent contractor free to pursue and
control the methods by which it achieves any result in any matter controlled by
this Agreement, subject to the terms and conditions of this Agreement. Selling
Agent shall bear full responsibility for the manner in which it conducts its
marketing and sales activities and its method of supervision over its ISO's,
employees, agents, affiliates and independent contractors.
12. Taxes and Expenses. Selling Agent is responsible for paying any and all
taxes, federal, state, local and otherwise, received by Selling Agent pursuant
to the terms of this Agreement. Selling Agent shall be solely responsible for
any and all expenses incurred in connection with the marketing and sale of the
Units, except for the costs of the promotional and marketing packages which
Promoter shall provide to Selling Agent at Promoter's expense. Promoter agrees
to provide such promotional and marketing packages to Selling Agent at no cost
to Selling Agent or Selling Agent's ISO's.
13. Representations and Warranties. The parties hereto hereby undertake,
represent and warrant the following with respect to themselves, which shall
survive the termination of this Agreement:
13.1. No Conflicting Obligations. No party has entered into any oral or written
agreement which would impair any of the rights granted and obligations incurred
under this Agreement, or limit the effectiveness of this Agreement. The
execution and delivery of this Agreement will not result in a breach of, or
default under, any other agreement, law or regulation to which any of the
respective parties is subject;
13.2. No Threatened, Pending or Conflicting Claims or Actions. The parties are
not aware of any threatened, pending or conflicting claims or actions which may
limit or impair their respective abilities to enter into this Agreement or
adversely affect any of the rights granted or obligations incurred hereunder;
13.3. No Violation or Infringement. The full exercise of the rights granted to
the respective parties and the obligations incurred by the respective parties
hereunder will not violate or infringe upon any rights of any third party;
13.4. Good Faith. The parties will act in good faith in connection with this
Agreement.
13.5 Independent Accountant. The parties shall agree upon an independent
accountant to act as an independent escrow agent for receiving and disbursing
funds for each Partnership during the period of raising capital from investors
for each such Partnership. Each Partnership shall bear the cost of the
independent accountant for each such respective partnership.
13.6. Pro Rata Payout of Funds Raised. As funds are cleared in the escrow
account for each Partnership, the independent accountant/escrow agent for each
such Partnership shall pay out on Friday of each week such funds as have cleared
through the preceding Tuesday of each week. The amount payable to Power Source
shall be equal to $210,000 divided by the gross amount of the raise for the
Partnership being funded multiplied by the amount of funds cleared in escrow for
that week. The remaining funds shall be paid out to Selling Agent, Selling
Agent's ISO's and other persons and/or entities in accordance with written
escrow instructions drafted by or at the direction of Selling Agent, in Selling
Agent's discretion.
14. Promoter's Representations and Warranties.
14.1. No Bar To Contract. Promoter is not subject to any agreement which would
restrict its ability to enter into this Agreement with Selling Agent;
14.2. No Claims or Actions. Promoter is not aware of any claims or actions which
limit or impair the rights granted or obligations incurred by it hereunder;
<PAGE>
14.3. Limitation on Actions. Promoter's remedies for any actual or alleged
breach of this Agreement by Selling Agent shall be limited to money damages, and
the total amount of money damages to which Promoter shall be entitled in the
event of breach of this Agreement by Selling Agent shall in no event exceed the
amount of option fees paid to Promoter by Selling Agent pursuant to the terms of
this Agreement. Further, Promoter shall not proceed and is absolutely barred
from seeking any recovery of any type from any person or entity other than
Selling Agent, and neither Promoter, its affiliates, agents, employees,
independent contractors, attorneys or clients may seek recovery from any person
or entity other than Selling Agent.
14.4. Non-Circumvention. Promoter shall not disrupt, damage, impair, or
interfere with the business of Selling Agent by way of interfering with or
raiding Selling Agent's employees, or disrupt Selling Agent's relationships with
its customers, potential customers, agents, vendors, representatives, or
otherwise. Promoter further agrees that Promoter will not, directly or
indirectly, for Promoter or on behalf of, or in conjunction with any other
person, firm, partnership, or corporation, divert or take away or attempt to
divert or take away, call on or solicit or attempt to solicit the business or
patronage of any of Selling Agent's customers, patrons, suppliers, including but
not limited to those with whom Promoter became acquainted as a result of Selling
Agent's relationship with Promoter, such as parties seeking to raise money for
other projects which they may have in the future. The parties agree that Selling
Agent's actual damages in the event of any such circumvention of Selling Agent
by Promoter in breach of this covenant would be extremely difficult to
determine, and therefore the parties agree that a reasonable estimate of such
damages is an amount equal to fifty percent (50%) of the gross offering price of
any and all projects which Promoter undertakes to sell or otherwise participate
in any way with any person or entity introduced to Promoter by Selling Agent who
is any way associated with, whether directly or indirectly, Selling Agent or any
project which Selling Agent is selling or otherwise involved. Promoter has
disclosed all existing relationships, if any, which it has at the time of
execution of this Agreement with any persons or entities who would not be
subject to terms of this paragraph on a separate Exhibit to this Agreement,
which, if applicable, is attached hereto and incorporated herein by this
reference.
14.5. Non-Disclosure.
14.5.1. Confidential Information Defined. For purposes of this Agreement,
Confidential Information shall mean: proprietary ideas, techniques, products,
formulas, discoveries, formats, processes, improvements and enhancements which
relate to the development and acquisition of capital, capital funding and
capital acquisition resources, Selling Agent's business plans, agreements,
research, programs, teaching techniques, trade secrets, research and development
and test results, specifications, data, know-how, formats, strategies,
forecasts, unpublished financial data, information, budgets, projections and
customer and supplier identities and characteristics, customer lists, customer
leads or potential customers or those persons or entities for whom the Parties
performs services for, marketing strategies, trade secrets, copyrightable works
of authorship, trademarks and service marks and like information. Confidential
Information shall be defined broadly and shall also include the following: 1)
any information that has commercial value or other utility in the business of
the Parties or their Customers or that the Parties or their Customers are likely
to engage in, and 2) any information which if disclosed, would be detrimental to
the Parties or their Customers, whether or not such information is identified as
Confidential Information.
14.5.2. Handling Of Confidential Information. Promoter acknowledges that the
Confidential Information is essential to the goodwill of the business of Selling
Agent. Promoter shall hold and maintain the Confidential Information in
strictest confidence and in trust for the sole and exclusive benefit of Selling
Agent. Promoter shall not use for its own benefit, publish or otherwise disclose
to others, or permit the use by others for their benefit or to the detriment of
Selling Agent, any of the Confidential Information. Promoter shall carefully
restrict access to the Confidential Information to those of its officers,
directors, and employees who clearly need such access in order to participate on
behalf of Promoter in discharging the duties of Promoter hereunder. Promoter
will advise each of the persons to whom it provides access to any of the
Confidential Information that such persons are strictly prohibited from making
any use, publishing or otherwise disclosing to others, or permitting others to
use for their benefit or to the detriment of Selling Agent, any of the
Confidential Information. Promoter shall take all necessary action to protect
the confidentiality of the Confidential Information, except for its disclosure
as stated in this paragraph.
14.6. Authority. The person or persons executing this Agreement on behalf of
Promoter are duly authorized by any necessary action of Promoter to execute this
Agreement on Promoter's behalf and such person or persons possess(es) the
authority to so execute.
<PAGE>
14.7 Provision of Managing Partner for Partnerships. Promoter shall provide the
services of West Coast Energy Co. as the Initial Managing Partner for each of
the Partnerships.
14.8. Contract Between Promoter Entities. West Coast Energy Co. has contracted
with Power Source to arrange for the provision of the energy, electricity,
expertise and services necessary to permit each Partnership to accomplish the
marketing, distribution and resale of electricity to the retail market place, to
hold, invest, utilize, develop, sell and otherwise manage each Partnership's
assets properly to each Partnership and distributions to each Partnership's
investors. Additionally through contracts between West Coast Energy Co. and
Power Source and between those entities and third parties, Promoter has the
resources and will provide to each Partnership in sufficient quantities to
reasonably satisfy demand in each Partnership Territory wholesale energy,
advertising, promotion, retail sales generation, support and service, monthly
billing systems for retail customers, operating reports, net earnings reports
and mechanisms for distribution of earnings to each Partnership and each such
Partnership's investors on a calendar quarterly basis, with the first such
distribution for each such Partnership to occur on the date that is six months
after the date of commencement of operations for each such Partnership.
14.9. Exclusivity of Agreement. This Agreement grants exclusive rights for the
subject matter of this Agreement to Selling Agent for each and every Territory
described in Exhibit D. Subject to Selling Agents meeting any minimum
performance standards described herein. Not withstanding anything to the
contrary herein, Selling agent shall have non-exclusive rights with respect to
the marketing of power within each Territory.
14.10. Liquidity Option. Promoter shall establish and provide to the investors
in each Partnership a mechanism for exchanging Partnership interests for an
interest in PowerSource within six (6) months of the full funding of each
Partnership.
15. Devotion of Resources to Project. Promoter shall devote the resources, time,
skill and effort necessary or helpful to fulfill its obligations, commitments
and duties set forth in this Agreement. Promoter understands and agrees that
Selling Agent may promote, market and sell investments, opportunities and
ventures other than the Units so long as such activities do not materially
interfere with Selling Agent's obligations, commitments and duties under this
Agreement.
16. Assignment. Selling Agent may assign, transfer or otherwise encumber this
Agreement or the rights hereunder. Promoter may not assign its rights, interest
or duties in this Agreement without the express written permission of the
Partnership which shall not be unreasonably withheld.
17. Representation of Understanding. All parties to this Agreement acknowledge
and agree that the terms of this Agreement are contractual and not mere recital,
and all parties represent and warrant that they have carefully read this
Agreement, have fully reviewed its provisions with their attorneys, know and
understand its contents and sign the same as their own free acts and deeds.
18. Entire Agreement. This Agreement and its attachments and references attached
hereto and discussed herein reflect the final expression of the parties'
agreement and contains a complete and exclusive statement of the terms of that
Agreement, which terms supersede all previous verbal and written agreements.
There are no other agreements, representations, or warranties not set forth
herein. No part of this Agreement may be amended or modified in any way unless
such amendment or modification is expressed in a writing signed by all parties
to this Agreement.
19. Governing Law. The parties to this Agreement agree that all questions
respecting the negotiation, execution, construction, interpretation or
enforcement of this Agreement, or the rights, obligations and liabilities of the
parties hereto, shall be determined in accordance with the applicable provisions
of the laws of the State of California, as amended from time to time.
20. Notices. All notices or other documents under this Agreement shall be in
writing and delivered personally or mailed by certified mail, postage prepaid,
addressed to the party being noticed at its last known address.
21. Non-waiver. The failure of any party to insist upon the prompt and punctual
performance of any term or condition in this Agreement, or the failure of any
party to exercise any right or remedy under the terms of this Agreement on any
one or more occasions shall not constitute a waiver of that or any other term,
condition, right, or remedy on that or any subsequent occasion, unless otherwise
expressly provided for herein.
22. Binding Effect. The provisions of this Agreement shall be binding upon and
inure to the benefit of each of the parties and their respective successors and
assigns. Nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person, partnership, or corporation, other
than the parties, their successors and assigns, any benefits, rights, or
remedies under or by reason of this Agreement, except to the extent of any
contrary provision herein contained.
<PAGE>
23. Attorneys Fees. Should it be necessary to institute any action to enforce
the terms of this Agreement, the parties hereby agree that the prevailing party
in any such action shall be entitled to recover its reasonable attorneys' fees.
Attorneys' fees and costs include but are not limited to costs for expert
witness and any appeals. This paragraph shall remain independent from any
judgment entered to enforce its terms, shall not merge therewith, and shall
entitle the prevailing party to attorneys' fees and costs incurred in connection
with post judgment collection and enforcement efforts.
24. Severability. If any provision of this Agreement is held by a court to be
unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall be unaffected by such holding.
25. Construction. This Agreement was drafted jointly by the parties and their
attorneys, and its provisions shall not be construed against either party.
26. Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument. When all of the parties and signatories have
executed any copy hereof, such execution shall constitute the execution of this
Agreement.
27. Non-waiver. The failure of any party to insist upon the prompt and punctual
performance of any term or condition in this Agreement, or the failure of any
party to exercise any right or remedy under the terms of this Agreement on any
one or more occasions shall not constitute a waiver of that or any other term,
condition, right, or remedy on that or any subsequent occasion, unless otherwise
expressly provided for herein.
28. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
IN WITNESS WHEREOF, the parties execute this Agreement.
SELLING AGENT
POWER CAPITAL FUNDING GROUP, INC.
a California Corporation
By: /ss/ Ron Johnson
--------------------
Ron Johnson, President
PROMOTER
POWER SOURCE, CORP..
a Nevada Corporation
By: /ss/ Illya Bond
--------------------
Illya Bond (Director)
AND CO-PROMOTER
WEST COAST ENERGY CO., INC.
a Nevada Corporation
By:/ss/ German Teiltelbaum
---------------------
German Teiltelbaum President
<PAGE>
Exhibit 8(a)
Selling Agreement for Energy District 111 LLC
SELLING AGREEMENT
This Selling Agreement ("Agreement"), is entered into as of October 15th,
1999, by and among Power Source, a Nevada corporation, and Power Energy Group
a Nevada LLC, ("Promoter").
Recitals
A. The Company is a Nevada corporation which desires to establish, fund and
contract for the funding of one or more California limited liability companies
("LLC or LLC's") to be managed by Promoter. If successfully funded, each LLC
will be managed by LLC, unless otherwice specified and will assume control of
LLC management activities. Each LLC will acquire exclusive rights of income
stream, relating to the sale of electricity by the Company in sertain
territories within the State of California. Additionally, funding of each LLC
will be intended to provide working capital for each LLC and to reimburse
offering expenses related to LLC.
B. Promoter is a Nevada LLC to be retained by the Company to sell districts in
the State of California and/or other states as permited by law. Units in each
such LLC are referred to herein as the "Units".
In consideration of the foregoing and following premises, promises,
representations, warranties, covenants and conditions, and for other good and
valuable consideration, the sufficiency, adequacy and receipt of which is hereby
acknowledged, the parties hereby agree as follows:
Agreement
1. Recitals. The Recitals are a material part of this Agreement.
2. Engagement of Promoter. The Company hereby engages Promoter, and Promoter
hereby accepts the engagement by the Company to market and sell the Units
pursuant to the terms and conditions of and subject to the restrictions
contained in this Agreement. Promoter shall handle all package requests and
fulfill all such requests as it deems appropriate. Promoter shall coordinate all
customer service activities between and among prospective and investing partners
identified by or through Promoter.
<PAGE>
3. Advertising and Support. Promoter may advertise the sale of Units within
state or federal securities guideline. Promoter may offer or sell the Units by
any form of general solicitation or general advertising, including, but not
limited to the following: 1)any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or broadcast
over television, radio or through the internet or online service providers; or
2) any seminar or meeting whose attendees have been invited by any general
solicitation or general advertising. The Company shall provide Promoter with
training support and investor promotional materials, including, without
limitation, brochures and support documents, etc. Promoter is responsible for
lead generation, which may be supplemented by The Company (television and cable
broadcast infomercials and network marketing programs).
3.1. Offers and Sales of Units. Promoter represents and warrants that at
the time of selling the Units to a prospective purchaser Promoter will
possess a factual basis of evaluating a prospective offeree's financial
circumstances and sophistication to determine whether an investment in the Units
is appropriate for the prospective offeree in light of the merits and risks of
the investment in the Units. To that end, Promoter shall review any and all
subscription applications submitted to Promoter.
3.2. Representations. Promoter shall instruct any prospective investor that
any and all representations with respect to the Units are contained in and
limited to the representations made in the offering memorandum for the
LLC in which the prospective investor is contemplating investing.
3.3. Compliance With Applicable Laws. Selling Agent shall instruct Selling
Agent's ISO's to comply with any and all federal, state and local laws
applicable to their business and its activities in connection with this
Agreement.
3.4. Provision of Offering Materials. Any and all information provided to
prospective investors in the Units by Promoter shall be limited to the offering
memorandum, subscription agreements and LLC agreement for the LLC at issue and
related materials provided to Promoter by the Comapny, in connection with the
offering and sale of the Units.
3.5. Compliance Activities. Promoter acknowledges and agrees that the
performance of certain compliance activities regarding investor participation in
the LLC is a responsibility of Promoter hereunder. Promoter shall perform the
following compliance activities ("Compliance Activities"), which shall include,
without limitation, the following:
3.5.1. Promoter shall receive from the LLC or, if applicable, its
escrow agent, a copy of each subscription application package (the
"Application") submitted by any person or entity submitting such an application
package for admission as a member in the LLC (such persons are referred
to herein as "Prospective Member");
3.5.2. Promoter shall review each Application to determine whether the
Prospective Partner submitting such application properly completed and executed
such Application;
3.5.3 Promoter shall examine each Application to determine whether the
Prospective Partner completing such Application meets the suitability and other
qualifications set forth in such Application and the LLC Memorandum for
admission to the LLC as a Member.
3.5.4 Promoter shall contact each Prospective Partner submitting an
Application telephonically and obtain answers to all of the questions contained
in Exhibit "A" to this Agreement (the "Compliance Script") in a recorded
telephone conversation with each such Prospective Member;
3.5.5 Within ten (10) days of receipt of each Application by Promoter, shall
communicate in writing to the Managing Partner of the LLC, whether each such
Prospective Member is qualified to become a Member in the LLC. This
communication shall be in the form of Exhibit "B" attached hereto and
incorporated herein by this reference;
<PAGE>
3.5.6 Promoter shall be telephonically available to the Company to answer
questions during the Offering period; and
3.5.7 Promoter shall take such further actions as Promoter, The Company and the
LLC deem reasonably necessary in connection with and in furtherance of this
Agreement and Promoter's duties hereunder.
4. Use of Promoter's Materials. The parties agree that the Company exclusively
will provide to Promoter all marketing, promotional and distribution materials
to be used by Promoter in the marketing and sale of the Units. The Company will
provide no other information or materials to Promoter. Notwithstanding anything
to the contrary herein, Promoter shall arrange for the preparation of the
offering memorandum and related materials for each LLC, such as the Exhibits to
the offering memorandum (subscription agreements, tax opinions, LLC, etc.), and
any promotional video, glossy pocket folder with promotional attachments and/or
The Company approved sales script.
5. Leads and Customer Lists. The Company shall in no way control, the method of
client and lead generation engaged in by Promoter except as provided for in 3
above. All members, Prospective members, customers, leads, customer lists and
related name, address, contact, referral, phone numbers and related information,
whether provided or generated by Selling Agent or Promoter, shall at all times
remain the sole and exclusive confidential proprietary information and property
of Selling Agent, and shall not be used in any way, directly or indirectly, by
Promoter or its affiliates, principals, attorneys, agents, subsidiaries, parent
entities or assigns for any purpose not authorized in advance, in writing by
Promoter.
6. Communications With Company. The Company shall keep Promoter apprised in
writing of all material information affecting the sale of the Units of any LLC
by Promoter pursuant to the terms of this Agreement.
7. Receipt of Proceeds. All proceeds from the marketing and sale of Units by
Promoter will be remitted directly by the subscribing member to the LLC or, if
applicable, the LLC escrow agent, and not to the Promoter. Promoter shall not
instruct any potential investor to remit any funds directly to Promoter, and any
funds received by Promoter from any potential investor shall be forwarded via
overnight courier for next day delivery to the LLC or the LLC escrow agent, and
no funds (or portion thereof) so received by Promoter shall under any
circumstances be retained by Promoter.
8. Compensation. As full and exclusive compensation for the services provided by
Promoter hereunder, The Company will grant to Promoter an exclusive, freely
transferable Five (5) year renewable option beginning on the effective date of
this Agreement October 15,1999, which LLC's shall have the right to
participation in all profits pertaining to Districts, based on 35% of the
adjusted gross profits from the distribution and offering of PowerSource
electricity services provided by the Company in the State of California and any
other states that become available Promoter agrees with exclusive minimum goal
of one district minimum per month as follows, no minimum for first sixty (60)
days one distict sold each month thereafter. Units sales shall commence
immediately upon completion of sales contract, memorandum, subscription
agreements and brochures. The Option for each such Territory may be exercised by
Promoter for the flat fee price of $240,000 to be paid by Promoter to
PowerSource. In addition, the Initial Managing Member, Power Energy Group, LLC
and PowerSource shall receive two (2) Founder's Units, five (5) Founder's Units
and three (3) Founder's Units, respectively, for their efforts in connection
with each District LLC. (Note: PowerSource's Founder's Units shall not
participate in the District LLC's Distributable Cash). In the event of the
exercise of one or more of these options, the Limited Liability Company entity
exercising the option shall become a licensed local affiliate of PowerSource,
with the exclusive right to participation in all profits, based on 35% of the
adjusted gross profits from the distribution and offering of The Company's
retail electric in their District for a period of twenty-five (25) years, with
additional rights to extend such initial period for five (5) successive five (5)
year terms.
Promoter shall not construe this Agreement as a license to sell Electricity. Any
understanding regarding the marketing of electricity or electrical services by
Promoter may be defined under separate agreement.
Additional Compensation In Warrants.
PowerSource hereby grants Selling Agent39,000 warrants (the "Warrant Grant"),
each warrant granting the option to Promoter, or its assigns, to purchase 1
(one) share of the Common Stock of Power Source at $2.50 per share. The options
have an expiration date of 180 calendar days from the date of complete District
purchase. Each Territory described in Exhibit "C" that is not funded by or
through Promoter on or before October, 2004 (the Funding Date), the number of
warrants granted to Promoter by PowerSource in the Warrant Grant shall be
reduced by 1,000. For example, in the event that Promoter funded only twenty
(20) of the thirty-nine (39) Districts by the Funding Date then the total number
of warrants granted pursuant to the Warrant Grant would be from 39,000 to
20,000, 39,000 maximum Warrant Grant less (19 unfunded Territories x 1,000
warrants per unfounded Territory.)
<PAGE>
9. Term. The term of this Agreement shall begin on the earlier of October 15th,
1999, or the date that the last party to execute this Agreement so executes and
continue until October, 2004, unless sooner terminated pursuant to the terms of
this Agreement. Upon the expiration of the Term, the Agreement shall only be
extended by the written Agreement of both parties. The terms and conditions of
this Agreement relating to non-circumvention, proprietary and confidential
information, any options granted hereunder and any representations and/or
warranties of the Company shall survive termination of this Agreement.
10. Early Termination. Either party may terminate this Agreement, with or
without cause, by giving the other party (60) days written notice of its
intention to so terminate. Upon early termination pursuant to this section, or
any other section, the Company will return any and all materials provided to it
by Selling Agent within five (5) days of the effective date of termination.
Company shall not retain any copies of any materials provided by Promoter
relating to the Units. In the event of termination of this Agreement, Promoter
will, as of the effective date of such termination, cease all activities
relating to the marketing and sale of Units.
11. Independent Contractor. Neither party shall be deemed to be an employee of
the other party, each party being an independent contractor free to pursue and
control the methods by which it achieves any result in any matter controlled by
this Agreement, subject to the terms and conditions of this Agreement. Promoter
shall bear full responsibility for the manner in which it conducts its marketing
and sales activities.
12. Taxes and Expenses. Selling Agent is responsible for paying any and all
taxes, federal, state, local and otherwise, received by Selling Agent pursuant
to the terms of this Agreement. Selling Agent shall be solely responsible for
any and all expenses incurred in connection with the marketing and sale of the
Units, except for the costs of the promotional and marketing packages which
Promoter shall provide to Selling Agent at Promoter's expense. The Company
agrees to provide such promotional and marketing packages to Promoter at no cost
to Promoter. Material provided at no cost should not exceed $5,000 of expense
for such material per District funded by Promoter.
13. Representations and Warranties. The parties hereto hereby undertake,
represent and warrant the following with respect to themselves, which shall
survive the termination of this Agreement:
13.1. No Conflicting Obligations. No party has entered into any oral or written
agreement which would impair any of the rights granted and obligations incurred
under this Agreement, or limit the effectiveness of this Agreement. The
execution and delivery of this Agreement will not result in a breach of, or
default under, any other agreement, law or regulation to which any of the
respective parties is subject;
13.2. No Threatened, Pending or Conflicting Claims or Actions. The parties are
not aware of any threatened, pending or conflicting claims or actions which may
limit or impair their respective abilities to enter into this Agreement or
adversely affect any of the rights granted or obligations incurred hereunder;
13.3. No Violation or Infringement. The full exercise of the rights granted to
the respective parties and the obligations incurred by the respective parties
hereunder will not violate or infringe upon any rights of any third party;
13.4. Good Faith. The parties will act in good faith in connection with this
Agreement.
13.5 Authorization and Agreement of Sales. The Company agrees for the protection
of all parties involved that there will be no Independent Sales Offices (ISO's)
selling Districts for PowerSource, Inc., without authorization and agreement of
both The Company and Promoter, other than Power Capital Funding Group, Inc. and
its ISO's disclosed in Exhibit "D".
13.6. Pro Rata Payout of Funds Raised. As funds are cleared in the escrow
account for each LLC, the agent for each such LLC shall pay out on Friday of
each week such funds as have cleared through the preceding Tuesday of each week.
The total amount payable to Power Source pro rata as funds are raised shall be
equal to $240,000 assuming full funding of each LLC. All funds shall be paid out
to PowerSource, Promoter and other persons and/or entities in accordance with
written escrow instructions drafted by or at the direction of Promoter, on pro
rata basis.
14. Promoter's Representations and Warranties.
14.1. No Bar To Contract. The Company is not subject to any agreement which
would restrict its ability to enter into this Agreement with Power Caital
Funding Group, Inc.;
14.2. No Claims or Actions. The Company is not aware of any claims or actions
which limit or impair the rights granted or obligations incurred by it
hereunder;
<PAGE>
14.3. Limitation on Actions. Promoter's remedies for any actual or alleged
breach of this Agreement by Promoter shall be limited to money damages, and
the total amount of money damages to which Promoter shall be entitled in the
event of breach of this Agreement by Promoter shall in no event exceed the
amount of option fees paid to Promoter pursuant to the terms of
this Agreement. Further, Promoter shall not proceed and is absolutely barred
from seeking any recovery of any type from any person or entity other than
Selling Agent, and neither Promoter, its affiliates, agents, employees,
independent contractors, attorneys or clients may seek recovery from any person
or entity other than Selling Agent.
14.4. Non-Circumvention. Company shall not disrupt, damage, impair, or interfere
with the business of Promoter by way of interfering with or raiding Selling
Agent's employees, or disrupt Promoter relationships with its customers,
potential customers, agents, vendors, representatives, or otherwise. Company
further agrees that Company will not, directly or indirectly, for Company or on
behalf of, or in conjunction with any other person, firm, partnership, or
corporation, divert or take away or attempt to divert or take away, call on or
solicit or attempt to solicit the business or patronage of any of Promoter
customers, patrons, suppliers, including but not limited to those with whom
Company Company became acquainted as a result of Promoter relationship with
Promoter, such as parties seeking to raise money for other projects which they
may have in the future. The parties agree that Promoter actual damages in the
event of any such circumvention of Promoter by Company in breach of this
covenant would be extremely difficult to determine, and therefore the parties
agree that a reasonable estimate of such damages is an amount equal to fifty
percent (50%) of the gross offering price of any and all projects which Company
undertakes to sell or otherwise participate in any way with any person or entity
introduced to Company by Promoter who is any way associated with, whether
directly or indirectly, Promoter or any project which Promoter is selling or
otherwise involved. Company has disclosed all existing relationships, if any,
which it has at the time of execution of this Agreement with any persons or
entities who would not be subject to terms of this paragraph on a separate
Exhibit to this Agreement, which, if applicable, is attached hereto and
incorporated herein by this reference.
14.5. Non-Disclosure.
14.5.1. Confidential Information Defined. For purposes of this Agreement,
Confidential Information shall mean: proprietary ideas, techniques, products,
formulas, discoveries, formats, processes, improvements and enhancements which
relate to the development and acquisition of capital, capital funding and
capital acquisition resources, Selling Agent's business plans, agreements,
research, programs, teaching techniques, trade secrets, research and development
and test results, specifications, data, know-how, formats, strategies,
forecasts, unpublished financial data, information, budgets, projections and
customer and supplier identities and characteristics, customer lists, customer
leads or potential customers or those persons or entities for whom the Parties
performs services for, marketing strategies, trade secrets, copyrightable works
of authorship, trademarks and service marks and like information. Confidential
Information shall be defined broadly and shall also include the following: 1)
any information that has commercial value or other utility in the business of
the Parties or their Customers or that the Parties or their Customers are likely
to engage in, and 2) any information which if disclosed, would be detrimental to
the Parties or their Customers, whether or not such information is identified as
Confidential Information.
14.5.2. Handling Of Confidential Information. Promoter acknowledges that the
Confidential Information is essential to the goodwill of the business of Selling
Agent. Promoter shall hold and maintain the Confidential Information in
strictest confidence and in trust for the sole and exclusive benefit of Selling
Agent. Promoter shall not use for its own benefit, publish or otherwise disclose
to others, or permit the use by others for their benefit or to the detriment of
Selling Agent, any of the Confidential Information. Promoter shall carefully
restrict access to the Confidential Information to those of its officers,
directors, and employees who clearly need such access in order to participate on
behalf of Promoter in discharging the duties of Promoter hereunder. Promoter
will advise each of the persons to whom it provides access to any of the
Confidential Information that such persons are strictly prohibited from making
any use, publishing or otherwise disclosing to others, or permitting others to
use for their benefit or to the detriment of Selling Agent, any of the
Confidential Information. Promoter shall take all necessary action to protect
the confidentiality of the Confidential Information, except for its disclosure
as stated in this paragraph.
14.6. Authority. The person or persons executing this Agreement on behalf of
Promoter are duly authorized by any necessary action of Promoter to execute this
Agreement on Promoter's behalf and such person or persons possess(es) the
authority to so execute.
<PAGE>
14.7 Provision of Managing Partner for LLC. Promoter shall be responsible for
the designation and establishment of the initial manager for each LLC until such
time as the LLC has been established and funded. The initial managers' duties
shall include but not be limited to receiving all correspondence from Unit
purchasers, immediately depositing all funds received from investors to LLC
account, preparing receipt for deposit and funds distribution report to
accountants, preparing records to be turned over to PowerSource at completion of
each LLC's funding, same day notification and full disclosure of receipt of
purchaser information and subscription agreement, notifying purchasers of all
company news releases and arranging for required tax reporting with accountants.
14.8 Contract between The Company Entities. PowerSource is to arrange for the
provision of the energy, electricity, expertise and services necessary to permit
each LLC to accomplish the marketing, distribution and resale of electricity to
the retail market place, to hold, invest, utilize, develop, sell and otherwise
properly manage each LLC and any distributions to each LLC and distributions to
each LLC's investors. Additionally through contract between PowerSource and
between those entities and third parties, The Company has the resources and will
provide to each LLC in sufficient quantities to reasonably satisfy demand in
each LLC Territory wholesale energy, advertising, promotion, retail sales
generation, support and service, monthly billing systems for retail customers,
operating reports, net earnings reports and mechanisms for distribution of
earnings to each LLC and each such LLC's investors on a calendar quarterly
basis, with the first such distribution for each LLC to occur on the date that
is six months after the date of commencement of operations for each such LLC.
14.9 Exclusivity of Agreement. This Agreement grants exclusive rights to fund
LLC units for the subject matter of this Agreement to Promoter for each and
every territory described in Exhibit "C", subject to Promoter's meeting the
minimum performance standards described herein.
14.10 Liquidity Option. The Company shall establish and provide to the investors
in each LLC a mechanism for exchanging LLC interest for an interest in
PowerSource within twelve months of the full funding of each LLC.
15. Devotion of Resources to Project. The Company shall devote the resources,
time, skill and effort necessary or helpful to fulfill its obligations,
commitments and duties set forth in this Agreement. The Company understands and
agrees that Promoter may promote, market and sell investments, opportunities and
ventures other than the Units so long as such activities do not materially
interfere with Selling Agent's obligations, commitments and duties under this
Agreement.
16. Assignment. Provider may not transfer or otherwise encumber this Agreement
or the rights hereunder, without prior agreement of PowerSource. The Company may
only assign its rights, interest or duties in this Agreement provided the
assignee/transferee is qualified, licensed and fully capable, including
financially capable of carrying on the operations, duties distributions and
responsibilities of The Company to the LLC's and their mutual customers and
suppliers. 17. Representation of Understanding. All parties to this Agreement
acknowledge and agree that the terms of this Agreement are contractual and not
mere recital, and all parties represent and warrant that they have carefully
read this Agreement, have fully reviewed its provisions with their attorneys,
know and understand its contents and sign the name as their own free acts and
deeds. PowerSource, nor any of their officers, directors, parent corporations or
subsidiaries (collectively PowerSource) have participated in the preparation of
the Offering Memorandum or the offering of the Units themselves. PowerSource's
involvement is limited to that of providing certain consulting and
energy/electric service provider related services as independent contractors.
PowerSource has not been involved with any decisions relating to the Offering
Memorandum or the offering and sale of the Units and has not and will not have
any authority to make any such decisions. PowerSource makes no representation or
warranty concerning the adequacy of any aspect of the disclosure contained in
the Offering Memorandum or any other aspect of the offering of Units. Investors
in the LLC are not making an investment in PowerSource and are not third party
beneficiaries of any agreement between the LLC or any other person or entity and
PowerSource.
17. Representation of Understanding. All parties to this Agreement acknowledge
and agree that the terms of this Agreement are contractual and not mere recital,
and all parties represent and warrant that they have carefully read this
Agreement, have fully reviewed its provisions with their attorneys, know and
understand its contents and sign the same as their own free acts and deeds.
18. Entire Agreement. This Agreement and its attachments and references attached
hereto and discussed herein reflect the final expression of the parties'
agreement and contains a complete and exclusive statement of the terms of that
Agreement, which terms supersede all previous verbal and written agreements.
There are no other agreements, representations, or warranties not set forth
herein. No part of this Agreement may be amended or modified in any way unless
such amendment or modification is expressed in a writing signed by all parties
to this Agreement.
<PAGE>
19. Governing Law. The parties to this Agreement agree that all questions
respecting the negotiation, execution, construction, interpretation or
enforcement of this Agreement, or the rights, obligations and liabilities of the
parties hereto, shall be determined in accordance with the applicable provisions
of the laws of the State of California, as amended from time to time.
20. Notices. All notices or other documents under this Agreement shall be in
writing and delivered personally or mailed by certified mail, postage prepaid,
addressed to the party being noticed at its last known address.
21. Non-waiver. The failure of any party to insist upon the prompt and punctual
performance of any term or condition in this Agreement, or the failure of any
party to exercise any right or remedy under the terms of this Agreement on any
one or more occasions shall not constitute a waiver of that or any other term,
condition, right, or remedy on that or any subsequent occasion, unless otherwise
expressly provided for herein.
22. Binding Effect. The provisions of this Agreement shall be binding upon and
inure to the benefit of each of the parties and their respective successors and
assigns. Nothing expressed or implied in this Agreement is intended, or shall be
construed, to confer upon or give any person, partnership, or corporation, other
than the parties, their successors and assigns, any benefits, rights, or
remedies under or by reason of this Agreement, except to the extent of any
contrary provision herein contained.
23. Attorneys Fees. Should it be necessary to institute any action to enforce
the terms of this Agreement, the parties hereby agree that the prevailing party
in any such action shall be entitled to recover its reasonable attorneys' fees.
Attorneys' fees and costs include but are not limited to costs for expert
witness and any appeals. This paragraph shall remain independent from any
judgment entered to enforce its terms, shall not merge therewith, and shall
entitle the prevailing party to attorneys' fees and costs incurred in connection
with post judgment collection and enforcement efforts.
24. Severability. If any provision of this Agreement is held by a court to be
unenforceable or invalid for any reason, the remaining provisions of this
Agreement shall be unaffected by such holding.
25. Construction. This Agreement was drafted jointly by the parties and their
attorneys, and its provisions shall not be construed against either party.
26. Counterparts. This Agreement may be executed in multiple counterparts, each
of which shall be deemed an original but all of which together shall constitute
one and the same instrument. When all of the parties and signatories have
executed any copy hereof, such execution shall constitute the execution of this
Agreement.
27. Headings. Headings in this Agreement are for convenience only and shall not
be used to interpret or construe its provisions.
IN WITNESS WHEREOF, the parties execute this Agreement.
PROMOTER
Power Energy Group, LLC
By: /ss/ John M. Olivia
--------------------
John M. Olivia
The Company
POWER SOURCE, CORP..
a Nevada Corporation
By: /ss/ Illya Bond
--------------------
Illya Bond (Director)
Date: October 15, 1999
Exhibit 9
Statement re: computation of per share earnings
----------
EPS for the period since the Company's inception until December 31, 1998 is
$.01 loss per share of common stock, based on Retained earnings is a loss of $
54,399.
At September 15,1998 there were 5,408,161 shares of the Company's common
stock, $ 0.001 value, outstanding. The basic earnings per share were calculated
using the current number of primary common shares outstanding, and the
accumulated earnings since the Company's inception.
October 21, 1999
Mr. Illya Bond, CFO
POWERSOURCE CORPORATION
3660 Wilshire Blvd., suite 1104
Los Angeles, CA 90010
Re: Predecessor accountant communication
Dear Illya:
Per our conversation this letter is to confirm that our communication with
John Lindell of LUND KOEHLER COX AND ARKEMA, LLP was verbal and the subjects
discussed were the integrity of the management of POWERSOURCE CORPORATION and if
he had any unusual concern about this client.
There were no negative issues brought up Mr. Lindell and that was the end of our
communication. I also asked him for copies of his audit worksheet which were
sent promptly.
If I can be of any further assistance please do not hesitate to call me.
Best Regards,
BANDARI & ASSOCIATES
An Accountancy Corporation
By: /s/ Bob Bandari, CPA
- ------------------------
Bob Bandari, CPA
BB:rr
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM YEAR
END DEC-31-1998 AND DEC-31-1997 OF POWERSOURCE CORPORATION FINANCIAL STATEMENTS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1999 DEC-31-1999 DEC-31-1998 DEC-31-1997
<PERIOD-START> JAN-01-1999 JAN-01-1999 JAN-01-1998 JAN-01-1997
<PERIOD-END> JUN-30-1999 MAR-31-1999 DEC-31-1998 DEC-31-1997
<EXCHANGE-RATE> 1 1 1 1
<BOOK-VALUE> PER-BOOK PER-BOOK PER-BOOK PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 0 0 0 0
<OTHER-PROPERTY-AND-INVEST> 538,500 605,832 543,640 0
<TOTAL-CURRENT-ASSETS> 258,294 131,548 226,120 0
<TOTAL-DEFERRED-CHARGES> 0 0 0 0
<OTHER-ASSETS> 58,543 3,750 4,000 0
<TOTAL-ASSETS> 855,337 741,130 773,760 0
<COMMON> 5,408 5,408 5,408 1,356
<CAPITAL-SURPLUS-PAID-IN> 269,240 138,782 128,781 0
<RETAINED-EARNINGS> (161,044) (164,954) (53,599) (1,356)
<TOTAL-COMMON-STOCKHOLDERS-EQ> 113,604 (20,764) 80,590 0
0 0 0 0
535,000 535,000 535,000 0
<LONG-TERM-DEBT-NET> 0 0 0 0
<SHORT-TERM-NOTES> 21,289 102,090 116,000 0
<LONG-TERM-NOTES-PAYABLE> 146,922 70,903 0 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0 0 0 0
<LONG-TERM-DEBT-CURRENT-PORT> 0 0 0 0
0 0 0 0
<CAPITAL-LEASE-OBLIGATIONS> 0 0 0 0
<LEASES-CURRENT> 0 0 0 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 38,523 53,901 42,170 0
<TOT-CAPITALIZATION-AND-LIAB> 855,337 741,130 773,760 0
<GROSS-OPERATING-REVENUE> 210,000 0 210,000 0
<INCOME-TAX-EXPENSE> 800 800 0 0
<OTHER-OPERATING-EXPENSES> 263,874 108,137 257,999 0
<TOTAL-OPERATING-EXPENSES> 264,674 108,937 257,999 0
<OPERATING-INCOME-LOSS> (100,499) (108,937) (47,999) 508
<OTHER-INCOME-NET> 0 0 0 800
<INCOME-BEFORE-INTEREST-EXPEN> (100,499) (108,937) (47,999) 1,308
<TOTAL-INTEREST-EXPENSE> 5,346 2,418 5,600 0
<NET-INCOME> (106,646) (111,355) (53,599) 1,308
0 0 0 0
<EARNINGS-AVAILABLE-FOR-COMM> 0 0 0 0
<COMMON-STOCK-DIVIDENDS> 0 0 0 0
<TOTAL-INTEREST-ON-BONDS> 0 0 0 0
<CASH-FLOW-OPERATIONS> 29,826 11,899 620 0
<EPS-BASIC> 0 0 0 0
<EPS-DILUTED> (0.02) (0.01) (0.01) 0
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