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SECURITIES AND EXCHANGE COMMISSION
450 Fifth Street N.W., Washington, D.C. 20549
FORM 10 - SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER -
AZEL ENTERPRISES, INC.
(Exact Name Of Registrant As Specified In Its Charter)
NEVADA 98-0200489
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
946 West 7th Avenue
Vancouver, B.C., Canada, V5Z 1C3
(604) 739-9772 Fax: (604) 739-9782
Attention: T.F. Fred Tham
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(Address, Including Zip Code, And Telephone Number, Including Area Code,
Of Registrant's Principal Executive Offices)
Securities Registered Pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which each class is
to be so registered sought to be registered
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Common Stock OTC Electronic Bulletin Board
Securities Registered Pursuant to Section 12(b) of the Act:
Common Shares $.001 par value
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Title of each class to be so registered
Total Number of Pages: __
Index to Exhibits Appears on Page: __
(Filing stipulated in United States Dollars Unless Otherwise Stated)
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
TABLE OF CONTENTS
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS...................................................................1
PART I............................................................................................................2
ITEM 1. DESCRIPTION OF BUSINESS.....................................................................2
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION..................................14
ITEM 3. DESCRIPTION OF PROPERTY....................................................................25
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.............................25
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS...............................27
ITEM 6. EXECUTIVE COMPENSATION.....................................................................28
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............................................29
ITEM 8. DESCRIPTION OF SECURITIES..................................................................30
PART II..........................................................................................................32
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS........................................................................32
ITEM 2. LEGAL PROCEEDINGS..........................................................................32
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING...............................................33
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES....................................................33
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS..................................................34
PART F/S.........................................................................................................35
PART III.........................................................................................................52
ITEM 1. INDEX TO EXHIBITS..........................................................................52
SIGNATURES.......................................................................................................53
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DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This Form 10-SB includes forward-looking statements. All statements, other than
statements of historical fact, included in this Form 10-SB, including, without
limitation, statements under "Description of Business" and "Management's
Discussion and Analysis or Plan of Operation" regarding the Company's business
strategy and plans and objectives of management of the Company for future
operations, are forward-looking statements within the meaning of the "safe
harbour" provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements are not guarantees of future performance and
are subject to certain risks, uncertainties and assumptions that are difficult
to predict; therefore, actual results may differ materially from those
expressed, forecasted, or contemplated by any such forward-looking statements.
Important factors that could cause actual results to differ materially from the
Company's expectations are disclosed in this Form 10-SB, including, without
limitation, in conjunction with the forward-looking statements included in this
Form 10-SB.
Unless required by law, the Company undertakes no obligation to update publicly
any forward-looking statements, whether as a result of new information, future
events or otherwise.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
A. INTRODUCTION
Azel Enterprises, Inc. ("Company") was organized under the laws of the State on
Nevada on June 17, 1998. The Company is authorized to issue 30,000,000 shares of
Common Stock with a par value of $.001 per share, of which 8,300,000 shares are
issued and outstanding as of March 31, 1999.
The Company is a NEW Nevada corporation formed by a small founding group with
the intention of (i) providing communications system integration and contracting
services, and (ii) serving as a holding company for one or more future
businesses not yet identified. The Company currently has no subsidiaries and has
not yet commenced commercial operations.
The Company has identified its initial business to be a provider of full service
communication system integration services. The services shall include project
management, design and engineering construction services for broad band
fiberoptic/coaxial video or telephonic owners and developers. The Company will
achieve its objective through the acquisition of businesses in this sector, and
one such target, Netstar Communications, Inc., an Illinois company ("Netstar"),
has already been identified and the company has executed a letter of intent with
Netstar setting forth the proposed terms of such acquisition (see paragraph C
hereof). In the event that the Company does not succeed in acquiring the
targeted entity, the Company may have difficulty in fulfilling its business
plan.
B. THE INDUSTRY
The telecommunications industry is undergoing fundamental changes in most
markets throughout the world. For example, The Telecommunications Act of 1996 is
(1) helping to remove barriers to competition (i.e. agreements among
participating countries in the European Union, and privatization and regulatory
initiatives in South and Central America), and (2) allowing telephone companies
to own and operate cable television systems both in and out of their service
areas.
While some telephone companies are seeking to enter the cable television
business by acquiring existing cable operators (e.g. US West/ Continental
Cable), some of the larger telephone and utility companies have undertaken to
build new cable systems. With both cable operators and the telephone companies
vying for market share in video, voice, internet and other data services,
experienced communication contractors, system integrators and engineering and/or
design contractors will potentially have tremendous demand for their services.
The Company believes that increased demand for telecommunications infrastructure
services will be created in four ways, specifically:
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o Increased consumer demand for bandwidth will compel service providers to
upgrade existing networks to broadband technologies such as fiber optic
cable;
o Competitive market pressures will force existing service providers to
attempt to reduce their cost structures, leading to increased outsourcing
of outside plant services to lower cost, independent contractors;
o New service providers in previously monopolistic markets will ultimately
require their own infrastructure; and
o Deployment of more powerful multi-media computers in business will increase
the demand for inside wiring services to install communications networks
with greater bandwidth capacity.
The Company believes that it is well positioned to capitalize on this projected
demand, and is pursuing a strategy of growth through internal expansion and
strategic acquisitions. The Company also believes that the volume of business
generated under Netstar's existing contracts will increase as a result of the
anticipated general increase in demand for its services. In addition, the
Company believes that Netstar's reputation for quality and reliability,
operating efficiency, financial strength, technical expertise, presence in key
geographic areas, and ability to achieve economies of scale provides competitive
advantages while bidding for new contracts for telecommunication infrastructure
projects.
THE COMMUNICATIONS SECTOR
With a growing number of telephone, utility and related companies looking to
expand their base of operations, recent technological developments have
stimulated the drive for new opportunities. The telephone companies are seeking
to earn cable service revenues and to defend their existing long-distance
telephone customer base from impending competition from alliances of established
cable television operators (e.g. TCI, Time-Warner) and aggressive inter-exchange
carriers such as Sprint and MCI. The new competing service providers have
publicly announced that they plan to capture telephone revenues by offering
"bundled" local and long-distance voice and cable television services to the
area customer base. The potentially high profit margins from long-distance
services, is driving telephone companies to ensure that they also provide the
"wire of choice" in the home to capture the bundled services being proposed by
new competitors.
Of the major telephone companies, Ameritech and GTE appear to have been
successful in building state-of-the-art cable television networks. BellSouth and
US West have applied for a number of cable franchises, while other RBOC's
(Regional Bell Operating Companies) and utility companies have recently begun or
announced franchise applications or open video system and data construction
projects in their service areas.
Total construction expenditures by U.S. telephone, utility and cable companies
are projected to be $25 billion over the next seven to ten years. The U.S.
market represents a subset of the global demand for construction and allied
services. Global expenditure for each of the next seven years is estimated at
$70 billion.
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The recent consolidation of the TCI cable group into AT&T has spurred the demand
for construction upgrade services. In addition to the telephone companies
build-out and replacement business opportunities, there will also be demand for
out-sourced maintenance services for the new networks (once they are built).
C. NETSTAR COMMUNICATIONS INC.
BACKGROUND INFORMATION
Netstar Communications Inc. was formed in March 1997 as an Illinois corporation.
Netstar's current operations are located at 3490 East 83rd Place, Merrillville,
Indiana 46410.
Netstar currently provides communication system integration services, which
include, project management, design and engineering construction services for
broadband fiber-optic/coaxial video or telephony owners and developers such as
AT&T, TCI, MCI, Ameritech and other system providers.
The Company has been informed that Netstar has received new contracts from the
Black & Veatch LLP group; however, bidding for other potential contracts from
companies such as Ameritech in Michigan (to which Netstar has provided services
in the past), and other cable television and utility companies has been delayed,
pending Netstar's ability to fund its proposed expansion.
The Company has been informed that Netstar's mission is to target the increasing
need for project management, engineering, construction and operational services
to network operators and developers. The Company's management believes that
there is currently a lack of broad-based service companies with the ability to
provide these services on a nation-wide or global basis.
The services provided by Netstar include the aerial, underground,
splicing/activation and installation phases of network construction, more fully
described as follows:
o AERIAL CONSTRUCTION - refers to the aerial portion of the heavy duty
phase of the construction of communication networks. It entails
installing overhead cables on top of existing utility poles by a
technique known as "overlashing" (lashing a new cable on top of an
existing cable or strand or by the use of brackets).
o UNDERGROUND CONSTRUCTION ("U/G") - entails the use of trenching
machines, plows, pavement and concrete saws and directional boring
machines, as well as manual labor, to install underground cable or
cable ducts. Typical depths of U/G cable placement range between 24"
to 36"; however, there is considerable variance in actual placement
depending on the location, the equipment used, and the proximity of
other underground services.
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o SPLICING/ACTIVATION - refers to the installation of active and passive
devices (amplifiers, taps, splitters, etc) with the appropriate
connectors attached to the cables, based on systems design
configurations. A system energization phase is then initiated pursuant
to which the finished plant is certified.
o INSTALLATIONS - entails connecting single family or multi-dwelling
units ("MDU") to the distribution network by installing either an
aerial or a U/G "drop" connection to the building from the
distribution cable, as well as installing a main connection tap,
interior wiring, additional outlets, and ground connections. As a
final step, A set-top box or converter is installed.
o PROJECT MANAGEMENT - services related to the supervision of the
network construction. They include project management, materials
management and component pre-assembly. These services are frequently
required by customers contracting for turnkey construction services.
Project management services are usually provided on a cost-plus basis,
with full invoice disclosure. Project management is a good source of
ancillary revenue and represents another important means for Netstar
to position itself as a value-added provider.
o DESIGN ENGINEERING - refers to the process of providing engineering,
planning and drafting services which range from strand mapping to the
production of drawings, utilizing computer assisted design software.
Design services result in the production of detailed engineering
diagrams and specifications that are used to guide the network
construction or upgrade processes.
According to the management of Netstar, there is a growing market for splicing
and activation services for the "connectorization" of the fiber and coaxial
cables, and the replacement and "system-balancing" of active and passive devices
attached to the cables. These technical services require methodical, and high
standards of, workmanship, available only through well-trained and experienced
personnel. The Company proposes to put in place an extensive training program in
place to fulfill this need.
Netstar's customers usually supply the majority of the raw materials and
supplies necessary to carry out the contracted work. The Company will,
therefore, not be dependent on any single supplier for raw materials or
supplies.
NETSTAR'S MANAGEMENT
The current senior management of Netstar has over 75 years of collective
experience, giving it the ability to create an effective infrastructure with
which to build the business. Netstar will enjoy a competitive advantage due to
its solid project and business
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management experience which is needed to cultivate a strong, growth-oriented
company.
MR. GEORGE STEIGER, (49), PRESIDENT AND CHIEF EXECUTIVE OFFICER
Mr. Steiger has over 30 years of direct experience in the design,
construction and operation of large scale communications systems. Most
significantly, Mr. Steiger's was responsible for the construction of a major
portion of some of the most important cable TV systems in the greater
Chicagoland area in the 1980s.
Mr. Steiger began his career with the responsibility of constructing one of
the first fully bi-directional systems in Canada. In 1975, he joined Agra
Industries Inc. as Operations Manager of Kamloops Cable TV and was
responsible for the construction of Agra's 300 mile aerial and underground
plant. Subsequently, Mr. Steiger was promoted to VP-Engineering of Agra and
was asked to help develop a new Multiple System Operator ("MSO") named
Cablenet. Within four years, Cablenet was to become Canada's fifth largest
MSO.
In 1981, Mr. Steiger was promoted to Executive Vice-President of Cablenet and
was responsible for the development of the USA operations, including the
solicitation of 16 community franchises in the Chicagoland area and the turnkey
construction of a $72 million system.
In 1984, Mr. Steiger formed Steiger Communications and received the contract to
build Westinghouse's (Group W Cable) system in the city core of Chicago. He
successfully completed this project under budget. In 1986, he formed Premier
Cable Inc., which became a large private cable operator serving 30 large
apartment complexes and 12,000 customers. This company was sold to Triax
Communications Inc. of Denver, Colorado and in turn, was sold to Optel for $15
million. In 1988, Mr. Steiger formed Micronet Communications Inc., a
communications consulting firm, providing expertise on telephony and cable
projects throughout North America and Europe.
MR. MERVYN L. HUSSACK, (59). VICE-PRESIDENT, CORPORATE DEVELOPMENT
Mr. Hussack leads Netstar's marketing and corporate development activities.
He has over 27 years of senior level experience in broadband communications
and cable television, manufacturing, marketing and operations. Mr. Hussack
engineered the management-led buyout of Anaconda Electronics Inc. in 1977. As
President & CEO of Anaconda's successor, Century III Electronics Inc., he
grew the company into a major manufacturer of broadband and cable TV
equipment. Revenues increased seven-fold from 1977 to 1984, after which he
sold this highly successful entity to General Instrument Inc. of New York.
Thereafter, Mr. Hussack was actively involved in the development and
management of cable TV systems, both domestically and internationally,
including the installation of systems in the Caribbean. In 1993, Mr. Hussack
joined Northstar Capital Inc. as VP-Corporate Development and, along with Mr.
Steiger, was instrumental in establishing and securing contracts with major
USA telephone companies developing new cable TV systems. Mr. Hussack's
activities with Netstar have included one-on-one marketing efforts to the
Regional Bell Operating
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Companies (RBOC's) as well as major cable TV MSO's and utility companies
throughout North America. He is also responsible for maintaining ongoing
relations with Netstar's existing client base and for all promotional programs
of Netstar.
MR. JEETY BHALLA, (43), VICE-PRESIDENT, FIANCE AND CHIEF FINANCIAL OFFICER
Mr. Bhalla is responsible for the overall financial management of Netstar. He
also assists in the financial analysis of all potential investments and the
implementation of strategic plans. Prior to Netstar, Mr. Bhalla was previously
Vice-President Finance for Northstar Capital Inc. (formerly Pay Less Holdings
Inc.) in Vancouver, British Columbia from 1991 to 1994. During his tenure with
Pay Less, the company expanded from 50 to 100 gas outlets and acquired a public
company that was over three times its size.
Mr. Bhalla is a Chartered Accountant (CPA) and was a senior manager with
Deloitte Touche in Victoria, Canada, from 1980 until 1990. He left Deloitte
Touche to form a private accounting practice (Bhalla & Company). One year after
forming Bhalla & Company, Mr. Bhalla was hired by his largest client, Pay Less
Holdings, as Vice-President Finance.
MR. WARREN MACE, (48), CONSTRUCTION MANAGER
Mr. Mace has over 30 years of construction experience, and has been with Netstar
since its incorporation. He assisted senior management in the hiring and
training of journeymen, technicians, crew supervisors and trainees. He oversees
all phases of aerial and underground construction operations and approves the
hiring of all new technical employees. His inter-personal skills have resulted
in motivated, highly productive personnel and a minimal amount of employee
turnover. He began his career at Burnip & Sims and has been associated with the
senior management since 1995.
NETSTAR'S FINANCIALS
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Actuals Proforma
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Yr End For 11 Mths Yr1 Yr2 Yr3 Yr4 Yr5
(9 Mths) Period
Dec/31/97 Nov/30/98
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Sales $ 642,798 $ 1,037,295 $13,250,300 $14,575,330 $16,761,630 $19,275,874 $22,167,255
Net Income (loss) (595237) (487498) 2390615 2845278 3976428 5331197 6948604
Change in Cash 205664 (266053) 1518794 3134881 3783237 5117177 6707656
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NETSTAR'S PAST WORK HISTORY
Netstar Communications Inc., and its senior management, have extensive
experience in construction and the provision of project services in the
communications field, specifically:
AMERITECHMICHIGAN, ILLINOIS, OHIO - Prime full service contractor (as NST
Network Services) for their Hybrid Fiber/Coax Cable TV systems; built over
1,000 miles of aerial and underground plant.
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GTE FLORIDA - Aerial and underground contractor of their HFC cable TV systems
in the Clearwater and St. Petersburg areas, covering over 250 miles of
aerial and underground plant.
GROUP W CABLE (Westinghouse), CHICAGO, IL - Prime contractor for over 700 miles
of CATV plant serving 495,000 homes. This was an extensive, dense, urban
underground construction including directional boring, plowing, etc. Also
included aerial plant and designed/installed master and regional head-ends,
etc.
CABLENET LIMITED, CHICAGO, IL - Designed and constructed over 1,400 miles of
dual interactive 450 MHZ cable TV plant and included the world's first dual
AML 120 channel microwave system with a video synchronized,
frequency-locked head-end. Also, over 60,000 aerial and U/G home
installations.
MO SOUTHWESTERN CABLE, ST. LOUIS, MO - Prime contractor for 600 miles of
aerial and underground CATV plant serving nine communities in the St. Louis
suburbs. Participated in EEO, WBE, MBE programs.
CABLENET LIMITED, KAMLOOPS, BRITISH COLUMBIA - Managed the construction of 300
miles of underground and aerial placement of CATV plant, including head-end
and subscriber installations.
VARIOUS INTERNATIONAL - CARIBBEAN, KUWAIT, EUROPE - Completed numerous small
projects and complete system builds representing thousands of miles of
aerial and underground CATV plant.
D. PRODUCT DESCRIPTION
The network construction market involves four phases, namely:
o aerial construction;
o underground construction;
o splicing and activation; and
o installation of subscribers.
Additional business opportunities are also available in the project management
and design engineering areas, in which Netstar has had previous experience. The
Company feels that being a "full-service" provider of the above-referenced
services will effectively distinguish Netstar from the multitude of limited
service providers in the marketplace. Initially and whenever possible, the
Company will utilize Netstar's extensive industry contacts to hire the project
engineering expertise on a sub-contract basis, until such time the workload is
sufficient to justify an "in-house" capability.
E. COMPETITION
The industry in which the Company competes is highly competitive and fragmented.
Netstar competes with a number of contractors in the markets in which it
operates, ranging from small independent firms servicing local markets to larger
firms servicing
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regional markets. The Company will also compete with large national and
international equipment vendors on turn-key projects that subcontract
construction work to contractors other than Netstar. These large equipment
vendors typically are better capitalized and have greater resources than the
Company. Most companies engaged in the same or similar business tend to operate
in a specific, limited geographic area, although larger competitors may bid on a
particular project without regard to location. Currently, no single entity is
considered dominant in the industry. The Company will also face competition from
the in-house construction and maintenance departments of RBOC, and other
customers and potential customers, which perform some, or all, of the types of
services provided by Netstar.
Competition in constructing hybrid fiber-coaxial cable networks is limited to
those qualified full-service contractors that have the resources to mobilize the
significant capital equipment required for the large scale networks which the
telephone, utility and cable TV companies are developing. At present, Mastec,
Amerilink, Cable Com Inc., Ervin Cable, and Irwin Utilities, appear to be the
Company's primary potential competitors.
o LUCENT TECHNOLOGIES is a leading provider of telecommunications
equipment and systems throughout the world, but has not traditionally
constructed cable TV networks. Other hardware suppliers such as
General Instrument and Scientific Atlanta, are also now providing
expertise to the system operators for the activation of their
respective equipment in recently upgraded facilities.
o AMERILINK primarily builds line extensions for cable TV companies and
fulfilling a substantial contract on drop connections for GTE in
Florida.
o MASTEC, a consortium of contractors, provides cable construction
services to several telephone companies, including BellSouth, US West
and SBC Communications, Inc. They are also pursuing cable and
telephony construction in South America and other international
markets.
o CABLE COM INC. is a nationwide provider of installation services to
the utility, telephone and cable industries.
o ERVIN CABLE is a well-established regional contractor, providing
services to all segments of the broadband markets. Irwin Utilities of
Texas is one of several underground contractors with specialized
directional boring machines, ploughs, trenchers, etc., for the
telephone and cable markets on a semi-national scale.
o THE "MOM AND POP" local and regional contractors, which built the vast
majority of the existing cable infrastructure, generally do not build
to the high technical specifications required by telephone and/or
utility companies for their advanced networks. This creates a big
opportunity for upscale, proven contractors such as Netstar.
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Netstar's extensive knowledge of the operational issues facing communication
contractors, will give the Company the competitive advantage of being able to
design and deliver value added services and programs specifically tailored to
meet the requirements of operating companies. This potential advantage will
position the Company to bid for the more lucrative arrangements as operating
companies look to proven contractors like Netstar.
COMPETITIVE STRENGTHS
The Company feels that it will differentiate itself from its competitor by:
o STRONG CUSTOMER RELATIONSHIPS - Netstar has developed strong
relationships with numerous telecommunications service providers by
providing high quality services in a cost, and time, efficient manner.
o DIVERSE CUSTOMER BASE - Netstar currently provides a full range of
infrastructure services to a diverse customer base. Netstar provides
outside and inside plant services to local exchange customers carriers
such as AT&T, TCI, MCI, Ameritech, and other system providers
throughout North America.
o TURN-KEY CAPABILITIES - Netstar believes it will be one of the few
contractors (through sub-contractors) capable of providing all of the
design, installation and maintenance services necessary for a cable or
wireless network, from a transmission point, such as a central office
or head-end, through aerial and underground cables to the ultimate end
users' voice and data ports, cable outlets or cellular stations.
Netstar can also install the switching devices at a central office or
set up local and wide area voice, data and video networks to expand a
business' telecommunications infrastructure both inside a specific
structure or between multiple structures.
o BROAD GEOGRAPHIC PRESENCE - The Company intends to significantly
broaden its geographic presence through strategic acquisitions. With a
broad geographic presence, the Company believes that it is will be
well suited to service customers with operations across the United
States, as well as multinational corporations and telecommunications
service providers that are expanding into international markets. In
addition, by developing its business in many geographic regions, the
Company believes it is less susceptible to negative changes in the
market dynamics in any one region.
o MANAGEMENT EXPERTISE - The relative strengths of the Netstar group is
the experience of its senior management in building new broadband
systems and in upgrading existing cable TV systems. With over 75 years
of combined experience, Netstar is well poised to successfully roll
out an aggressive expansion program and meet the target objectives.
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The Company believes that Netstar's customers are increasingly seeking
comprehensive solutions to their infrastructure needs by turning to the limited
number of qualified contractors that have the size, financial capability and
technical expertise to provide a full range of infrastructure services. The
Company believes that this trend will accelerate as industry consolidations
increase and as these consolidated entities begin to provide bundled services to
end users. The Company also believes it will have positioned itself, through
acquisitions and internal growth, as a full service provider of outside plant
and inside wiring infrastructure services to take advantage of this trend.
THREATS
The main threats to the Company will be its inability to consummate the Netstar
transaction. In the event such transaction is consummated, the main threat to
the Company will be the loss of key senior management personnel and the loss of
key contracts. To minimize these factors, the Company intends to implement
attractive management contracts with bonuses, stock options, and other
incentives. Loss of contracts will likely be due to the very high demand for
these services and the very low supply of suitable experienced contractors to
fulfill this need.
PRICING
Contracts are usually priced based on an approximate projected gross margin of
50%, or more, depending on competitive average productivity and other related
factors. The Company approximates revenue for aerial placement of fiber/coaxial
cables to be about $4,000.00 per mile, splicing about $3,700.00 per mile, and
underground placement of duct and cable about $38,000.00 per mile.
F. THE MARKET
The Company's primary business opportunities will be the construction of new
hybrid fiber/coaxial ("HFC") broadband systems and the upgrading of existing
cable television systems in the United States (especially in the Midwest -
Indiana, Illinois and Michigan). The Company will actively seek alliance
relationships in order to assist Netstar in reaching optimal levels of
performance. Management feels that once funding is obtained, it can then
undertake the necessary marketing efforts to achieve its objectives to expand
its services and diversify Netstar's client base. The corporate strategy will be
to provide Netstar's services to various segments of the communications market
and avoid any unexpected pitfalls. In keeping with the its corporate philosophy,
the Company fully intends to activate the consolidation approach and
aggressively pursue suitable companies to acquire.
G. MARKET POTENTIAL
The market potential for communications services in outside plant environments
is substantial throughout the United States and globally. Based on some of the
recently announced projects of telephone, utility and cable television
operators, estimated construction expenditures are conservatively expected to
exceed $33 billion over the next seven years in the USA alone. The demand for
communications service
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companies is expected to be greater than the supply, and as a consequence, a
severe shortage of qualified and experienced technical personnel is projected.
In North America, the market size of the construction services to the broadband
communications industry is estimated at $4.5 billion to $5.5 billion for each of
the next five years, before decreasing on a gradual basis, at which point the
out-servicing and maintenance sector will enjoy a larger percentage of the
services to be provided by the telephone companies. New technology will continue
to force the network providers to maintain state-of-the-art services to its
subscribers and to provide ongoing business opportunities to system integrators
and contractors such as Netstar.
TRENDS
The present race to provide a variety of services to homes and businesses in the
U.S., has been preempted by the present focus on the Internet. The Internet is
fast becoming a gigantic global catalog where goods and services can be
purchased by anyone, anywhere, at almost the cheapest prices. Nearly 48% of
North American households have computers. U.S. telephone charges are among the
lowest in the world, and the U.S. general public is beginning to buy remotely
from catalogs. North America is leading the world in the use of the Internet.
This is supported by the fact that domestic and international high technology
and telecom giants are forging alliances and looking to expand in the internet
arena. New technologies and open competition among the telephone, utility and
cable television companies will continue to drive the demand for better and more
bandwidth facilities, as well as increase outsourcing opportunities.
H. MARKETING
TARGET MARKET
The Company's main markets will be:
o the cable television operators ;
o the new builds or over-builds by the telephone companies and the
utility companies that are looking to expand their horizons in
offering new services such as video, data, security or other consumer
services on the same entry line into the home.
The Company's marketing thrust will consist of the following programs, namely:
o executive sales visits, supported by a direct fax/mail campaign and
trade journal advertising;
o sales aids such as a color brochure highlighting the Company's
capabilities and achievements; and
o distribution of corporate information packages at major industry trade
shows with the cooperation of selected exhibitors press releases, and
promotional give-aways to customers.
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o the Company's marketing team will make presentations to the senior
management of potential clients recruiting a "Contract Administrator"
to manage client relations after contracts are executed.
PROMOTIONAL SUPPORT
In addition to the day-to-day marketing, operational and acquisition activities,
the Company also endeavors to establish a presence at trade shows and in trade
publications. Promotional brochures and specialized direct-mail campaigns will
also be used, when appropriate. Press releases will also be utilized to help
create company name recognition.
I. PROPRIETARY TECHNOLOGY
To-date, the Company has made no cash expenditure on research and development.
The Company has not yet commenced operations and is not dependent on any
proprietary information and/or licensing agreements. Competing technology
enabling others to offer the same product and/or service as the Company already
exists. This sector is relatively easy to enter with affordable start-up and
operating costs.
The Company will not have any patents covering its products/services and there
can be no assurance that the Company will be able to protect its proprietary
rights, if any, thereto. In order to reduce the competitive forces, the Company
intends to enter into long-term service contracts with its contractors and
strategic partners. The commercial success of the Company may also depend upon
its products/services not infringing any intellectual property rights of others.
J. REGULATIONS
Cable television operators are subject to federal regulation. In 1992, Congress
passed an act that repealed the 1984 deregulation of cable television and
subjected cable systems to rate regulation and other FCC-enforced obligations.
In 1996, Congress passed the 1996 Telecommunications Act which repeals many of
the provisions of the 1992 Act. Current FCC rules regulating cable service rates
will be repealed in three years, except for the "basic tier" of cable
programming. Price caps for "small" cable companies (less than $25 million in
annual revenues) have been repealed. It is difficult to predict the impact, if
any, this legislation may have on the telecommunications industry.
The Company's ability to pursue its business activities will be regulated,
directly or indirectly, by various agencies and departments of state
governments. Licenses from public utilities commissions are frequently required
prior to the commencement of services by the Company and its clients. There can
be no assurance that the Company or its customers will be successful in their
efforts to obtain necessary licenses or regulatory approvals. The Company's
inability or the inability of any of its customers to secure any necessary
licenses or approvals could have a material adverse effect on our business.
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<PAGE>
In addition to specific regulations, the Company is subject to all federal,
state and local rules and regulations imposed upon businesses generally. The
cost of compliance with regulations is an additional cost of doing business for
us.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
A. OPERATIONAL PLAN
The Company intends to pursue a disciplined strategy of growth and
diversification in its core business through strategic acquisitions and internal
expansion as follows:
STRATEGIC ACQUISITIONS -
o pursue strategic acquisitions in the fragmented telecommunications and
utilities infrastructure industry that either expand its geographic
coverage and customer base or broaden the range of services it can
offer to clients
o focus its proposed acquisition efforts primarily on companies with
successful track records and strong management
o improve the acquired companies' operating performance by providing
strategic guidance, administrative support, greater access to capital
and savings in the cost of capital, purchasing and insurance costs
INTERNAL EXPANSION -
o capitalize on anticipated growth as RBOCs, and other utilities in the
United States, which still conduct a significant portion of their
construction work in-house, which will in the future streamline their
operations and focus on their core competencies, thereby increasingly
outsourcing their infrastructure construction needs.
o Netstar's reputation for quality and reliability, operating
efficiency, technical expertise, and ability to offer a full range of
construction services will make it well positioned to compete for the
aforesaid business, particularly the larger, more technically complex
infrastructure projects.
In addition to focusing on Netstar's core telecommunications customers, the
Company plans to achieve incremental growth by developing complementary lines of
businesses. These businesses potentially include premise wiring services to
concrete entities, and infrastructure construction services to the power
industry and to other public utilities.
The Company proposes to have regional operations typically requiring the
following:
o small office area of about 2,000 square feet;
o warehouse of about 4,000 square feet; and
o large open yard of at least 10,000 square feet, for the storage of
vehicles and equipment.
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Netstar currently has an office in Chicago and a warehouse and outside storage
area in Merrillville, Indiana. A consolidation of the office facilities into an
adjacent location to Merrillville warehouse is expected in the near future.
General personnel requirements will include the following:
o office and secretarial staff;
o warehouseman, an assemblyman, and a maintenance person; and
o construction team will include a construction manager, crew
supervisors, journeymen line personnel, technicians and trainee
laborers.
The Company intends to remunerate each crew member on a production basis or by
the footage of production, rather than on an hourly or salaried basis. Crew
members will need to purchase and carry prescribed tools, harnesses, boots,
etc., as appropriate for their job functions. The Company will enjoy the
benefits of controlled direct labor costs.
The Company intends to initiate an aggressive training program, aimed primarily
at producing adequate numbers of qualified in-house personnel to support the
potentially high demand for coaxial splicer services. The Company also hopes to
attract well qualified applicants and maintain them as journeymen splicers over
the long term.
General equipment requirements will include the following:
o aerial crews will require lashers, bending boards, generators, tools,
etc.;
o underground crews will require more sophisticated equipment such as
trenchers, ploughs, directional boring machines, etc.;
o splicing and activation crews will require unique connector tools and
testing equipment; and
o installation crew will also require tools and testing equipment such
as field strength meters, etc.
The Company proposes to use specialized sub-contractors, especially in splicing
and activation, in its endeavor to reduce capital expenditure and operating
costs. In turn, sub-contractors will benefit from this program because they are
typically not capable of "financing" the average 30-day to 45-day payment terms
of most clients.
In the event that the Company is successful in acquiring Netstar, revenue is
expected to be generated primarily from telecommunications and other utilities
infrastructure services. Infrastructure services are provided to telephone
companies, public utilities, cable television operators, other
telecommunications providers, governmental agencies and private businesses.
Projected costs of revenue include subcontractor costs and expenses, materials
not supplied by the customer, fuel, equipment rental, insurance, operations
payroll and employee benefits. General and administrative expenses include
management salaries and benefits, rent, travel, telephone and utilities,
professional fees and clerical and administrative overhead.
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<PAGE>
COMPANY STRATEGY
In the event the Company is successful in meeting the milestone set forth in
Paragraph B below, it plans to grow at a steady rate in order to support the
growing needs of its business customers in both the outside and inside plant
environment. Specifically:
o offering a host of outside plant services in both the aerial and
underground formats; and
o expanding offerings to include other services such as consulting,
inside-wiring, and marketing amongst others, by utilizing the
expertise of Netstar's senior management
The Company believes it will be strategically positioned in pursuing
opportunities of growth and/or consolidation in Netstar's core business through
internal expansion and through acquisitions of other entities in the fragmented
telecommunications infrastructure construction industry. The Company's
management believes that the volume of business generated under Netstar's
existing contracts will increase as a result of the increase in demand for
Netstar's services. The Company intends to continue providing services to
Netstar's existing customers and, if possible, to extend these agreements beyond
their current terms. In addition, the Company believes that Netstar's reputation
for quality and reliability, operating efficiency, financial strength, technical
expertise, presence in key geographic areas and ability to achieve economies of
scale, provide competitive advantages in bidding for and winning new contracts
for telecommunications infrastructure projects. The Company through Netstar
intends to aggressively pursue the larger, more technically complex
infrastructure projects where its competitive advantages will have the greatest
impact.
The Company plans to make strategic acquisitions, specifically:
o to expand its geographic coverage;
o to expand Netstar's customer base without the risks and expense of
start-up operations;
o to acquire additional management talent for future growth; and
o to improve operating margins through economies of scale, such as the
elimination of redundant administrative overhead and more efficient
utilization of personnel and equipment. Enterprise-wide economies of
scale, particularly with respect to equipment purchases will also be
achieved
THE COMPANY'S GOALS
The management of the Company is confident that its strategy to consolidate
small communications construction companies in the USA will succeed and it will
endeavour to make the Company one of the premier "full service integrators" in
the industry, capable of providing a full range of services from the design and
engineering stage through to the physical placement of fiber/coaxial cables, and
related devices, testing and Federal Communication Commission ("FCC") proof of
performance certification. The management of the Company, in conjunction with
Netstar, has identified several acquisition targets and is continuing to solicit
interest from other entities that fit within
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<PAGE>
the consolidation strategy of the Company. It is a critical aspect of the
strategy to ensure that targeted companies cover all spectrums of the system
integration process, including design, construction (aerial and underground),
splicing, activation services and general utility wiring. In this manner, the
Company will be able sustain a slowdown in the cable TV, telephony or utility
markets, without serious financial consequences.
The following synopsis represents the Company's PROJECTIONS over its first five
years of commercial operations, taking into consideration future acquisitions
and/or mergers.
YEAR 1 - GROSS REVENUES OF $13.25 MILLION;
- ------------------------------------------
o Income of $2.39 million.
o Establish second location to service the Illinois market.
o Acquisition of three suitable contractors.
YEAR 3 - GROSS REVENUES OF $16.76 MILLION;
- ------------------------------------------
o Income of $3.97 million.
o Establish a minimum of six locations to service the Midwest USA.
o Acquisition of ten suitable contracting firms.
YEAR 5 - GROSS REVENUES OF $22.17 MILLION;
- ------------------------------------------
o Income of $6.95 million.
o Establish three regional operations to service all of the USA
o Acquisition of fifteen suitable contracting, design or related firms.
It is entirely possible that none of the aforesaid projections will ever be met.
B. MILESTONES
The Company is currently in its very early stage of development, and expects to
reach milestones more fully set forth below by entering into agreements with one
or more investors or investor groups. The Company currently requires $800,000 in
capital to commence commercial operations, which it proposes to raise from
overseas financial institutions and/or wealthy individuals.
<TABLE>
<CAPTION>
COMPLETION
<S> <C>
Complete Final Round of Financing August 31, 1999
Formalize agreement with Netstar August 31, 1999
Development of Marketing Plan September 30, 1999
Sourcing Additional Contracts October 31, 1999
Establish second location in Illinois November 30, 1999
Sourcing Acquisitions/Mergers November 30, 1999
Staff Hiring and Training January 31, 2000
Implementation of Marketing Plan February 28, 2000
Develop Strategic Partnerships May 31, 2000
</TABLE>
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In the event the Company has not achieved certain milestones, or consummated a
$800,000 financing by August 31, 1999, the Company will have (i) severe cash
flow and liquidity problems, and (ii) may cease at that point to be a viable
commercial entity. There can be no assurance that the Company will be able to
consummate such financing before such date, or that even if such financing is
consummated on or before such date, that the Company will not face liquidity
problems or that each financing will be on economic and other terms acceptable
to the Company.
On June 23, 1998, the Company entered into a Letter pursuant to which the
Company has the option to acquire 100% of the issued and outstanding voting
shares of Netstar Communications Inc. Netstar is a State of Illinois private
company, incorporated on March 1997, with principal office in Merrillville,
Indiana, USA, and is already engaged in the business of communications system
integration and contracting. Pursuant to the terms of the Letter of Intent, the
closing date of the transaction shall be on or about August 31, 1999, or as soon
as possible thereafter and shall be predicated upon the successful consummation
of a $800,000 private placement of the Company's shares of Common Stock, and
upon the company successfully getting NASD approval to have its shares of Common
Stock traded on the OTC Bulletin Board.
Since its incorporation, the Company has successfully completed its first round
of financing pursuant to which it has raised approximately $219,000. The Company
has, therefore, reached its first milestone (i.e. raising $200,000). The Company
proposes to complete its second round of financing, in the amount of $800,000,
by August 31, 1999.
C. FINANCING REQUIREMENTS
The Company, after its acquisition of Netstar, will require a total equity
investment of $800,000 to be made during the first 24 months of operations. All
proceeds raised will be used specifically for start-up costs, purchase of
capital assets, marketing and for working capital.
<TABLE>
<S> <C>
PHASE I -
EQUIPMENT AND START-UP COSTS $ 60,000
CONSULTING $ 30,000
MARKETING $ 10,000
WORKING CAPITAL $100,000
--------
$200,000
--------
PHASE II -
WORKING CAPITAL $600,000
--------
TOTAL REQUIREMENTS $800,000**
--------
--------
</TABLE>
** THE COMPANY'S AVAILABLE WORKING CAPITAL WILL BE SUFFICIENT TO MEET
ITS ADMINISTRATION COSTS FOR APPROXIMATELY 12 MONTHS. THE COMPANY WILL
SPEND THE FUNDS AVAILABLE TO IT TO SEEK THE BALANCE OF THE FINANCING
TO CARRY OUT ITS PROPOSED PLAN.
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<PAGE>
The net proceeds from offerings that are not expended immediately may be
deposited in interest or non-interest bearing accounts, or invested in
government obligations, certificates of deposit, commercial paper, money market
mutual funds or similar investments. The Company is currently not in arrears of
the payment of dividends, interest, or principal payment on borrowing, nor is
the Company in default on any debt covenants at the present time or during the
most recently completed financial statements.
D. WORKING CAPITAL REQUIREMENTS
In the event that the Company does not succeed in consummating the said private
placement financing on or before August 31, 1999, the Company may be unable to
operate and will have severe cash flow and liquidity problems which may force it
to immediately cease conducting business.
The Company is not in default or in breach of any note, loan, lease or other
indebtedness or financing arrangement requiring the Company to make payments.
There are no significant amounts of the Company's trade payables. The Company is
not subject to any unsatisfied judgments, liens or settlement obligations.
The following table sets forth selected audited financial information with
respect to the Company for the periods indicated. The data is derived from
financial statements prepared in accordance with accounting principles generally
accepted in Canada ("Canadian GAAP"), which differ in certain respects from
those in the United States. See Part F/S, Exhibit I (Note 8) of the audited
financial statements included elsewhere in this filing for certain
reconciliation's to accounting principles generally accepted in the United
States ("US GAAP"). The selected financial data should be read in conjunction
with "Management's Discussion and Analysis or Plan of Operation," and the
audited financial statements and accompanying notes included elsewhere in this
Filing.
BALANCE SHEET DATA (IN U.S.$)
AS AT JANUARY 21, 1999
----------------------------------------------------------
<TABLE>
<S> <C>
Cash $153,772
Working Capital $114,772
Total Assets $155,772
Shareholders' Equity $116,772
----------------------------------------------------------
</TABLE>
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<PAGE>
INTERIM STATEMENT OF LOSS DATA (IN U.S.$)
FROM JUNE 17, 1998 TO JANUARY 21, 1999
----------------------------------------------------------
<TABLE>
<S> <C>
Revenue $ 0
Expenses $ 94,228
Net Loss for the Period $ 94,228
Net Loss per Common Share $ (0.011)
Shares Outstanding 8,300,000
</TABLE>
CHANGE IN NUMBER OF EMPLOYEES
The Company does not expect to hire any additional employees until the
consummation of its purchase of Netstar.
E. RISK FACTORS
a. SUCCESS OF BUSINESS - The Company may not be successful in its effort to
further its Business upon the acquisition of Netstar's stock. Even if the
Company were to successfully meet the goals set forth in its business plan, the
aforesaid goals may not be achieved within the respective time-frames set forth
therein. The limited extent of the Company's assets and the Company's stage of
development as well as the Company's limited operating history make it subject
to the risks associated with start-up companies.
b. MANAGEMENT - The Company's present management structure, although adequate
for the early stage of its operations, will likely require to be significantly
augmented as operations commence and expand. The ability of the Company to
recruit and retain capable and effective individuals is unknown, although there
are many such people within the industry worldwide. The Company's current
officers have no prior experience in the industry. The loss of the services of
its current officers, or the inability of the Company to attract, motivate and
retain highly qualified executive personnel in the future, could, if and when
the Company commences commercial operations, have a material adverse effect upon
the Company's operations.
c. COMPETITION - The Company intends to enter into markets which are relatively
new and are, therefore, difficult to predict in terms of the level of demand for
the Company's product and services. In addition, such markets are or likely will
be subject to intense competition from both private and public businesses
nationally and/or around the world, many of whom have greater financial and
technical resources than the Company. Such competition as well as any future
competition may adversely affect the Company's success in the marketplace. There
can be no assurance that the Company will be able to successfully compete
therewith.
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<PAGE>
d. FINANCIAL ASSUMPTIONS - The Company will rely on internally prepared
forecasted financial statements, which are predicated on certain assumptions,
including assumptions of revenue and expense and the occurrence of certain
future events, which in turn were based on management's considered assessment of
prevailing conditions and management's best estimates of future events. Should,
for example, product yields or prices deviate from the levels assumed in the
internal forecasted statements, then the Company's projected revenue and profits
will be adversely affected. Similarly, should the Company's actual costs exceed
the assumed levels, then the impact on the Company's projected profits would
likewise be adverse. In the final analysis, any return to an investor in the
Company will in large part be determined by management's ability to execute the
Company's plan as projected, and there can be no assurances provided of their
success with respect thereto. There can be no assurances whatsoever as to the
future financial performance of the Company. They are based upon current
information and certain extrinsic factors, some of which are beyond the control
of the Company, and/or subject to various assumptions, such as the Company's
ability to obtain additional financing and its ability to implement its plan.
e. ABSENCE OF OPERATING HISTORY - The Company was incorporated on June 17, 1998
and has yet to commence operations. To date, the Company has attempted to raise
capital to fund the implementation of the initial goals. The Company has no
revenues from operations, has yet to produce a profit and, has no significant
assets. Failure to achieve projected rates of market penetration could
significantly affect the Company's pattern of revenues and expenses, and
accordingly future cash flow. Therefore, investors should be prepared to bear
the economic risk of losing their entire investment.
f. PUBLIC MARKET - There is not now, and there may never be, a public market of
any kind for the securities issued by the Company, including the Shares. There
is no assurance that the price of the Shares in any market which may develop
will be greater than the offering price. As a result of these factors, holders
of the Company's Common Stock may not be able to liquidate their investment.
g. PENNY STOCK - The Company's securities may be deemed "penny stock" as defined
in Rule 3a51-1 of the Securities and Exchange Act of 1934, as amended. Such a
designation could have a material adverse effect on the development of the
public market for shares of the Company's common stock or, if such a market
develops, its continuation, since broker-dealers are required to personally
determine whether an investment in such securities is suitable for customers
prior to any solicitation of any offer to purchase these securities. Compliance
with procedures relating to sale by broker-dealers of "penny stocks" may make it
more difficult for purchasers of the Company's common stock to resell their
shares to third parties or to otherwise dispose of such shares.
h. ABILITY TO RAISE ADDITIONAL CAPITAL - The Company may not be able to raise
additional funds for expansion and/or growth; and, if not available, the
investors may lose their entire investment. Additional financing may come in the
form of securities offerings or from bank financing. If additional shares are
issued to raise capital, existing
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<PAGE>
shareholders will suffer a dilution of their stock ownership in the Company,
however, the book value of their shares will not be diluted, provided additional
shares are sold at a price greater than that paid by any of them. Management of
the Company currently does not anticipate that subsequent Offerings will dilute
the book value of its common stock. In the event the Company has not achieved
certain milestones, or consummated a $800,000 financing by August 31, 1999, the
Company will have (i) severe cash flow and liquidity problems, and (ii) may
cease at that point to be a viable commercial entity.
i. INDEMNIFICATION OF OFFICERS - Pursuant to the Company's Articles of
Incorporation, the Company's management is indemnified by the Company against
liabilities for any act performed in their capacity as agents of the Company to
the maximum extent permitted by Nevada law. Amounts paid in satisfaction of such
indemnification obligations will increase the Company's expenses, and negatively
impact its operating results.
j. POTENTIAL CONFLICTS OF INTEREST - The officers and directors will not be able
to devote full time to the affairs of the Company as each has other business
interests to which they devote some of their time.
k. NO FORESEEABLE DIVIDENDS - The Company does not anticipate paying dividends
on its Common Stock in the foreseeable future but plans to retain earnings, if
any, for the operation, growth and expansion of its business.
l. PERMITS AND LICENSES - The operations of the Company may require licenses and
permits from various governmental authorities. There can be no assurance that
the Company will be able to obtain all necessary licenses and permits that may
be required to carry out its plan.
m. INTELLECTUAL PROPERTY - The Company does not have any patents for its
technology and there can be no assurance that the Company will be able to
protect its proprietary rights, if any, from use by its competitors. The
commercial success of the Company may also depend upon its products and services
not infringing any intellectual property rights of others and upon no such
claims of infringement being made.
n. CURRENCY FLUCTUATION - The Company's potential operations make it subject to
foreign currency fluctuation and such fluctuation may adversely affect the
Company's financial position and results. Management will undertake to hedge
currency risks by negotiating its joint venture agreement cash receipts in U.S.
dollars. There can be no assurance that steps taken by management to address
foreign currency fluctuations will eliminate all adverse effects and
accordingly, the Company may suffer losses due to adverse foreign currency
fluctuation. Such fluctuations may also influence future contribution margins.
o. CURRENT TECHNOLOGY - The technology necessary to create a service such as the
one the Company will be offering exists today and is readily accessible,
therefore, there would be ease of entry and exit for would-be competitors. The
Company's services and products are subject to significant technological change
and innovation. Technological developments are occurring rapidly in the
communications and systems integration
22
<PAGE>
industries and, while the effects of such developments are uncertain, they may
have a material adverse effect on the demand for our services. For example, in
the CATV industry, technologies are being developed that would bypass existing
cable systems and permit the transmission of signals directly into households.
The Company's success will generally depend on its ability to penetrate and
retain markets for existing services and to retain expertise in installing and
repairing telecommunications, CATV cable and integrated systems on a
cost-effective and timely basis. The Company cannot assure investors that it
will be able to remain competitive or that its products and services will not be
subject to technological obsolescence.
p. MANAGEMENT OF GROWTH - The Company cannot assure investors that it will
successfully assimilate new acquisitions into the Company's existing business
operations. The Company can also give the investors no assurance that it will be
successful in expanding the businesses of new acquisitions, that new customers
can be attracted as anticipated, or that there will be a continued, if any,
demand for the services of the Company's new acquisitions' technology, products
or expertise in new and competitive markets. If the Company's management is
unable to manage growth effectively, to maintain the quality of its products and
services and to retain key personnel the Company's business, financial condition
and results of operations could be materially adversely affected.
q. RISK ASSOCIATED WITH THE YEAR 2000 - The Year 2000 issue is the result of
computer programs written using two digits rather than four to define the
applicable year. As a result, date-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in system
failures or miscalculations causing disruptions of operations, including, among
others, a temporary inability to process transactions, send invoices or engage
in similar normal business activities. Management believes that the Company does
not have a material exposure to the Year 2000 issue with respect to its own
information systems since its existing systems correctly define the Year 2000.
The Company intends to conduct an analysis throughout its development stage to
determine the extent to which its major suppliers' systems (insofar as they
relate to the Company's business) are subject to the Year 2000 issue. The
Company is currently unable to predict the extent to which the Year 2000 issue
will affect its suppliers, or the extent to which it would be vulnerable to its
suppliers' failure to remediate any Year 2000 issues on a timely basis.
r. DEPENDENCE UPON MAJOR CUSTOMERS AND LARGE CONTRACTS - The CATV industry is
highly concentrated with most of U.S. domestic subscribers being served by
approximately 25 major multi-system operators ("MSO"). Any decision by these
major customers to cease or reduce their use of our services may have a material
adverse effect on our business. The failure to timely or adequately replace a
large contract upon its completion or termination with one or more new contracts
or customers may materially adversely affect our business and operations.
s. REGULATORY DELAYS - Typically, franchise applications must be submitted to
the city council for approval before construction and permitting can begin.
Unexpected delays in issuance of franchises could adversely affect the timing of
network construction and, in turn, the Company's revenues.
23
<PAGE>
t. DEPENDENCE ON TELECOMMUNICATIONS AND CATV INDUSTRIES - Demand for a
substantial portion of the Company services, and therefore future increases in
its net sales and net income, depends primarily on capital spending by CATV
operators, telecommunications and other companies for constructing, rebuilding,
maintaining or upgrading their telecommunications systems. However, the Company
expects future revenue increases to come primarily from upgrading, retrofitting,
rebuilding and maintaining existing cable systems with fiber-optic and other
cables, and from the sale of telecommunications equipment, rather than from
constructing completely new systems.
The amount of capital spending by CATV operators and telecommunications
companies and, therefore, the Company's sales and profitability, are affected by
a variety of factors, including general economic conditions, access by cable
operators to financing, government regulation of cable operators, demand for
cable services and technological developments in the broadband communications
industry. The Company cannot assure investors that such capital spending will
occur or occur at the level announced by the various telecommunications and CATV
companies. Federal regulations rolling back rates for basic tier CATV services
may have a negative impact on the capital spending plans of the CATV companies
and thus have a material adverse affect on our business.
u. COST ESCALATION UNDER FIXED PRICE CONTRACTS - On an historical basis a
substantial portion of revenues will be generated principally under firm
fixed-price contracts. Fixed-price contracts carry certain inherent risks,
including underestimating costs, problems with new technologies and economic and
other changes that may occur over the contract period. Unforeseen events and
circumstances can alter our estimate of the costs and potential profit
associated with a particular contract. To the extent that original cost
estimates are modified, estimated costs to complete increase, delivery schedules
are delayed, or progress under a contract is otherwise impeded, cash flow,
revenue recognition and profitability from a particular contract may be
adversely affected.
v. CANCELLATION CLAUSES IN CONTRACTS; FAILURE TO WIN BIDS - Many of the
Company's contracts with its customers, including most of its master contracts,
will be subject to cancellation by the customer without notice or on relatively
short notice, typically 90 to 180 days, even if the Company is not in default
under the contract. There can be no assurance that the Company's customers will
not terminate contracts pursuant to these termination clauses even if the
Company is in compliance with the contract. Many of the Company's potential
contracts, including master contracts, will also be opened to public bid at the
expiration of the contract term, and there can be no assurance that the Company
will be the successful bidder on existing contracts that come up for bid.
Cancellation of a significant number of contracts or the failure of the Company
to win a significant number of potential contracts could have a material adverse
effect on the Company.
Note: In addition to the above risks, businesses are often subject to risks not
foreseen or fully appreciated by management. In reviewing this Offering,
potential investors should keep in mind other possible risks that could be
important.
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<PAGE>
F. RESULTS OF OPERATIONS
a. REVENUES -The Company is a development stage enterprise that has earned no
revenue since its inception. The Company believes that future revenues will
result primarily from telecommunications and other utilities infrastructure
services. Infrastructure services are provided to telephone companies, public
utilities, cable television operators, other telecommunications providers,
governmental agencies and private businesses. The Company currently has no sales
or order backlogs.
b. COST OF REVENUE - Since its inception, the Company has incurred no costs of
revenues. The Company expects that future cost of revenues will consist of
payments to third parties from subcontractor costs and expenses, materials not
supplied by the customer, fuel, equipment rental, insurance, operations payroll
and employee benefits.
c. SALES AND MARKETING EXPENSES - Since its inception, the Company has incurred
no sales and marketing costs. The Company expects that future costs will consist
primarily of costs associated with the Company's various strategic alliances,
external advertising, promotion, trade show, advertising sales and personnel
expenses associated with marketing of the Company's products and/or services.
d. GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses
currently consist of management consulting fees, accounting, legal and
expenditures for applicable overhead costs. The Company expects general and
administrative expenses to continue to increase in absolute dollars as the
Company expands its staff and incurs additional costs related to the growth of
its business.
e. LACK OF COMMITMENTS AND ORDERS -There are currently no commitments for any of
the Company's products or services.
ITEM 3. DESCRIPTION OF PROPERTY
The Company does not presently own or lease any properties and at this time has
no agreements to acquire any properties. The Company's office space is provided
by Joist Management Limited on a rent free basis and it is anticipated that this
arrangement will remain until such time as the Company successfully consummates
a merger or acquisition. Management believes that this space will meet the
Company's needs for the foreseeable future. The Company plans to move to
different facilities as its customer base expands and it upgrades equipment. The
Company has no investments in real estate, securities, or other forms of
property.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Company's issued and outstanding shares of Common Stock as of
March 5, 1999,
25
<PAGE>
by (i) each person known to the Company beneficially to own 5% or more of the
shares of its Common Stock, (ii) each of the Company's directors, (iii) each of
the Company's executive officers named in the tables below, and (iv) all
directors and officers as a group. The persons named in the tables below have
sole voting and investment power with respect to all shares of Common Stock
shown as beneficially owned by them, subject to community property laws where
applicable.
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN NUMBER OF SHARES TITLE OF PERCENT OF CLASS
BENEFICIAL OWNERS BENEFICIALLY CLASS BENEFICIALLY OWNED
OWNED
----------------------------- ---------------- -------- ------------------
<S> <C> <C> <C>
David Ho Common 500,000 6.02%
1409 Forbes Ave, North Vancouver, B.C.,
Canada, V7M 2Y2, Ph (604) 980-0982
</TABLE>
<TABLE>
<CAPTION>
SECURITY OWNERSHIP OF CERTAIN NUMBER OF SHARES TITLE OF PERCENT OF CLASS
BENEFICIAL OWNERS BENEFICIALLY CLASS BENEFICIALLY OWNED
OWNED
----------------------------- ---------------- -------- ------------------
<S> <C> <C> <C>
David Ho Common 500,000 6.02%
1409 Forbes Ave, North Vancouver, B.C.,
Canada, V7M 2Y2, Ph (604) 980-0982
Chief Executive Officer, President, Director
All directors and officers as group (2) Common 500,000 6.02%
</TABLE>
o None of the Officer and Directors as a group are holders of any options,
warrants, right conversion privileges or similar items.
o The Company has not granted any options, warrants, rights or conversion
privileges. The Company is unaware of any voting trust or similar agreement
among its shareholders.
o Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to stock options and warrants currently exercisable or exercisable within
60 days are deemed to be outstanding for calculating the percentage
ownership of the person holding such options and the percentage ownership
of any group of which the holder is a member, but are not deemed
outstanding for calculating the percentage of any other person. The persons
named in the table have sole voting and investment power with respect to
all shares of capital stock shown beneficially owned by them.
26
<PAGE>
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
Pursuant to the Company's Bylaws, each officer and director will serve until the
next annual meeting of the shareholders or until their death, resignation,
retirement, removal, or disqualification, or until their successors have been
duly elected and qualified. Vacancies in the existing Board of Directors are
filled by majority vote of the remaining Directors. Officers of the Company
serve at the will of the Board of Directors. There is no family relationship
between any executive officer and director of the Company.
The principal Executive Officers and Directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE DIRECTOR TERM(S)
AND OFFICER
---- --- ------------ -------
<S> <C> <C> <C>
DAVID HO 43 CHIEF EXECUTIVE OFFICER AND SINCE JUNE 1998
PRESIDENT
T.F. FRED THAM 44 TREASURER, SECRETARY AND SINCE JUNE 1998
CHIEF FINANCIAL OFFICER
</TABLE>
DAVID HO is a 43-year-old businessman, who for the past 13 years has been
involved with a number of start-up companies, business management and strategic
planning projects. Some of the companies he has had significant involvement with
are: Henderson Development (Canada) Ltd., 1992 to 1996 (a global real estate and
finance company); and, L & L Developments Inc., 1981 to present (a regional real
estate and development company); Cyber Message Center, Inc., 1997 to present (a
start- up electronic mail company); and Kincho Global Enterprises, Inc. 1998 to
present (a start-up internet financial service web-site company). Mr. Ho is a
graduate of the University of Manitoba with a Bachelor of Science degree in
Computers (1979).
T.F. FRED THAM, a businessman, age 44, who for the last 17 years has been
directly involved in strategic planning and structuring emerging growth
companies and acquisitions. Some of the companies in which he has had
significant involvement are: Kazari International, Inc. 1998 to present (a
holding company, specializing in internet service); Okane International
Enterprises, Inc. 1997-1998 (a holding company, specializing in technology);
Geoasia Enterprises Ltd., 1967-1997 (a Asian strategic development holding
company); Apex Travel Ltd., 1990-1995 (a multi-branch travel company); Evernet
Systems Inc., 1989-1991 (a national local area network company); and, Lamford
Forest Products Ltd., 1986-1987 (a regional lumber manufacturing and wholesale
company). Mr. Tham is a Certified Management Accountant (CMA) and holds a post
graduate degree in accounting (Licentiate Accounting) from the University of
British Columbia, Canada - received in 1985 and 1981 respectively.
27
<PAGE>
o If and when the Company commences commercial operations, the Company
intends to put in place at the corporate level an experienced management
and technical/operational team capable of meeting the needs of the
organization as it grows and develops, and of implementing the various
aspects of the plan discussed herein.
o None of the Company's current Officers or Directors have ever worked for or
managed a fully operational company in the same business or industry as the
Company or in a related business or industry
o The Directors and Officers of the Company's management are associated with
other firms involved in a range of business activities. Consequently, there
are potential inherent conflicts of interest in their acting as Officers
and Directors of the Company.
o The Officers and Directors of the Company are now and may in the future
become shareholders, Officers or Directors of other companies which may be
formed for the purpose of engaging in business activities similar to those
conducted by the Company. Accordingly, additional direct conflicts of
interest may arise in the future with respect to such individuals acting on
behalf of the Company or other entities. Moreover, additional conflicts of
interest may arise with respect to opportunities which come to the
attention of such individuals in the performance of their duties or
otherwise. The Company does not currently have a right of first refusal
pertaining to opportunities that come to the Directors and Officers
attention insofar as such opportunities may relate to the Company's
proposed business operations.
o The Officers and Directors are, so long as they are Officers or Directors
of the Company, subject to the restriction that all opportunities
contemplated by the Company's plan of operation which come to their
attention, either in the performance of their duties or in any other
manner, will be considered opportunities of, and be made available to, the
Company. A breach of this requirement will be a breach of the fiduciary
duties of the Officer or Director. If the Company or the companies in which
the Officers and Directors are affiliated with both desire to take
advantage of an opportunity, then said Officers and Directors would abstain
from negotiating and voting upon the opportunity. However, all Directors
may still individually take advantage of opportunities if the Company
should decline to do so. Except as mentioned, the Company has not adopted
any other conflict of interest policy with respect to such transactions.
ITEM 6. EXECUTIVE COMPENSATION
As of date, the Company has no incentive stock option and/or bonus plans for its
Directors and/or Officers. However, the Company intends to develop and implement
such programs in the future.
28
<PAGE>
As of the date of this filing, no Officer or Director is compensated directly by
the Company. The Company did not pay any bonuses, or grant any stock awards,
options or stock appreciation rights, or pay any other form of compensation or
perquisites. It is anticipated that, if and when the $800,000 financing is
consummated (anticipated to be on or before August 31, 1999), the Company will
commence paying industry-standard salaries to all of its Officers.
The Company is not a party to any employment or consulting agreements between
the Company and any Executive Officers. The Company presently anticipates that,
at some point after the consummation of the $800,000 financing, if and when this
occurs, the Company would enter into an employment agreement with it Executive
Officers.
It is possible that persons associated with management may refer a prospective
merger or acquisition candidate to the Company. In the event the Company
consummates a transaction with any entity referred by associates of management,
such associate may be compensated for his or her referral in the form of a
finder's fee. It is anticipated that this fee will be either in the form of
common stock issued by the Company as part of the terms of the proposed
transaction, or will be in the form of cash consideration. The amount of such
finder's fee will be negotiated on an "arm's length" basis between the
respective parties. Any such arrangement is expected to be comparable to
consideration normally paid in like transactions. No member of management of the
Company will receive any finder's fee, either directly or indirectly, as a
result of their respective efforts to implement the Company's business
objectives outlined in this Offering.
None of the Directors or Executive Officers of the Company or any associates or
affiliates of the Company, are or have been indebted to the Company at any time
since June 1998.
The Company is not subject to any collective bargaining agreement. It is
anticipated that the Company's employees will be covered by an employee stock
option plan; however, at this stage, the terms of such a plan have not been
determined.
Joist Management Ltd. will provide the Company with the necessary administrative
and general office personnel and expenses for a fee of approximately $10,000 per
month for an initial term of 12 months.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
COMPANY'S FOUNDERS
In June 1998, the Company issued 500,000 shares of Common Stock to the Founder,
David Ho, President of the Company, for aggregate proceeds of $500. The stock
issuance was approved by the written consent of the Directors of the Company on
June 17, 1998.
29
<PAGE>
NETSTAR COMMUNICATIONS INC.
The Company has an option to acquire 100% of Netstar's issued and outstanding
shares of Common Stock. Per the Letter of Intent, the closing date for the
acquisition shall be on or about August 31, 1999, or as soon as possible
thereafter and shall be predicated upon the successful consummation of a
$800,000 private placement of the Company shares of Common Stock. The
acquisition will be finalized by the execution of a definitive Agreement
containing among other things, terms and conditions which are presently agreed
to by the parties in the Letter of Intent.
OTHERS
As of the date of this Offering, there are no directors, officers, key personnel
or principal stockholders related by blood or marriage, except for the
following:
T.F. Fred Tham is also an officer and director of Joist Management Ltd., which
provides office space to the Company.
FUTURE TRANSACTIONS
It is also contemplated that the Company may in the future enter into
transactions with management, directors and affiliates which, even though may
involve conflicts of interest, shall have been deemed to be fair and equitable
transactions in the best interest of the Company.
ITEM 8. DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 30,000,000 shares of Common
Stock, of which 8,300,000 were issued and outstanding as of March 31, 1999. The
holders of Common Stock (i) have equal ratable rights to dividends, when, as and
if declared by the Board of Directors of the Company; (ii) are entitled to vote
at all meetings of shareholders; (iii) to share ratably in all of the assets of
the Company available for distribution or winding up of the affairs of the
Company; (iv) do not have preemptive subscription or conversion rights, and
there are no redemption or sinking fund applicable thereto; and (v) are entitled
to one non-cumulative vote per share, on all matters which shareholders may vote
on at all meetings of shareholders. Since the holders of shares of Common Stock
do not have cumulative voting rights, the holders of more than 50% of such
outstanding shares, voting for the election of directors, can elect all of the
directors to be elected, if they so choose, and, in such event, the holders of
the remaining shares will not be able to elect any of the Company's directors.
These securities carry NONE of the following:
o Cumulative voting rights
o Other special voting rights
30
<PAGE>
o Preemptive rights to purchase in new issues of shares
o Preference as to dividends or interest
o Restriction on the declaration or payment of dividends
o Preference upon liquidation
o Other special rights or preferences
o Convertible provisions
o Securities are notes or other types of debt securities
o To-date there are no shares of Preferred Stock authorized and/or issued.
TRANSFER AGENT
The transfer agent for the shares of Common Stock is Interwest Transfer Company,
Inc., 1981 East Murray Holladay Road, Suite 100, Salt Lake City, Utah, 84117.
31
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE COMPANY'S COMMON EQUITY AND OTHER
SHAREHOLDER MATTERS
Presently, the Company's stock is not listed for sale on any exchange or trading
medium. The Company intends to seek the listing of its Common Stock on the OTC
Electronic Bulletin Board upon the effectiveness of this filing. Until such
time, there is no public market for the Company's Common Stock.
HOLDERS
There are currently 42 holders of the Company's Common Stock.
DIVIDENDS
The Company has never declared or paid dividends on the Common Stock. Moreover,
the Company currently intends to retain any future earnings for use in its
business and, therefore, does not anticipate paying any dividends on the Common
Stock in the foreseeable future.
RESALE RESTRICTIONS
The offering price of the Shares of Common Stock sold by the Company was
arbitrarily determined by the management of the Company. The offering price does
not bear any relationship to assets, book value, or earnings of the Company.
o No restrictions or limitations on resale are believed to apply to the
securities issued, other than restrictions on resale which may apply under
the securities or "Blue Sky" laws of certain states in which such resale
may occur.
o There are no independent bank or savings and loan association or other
similar depository institution acting as escrow agent for proceeds escrowed
until minimum proceeds are raised.
ITEM 2. LEGAL PROCEEDINGS
The Company is not aware of any pending or threatened legal proceedings as of
the date of this Offering. No federal, state or local governmental agency is
presently contemplating any proceeding against the Company. No director or
executive officer or owner of record or beneficially of more than five percent
(5%) of the Company's Common Stock is a party adverse to the Company or has a
material interest adverse to the Company in any legal or quasi-legal proceeding.
However, the Company may, from time to time, be subject to legal proceedings
arising from its undertakings in the ordinary course of business.
32
<PAGE>
There has been to date no petition under the Bankruptcy Act or any State
insolvency law filed by or against the Company or its Officers, Directors or
other key personnel.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTING
There have been no changes in, or disagreements with, the Company's independent
accountant. The Company's principal independent accountant has not resigned or
been dismissed. During June 1998, the month of the Company's organization, Mike
Bingham, Chartered Accountants, of Vancouver, British Columbia, Canada was
engaged as the principal accountant to audit the Company's financial statements.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
o In June 1998, the Company issued 1,500,000 shares of its Common Shares to
its initial shareholders for a cash consideration of $1,500 ($0.001 per
share). In July 1998, the Company issued an additional 6,750,000 shares of
its Common Stock for a cash consideration of $67,500 ($0.01 per share).
o Thereafter, in December 1998 the Company issued 50,000 common shares for a
cash consideration of $150,000 ($3.00 per share).
As of March 31, 1999, 8,300,000 shares of the Company's Common Stock have been
issued and sold pursuant to Rule 504 of Regulation D promulgated under the
Securities Act of 1933, as amended. As then permitted by Rule 504, certificates
for these securities were issued without restrictive legends. However, 500,000
of these shares were purchased by David Ho, one of the directors and officers of
the Registrant and may only be publicly sold pursuant to Rule 144. The existing
and the offered securities have been and are being offered and sold pursuant to
the exemption available under Rule 504. Securities issued pursuant to Rule 504
are not "restricted securities" as such term is defined in Rule 144.
Accordingly, with the exception of shares owned by "affiliates" (as such term is
defined in Rule 144) of the Company, all of the Company's shares of Common Stock
that will exist after the approval, if granted, of the Company's application to
have its shares of Common Stock traded on the OTC Bulletin Board, may be resold
in brokerage transactions without restriction. Shares owned by affiliates, which
are restricted securities, are so restricted for at least an initial period of
one year from the purchase thereof. Shares owned by affiliates may then be sold
in brokerage transactions subject to the volume limitation requirements of Rule
144, which provides that persons owning control stock would be entitled to sell,
within any three-month period, a number of shares that does not exceed the
greater of (i) 1% of the then outstanding shares of Common Stock, or (ii) the
average weekly reported trading volume on all national securities exchanges, the
NASDAQ National Market, and the OTC Bulletin Board during the four calendar
weeks preceding such sale. Any "free trading" and unrestricted shares which may
be owned by "affiliates" of the issuer are likewise subject to the foregoing
limitation on resale without regard to when they were acquired or how long they
have been held. Rule 144 also permits, under certain circumstances, the sale of
shares without any quantity limitation by a person who has
33
<PAGE>
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 a substantial number of
shares owned by the initial shareholders were sold in the market, the market
price of the Common Stock would be adversely affected
There is not now, and there may never be, a public market of any kind for the
securities issued by the Company.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
a. The Articles of Incorporation of the Registrant, together with its By-laws,
provide that the Company shall indemnify its officers and directors, and
may indemnify its other employees and agents, to the fullest extent
permitted by applicable law.
b. Under certain circumstances, the laws of the State of Nevada permit, and in
some cases require, corporations to indemnify officers, directors, agents
and employees who have been a party to, or are threatened to be made a
party to, litigation.
Under the Company's Articles of Incorporation, and as permitted by the laws of
the State of Nevada, a director is not liable to the Company or its shareholders
for damages for breach of fiduciary duty. Such limitation of liability does not
affect liability for (i) acts or omissions not in good faith or which involve
intentional misconduct, fraud, or a knowing violation of the law, (ii) any
transaction from which the director directly or indirectly derived an improper
personal benefit, (iii) the payment of any unlawful distribution, or (iv)
violations of federal and state securities laws
34
<PAGE>
PART F/S
(A) Interim Audited Financial Statements
Auditor's Report
Interim Balance Sheet
Interim Statement of Loss and Deficit
Interim Statement of Changes in Financial Position
Interim Statement of Shareholders' Equity
Notes to the Interim Financial Statements
Comments by Auditor for U.S. Readers on Canada-U.S. Reporting Difference
(B) Proforma Consolidated Financial Statements Reflecting Intended Acquisition
of Netstar
Proforma Consolidated Interim Balance Sheet
Proforma Consolidated Interim Statement of Loss and Deficit
Proforma Consolidated Interim Statement of Changes in Financial Position
Proforma Consolidated Interim Statement of Shareholders' Equity
Proforma Consolidated Notes to the Interim Financial Statements
35
<PAGE>
Michael Bingham C.A.
Auditor's Report
To the Shareholders,
Azel Enterprises, Inc.
I have audited the interim balance sheet of Azel Enterprises, Inc. as at January
21, 1999, and the interim statements of loss and deficit, shareholders' equity
and changes in financial position for the period from June 17, 1998, to January
21, 1999. These interim financial statements are the responsibility of the
Company's management. My responsibility is to express an opinion on these
interim financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing standards in
Canada. Those standards require that I plan and perform an audit to obtain
reasonable assurance whether the interim financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the interim financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall interim
financial statement presentation.
In my opinion, these interim financial statements present fairly, in all
material respects, the financial position of the Company as at January 21, 1999,
and the results of its operations and the changes in its financial position for
the period from June 17, 1998 to January 21 1999, in accordance with generally
accepted accounting principles in Canada.
Vancouver, British Columbia
February 22, 1999
Chartered Accountant
/s/ Michael Bingham
36
<PAGE>
Azel Enterprises, Inc.
(a development stage company)
(a Nevada Corporation)
Interim Balance Sheet
As at January 21, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
$
<S> <C>
ASSETS
Current
Cash 153,772
--------
Incorporation costs 2,000
--------
155,772
--------
--------
LIABILITIES
Current
Accounts payable and accrued liabilities (Note 2) 39,000
--------
SHAREHOLDERS' EQUITY
Capital Stock (Note 3)
Authorized - 30,000,000 common shares with par value of $.001
Issued - 8,300,000 common shares 8,300
Contributed Surplus (Note 3) 202,700
Deficit (94,228)
--------
116,772
--------
155,772
--------
--------
</TABLE>
APPROVED BY THE BOARD
/s/ Dave Ho DIRECTOR
/s/ T.F. Fred Tham DIRECTOR
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
37
<PAGE>
Azel Enterprises, Inc.
(a development stage company)
(a Nevada Corporation)
Interim Statement of Loss and Deficit
For the period from June 17,1998 to January 21, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
$
<S> <C>
Expenses
Audit 2,000
Bank charges 228
Legal 13,000
Management and consulting fees (Note 2) 79,000
------
Net loss for the period and deficit, end of period 94,228
------
------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
38
<PAGE>
Azel Enterprises, Inc.
(a development stage company)
(a Nevada Corporation)
Interim Statement of Changes in Financial Position
For the period from June 17, 1998, to January 21, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
$
<S> <C>
Operating activities
Net loss for the period (94,228)
Net change in non-cash working capital balances 39,000
-------
(55,228)
-------
Financing activities
Issuance of capital stock 219,000
Share issue costs (8,000)
-------
211,000
-------
Investing activity
Incorporation costs (2,000)
-------
Change in cash during the period, and cash, end of period 153,772
-------
-------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
39
<PAGE>
Azel Enterprises, Inc.
(a development stage company)
(a Nevada Corporation)
Interim Statement of Shareholders' Equity
For the period from June 17,1998, to January 21, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
# of Par Contributed Shareholder
Common Price per Value Surplus Accumulated Equity
Shares Share (Note 3) (Note 3) Deficit (Deficit)
--------- ---------- ---------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Common shares issued for cash $ $ $ $
- - June 1998 (on inception) 1,500,000 $ .001 1,500 -- -- 1,500
- - July 1998 6,750,000 $ .01 6,750 60,750 -- 67,500
- - January 1999 50,000 $ 3.00 50 149,950 -- 150,000
Share issue costs for the period -- (8,000) -- (8,000)
Net loss for the period -- 94,228) (94,228)
---------- ----------
8,300,000 8,300 202,700 (94,228) 116,772
--------- ---------- --------- ---------- ----------
--------- ---------- --------- ---------- ----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
40
<PAGE>
Azel Enterprises, Inc.
(a development stage company)
(a Nevada Corporation)
Notes to Interim Financial Statements
January 21, 1999
(in U.S Dollars)
NOTE 1 INCORPORATION AND OPERATIONS
The Company was incorporated on June 17, 1998 in Nevada, U.S.A.
The Company was organized with the intent to serve as a holding company which
will acquire and/or form joint ventures with corporate entities conducting
various types of business throughout the world. While growth of the Company may
involve future programs yet to be determined, management has identified and
secured certain initial target acquisitions and joint ventures. The Company
currently has no subsidiaries and has not yet commenced operations.
NOTE 2 RELATED PARTY TRANSACTION
Joist Management Ltd. is related by management contract to provide
administrative and general office services to the Company at a rate of $10, 000
per month until May 31, 1999. None of the shareholders, officer or directors of
Joist Management Ltd. are shareholders of Azel Enterprises, Inc. One of the
directors of Joist Management Ltd. is also an officer and director of Azel
Enterprises, Inc. During the period, the Company was charged $79,000 for
administrative services. Accounts payable includes $19,000 due to Joist
Management Ltd.
NOTE 3 CAPITAL STOCK AND CONTRIBUTED SURPLUS
During the period, the Company issued the following common shares:
<TABLE>
<CAPTION>
Total Capital
Cash Stock Contributed
# of Shares Proceeds at Par Value Surplus
----------- -------- ------------ -----------
<S> <C> <C> <C>
1,500,000 at $0.001 $ 1,500 $ 1,500 $ --
6,750,000 at $0.01 67,500 6,750 60,750
50,000 at $3.00 150,000 50 149,950
-------- -------- --------
$219,000 $ 8,300 $210,700
Less share issue costs: 8,000 -- 8,000
-------- -------- --------
$211,000 $ 8,300 $202,700
-------- -------- --------
-------- -------- --------
</TABLE>
41
<PAGE>
Azel Enterprises, Inc.
(a development stage company)
(a Nevada Corporation)
Notes to Interim Financial Statements
January 21, 1999
(in U.S Dollars)
NOTE 4 PROPOSED ACQUISITION OF NETSTAR COMMUNICATIONS INC.
On June 23, 1998 the Company signed a letter of intent to acquire 100% of the
shares of Netstar Communications Inc., an Illinois company for shares of Azel
Enterprises, Inc. A condition of the stock purchase is that Azel Enterprises,
Inc. first raise $700,000 through a private placement. The letter of intent is
not binding on either party.
NOTE 5 INCOME TAXES
The Company has an interim net loss and other expenditures which may give rise
to future income tax benefits. The potential benefit from these losses has not
been reflected in these financial statements.
NOTE 6 LOSS PER SHARE
Loss per share information has not been disclosed as it is not considered
meaningful at this stage of the Company's development.
NOTE 7 CONTINUING OPERATIONS
These financial statements have been based upon accounting principles which
presume the realization of assets and settlement of liabilities as they become
due in the course of continuing operations. The Company's ability to maintain
operations is contingent upon successful completion of additional financing
arrangements.
NOTE 8 RECONCILIATION TO ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN THE
UNITED STATES
There are no significant differences between Canadian and U.S. accounting
principles requiring adjustment to the financial statements of the Company
except for the following additional disclosure for development stage companies.
Under U.S. GAAP, the deficit shown on the balance sheet in the shareholders'
equity section would be titled to reflect that this was the accumulated deficit
during the development stage of the Company.
This does not change the reported deficit, only the description thereof.
42
<PAGE>
MICHAEL BINGHAM, C.A.
COMMENTS BY AUDITOR FOR U.S. READERS
ON CANADA-U.S. REPORTING DIFFERENCE
To the Shareholders,
Azel Enterprises, Inc.
In the United States, reporting standards for auditors require the addition of
an explanatory paragraph (following the opinion paragraph) when the financial
statements are affected by conditions and events that cast substantial doubt on
the Company's ability to continue as a going concern, such as those described in
Note 7 to the interim financial statements of Azel Enterprises, Inc. for the
period from June 17, 1998 to January 21, 1999. My report to the shareholders
dated February 22, 1999 is expressed in accordance with Canadian reporting
standards which do not permit a reference to such events and conditions in the
auditor's report when these are adequately disclosed in the financial
statements.
Vancouver, British Columbia
February 22, 1999
Chartered Accountant
/s/ Michael Bingham
43
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
PROJECTED INTERIM CONSOLIDATED BALANCE SHEET
AS OF FEBRUARY 28, 1999
(in U.S. Dollars)
Contents:
Projected Interim Consolidated Balance Sheet
Projected Interim Consolidated Statement of Loss and Deficit
Projected Interim Consolidated Statement of Shareholders' Equity
Projected Interim Consolidated Statement of Changes in Financial Position
Notes to the Projected Interim Consolidated Financial Statements
44
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
PROJECTED INTERIM CONSOLIDATED BALANCE SHEET
AS OF FEBRUARY 28, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
$
<S> <C>
ASSETS
CURRENT
Cash 732,383
Accounts receivable 221,946
----------
954,329
----------
Capital assets 211,773
Deferred Project Costs 68,556
Goodwill 1,081,736
Incorporation costs 2,000
----------
2,318,394
----------
----------
LIABILITIES
CURRENT
Accounts payable and accrued liabilities 551,878
----------
Long term debt 831,794
SHAREHOLDERS' EQUITY
CAPITAL STOCK (NOTE 6)
Authorized - 30,000,000 common shares with par value of $.001
Issued - 8,576,317 common shares 8,576
CONTRIBUTED SURPLUS (NOTE 6) 1,031,374
DEFICIT (105,228)
----------
934,722
----------
2,318,394
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
45
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
PROJECTED INTERIM CONSOLIDATED STATEMENT OF LOSS AND DEFICIT
FOR THE PERIOD FROM JUNE 17,1998, TO FEBRUARY 28, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
$
<S> <C>
EXPENSES
Audit 2,000
Bank charges 228
Legal 13,000
Management and consulting fees (Note 5 ) 90,000
-------
105,228
-------
NET LOSS FOR THE PERIOD AND DEFICIT, END OF PERIOD 105,228
-------
-------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
46
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
PROJECTED INTERIM CONSOLIDATED STATEMENT OF CHANGES IN FINANCIAL POSITION
FOR THE PERIOD FROM JUNE 17, 1998, TO FEBRUARY 28, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
$
<S> <C>
OPERATING ACTIVITIES
Net loss for the period (105,228)
Net change in non-cash working capital balances 329,932
----------
224,704
----------
FINANCING ACTIVITIES
Issuance of capital stock for cash 819,000
Issuance of capital stock for debt 228,950
Share issue costs (8,000)
Long term debt assumed 831,794
----------
1,871,744
----------
INVESTING ACTIVITIES
Assumption of capital assets (211,773)
Assumption of deferred project costs (68,556)
Goodwill (1,081,736)
Incorporation costs (2,000)
----------
(1,364,065)
----------
Change in cash during the period, and cash, end of period 732,383
----------
----------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
47
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
PROJECTED INTERIM CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM JUNE 17, 1998, TO FEBRUARY 28, 1999
(in U.S. Dollars)
<TABLE>
<CAPTION>
# of Par Contributed
Common Price per Value Surplus Accumulated Shareholder
Shares Share (Note 6) (Note 6) Deficit Equity
$ $ $ $
<S> <C> <C> <C> <C> <C> <C>
Common shares issued for cash
- - June 1998 (on inception) 1,500,000 $ .001 1,500 -- -- 1,500
- - July 1998 6,750,000 $ .01 6,750 60,750 -- 67,500
- - January 1999 50,000 $ 3.00 50 149,950 -- 150,000
- - February 1999 200,000 $ 3.00 200 599,800 -- 600,000
Common shares issued for debt
- - February 1999 76,317 $ 3.00 76 228,874 -- 228,950
Share issue costs for the Period -- (8,000) -- (8,000)
Net loss for the period -- (105,228) (105,228)
--------- ----- ------ -------- --------
8,576,317 8,576 1,031,374 (105,228) 934,722
--------- ----- --------- -------- -------
--------- ----- --------- -------- -------
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE FINANCIAL STATEMENTS
48
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
NOTES TO PROJECTED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(in U.S Dollars)
NOTE 1 PURPOSE OF PROJECTION
The purpose of this projection is to illustrate the effect of the proposed
acquisition (Note 4) which pursuant to the letter of intent dated June 23, 1998,
is contemplated to occur on or about August 31, 1999. Specifically, $600,000 is
raised through a private placement and shares are issued for the investment. The
letter of intent is non-binding.
Included in the projection are the actual results for the interim period ended
January 21, 1999, for which audited financial statements have been prepared.
Management has estimated expenditures for the projected period from January 21,
1999, to February 28, 1999, and combined these with January 21, 1999,
expenditures to arrive at February 28, 1999, period to date figures. Management
prepared this projection on January 31, 1999, and does not intend to update it
subsequent to issue.
The Company will be following the consolidation method in accounting for its
proposed investment in Netstar Communications Inc. For purposes of these
projected financial statements, the Company has included the actual balance
sheet for Netstar Communications Inc. as at November 30, 1998, as an estimate of
its projected balance sheet on February 28, 1999. As the acquisition has been
accounted for by the purchase method, the consolidated statement of loss and
deficit includes the results for Netstar Communications Inc. only from the date
of acquisition.
Since this projection is based on assumptions regarding future events, actual
results will vary from the information presented and the variations may be
material.
NOTE 2 INCORPORATION AND NATURE OF BUSINESS
The Company was incorporated on June 17, 1998, in Nevada, U.S.A.
The Company was organized with the intent to be a holding company which will
acquire and/or form joint ventures with corporate entities conducting various
types of businesses throughout the world.
NOTE 3 BASIS OF CONSOLIDATION
These projected consolidated interim financial statements include the accounts
of Azel Enterprises, Inc. and its 100% subsidiary, Netstar Communications Inc..
49
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
NOTES TO PROJECTED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(in U.S Dollars)
NOTE 4 ACQUISITION OF NETSTAR COMMUNICATIONS INC.
On August 31, 1999, the Company proposes to purchase 100% of the common shares
of Netstar Communications, Inc. for shares of Azel Enterprises, Inc. The
underlying assets and liabilities acquired have been assigned the following
values:
<TABLE>
<S> <C>
Accounts receivable $ 221,946
Capital assets 211,773
Deferred project costs 68,556
Goodwill 1,081,736
Bank overdraft (10,389)
Accounts payable (512,878)
Long term debt (1,060,744)
-----------
--
-----------
-----------
</TABLE>
The investment in Netstar Communications, Inc. exceeded the book value of the
net assets acquired by $1,081,736. This excess has been allocated to goodwill
and is being amortized over 40 years.
These financial statements have been prepared on the basis that the acquisition
occurred on February 28, 1999.
NOTE 5 RELATED PARTY TRANSACTION
Joist Management Ltd. is related by management contract to provide
administrative and general office services to the Company at a rate of $10,000
per month until May 31, 1999. None of the shareholders, officers or directors of
Joist Management Ltd. are shareholders of Azel Enterprises, Inc. One of the
directors of Joist Management is also a director and officer of Azel
Enterprises, Inc. During the period, the company was charged $90,000 for
administrative services. Included in accounts payable is $39,000 payable to
Joist Management Ltd.
50
<PAGE>
AZEL ENTERPRISES, INC.
(a development stage company)
(a Nevada Corporation)
NOTES TO PROJECTED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FEBRUARY 28, 1999
(in U.S Dollars)
NOTE 6 CAPITAL STOCK AND CONTRIBUTED SURPLUS
During the period, the Company issued the following common shares:
<TABLE>
<CAPTION>
Total Capital
Stock Contributed Cash
# Shares Proceeds at Par Value Surplus
<S> <C> <C> <C>
1,500,000 at $.001 $ 1,500 $ 1,500 $ --
6,750,000 at $.010 67,500 6,750 60,750
50,000 at $3.00 150,000 50 149,950
200,000 at $3.00 600,000 200 599,800
76,317 at $3.00 228,950 76 228,874
------------- --------- ------------
1,047,950 8,576 1,039,374
Less share issue costs 8,000
8,000 --
------------- --------- ------------
$ 1,039,950 $ 8,576 $ 1,031,374
------------- --------- ------------
------------- --------- ------------
</TABLE>
NOTE 7 INCOME TAXES
The Company has an interim net loss and other expenditures which may give rise
to future income tax benefits. The potential benefit from these losses has not
been reflected in these financial statements.
NOTE 8 LOSS PER SHARE
Loss per share information has not been disclosed as it is not considered
meaningful at this stage of the Company's development.
NOTE 9 CONTINUING OPERATIONS
These financial statements have been based upon accounting principles which
presume the realization of assets and settlement of liabilities as they become
due in the course of continuing operations. The Company's ability to maintain
operations is contingent upon successful completion of additional financing
arrangements.
51
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
EXHIBITS # DESCRIPTION
- ---------- -----------
Exhibit 3(i) Articles of Incorporation
Exhibit 3(ii) By-Laws
Exhibit 4.1 Specimen stock certificate evidencing shares of
Common Stock
Exhibit 4.2 Form of Subscription Agreement used by the Company
Exhibit 10 Management Agreement dated June 17, 1998
Exhibit 11 Statement re: computation per share earnings is
Stated elsewhere in this Filing
Exhibit 23.(i) Consent of Independent Auditor dated February 22,
1999
Exhibit 27 Financial data schedule
Exhibit 99.1 Letter of Intent with Netstar Communications Inc.
dated June 23, 1998
Exhibit 99.2 Black & Veatch LLP Contract with Netstar
Communications Inc. dated September 1, 1998
Exhibit 99.3 Follow-up letter from Netstar Communications Inc.
dated April 2, 1999
52
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
AZEL ENTERPRISES, INC.
/s/ David Ho
-------------------
David Ho, President
Date: April 5, 1999
53
<PAGE>
EXHIBIT 3(i)
ARTICLES OF INCORPORATION OF AZEL ENTERPRISES, INC.
I, the person hereinafter named as incorporator, for the purpose of associating
to establish a corporation under the provisions and subject to the requirements
of Title 7, Chapter 78 of Nevada Revised Statutes, and the acts amendatory
thereof, and hereinafter sometimes referred to as the General Corporation Law of
the State of Nevada, do hereby adopt and make the following Articles of
Incorporation.
ARTICLE I.
NAME
The name of this corporation is Azel Enterprises, Inc.
ARTICLE II.
AGENT FOR SERVICE OF PROCESS
The name of this corporation's initial agent in the State of Nevada for services
of process is CSC Services of Nevada, Inc. The address of the agent is 502 East
John Street, Carson City, Nevada, 89706.
ARTICLE III.
STOCK
The corporation is authorized to issue only one class of shares of stock, to be
known as "common stock." The total number of shares that the corporation is
authorized to issue is Thirty Million (30,000,0000), all of which are of a par
value of $0.001 each.
ARTICLE IV.
DIRECTORS
The governing board of the corporation shall be styled as a `Board of
Directors," and any member of the Board shall be styled as a "Director."
The number of members constituting the first Board of Directors of the
corporation is two (2). The names of post office boxes or street addresses,
either residence or business, of said members are as follows:
David Ho 1409 Forbes Ave., North Vancouver, B.C., Canada, V7M 2Y2
Joseph Bowes 1826 West 63rd Ave., Vancouver, B.C., Canada, V6P 2J1
The number of Directors of the corporation may be increased or decreased in the
manner provided in the Bylaws of the corporation; provided, that the number of
directors shall never be less than one. In the interim between elections of
directors by stockholders entitled to vote, all vacancies, including vacancies
caused by an increase
1
<PAGE>
in the number of directors and including vacancies resulting from the removal of
directors by the stockholders entitled to vote which are not filled by said
stockholders, may be filled by the remaining directors, though less than a
quorum.
ARTICLE V.
LIMITATION OF DIRECTOR LIABILITY
The personal liability of the directors of the corporation is hereby eliminated
to the fullest extent permissible under the General Corporation Law of the State
of Nevada, as the same may be amended and supplemented.
ARTICLE VI
INDEMNIFICATION
The corporation shall, to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented (the "Law"), indemnify any and all persons whom it shall have power
to indemnify under the Law from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by the Law. The
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, agreement,
vote of stockholders or disinterested directors or otherwise, both as to action
in his or her official capacity and as to action in another capacity while
holding such office, and shall continue as to a person who has ceased to be a
director, officer, employee, or agent and shall inure to the benefit of the
heirs, executors and administrators of such a person.
ARTICLE VII.
INCORPORATOR
The name of post office box or street address, either residence or business of
the incorporator signing these Articles of Incorporation are as follows:
Kellie E. Davidson c/o Jones, Day, Reavis & Pogue
555 West 5th Street, Suite 4600
Los Angeles, Ca., 90013
IN WITNESS WHEREOF, I do hereby execute these Articles of Incorporation on
June 16, 1998.
S/ KELLIE E. DAVIDSON
- ---------------------------------
Kellie E. Davidson, Incorporator
2
<PAGE>
EXHIBIT 3(ii)
AZEL ENTERPRISES, INC. BY LAWS
Table of Contents
ARTICLE I - Offices
Section 1. Principal Executive Office
Section 2. Other Offices
ARTICLE II - Shareholders 1
Section 1. Place of Meetings
Section 2. Annual Meetings
Section 3. Special Meetings
Section 4. Notice of Annual or Special Meetings
Section 5. Quorum
Section 6. Adjourned Meetings and Notice Thereof
Section 7. Voting
Section 8. Record Date
Section 9. Consent of Absentees
Section 10. Action Without Meeting
Section 11. Proxies
Section 12. Inspectors of Election
ARTICLE III - Directors
Section 1. Powers
Section 2. Committees
Section 3. Number of Directors
Section 4. Election and Term of Office
Section 5. Vacancies
Section 6. Resignation
Section 7. Place of Meetings
Section 8. Annual Meetings
Section 9. Special Meetings
Section 10. Quorum
Section 11. Participation in Meetings by Conference Telephone
Section 12. Waiver of Notice
Section 13. Adjournment
Section 14. Fees and Compensation
Section 15. Action Without Meeting
ARTICLE IV - Officers
Section 1. Officers
Section 2. Election
Section 3. Subordinate Officers
Section 4. Removal and Resignation
Section 5. Vacancies
Section 6. President
Section 7. Vice Presidents
1
<PAGE>
Section 8. Secretary
Section 9. Chief Financial Officer
Section 10. Chairman of the Board
ARTICLE V - Other Provisions
Section 1. Inspection of Corporate Records
Section 2. Inspection of Bylaws
Section 3. Endorsement of Documents; Contracts
Section 4. Certificates of Stock
Section 5. Representation of Shares of Other Corporations
Section 6. Annual Report to Shareholders
Section 7. Construction and Definitions
Section 8. Compensation
Section 9. Indemnification of Agents of the Corporation; Purchase of
Liability Insurance
Section 10. Corporate Loans and Guarantees to Directors and Officers
ARTICLE VI - Amendments
BYLAWS
for the regulation, except as
otherwise provided by statute or its
Articles of Incorporation,
of
AZEL ENTERPRISES, INC.
(a Nevada corporation)
ARTICLE I. OFFICES.
SECTION 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the Corporation shall be fixed and located at such place as the Board of
Directors (herein referred to as the "Board") shall determine. The Board is
granted full power and authority to change said principal executive office from
one location to another.
SECTION 2. OTHER OFFICES. Branch or subordinate
offices may be established at any time by the Board at any
place or places.
ARTICLE II. SHAREHOLDERS.
SECTION 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
the principal executive office of the Corporation unless another place within or
without the State of Nevada is designated by the Board.
2
<PAGE>
SECTION 2. ANNUAL MEETINGS. The annual meetings of shareholders shall
be held on the fourth Friday in May of each year, at 10:00 A.M., local time, or
such other date or such other time as may be fixed by the Board, provided,
however, that should said day fall upon a Saturday, Sunday or legal holiday
observed by the Corporation at its principal executive office, then any such
annual meeting of shareholders shall be held at the same time and place on the
next day thereafter ensuing which is a business day. At such meetings, directors
shall be elected and any other proper business may be transacted.
SECTION 3. SPECIAL MEETINGS. Special meetings of the shareholders may
be called at any time by the Board, the Chairman of the Board, the President or
by the holders of shares entitled to cast not less than ten percent of the votes
at such meeting.
SECTION 4. NOTICE OF ANNUAL OR SPECIAL MEETINGS. Written notice of each
annual or special meeting of shareholders shall be given not less than 10 nor
more than 60 days before the date of the meeting to each shareholder entitled to
vote thereat.
Such notice shall be given either personally or by first-class mail,
postage prepaid, or by other means of written communication, addressed to the
shareholder at the address of such shareholder appearing on the books of the
Corporation or given by the shareholder to the Corporation for the purpose of
notice, or if no such address appears or is given, at the place where the
principal executive office of the Corporation is located or by publication at
least once in a newspaper of general circulation in the county in which the
principal executive office is located. After notice is given by mail, the
Secretary or the Assistant Secretary, if any, or transfer agent, shall execute
an affidavit of mailing in accordance with this section.
The notice shall state the place, date and hour of the meeting and
(i) in the case of a special meeting, the general nature of the business to be
transacted, and no other business may be transacted, or (ii) in the case of the
annual meeting, those matters which the Board, at the time of the mailing of the
notice, intends to present for action by the shareholders, but, subject to the
provisions of applicable law, any proper matter may be presented at the meeting
for such action. The notice of any meeting at which directors are to be elected
shall include the names of nominees intended at the time of notice to be
presented by the Board for election.
SECTION 5. QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at any meeting of
the shareholders. Subject to the Articles of Incorporation of the Corporation
(herein referred to as the "Articles of Incorporation"), the shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjournment, notwithstanding the withdrawal of
enough shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
3
<PAGE>
SECTION 6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any meeting of
shareholders, whether or not a quorum is present, may be adjourned from time to
time by the vote of a majority of the shares, the holders of which are either
present in person or represented by proxy thereat, but in the absence of a
quorum (except as provided in Section 5 of this Article) no other business may
be transacted at such meeting.
It shall not be necessary to give any notice of the time and place of
the adjourned meeting or of the business to be transacted thereat, other than by
announcement at the meeting at which such adjournment is taken; provided,
however, when any shareholders' meeting is adjourned for more than 45 days or,
if after adjournment a new record date is fixed for the adjourned meeting,
notice of the adjourned meeting shall be given as in the case of an original
meeting.
SECTION 7. VOTING. The shareholders entitled to notice of any meeting
or to vote at any such meeting shall be only those persons in whose names shares
are registered in the stock records of the Corporation on the record date
determined in accordance with Section 8 of this Article.
Except as provided below and except as may be otherwise provided in the
Articles of Incorporation, each outstanding share, regardless of class, shall be
entitled to one vote on each matter submitted to a vote of shareholders. Subject
to the requirements of the next sentence, every shareholder entitled to vote at
any election of directors may cumulate such shareholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such shareholder's shares are
normally entitled, or distribute the shareholder's votes on the same principle
among as many candidates as the shareholder thinks fit. No shareholder shall be
entitled to cumulate votes (i.e., cast for any candidate a number of votes
greater than the number of votes which such shareholder normally is entitled to
cast) unless such candidate or candidates' names have been placed in nomination
prior to the voting and any shareholder has given notice at the meeting prior to
the voting of such shareholder's intention to cumulate the shareholder's votes.
Any holder of shares entitled to vote on any matter may vote part of
the shares in favor of the proposal and refrain from voting the remaining shares
or vote them against the proposal, other than elections to office, but, if the
shareholder fails to specify the number of shares such shareholder is voting
affirmatively, it will be conclusively presumed that the shareholder's approving
vote is with respect to all shares such shareholder is entitled to vote.
Elections for directors need not be by ballot unless a shareholder
demands election by ballot at the meeting and before the voting begins.
Provided that the quorum requirements of Section 5 above are satisfied:
the affirmative vote of a majority of the shares represented and voting at a
duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute
4
<PAGE>
at least a majority of the required quorum) shall be the act of the
shareholders, unless the vote of a greater number or voting by classes is
required by the Nevada General Corporation Law or the Articles of Incorporation,
provided that whenever under the Nevada General Corporation Law shares are
disqualified from voting on any matter, they shall not be considered outstanding
for purposes of the determination of a quorum at any meeting to act upon, or the
required vote to approve action upon any matter; and in any election of
directors, the candidates receiving the highest number of affirmative votes of
the shares entitled to be voted for them, up to the number of directors to be
elected by such shares, are elected; votes against the director and votes
withheld shall have no legal effect.
SECTION 8. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the shareholders entitled to notice of, or to vote at,
any meeting of the shareholders, or the shareholders entitled to receive payment
of any dividend or other distribution, or any allotment of rights, or to
exercise rights in respect of any other lawful action. The record date so fixed
shall be not more than 60 days nor less than 10 days prior to the date of the
meeting nor more than 60 days prior to any other action.
If no record date is fixed by the Board, (i) the record date for
determining shareholders entitled to notice of, or to vote at, a meeting of
shareholders shall be at the close of business on the business day next
preceding the day on which notice is given or, if notice is waived, at the close
of business on the business day next preceding the day on which the meeting is
held, and (ii) the record date for determining shareholders entitled to give
consent to corporate action in writing without a meeting, when no prior action
by the Board has been taken, shall be the day on which the first written consent
is given.
A determination of shareholders of record entitled to notice of, or to
vote at, a meeting of shareholders shall apply to any adjournment of the meeting
unless the Board fixes a new record date for the adjourned meeting. The Board
shall fix a new record date if the meeting is adjourned for more than 45 days
from the date set for the original meeting.
SECTION 9. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed, and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy, and if, either before or after the
meeting, each of the persons entitled to vote, not present in person or by
proxy, signs a written waiver of notice, or a consent to the holding of the
meeting, or an approval of the minutes thereof. All such waivers, consents or
approvals shall be filed with the corporate records or made a part of the
minutes of the meeting. Neither the business to be transacted at nor the purpose
of any annual or special meeting of shareholders, need be specified in any
written waiver of notice, except as provided in the Nevada General Corporation
Law.
SECTION 10. ACTION WITHOUT MEETING. Subject to the applicable section
of the Nevada General Corporation Law, any action which, under any provision of
the
5
<PAGE>
Nevada General Corporation Law, may be taken at any annual or special meeting of
shareholders, may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding shares having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted.
SECTION 11. PROXIES. Every person entitled to vote shares shall have
the right to do so either in person or by one or more persons authorized by a
valid written proxy signed by such person or such person's attorney in fact and
filed with the Secretary. Subject to the provisions of this bylaw and applicable
law, any duly executed proxy continues in full force and effect until revoked by
the person executing it prior to the vote pursuant thereto.
SECTION 12. INSPECTORS OF ELECTION. Prior to any meeting of
shareholders, the Board may appoint inspectors of election to act at the meeting
or any adjournment thereof. If inspectors of election are not so appointed, or
if any persons so appointed fail to appear or refuse to act, the chairman of the
meeting may, and on the request of any shareholder or his proxy shall, appoint
inspectors of election or persons to replace those who fail to appear or refuse
to act at the meeting. The number of inspectors shall be either one or three. If
appointed at a meeting on the request of one or more shareholders or proxies,
the holders of a majority of shares or their proxies present at the meeting
shall determine whether one or three inspectors are to be appointed. The
inspectors of election shall (i) determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting, the existence
of a quorum and the authenticity, validity and effect of proxies, (ii) receive
votes, ballots or consents, (iii) hear and determine all challenges and
questions in any way arising in connection with the right to vote, (iv) count
and tabulate all votes or consents, (v) determine when the poll shall close and
the election result and (vi) do any other acts that may be proper to conduct the
election or vote with fairness to all shareholders.
The inspectors of election shall perform their duties impartially, in
good faith, to the best of their ability and as expeditiously as it is
practicable. If there are three inspectors of election, the decision, act or
certificate of majority is effective in all respects as the decision, act or
certificate of all.
ARTICLE III. DIRECTORS.
SECTION 1. POWERS. Subject to limitations of the Articles of
Incorporation, these Bylaws and the Nevada General Corporation Law relating to
actions required to be approved by the shareholders or by the outstanding
shares, the business and affairs
6
<PAGE>
of the Corporation shall be managed and all corporate powers shall be exercised
by or under the direction of the Board.
SECTION 2. COMMITTEES. The Board may, by resolution adopted by a
majority of the authorized number of directors, designate one or more
committees, each consisting of two or more directors, to serve at the pleasure
of the Board. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent member of the committee. The
appointment of members or alternate members of a committee requires the vote of
a majority of the authorized number of directors. Any such committee, to the
extent provided in the resolution of the Board, shall have all the authority of
the Board, except with respect to (i) the approval of any action required to be
approved by the shareholders or by the outstanding shares under the Nevada
General Corporation Law, (ii) the filling of vacancies on the Board or in any
committee, (iii) the fixing of compensation of the directors for serving on the
Board or on any committee, (iv) the adoption, amendment or repeal of Bylaws,
(v) the amendment or repeal of any resolution of the Board which by its express
terms is not so amendable or repealable, (vi) a distribution to the
shareholders, except at a rate or in a periodic amount or within a price range
determined by the Board and (vii) the appointment of other committees of the
Board or the members thereof.
SECTION 3. NUMBER OF DIRECTORS. The authorized number of directors
shall be no less than two (2) nor more than nine (9) until changed by an
amendment of the Articles of Incorporation or this Section 3 duly approved by
the shareholders, subject to the Nevada General Corporation Law. However, any
reduction of the authorized number of directors does not remove any director
prior to the expiration of such director's term of office.
SECTION 4. ELECTION AND TERM OF OFFICE. The directors shall be elected
at each annual meeting of the shareholders, but if any such annual meeting is
not held or the directors are not elected thereat, the directors may be elected
at any special meeting of shareholders held for that purpose. Subject to Section
5 of this Article, each director shall hold office until the next annual meeting
and until a successor has been elected and qualified.
SECTION 5. VACANCIES. A vacancy or vacancies in the Board shall be
deemed to exist in case of the death, resignation or removal of any director, if
the authorized number of directors be increased or if the shareholders fail at
any annual or special meeting of shareholders at which any directors are
elected, to elect the full authorized number of directors to be voted at that
meeting.
Vacancies in the Board, except those existing as a result of a removal
of a director, may be filled by a majority of the remaining directors, or, if
the number of remaining directors is less than a quorum, by (i) the unanimous
written consent of the remaining directors, (ii) the affirmative vote of a
majority of the remaining directors at a meeting held pursuant to notice or
waivers of notice complying with the applicable section of the Nevada General
Corporation Law, or (iii) by a sole remaining director, and
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each director so elected shall hold office until the next annual meeting and
until such director's successor has been elected and qualified.
Vacancies in the Board created by the removal of a director may be
filled only by the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or by
the unanimous written consent of all shares entitled to vote for the election of
directors.
The shareholders may elect a director or directors at any time to fill
any vacancy or vacancies not filled by the directors. Any such election by
written consent other than to fill a vacancy created by removal requires the
consent of a majority of the outstanding shares entitled to vote.
SECTION 6. RESIGNATION. Any director may resign effective upon giving
written notice to the President, the Secretary or the Board, unless the notice
specifies a later time for the effectiveness of such resignation. If the
resignation is effective at a future time, a successor may be elected to take
office when the resignation becomes effective.
SECTION 7. PLACE OF MEETINGS. Regular or special meetings of the Board
shall be held at any place within or without the State of Nevada which has been
designated in the notice of the meeting or, if not stated therein, as designated
by resolution of the Board. In the absence of such designation, meetings shall
be held at the principal executive office of the Corporation.
SECTION 8. ANNUAL MEETINGS. Immediately following each annual meeting
of shareholders, the Board may, but shall not be required to, hold an annual
meeting at the same place, or at any other place that has been designated by the
Board, for the purpose of organization, election of officers or transaction of
other business as the Board may determine. Call and notice of this meeting of
the Board shall be in the manner for the conduct of special meetings as provided
in Section 9 unless the Board has determined by resolution to conduct a regular
meeting at such time and place, in which event call and notice of this meeting
of the Board shall not be required unless some place other than the place of the
annual shareholders' meeting has been designated.
SECTION 9. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman of the Board, the
President, the Secretary or by any two directors upon four days' notice by mail
or 48 hours' notice given personally or by telephone, telegraph, telex or other
similar means of communication. Any such notice shall be addressed or delivered
to each director at such director's address as it is shown upon the records of
the Corporation or as may have been given to the Corporation by the director for
purposes of notice.
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SECTION 10. QUORUM. A majority of the authorized number of directors
constitutes a quorum of the Board for the transaction of business, except to
adjourn as hereinafter provided. Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum is
present shall be regarded as the act of the Board, unless a greater number be
required by law or by the Articles. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, if any action taken is approved by at least a majority of the
required quorum for such meeting.
SECTION 11. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. Members
of the Board may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all members participating in such
meeting can hear one another.
SECTION 12. WAIVER OF NOTICE. Notice of a meeting need not be given to
any director who signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the meeting, or who
attends the meeting without protesting, prior thereto or at its commencement,
the lack of notice to such director. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
SECTION 13. ADJOURNMENT. A majority of the directors present, whether
or not a quorum is present, may adjourn any directors' meeting to another time
and place. If a meeting is adjourned for more than 24 hours, notice of any
adjournment to another time or place shall be given prior to the time of the
adjourned meeting to the directors that were not present at the time of
adjournment.
SECTION 14. FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by the Board.
SECTION 15. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board may be taken without a meeting if all members of the Board
shall individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board. Such action by written consent shall have the same effect as a
unanimous vote of the members of the Board.
ARTICLE IV. OFFICERS.
SECTION 1. OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Chief Financial Officer. The Corporation may also
have, at the discretion of the Board, a Chairman, one or more Vice Presidents,
one or more
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Assistant Secretaries, one or more Assistant Financial Officers and such other
officers as may be elected or appointed in accordance with the provisions of
Section 3 of this Article.
SECTION 2. ELECTION. The officers of the Corporation, except such
officers as may be elected or appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen by, and shall serve at
the pleasure of, the Board, and shall hold their respective offices until their
resignation, removal or other disqualification from service, or until their
respective successors shall be elected and qualified.
SECTION 3. SUBORDINATE OFFICERS. The Board may elect, and may empower
the President to appoint, such other officers as the business of the Corporation
may require, each of whom shall hold office for such period, have such authority
and perform such duties as are provided in these Bylaws or as the Board may from
time to time determine.
SECTION 4. REMOVAL AND RESIGNATION. Any officer may be removed, either
with or without cause, by the Board at any time. Any officer may resign at any
time upon written notice to the Corporation without prejudice to the rights, if
any, of the Corporation under any contract to which the officer is a party.
SECTION 5. VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular election or appointment to such
office.
SECTION 6. PRESIDENT. The President is the general manager and chief
executive officer of the Corporation and has, subject to the control of the
Board, general supervision, direction and control of the business and officers
of the Corporation. The President shall preside at all meetings of the
shareholders and at all meetings of the Board. The President has the general
powers and duties of management usually vested in the office of president and
general manager of a corporation and such other powers and duties as may be
prescribed by the Board.
SECTION 7. VICE PRESIDENTS. In the absence or disability of the
President, unless a Chairman has been elected, the Vice Presidents in order of
their rank as fixed by the Board or, if not ranked, the Vice President
designated by the Board, shall perform all the duties of the President and, when
so acting, shall have all the powers of and be subject to all the restrictions
upon the President. The Vice Presidents shall have such other powers and perform
such other duties as from time to time may be prescribed for them respectively
by the Board.
SECTION 8. SECRETARY. The Secretary shall keep or cause to be kept, at
the principal executive office and such other place as the Board may order, a
book of minutes of all meetings of shareholders and the Board, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof
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given, the names of those present or represented at meetings of shareholders,
and the proceedings thereof. The Secretary shall keep, or cause to be kept, a
copy of the Bylaws of the Corporation at the principal executive office or
business office in accordance with the applicable section of the Nevada General
Corporation Law.
The Secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the Corporation's transfer agent or
registrar, if one be appointed, a share register, or a duplicate share register,
showing the names of the shareholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and of the Board required by these Bylaws or by law to be
given, shall keep the seal of the Corporation in safe custody, and shall have
such other powers and perform such other duties as may be prescribed by the
Board.
SECTION 9. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the Corporation, and
shall send or cause to be sent to the shareholders of the Corporation such
financial statements and reports as are by law or these Bylaws required to be
sent to them. The books of account shall at all times be open to inspection by
any director.
The Chief Financial Officer shall deposit all moneys and other
valuables in the name and to the credit of the Corporation with such
depositories as may be designated by the Board. The Chief Financial Officer
shall disburse the funds of the Corporation as may be ordered by the Board,
shall render to the President and directors, upon their request, an account of
all transactions as Chief Financial Officer and of the financial condition of
the Corporation, and shall have such other powers and perform such other duties
as may be prescribed by the Board.
SECTION 10. CHAIRMAN OF THE BOARD. If such an officer be elected, the
Chairman of the Board shall preside at meetings of the board of directors and
exercise and perform such other powers and duties as may be from time to time
assigned to him by the board of directors or prescribed by the Bylaws. In the
absence of the President, or if there is no President, the Chairman of the Board
shall, in addition, be the chief executive officer of the Corporation and shall
have the powers and duties described in Section 6 above.
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ARTICLE V. OTHER PROVISIONS.
SECTION 1. INSPECTION OF CORPORATE RECORDS. The record of shareholders
shall be open to inspection and copying, and the accounting books and records
and minutes of proceedings of the shareholders and the Board and committees of
the Board, if any, shall be open to inspection, upon written demand on the
Corporation of any shareholder at any reasonable time during usual business
hours, for a purpose reasonably related to such holder's interests as a
shareholder.
SECTION 2. INSPECTION OF BYLAWS. The Corporation shall keep at its
principal executive office in the State of Nevada, or if its principal executive
office is not in Nevada, at its principal business office in Nevada, the
original or a copy of these Bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the Corporation is outside Nevada and the
Corporation has no principal business office in Nevada, it shall upon the
written request of any shareholder furnish to such shareholder a copy of these
Bylaws as amended to date.
SECTION 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS. Subject to the
provisions of applicable law, any note, mortgage, evidence of indebtedness,
contract, share certificate, initial transaction statement or written statement,
conveyance or other instrument in writing and any assignment or endorsement
thereof executed or entered into between the Corporation and any other person
shall be valid and binding on the Corporation, when signed by the Chairman, the
President or any Vice President and the Secretary, any Assistant Secretary, the
Chief Financial Officer or any Assistant Financial Officer of the Corporation
unless the other party knew that the signing officers had no authority to
execute the same. Any such instruments may be signed by any other person or
persons and in such manner as from time to time shall be determined by the
Board, and, unless so authorized by the Board, no officer, agent or employee
shall have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose or
amount.
SECTION 4. CERTIFICATES OF STOCK. Every holder of shares of the
Corporation shall be entitled to have a certificate signed in the name of the
Corporation by the President or a Vice President and by the Chief Financial
Officer or an Assistant Financial Officer or the Secretary or an Assistant
Secretary, certifying the number of shares and the class or series of shares
owned by the shareholder. Any or all of the signatures on the certificate may be
facsimile.
Except as provided in this Section, no new certificate for shares shall
be issued in lieu of an old one unless the latter is surrendered and cancelled
at the same time. The Board may, however, if any certificate for shares is
alleged to have been lost, stolen or destroyed, authorize the issuance of a new
certificate in lieu thereof, and the Corporation may require that the
Corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it
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(including expense or liability) on account of the alleged loss, theft or
destruction of such certificate or the issuance of such new certificate.
SECTION 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
President or any other officer or officers authorized by the Board or by the
President are each authorized to vote, represent and exercise on behalf of the
Corporation all rights incident to any and all shares of any other corporation
or corporations standing in the name of the Corporation. The authority herein
granted may be exercised either by any such officer in person or by any other
person authorized so to do by proxy or power of attorney duly executed by said
officer.
SECTION 6. ANNUAL REPORT TO SHAREHOLDERS. The requirement of sending an
annual report to shareholders which is set forth in the Nevada General
Corporation Law is expressly waived, but nothing herein shall be interpreted as
prohibiting the Board from issuing annual or other periodic reports to
shareholders.
Notwithstanding the immediately preceding paragraph, if the Corporation
has 100 or more holders of record of its shares (determined as provided in the
Nevada General Corporation Law), the Board shall cause an annual report to be
sent to the shareholders not later than 120 days after the close of the fiscal
year. Such report, in addition to such information as may be required by the
Nevada General Corporation Law, shall contain a balance sheet as of the end of
that fiscal year and an income statement and statement of changes in financial
position for that fiscal year, accompanied by any report thereon of independent
accountants or, if there is no such report, the certificate of an authorized
officer of the Corporation that the statements were prepared without audit from
the books and records of the Corporation. The requirement of sending such report
to the shareholders at least 15 (or, if sent by third-class mail, 35) days prior
to the annual meeting of shareholders to be held during the next fiscal year is
expressly waived.
SECTION 7. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules of construction and definitions
contained in the General Provisions of the Nevada Corporations Code and in the
Nevada General Corporation Law shall govern the construction of these Bylaws.
SECTION 8. COMPENSATION. The salaries of all
officers and agents of the Corporation shall be fixed by
the Board.
SECTION 9. INDEMNIFICATION OF AGENTS OF THE CORPORATION; PURCHASE OF
LIABILITY INSURANCE. For purposes of this Section 9, "agent" means any person
who is or was a director, officer, employee or other agent of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another foreign or domestic corporation, partnership, joint
venture, trust or other enterprise, or was a director, officer, employee or
agent of a foreign or domestic corporation which was a predecessor corporation
of the Corporation or of another enterprise at the request of such predecessor
corporation; "proceeding" means
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any threatened, pending or completed action or proceeding, whether civil,
criminal, administrative or investigative; and "expenses" includes without
limitation, attorneys' fees and any expenses of establishing a right to
indemnification under this Section 9.
The Corporation shall have the power to indemnify any person who was
or is a party or is threatened to be made a party to any proceeding (other than
an action by or in the right of the Corporation to procure a judgment in its
favor) by reason of the fact that such person is or was an agent of the
Corporation, against expenses, judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with such proceeding to the
fullest extent permitted under the General Corporation Law of the State of
Nevada, as amended from time to time.
SECTION 10. CORPORATE LOANS AND GUARANTEES TO DIRECTORS AND OFFICERS.
The Corporation shall not make any loan of money or property to, or guarantee
the obligation of, any director or officer of the Corporation or of its parent,
if any, unless the transaction, or an employee benefit plan authorizing the
loans or guarantees after disclosure of the right under such a plan to include
officers or directors, is approved by a majority of the shareholders entitled to
act thereon.
The Corporation shall not make any loan of money or property to, or
guarantee the obligation of, any person upon the security of shares of the
Corporation or of its parent, if any, if the Corporation's recourse in the event
of default is limited to the security for the loan or guaranty, unless the loan
or guaranty is adequately secured without considering these shares, or the loan
or guaranty is approved by a majority of the shareholders entitled to act
thereon.
Notwithstanding the first paragraph of this Section 10, the Corporation
may advance money to a director or officer of the Corporation or of its parent,
if any, for any expenses reasonably anticipated to be incurred in the
performance of the duties of the director or officer, provided that in the
absence of the advance the director or officer would be entitled to be
reimbursed for the expenses by the Corporation, its parent, or subsidiary, if
any.
The provisions of the first paragraph of this Section 10 do not apply
to the payment of premiums in whole or in part by the Corporation on a life
insurance policy on the life of a director or officer so long as repayment to
the Corporation of the amount paid by it is secured by the proceeds of the
policy and its cash surrender value.
The provisions of this Section 10 do not apply to any transaction, plan
or agreement permitted under the applicable section of the Nevada General
Corporation Law relating to employee stock purchase plans.
For the purposes of this Section, "approval by a majority of the
shareholders entitled to act" means either (1) written consent of a majority of
the outstanding shares without counting as outstanding or as consenting any
shares owned by any officer or
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director eligible to participate in the plan or transaction that is subject to
this approval, (2) the affirmative vote of a majority of the shares present and
voting at a duly held meeting at which a quorum is otherwise present, without
counting for purposes of the vote as either present or voting any shares owned
by any officer or director eligible to participate in the plan or transaction
that is subject to the approval, or (3) the unanimous vote or written consent of
the shareholders. If the Corporation has more than one class or series of shares
outstanding, the "shareholders entitled to act" within the meaning of this
Section includes only holders of those classes or series entitled under the
articles to vote on all matters before the shareholders or to vote on the
subject matter of this Section, and includes a requirement for separate class or
series voting, or for more or less than one vote per share, only to the extent
required by the Articles.
ARTICLE VI. AMENDMENTS.
These Bylaws may be amended or repealed either by approval of the
outstanding shares or by the approval of the Board; provided, however, that
after the issuance of shares, a Bylaw specifying or changing a fixed number of
directors or the maximum or minimum number or changing from a fixed to a
variable number of directors or vice versa may be adopted only by approval of
the outstanding shares.
CERTIFICATE OF SECRETARY
OF
AZEL ENTERPRISES, INC.
(a Nevada corporation)
I hereby certify that I am the duly elected and acting Secretary of
AZEL ENTERPRISES, INC., a Nevada corporation (the "Corporation"), and that the
foregoing Bylaws constitute the Bylaws of the Corporation as duly adopted by the
Board of Directors thereof by action taken without a meeting.
DATED: June 17, 1998
S/ T.F. Fred Tham, Secretary
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EXHIBIT 4.1
FORM OF STOCK CERTIFICATE
AZEL ENTERPRISES, INC.
Authorized Common Stock: 30,000,000 Shares o Par Value: $.001
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF
Shares of AZEL ENTERPRISES, INC. Common Stock transferable on the books of the
Corporation in person or by duly authorized attorney upon surrender of this
Certificate properly endorsed. This Certificate is not valid until countersigned
by the Transfer Agent and registered by the Registrar.
Witness the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated: ___________________
Secretary President
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NOTICE: Signature must be guaranteed by a firm which is a member of a
registered national stock exchange, or by a bank (other than a saving bank), or
a trust company. The following abbreviations, when used in the inscription on
the face of this certificate, shall be construed as though they were written out
in full according to applicable laws or regulations:
TEN COM - as tenants in common UNIF GIFT MIN ACT- Custodian
TEN ENT - as tenants by the entireties (Cust) (Minor)
JT TEN - as joint tenants with right of under Uniform Gifts to Minors
survivorship and not as tenants Act
in common (State)
Additional abbreviations may also be used though not in the above
list.
For Value Received, __________ hereby sell, assign and transfer unto
-------------------------------------
PLEASE INSERT SOCIAL SECURITY OR
OTHER
IDENTIFYING NUMBER OF ASSIGNEE
-------------------------------------
-------------------------------------
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
______________________________________________________ Shares of the
capital stock represented by the within certificate, and do hereby
irrevocably constitute and appoint
______________________________________________________ Attorney to
transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATEVER
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EXHIBIT 4.2
FORM OF SUBSCRIPTION AGREEMENT
AZEL ENTERPRISES, INC.
SUBSCRIPTION AGREEMENT
THE OFFER AND SALE OF THE SHARES OF COMMON STOCK REFERRED TO IN THIS
SUBSCRIPTION AGREEMENT (THE "OFFERING") HAVE NOT BEEN REGISTERED OR QUALIFIED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES LAWS AND ARE BEING OFFERED AND SOLD IN RELIANCE ON EXEMPTIONS FROM
THE SECURITIES REGISTRATION AND QUALIFICATION REQUIREMENTS OF THE ACT AND SUCH
LAWS. ACCORDINGLY, THE SHARES OF COMMON STOCK MAY NOT BE TRANSFERRED OR RESOLD
WITHOUT REGISTRATION AND QUALIFICATION UNDER THE ACT AND APPLICABLE STATE
SECURITIES LAWS, UNLESS AN EXEMPTION FROM SUCH REGISTRATION AND QUALIFICATION
UNDER THE ACT AND SUCH LAWS IS THEN AVAILABLE. THE SHARES OF COMMON STOCK HAVE
NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION, ANY
STATE SECURITIES COMMISSION OR OTHER REGULATORY AUTHORITY, NOR HAVE ANY OF THE
FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF THE OFFERING OR THE
ADEQUACY OF THE INFORMATION SET FORTH IN THE OFFERING CIRCULAR DATED __________
WHICH RELATES TO THIS OFFERING.
I. SUBSCRIPTION.
A. THE SECURITIES. This Subscription Agreement relates to shares of the Common
Stock, par value U.S.$0.001 (the "Shares"), of Azel Enterprises, Inc., a Nevada
corporation (the "Company"), which the Company is offering to sell, at
U.S.$_______ per Share, up to an aggregate maximum of _________ of such Shares
(the "Offering").
B. SUBSCRIPTION AND METHOD OF PAYMENT. The undersigned subscriber (the
"Subscriber") hereby subscribes, on the terms and conditions set forth in this
Subscription Agreement, to purchase Shares (the "Subscribed Shares") at an
aggregate purchase price (the number of Subscribed Shares times U.S.$______) of
U.S. $ (the "Purchase Price"). The Subscriber acknowledges that by executing
this Subscription Agreement he is making an irrevocable offer to purchase the
Subscribed Shares from the Company against payment by him of the Purchase Price.
This subscription may be rejected by the Company in its sole discretion. The
Subscriber hereby agrees, on the day upon which he receives notification from
the Company that this Subscription Agreement has been unconditionally accepted
by the Company, to deliver to the Company cash or a personal or company check
backed by immediately available funds in the amount of the Purchase Price. Upon
the receipt by the Company of the amount of the Purchase Price in the specified
manner, the Company shall deliver to the Subscriber a share certificate(s) of
the Company in the
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name of the Subscriber evidencing the Subscribed Shares and the Subscriber's
ownership thereof.
II. ACKNOWLEDGMENTS OF THE SUBSCRIBER
The Subscriber acknowledges to the Company that:
He/She has received a copy of the Offering Circular dated ____________ (the
"Offering Circular"), setting forth information pertinent to a purchase of
the Subscribed Shares (the "Investment"). The Subscriber has carefully read
the Offering Circular. The Company has made available to him and/or his
advisors the opportunity to obtain additional written information, if any,
requested by him and/or his advisors to verify the accuracy of the
information contained in the Offering Circular or to evaluate the merits
and risks of the Investment. In reaching the conclusion that he desires to
acquire the Subscribed Shares, the Subscriber has carefully evaluated his
financial resources and investment position, as well as the risks
associated with the Investment, including, without limitation, those
delineated in the Response to Question 2 of the Offering Circular. The
Subscriber has not relied on any oral representations or oral information
furnished to the Subscriber or his advisors by the Company or its officers,
directors, shareholders, employees, attorneys, accountants, agents or
representatives (collectively, the "Company Representatives"), in
connection with the Offering. The Subscriber has relied in determining to
make the Investment solely on the information contained in the Offering
Circular and information otherwise provided to the Subscriber in writing by
officers and directors of the Company. Except for the information contained
in the Offering Circular and any written information requested by and
furnished to the Subscriber or the Subscriber's advisors, as described in
this subparagraph (a), neither the Subscriber nor any of his advisors has
been furnished by the Company or any Company Representative with any other
written material or literature relating to the Offering or the Investment.
Neither the Company nor any of the Company Representatives, nor anyone
purporting to act on their behalf, has made any oral representation to the
Subscriber with respect to any tax, financial or economic benefits to be
derived from the Investment. The Subscriber is relying solely upon the
Subscriber's own knowledge and upon the advice of his personal advisors
with respect to the tax, financial, economic and other pertinent aspects of
the Investment.
The Subscriber has carefully reviewed and analyzed the risks of, and other
pertinent considerations relating to, the Investment, based solely on the
information contained in the Offering Circular and the other written
information referenced in subparagraph (a) above.
The Company was incorporated on _________, and has no operating history; for
this and other reasons, the Investment involves significant financial
risks, including the risk of loss to the subscriber of the entire Purchase
Price.
The Subscriber is aware that (i) the Company's founding shareholders purchased
________ Shares at U.S.$0.001 per share for a total consideration of
U.S.$_____; and (ii) pursuant to an Offering Circular dated ________, the
Company sold _________ Shares at a price of U.S.$_____ per share for a
total
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consideration of U.S.$_______. These recent share issues have the effect of
substantially diluting the Subscriber's equity interest in the Company.
The Subscriber is not to construe the provision of the Offering Circular or the
furnishing of the other written information referenced in subparagraph (a)
above to the Subscriber as constituting legal, tax or investment advice,
and the Subscriber should consult the Subscriber's own legal counsel,
accountant and/or other professional advisors as to legal, tax and related
matters concerning the Investment.
No assurance can be made that the Company will commence operations, or if it
does commence operations, that it will ever operate at a profit or, if it
does operate at a profit, that dividends will be declared and paid on the
Subscribed Shares.
The Subscriber may not be able to sell or dispose of the Subscribed Shares, as
there is no, and may never be any, public market for such securities. The
Subscriber's commitment to investments which are not readily marketable is
not disproportionate to the Subscriber's net worth and making the
Investment will not cause the Subscriber's overall commitment thereto to
become excessive.
The Subscriber is aware that the offer and sale to him of the Subscribed Shares
have not been registered under the Securities Act of 1933, as amended (the
"Act"), or registered or qualified under applicable state securities or
"Blue Sky" laws, and, therefore, the Subscribed Shares cannot be reoffered
and resold unless either the reoffer and resale thereof are subsequently
registered and qualified under the Act and said Blue Sky laws or an
exemption from such registration and qualification is available; the
Company has no intention of registering or qualifying under the Act or any
such Blue Sky laws the Subscriber's reoffer and resale of any of the
Subscribed Shares and no exemption from registration or qualification may
be available under the Act or such Blue Sky laws to the Subscriber at the
time he wishes to dispose of such Shares.
No Federal or state agency has passed upon the Subscribed Shares, made any
finding or determination as to the fairness of the Investment, or passed on
the adequacy of the information set forth in the Offering Circular.
Neither the Company nor any Company Representative offered to sell the
Subscriber any Shares by means of any form of general advertising or
general solicitation, such as media advertising or seminars.
III. CERTIFICATION OF SUBSCRIBER STATUS.
If the Subscriber is a "U.S. person", the Subscriber hereby certifies to the
Company that the Subscriber is, as reflected by checking the appropriate box (or
boxes) below and initialing in the margin directly across from such checked box
(or boxes):
i. [ ] ________ (INITIAL) a natural person whose individual net worth, or
joint net worth with that person's spouse (including the value of his or her
principal residence valued at either (A) cost, including cost of improvements,
net of current encumbrances on the property, or (B) the appraised value of the
property as determined by a written appraisal used by an institutional lender
making a loan to him or her secured by the property, including subsequent
improvements, net of current encumbrances on the property), at the time of his
or her purchase of the Subscribed Shares exceeds U.S. $1,000,000; or
3
<PAGE>
ii. [ ] ________ (INITIAL) a natural person who had individual annual
income in excess of U.S. $200,000 in each of 1996 and 1997 and who reasonably
expects that his or her individual annual income will exceed U.S. $200,000 in
1998; or
iii. [ ] ________ (INITIAL) a natural person who had joint annual income
with that person's spouse in excess of $300,000 in each of 1996 and 1997 and who
reasonably expects to have joint annual income in excess of U.S. $300,000 in
1998; or
iv. [ ] ________ (INITIAL)
a. [ ] ________ (INITIAL) a bank as defined in Section 3(a)(2) of
the Act or a savings and loan association or other institution as
defined in Section 3(a)(5)(A) of the Act, whether acting in its
individual or fiduciary capacity;
b. [ ] ________ (INITIAL) a broker or dealer registered pursuant to
Section 15 of the Securities Exchange Act of 1934, as amended;
c. [ ] ________ (INITIAL) an insurance company as defined in
Section 2(13) of the Act;
d. [ ] _______ (INITIAL) an investment company registered under the
Investment Company Act of 1940, as amended (the "Investment
Company Act");
e. [ ] ________ (INITIAL) a business development company as defined
in Section 2(a) (48) of the Investment Company Act;
f. [ ] __________ (INITIAL) a 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;
g. [ ] __________ (INITIAL) a plan established and maintained by a
state, its political subdivisions, or any agency or
instrumentality of a state or its political subdivisions, for the
benefit of its employees, if the plan has total assets in excess
of U.S. $5,000,000;
h. [ ] _______ (INITIAL) an employee benefit plan within the
meaning of the Employee Retirement Income Security Act of
1974, if the investment decision is made by a plan
fiduciary, as defined in Section 3(21) of such act, that is
a bank, a savings and loan association, an insurance company
or a registered investment adviser, or if the employee
benefit plan has total assets in excess of U.S. $5,000,000,
or, if a self-directed plan, with investment decisions made
solely by persons that meet any one or more of the tests set
forth in Section III. (i) through (v) hereof;
i. [ ] ________ (INITIAL) a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of
1940, as amended;
j. [ ] ________ (INITIAL) an organization described in Section
501(c)(3) of the Internal Revenue Code, a corporation,
Massachusetts or similar business trust, or partnership, not
formed for the specific purpose of making the Investment, with
total assets in excess of U.S. $5,000,000
4
<PAGE>
k. [ ] ________ (INITIAL) a trust, with total assets in excess of
U.S. $5,000,000, not formed for the specific purpose of making
the Investment, whose purchase is directed by a sophisticated
person as described in Rule 506(b)(2)(ii) of Regulation D
promulgated under the Act; or
v. [ ] ________ (INITIAL) an entity in which all of the equity
owners meet any one or more of the tests set forth in Section
III.(i) through (iv); or
vi. [ ] ________ (INITIAL) none of the above.
IV. REPRESENTATIONS AND WARRANTIES OF NATURAL PERSON SUBSCRIBER.
The Subscriber, if a natural person, represents and warrants to the Company
that:
The Subscriber is 21 years of age or older, has adequate means of providing
for his or her current needs and personal contingencies and has no need for
liquidity in the Investment.
The Subscriber is able to bear the economic risks attendant on the Investment.
The Subscriber is a BONA FIDE resident and domiciliary (not a temporary or
transient resident) of the state or country set forth below his signature
on the signature page hereof. The Subscriber understands, or has relied upon
the advice of his or her own personal tax and legal counsel, accountants,
and/or other professional advisors with regard to, the financial, tax and other
pertinent considerations in making the Investment. The Subscriber is acquiring
the Subscribed Shares for the Subscriber's own account, as principal, for
investment and not with a view to the resale or distribution of any interest
therein.
[ ] ________ (INITIAL) the total purchase price of securities at time of sale
of the securities will not exceed 10% of subscriber's net worth
(Individuals: either independently or jointly with your spouse).
V. REPRESENTATIONS AND WARRANTIES OF ENTITY SUBSCRIBER.
The Subscriber, if a corporation, partnership or other entity, represents and
warrants to the Company that:
It is duly formed and is validly existing in good standing under the laws of
the jurisdiction of its formation, with full power and authority to enter into
the transactions contemplated by this Subscription Agreement.
It has not been formed for the purpose of making the Investment.
Its representative who, on its behalf, has considered the making of the
Investment (the "Authorized Representative"), is the person who executed
this Subscription Agreement on its behalf, and the Authorized
Representative was duly authorized to act for it in reviewing the
Investment.
This Subscription Agreement has been duly and validly authorized, executed and
delivered by the Subscriber, and when executed and delivered by the other
parties hereto, will constitute the valid, binding and enforceable
obligation of the Subscriber.
The Subscriber is acquiring the Subscribed Shares for its own account, as
principal, for investment and not with a view to the resale or distribution
of any interest therein.
5
<PAGE>
VI. CORRECTNESS AND COMPLETENESS OF INFORMATION RELATING TO SUBSCRIBER;
ACKNOWLEDGMENT RE SECURITIES LAW MATTERS.
All the information which the Subscriber has heretofore furnished to the
Company, or which is set forth herein or in any document delivered by the
Subscriber pursuant hereto or in connection herewith, with respect to the
Subscriber's status, financial condition and knowledge and experience is correct
and complete as of the date hereof, and if there should be any material change
in such information prior to the sale of the Subscribed Shares to the
Subscriber, the Subscriber will immediately furnish such revised or corrected
information to the Company. In furnishing the information, representations and
warranties set forth herein, the Subscriber acknowledges that the Company will
be relying thereon in determining, INTER ALIA, whether the offer and sale of the
Subscribed Shares to the Subscriber is exempt from the requirement to register
or qualify said offer and sale under applicable state securities or "Blue Sky"
laws.
VII. COVENANT OF SUBSCRIBER TO COMPLY WITH BLUE SKY LAWS.
The Subscriber agrees that if the Subscriber is a resident of any state whose
"Blue Sky" laws or other local securities laws require a restriction on
transferability of any of the securities referred to in this Subscription
Agreement, the Subscriber will specifically and fully comply with such
restrictions.
VIII. INDEMNIFICATION.
The Subscriber hereby agrees to indemnify, defend and hold harmless the Company
and its subsidiaries, and any and all of the employees, directors, officers,
attorneys, accountants, agents, affiliates or control persons of any such
entity, who were or are a party or are threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, from and against any and all damage,
loss, cost, expense (including judgments, fines and amounts paid in settlement),
obligation, claim, cause of action or liability (including attorneys' fees,
expert witness fees, investigative fees, accountants' fees, and the costs
incurred by such individuals, concerns or entities) any of them may incur by
reason of any breach by the Subscriber of the representations, warranties,
covenants and agreements made by the Subscriber in this Subscription Agreement
or any false statement contained in any document delivered by the Subscriber
pursuant hereto or in connection herewith.
IX. OBLIGATIONS OF SUBSCRIBER.
The Subscriber hereby acknowledges and agrees that the subscription hereunder is
irrevocable, that the Subscriber is not entitled to cancel, terminate or revoke
this Subscription Agreement or any agreements of the Subscriber hereunder and
that this Subscription Agreement and such other agreements shall survive the
death or disability of the Subscriber and shall be binding upon and inure to the
benefit of the parties and their respective heirs, executors, administrators,
successors, legal representatives and permitted assigns. If the Subscriber is
more than one person, the obligations of such persons hereunder shall be joint
and several and the representations, warranties,
6
<PAGE>
covenants, agreements and acknowledgments of the Subscriber herein contained
shall be deemed to be made by and be binding upon each such person and his or
her respective heirs, executors, administrators, successors, legal
representatives and permitted assigns.
X. GOVERNING LAW.
This Subscription Agreement shall be governed by and interpreted and enforced in
accordance with the internal substantive laws of the State of Nevada without
regard to choice of law or conflicts of law principles.
XI. COUNTERPARTS.
This Subscription Agreement may be executed through the use of separate
signature pages or in any number of counterparts, and each of such counterparts
shall, for all purposes, constitute one agreement binding on all parties,
notwithstanding that all parties are not signatories to the same physical
counterpart.
XII. ENTIRE AGREEMENT.
This Subscription Agreement contains the entire agreement of the parties with
respect to the subject matter hereof and there are no representations,
warranties, covenants or other agreements or understandings between such parties
except as stated or referred to herein.
XIII. SEVERABILITY.
Any provision of this Subscription Agreement which is invalid or unenforceable
in any jurisdiction shall be ineffective to the extent of such invalidity or
unenforceability without invalidating or rendering unenforceable the remaining
provisions hereof, and any such invalidity or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
XIV. BACK-UP WITHHOLDING.
The Subscriber verifies under penalty of perjury that the Taxpayer
Identification Number or Social Security Number shown on the signature page of
this Subscription Agreement is true, correct and complete and that the
Subscriber is not subject to backup withholding either (a) because the
Subscriber has not been notified that it is subject to backup withholding as a
result of a failure to report all interest or dividends or (b) because the U.S.
Internal Revenue Service has notified the Subscriber that the Subscriber is no
longer subject to backup withholding.
XV. ASSIGNABILITY.
This Subscription Agreement shall not be assignable by the Subscriber without
the prior written consent of the Company.
7
<PAGE>
XVI. GENDER, NUMBER AND HEADINGS.
As used in this Subscription Agreement, the masculine gender will include the
feminine and neuter, and vice versa, as the context so requires; and the
singular number will include the plural, and vice versa, as the context so
requires. As used in this Subscription Agreement, section and subsection
headings are for convenience of reference only and shall not be used to modify,
interpret, limit, expand or construe the terms of this Subscription Agreement.
8
<PAGE>
THERE IS NO ESTABLISHED MARKET FOR THESE SECURITIES AND THERE MAY NOT BE ANY
MARKET FOR THESE SECURITIES IN THE FUTURE. THE SUBSCRIPTION PRICE OF THESE
SECURITIES HAS BEEN ARBITRARILY DETERMINED BY THE COMPANY AND IS NOT AN
INDICATION OF THE ACTUAL VALUE OF THESE SECURITIES.
IN WITNESS WHEREOF, the parties have executed this Subscription Agreement this
____ day of _________________, _____.
INDIVIDUAL SUBSCRIBER(S)
_____ Individual Ownership
_____ Joint Tenants with Right of survivorship (both Tenants must sign)
_____ Husband and Wife as Community Property (both Spouses must sign)
_____ Tenants-in-Common (all Tenants must sign)
_____ A Married (Man) (Woman) as (His) (Her) Separate Property
ENTITY SUBSCRIBER
_____ Corporation (Please affix corporate seal on signature page)
_____ Partnership
_____ Trust: Name of Trustee ______________________________
Name of Trust: _________________________________
Date of Trust Instrument: ________________________________
_____ Other (Explain):________________________________
State of Formation of Entity: _____________________________
A. Number of Subscribed Shares for which Subscriber is subscribing:
B. Purchase Price (the number filled in A. multiplied by U.S.$___): U.S. $
9
<PAGE>
FOR INDIVIDUAL SUBSCRIBER(S)
- --------------------------- --------------------------------
Signature Name(s) Typed or Printed
- -------------------------------- --------------------------------
Social Security No/Government ID Resident Address
- -------------------------- --------------------------------
Mailing Address, if different City, State and Zip Code
- -------------------------- --------------------------------
Mailing Address, if different Country
FOR ENTITY SUBSCRIBER
- --------------------------- -----------------------------
Signature Of Capacity Signature of Capacity
- --------------------------- -----------------------------
Name(s) Typed or Printed Name(s) Typed or Printed
- -------------------------- ----------------------------
Tax Identification No Social Security No.
- -------------------------- ----------------------------
Address City, State and Zip Code
- -------------------------- ---------------------------
Mailing Address, if different City, State and Zip Code
ACCEPTED AS OF THIS ___________DAY OF _______________, _____:
AZEL ENTERPRISES, INC., a Nevada corporation
By: ______________________________ Its: PRESIDENT
10
<PAGE>
<PAGE>
EXHIBIT 10
MANAGEMENT AGREEMENT DATED JUNE 17, 1998
THIS AGREEMENT made effective June 17, 1998.
BETWEEN:
AZEL ENTERPRISES, INC.. a body corporate, duly incorporated under the
business corporation act of the State of Nevada, having its head office
situated at 946 West 7th Avenue, Vancouver, B.C., Canada
(hereinafter called the "Corporation")
OF THE FIRST PART
AND:
JOIST MANAGEMENT LTD. a body corporate, having its head office situated at
1304 Pik Hoi House, Choi Hung Estate, Kowloon, Hong Kong
(hereinafter called the "Manager")
OF THE SECOND PART
WHEREAS:
A. The Corporation requires the services of an administrator/manager to
fulfill the day-to-day responsibilities imposed on the Corporation; and
B. The Manager has agreed to act as administrator/manager of the
Corporation;
NOW THEREFORE THIS AGREEMENT WITNESSETH that for and in consideration of the
premises, the mutual covenants and agreements herein contained the parties
hereto hereby agree as follows:
The Corporation hereby agrees to retain the services of the Manager.
2. The retention of the Manager shall be for a period of one (1) year
commencing June 1, 1998, and continuing thereafter from year to year unless and
until terminated as hereinafter provided.
3. The Manager shall serve the Corporation and any subsidiaries from time
to time owned by the Corporation in such capacity or capacities and shall
perform such duties and exercise such powers as may from time to time be
determined by Resolution of the Board of Directors of Corporation.
4. Notwithstanding the control vested in the Board of Directors with
respect to the activities of the Manager, the Manager shall have from the date
of commencement of this Agreement, the authority and responsibility to deal with
the following subject matters:
1
<PAGE>
a) maintaining the services of professionals for the purpose of reviewing
all prospects introduced to the Corporation for investment or
participation;
b) selecting on the basis of evaluations provided by professionals after
consideration of the risk factors involved, suitable properties for
acquisition and participation;
c) negotiating for and obtaining the services of operators for the
Corporation's prospects, or if the Corporation is the operator,
negotiating for and obtaining the services of professionals;
d) conducting on-site inspections of all projects undertaken by the
Corporation;
e) arranging for and securing financing for the Corporation as may be
permitted by regulatory bodies;
f) arranging for timely disclosure of all material facts in the affairs
of the Corporation;
g) arranging for the collection of all receivables and revenue to be
obtained by the Corporation;
h) establishing and maintaining suitable banking relations;
i) ensuring the maintenance of proper accounting records and compiling
monthly statements of the source and application of funds;
j) arranging for payment of all payables of the Corporation and/or any
subsidiaries;
k) perusing and replying to all corporate inquiries and correspondence;
l) securing and obtaining for the benefit of the Corporation competent
tax advice, legal advice and services and accounting services; and
m) all such other duties as may be imposed upon the Manager from time
to time due to the nature of the Corporation's business.
5. The remuneration of the Manager for its services hereunder shall be at
the rate of USD$10,000.00 per month (together with any such increments thereto
as the Board of Directors of the Corporation may from time to time) inclusive of
all administrative, office, travelling and out-of-pocket expenses actually and
properly incurred by it in connection with its duties hereunder.
6. Any notice required or permitted to be given hereunder to the Manager
or to the Corporation shall be given by registered mail, postage prepaid,
addressed to the Manager or the Corporation at their respective registered
offices from time to time in existence. Any notice mailed as aforesaid shall be
deemed to have been received by the Addressee on the second business day
following the date of mailing.
7. This Agreement may be terminated:
a) by the Manager on five (5) days written notice to the Corporation; or
b) by the Corporation on five (5) days written notice to the Manager.
2
<PAGE>
8. The provisions of this Agreement shall be governed by and interpreted
in accordance with the laws of Hong Kong.
IN WITNESS WHEREOF, the parties hereto have hereto caused these presents to be
executed, as of the day and year first above written.
S/ T.F. FRED THAM S/ DAVID HO
- --------------------- ----------------------
Joist Management Ltd. Azel Enterprises, Inc.
3
<PAGE>
EXHIBIT 23 (i)
CONSENT OF INDEPENDENT AUDITOR DATED FEBRUARY 22, 1999
Michael Bingham C.A.
Consent of Independent Chartered Accountant
I hereby consent to the use in this registration statement on Form 10SB of my
report dated February 22, 1999 relating to the financial statements of Azel
Enterprises, Inc. as at January 21, 1999.
Vancouver, British Columbia
February 22, 1999 Chartered Accountant
S/ Michael Bingham
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 7-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUN-17-1998
<PERIOD-END> JAN-21-1999
<CASH> 153,772
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 153,772
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 155,772
<CURRENT-LIABILITIES> 39,000
<BONDS> 0
0
0
<COMMON> 211,000
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 155,772
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 94,228
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (94,228)
<EPS-PRIMARY> (0.011)
<EPS-DILUTED> (0.011)
</TABLE>
<PAGE>
EXHIBIT 99.1
LETTER OF INTENT WITH NETSTAR COMMUNICATIONS INC. DATED JUNE 23, 1998
Azel Enterprises Inc.
946 West 7th Ave
Vancouver, B.C.,
Canada, V5Z 1C3
NETSTAR COMMUNICATIONS INC. June 23, 1998
75 N. Bridgeview Street
Palatine, Illinois
60067-4982
This letter sets forth our preliminary understanding concerning the purchase by
Azel Enterprises, Inc., a Nevada corporation ("Azel"), of the equity interest in
Netstar communications Inc., an Illinois company ("Netstar") (such transaction,
the "Stock Purchase").
The Stock Purchase shall take place on the following general terms:
(1) In connection with the Stock Purchase Agreement:
a) Azel shall acquire, and Netstar shall sell, 100% of all the
outstanding and issued equity shares of Netstar, for shares in
common stock of Azel, to be negotiated in the Purchase Agreement.
Thereafter, Netstar shall be a wholly owned subsidiary of Azel.
b) Azel shall use its commercially reasonable efforts to raise Eight
Hundred Thousand Dollars (US$800,000) through a private placement as
defined under the Securities Act of 1933 (the "Private Placement").
The successful completion of (1) the Private Placement is condition
precedent to the consummation of the Stock Purchase, and (2) upon
the company successfully getting NASD approval to have Azel stocks
traded on the OTC bulleting board.
1
<PAGE>
(2) Azel and Netstar shall negotiate in good faith with a view to entering
into a definitive stock purchase agreement (the "Stock Purchase
Agreement") providing for the Stock Purchase, which Stock Purchase
Agreement shall contain, among other things and in addition to the
other terms of this Letter of Intent (see Section 7), the following
provisions:
(a) Azel represents and warrants to Netstar that (both as of the date
of the Stock Purchase Agreement and of the closing of the Stock
Purchase (the "Closing") unless otherwise specified herein):
(i) Azel is a corporation duly organized, existing and in good
standing, under the laws of the State of Nevada.
(ii) As of the Closing, the authorized capital stock of Azel will
consist of 30,000,000 shares of Common Stock, par value $0.001
per share, of which 1,500,000 shares will be issued and
outstanding prior to the successful consummation of the
Private Placement.
(iii) There are no outstanding subscriptions, warrants, options,
calls or commitments of any character entitling any person or
entity to purchase or otherwise acquire any capital stock or
other securities or other equity interests of Azel.
(iv) Upon completion of due diligence, the Stock Purchase Agreement
will be prepared by Azel's attorneys and for review by
Netstar.
b. Netstar represents and warrants to Azel that (both as of the date of
the Stock Purchase Agreement and of the Closing, unless otherwise
specified herein):
(i) Netstar is a corporation duly organized, existing and in good
standing, under the laws of Illinois.
(ii) Except as set forth on its financial statements, to be
provided to Azel prior to the execution of the Stock Purchase
Agreement, or such as may have arisen in the ordinary course
of business, there are no debts, liabilities or obligations,
contingent or otherwise, of Netstar, or otherwise affecting
Netstar or its assets, which debts, liabilities or obligations
would substantially alter the financial condition of Netstar.
(iii) The financial statements of Netstar delivered to Azel are
accurate and complete, have been prepared in accordance with
generally accepted accounting principles, consistently applied
throughout the period indicated, and fairly present Netstar's
financial position, results of operations and cash flow at the
respective dates thereof and for the periods therein
indicated.
2
<PAGE>
(iv) As of the Closing, the only authorized capital stock of
Netstar will consist of 10,000 shares of Common Stock, with no
par value per share, of which 1,000 shares will be issued and
outstanding.
(v) Other than the Stock Purchase contemplated hereby, there are
no outstanding subscriptions, warrants, options, calls or
commitments of any character entitling any person or entity to
purchase or otherwise acquire any capital stock or other
securities or other equity interests of Netstar.
(vi) Since the date of its last financial statement, there have not
been, and during the period between the execution of the Stock
Purchase Agreement and the Closing there will not be, any
material adverse changes in the financial condition affecting
Netstar, other than those arising from the ordinary course of
business.
(vii) Except as disclosed to Azel, Netstar has not been involved in
any litigation, government investigation or other government
proceeding and, to the best knowledge of Netstar and its
existing shareholders, no litigation, government investigation
or other government proceeding is threatened against Netstar.
(viii) Azel will be provided with all reasonable information
requested from Netstar (a list to be prepared) and access to
Netstar's management team, books, records and facilities.
c. Netstar Communications Inc. is a Communications System Integrator
and Contractor, providing full service communication system
integration services which include project management, design and
engineering construction services for broadband fiber-optic/coaxial
video or telephony owners and developers such as AT&T, TCI, MCI,
Ameritech and other system providers throughout North America.
d. As a condition precedent to the consummation of the Stock Purchase,
the terms of the definitive Stock Purchase Agreement shall have been
approved by the shareholders of both Azel and Netstar.
e. The officer of each of Azel and Netstar signing the Stock Purchase
Agreement will be duly authorized by the respective board of
directors of each such company.
f. The number of (i) persons on Netstar's board of directors, and (ii)
officers shall be increased upon consummation of the Stock Purchase
appropriately.
g. At any time prior to the Closing, the parties may, by written
agreement approved by their respective boards of directors, amend,
modify or waive
3
<PAGE>
compliance with, any of the conditions, covenants or
provisions of the Stock Purchase Agreement.
h. The Stock Purchase Agreement and the legal relations between the
parties shall be governed by and construed in accordance with the
internal law of the State of California.
i. The consummation of the Stock Purchase Agreement shall be subject to
satisfactory completion of a normal due diligence review by legal
counsel, auditor and other advisors of Azel; all necessary approvals
and consents from governmental authorities and agencies and third
parties; execution of definitive Stock Purchase Agreement containing
mutually acceptable provisions containing representations; and
satisfactory execution of mutually satisfactory employment contracts
with certain members of the management team of Netstar.
j. Except as provided herein, each party is responsible for its own
expenses in connection will all matters relating to the transaction
herein provided. If this transaction shall not be consummated for
any reason, neither party will be responsible for any of the others'
expenses. Each party will indemnify, defend and hold harmless the
other party against the claims of any brokers or finders claiming
by, through or under the indemnifying party.
(3) Netstar and Azel agree that all the information received by either of
them in connection with the Stock Purchase, excluding any information
which is generally known to the public or subsequently becomes
generally known to the public in a manner not resulting directly or
indirectly from any act or omission on the part of such party in
violation of this paragraph, shall be deemed to be confidential
information, and such confidential information shall not be disclosed
by such party receiving it to any other person or entity, except to its
directors, officers, employees, agents or affiliates to whom or which
disclosure is reasonably necessary and except as may otherwise be
required by any applicable law.
(4) The Closing shall occur on or about August 31, 1999, or as soon as
possible after the completion of the Private Placement, and upon the
company successfully getting NASD approval to have its stock traded on
the OTC bulleting board.
(5) Except for paragraph 3 above, this Letter of Intent represents an
expression of intent only. Accordingly, neither Azel nor Netstar will
be bound by any terms of this Letter of Intent other than as set forth
in the preceding sentence. Instead, the Stock Purchase Agreement, if
and when executed, will be the binding agreement between the parties.
Unless the Stock Purchase Agreement is entered into, neither party
shall be under any obligation to the other, regardless of any
negotiations, agreements or undertakings between, or actions taken by,
any party, except as set forth in the first sentence of this paragraph.
4
<PAGE>
(6) This Letter of Intent may be signed in multiple counterparts, each of
which shall be deemed to be an original, and all such counterparts
shall constitute but one instrument.
(7) For purposes of construction and interpretation, Azel and Netstar agree
that this Letter of Intent shall be governed by, and construed in
accordance with, the law of the State of Nevada, without regard for the
conflict of laws principles thereof.
If you agree that this letter correctly sets forth our mutual intent, please so
indicate by signing the enclosed copy of this letter and return it to me.
Sincerely,
Azel Enterprises, Inc.
S/T.F. Fred Tham
Chief Financial Officer and Secretary
Agreed and Accepted
this 23rd day of June, 1998
Netstar Communications Inc.
S/ Jeety Bhalla
Chief Financial Officer
5
<PAGE>
EXHIBIT 99.2
TELECOMMUNICATION INC. CONTRACT WITH NETSTAR COMMUNICATIONS INC. DATED SEPT. 1,
1998
SPECIFICATION AND DOCUMENTS
GI / TCI CATV UPGRADE
LAKE AREA REGION
OVERLAND CONTRACTING INC.
OVERLAND PARK, KANSAS
GENERAL CONSTRUCTION
Specification 59766.70.0520
CONTRACT ISSUE
September 1, 1998
NETSTAR COMMUNICATIONS INC.
75 N. Bridge View Street
Palatine, Illinois, 60067-4982
BLACK & VEATCH LLP
Kansas City, Missouri
1
<PAGE>
OVERLAND CONTRACTING INC.
SUBCONTRACT
SPECIFICATION NO 59766.70.0520
SUBCONTRACTOR Netstar Communications Inc.
ADDRESS 75 N. Bridge View Street
Palatine, Illinois, 60067-4982
SUBCONTRACT FOR General Construction
PROJECT GI / TCI CATV Upgrade Lake Area
COMPANY General Instruments (GI)
OPERATOR Tele-Communications, Inc. (TCI)
SUBCONTRACT NO 59766.70.0520
EFFECTIVE DATE September 1, 1998
SUBCONTRACT PRICE Per Individual Purchase Order
SUBCONTRACT COMPLETION DATE Per Individual Purchase Order
ENGINEER Black & Veatch LLP
(The above terms are incorporated into and more fully explained in the
provisions that follow.)
This agreement (hereinafter, "Subcontract") is between OVERLAND CONTRACTING
INC., ("Contractor") and NETSTAR COMMUNICATIONS INC., ("Subcontractor") with
offices at the address shown above. The parties agree as follows:
WORK - The "Work" shall mean the scope of labor, equipment, materials, services,
and documents to be provided under this Subcontract. Subcontractor hereby agrees
to furnish all equipment together with all labor under supervision satisfactory
to the Engineer, Operator, Company, and the Contractor, to do everything
required by this Subcontract to performance and effect, shall be determined in
accordance with the internal laws, without reference to conflicts laws, of
Colorado.
IN WITNESS WHEREOF, Contractor and Subcontractor have executed this Subcontract
as of the Effective Date set forth above.
OVERLAND CONTRACTING, INC. NETSTAR COMMUNICATIONS INC
Contractor Subcontractor
S/ W.G. Morgan S/ Jetty Bhalla
Attorney in Fact - Wayne E. Morgan VP-Finance, CFO
2
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EXHIBIT 99.3
NETSTAR COMMUNICATIONS, INC. LETTERHEAD HERE
April 2, 1999
Azel Enterprises, Inc.
946 West 7th Avenue
Vancouver, B.C. Canada
V5Z IC3
Dear Mr. T.F. Fred Tham:
As per our telephone conversation of March 25th, 1999, with regard to the
purchase of Netstar's issued and outstanding common shares, we wish to confirm
our willingness to extend the purchase agreement closing date, as originally
stated in the Letter of Intent dated June 23rd, 1998. We understand that the
process of qualifying Azel to trade on the OTC Bulletin Board has been delayed
beyond Azel's control, and therefore accept this extension accordingly.
We wish to inform you that Netstar is currently trying to finalize negotiations
with Tele-Communication, Inc. to take on an additional contract in South Chicago
which will potentially yield Netstar $3.7 million in additional revenues. We
look forward to working with your group as this pending project, among others,
will require the much needed injection of funds which we expect to receive from
the Azel transaction.
Should you have any questions with regards to the above matter, please do not
hesitate to call me.
Yours sincerely,
NETSTAR COMMUNICATIONS, INC.
Jeety Bhalla
Vice President Finance, CFO
