SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------------------
POWER EXPLORATION, INC.
(Exact name of registrant as specified in its charter)
NEVADA 84-0811647
------ ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5416 BIRCHMAN AVENUE, FORT WORTH, TX 76107
------------------------------------------
(Address of principal executive offices)
1999 STOCK BENEFIT PLAN OF POWER EXPLORATION, INC.
--------------------------------------------------
(Full title of the plan)
GATEWAY ENTERPRISES, INC. 3230 EAST FLAMINGO ROAD, SUITE 156,
-------------------------------------------------------------
LAS VEGAS, NEVADA 89121
-----------------------
(Name, address, including zip code, of agent for service)
TELEPHONE NUMBER, INCLUDING AREA CODE, OF AGENT FOR SERVICE: (702) 731-3270
---------------
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
Title of Securities to be Amounts to Proposed Maximum Proposed Maximum Amount of
Registered be Offering Price Per Aggregate Offering Registration
Registered Share(1) Price Fee
<S> <C> <C> <C> <C>
Common Stock, .02 par value 4,000,000 $2.63 $10,520,000 $2,924.56
=================================== ================ ========================= =========================== ==================
</TABLE>
(1) Bona Fide estimate of maximum offering price solely for calculating the
registration fee pursuant to Rule 457(h) of the Securities Act of 1933,
based on the average of the bid and asked prices of the Registrant's
common stock as of December 9,1999, a date within five business days
prior to the date of filing of this registration statement.
In addition, pursuant to Rule 416(c) under the Securities Act of 1933,
this Registration Statement also covers an indeterminate amount of interests to
be offered or sold pursuant to the Plan described herein.
1
<PAGE>
EXPLANATORY NOTE
The Company has entered into two Advisory Agreements, attached hereto
as exhibits D and E, which authorize the issuance of a total of 3,000,000 shares
(out of the 4,000,000 shares the Company is registering under this S-8
registration statement). Each of the Advisory Agreements provides for the
issuance of 750,000 shares of common stock as compensation for bona fide
services rendered to the Company in conjunction with the acquisition of
interests from Rife Oil Properties, Inc. In addition, each of the Advisory
Agreements grants the Advisor an option to purchase up to 750,000 additional
shares at an option price of $0.66667 per share as further compensation for
services rendered.
1999 STOCK BENEFIT PLAN OF POWER EXPLORATION, INC.
CROSS-REFERENCE SHEET PURSUANT TO RULE 404(A)
Cross-reference between items of Part I of Form S-8 and the Section
10(a) Prospectus that will be delivered to each employee, consultant, or
director who participates in the Plan.
REGISTRATION STATEMENT ITEM NOS. AND HEADINGS SECTION 10(A) PROSPECTUS HEADING
- --------------------------------------------- --------------------------------
1. Plan Information Item 1. General Plan Information
2. Registrant Information and Item 2. Registrant Information and
Employee Plan Annual Information Employee Plan Annual Information
PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
ITEM 3. INCORPORATION OF DOCUMENTS BY REFERENCE
The following documents filed by Power Exploration, Inc., a Nevada
corporation (the "Company"), with the Securities and Exchange Commission (the
"Commission") are hereby incorporated by reference:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
September 30, 1998.
2. All reports filed by the Company with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act of 1934, as amended (the "Exchange
Act"), since the end of the fiscal year ended September 30, 1998.
3. The description and specimen certificate of the Common Stock
contained in the Company's Form S-2 Registration Statement filed on August 8,
1980 under the Securities Act, including any amendment or report filed for the
purpose of updating such description.
Prior to the filing, if any, of a post-effective amendment that
indicates that all securities covered by this Registration Statement have been
sold or that de-registers all such securities then remaining unsold, all reports
and other documents subsequently filed by the Company pursuant to Sections
13(a), 13(c), 14, or
2
<PAGE>
15(d) of the Exchange Act shall be deemed to be incorporated by reference herein
and to be a part hereof from the date of the filing of such reports and
documents.
ITEM 4. DESCRIPTION OF SECURITIES
The common stock of the Company being registered pursuant to this
Registration Statement is part of a class of securities registered under Section
12 of the Exchange Act. A description of such securities is contained in the
Company's initial Form S-2 Registration Statement filed with the Commission on
August 8, 1980, and any amendment or report filed for the purpose of updating
such description. Said description is incorporated herein by reference. (See
"Item 3. Incorporation of Documents by Reference.")
ITEM 5. INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert named as preparing or certifying all or part of the
registration statement to which this prospectus pertains, and no counsel for the
Company who is named in this prospectus as having given an opinion on the
validity of the securities being offered hereby, was hired on a contingent basis
or has or is to receive, in connection with this offering, a substantial
interest, direct or indirect, in the Company.
ITEM 6. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Insofar as indemnification for liabilities arising under the Securities
Act of 1933, as amended (the "Securities Act"), may be permitted to members of
the board of directors, officers, employees, or persons controlling the Company
pursuant to the immediately subsequent provisions, the Company has been informed
that in the opinion of the SEC such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
The Company, however, is incorporated in the State of Nevada which
under NRS Section 78.037 provides that a corporation may limit or eliminate
officers' and directors' personal liability for breach of fiduciary duty so long
as liability is not eliminated or limited for acts or omissions involving
intentional misconduct, fraud or a knowing violation of law or the payment of
unlawful distributions.
Section Eight of Article VIII of the Company's Bylaws provides that the
Company shall indemnify its officers and directors for any liability, including
reasonable costs of defense, arising out of any act or omission of any officer
or director on behalf of the Corporation to the fullest extent allowed by the
laws of the State of Nevada.
In actions, proceedings and suits involving an officer or director
because of their being or having been an officer or director, other than actions
by or in the right of the corporation, NRS Section 78.751 (the "Nevada Statute")
permits a corporation to indemnify directors or officers against actual and
reasonable expenses, including attorney fees, judgments, fines and amounts paid
in settlement. The Nevada Statute applies to actions, proceedings or suits
whether civil, criminal, administrative or arbitrative in nature. However,
unless a court directs otherwise, indemnification is permissible only if the
officer or director meets the applicable standard of conduct and indemnification
is proper under the circumstances. In civil cases, the standard of conduct
requires the officer or director to act in good faith and in a manner he or she
reasonably believes to be in or not opposed to the best interests of the
Company. In criminal cases, an officer or director meets the standard of conduct
if they had no reasonable cause to believe his or her conduct was unlawful. The
board of directors acting through a quorum of disinterested directors,
3
<PAGE>
independent legal counsel designated by the board of directors, or the
shareholders shall determine whether indemnification is proper under the
circumstances. Termination of proceedings by judgment, order, settlement,
conviction or plea of no contest or its equivalent, does not of itself establish
a presumption that the officer or director did not meet the applicable standard
of conduct.
In actions by or in the right of the Company, the Company may indemnify
an officer or director against expenses provided he or she satisfies the
applicable standard of conduct. However, the Company cannot indemnify an officer
or director adjudged liable to the corporation on any claim, issue or matter
unless, and to the extent, the court determines that despite the adjudication of
liability, and in light of all the circumstances, the officer or director is
fairly and reasonably entitled to indemnity for expenses.
In all proceedings, whether by or in the right of the Company or
otherwise, the Nevada Statute requires indemnification to the extent the officer
or director is successful on the merits or otherwise in defense of the
proceeding or in defense of any claim, issue or matter therein. A Nevada
corporation may provide, either in its articles, bylaws or agreements, that the
corporation shall pay the expenses on behalf of a director or officer prior to
the final disposition of the action upon receipt of an undertaking by or on
behalf of the director or officer to repay those advancements if it is
ultimately determined that the officer or director is not entitled to
indemnification. The Nevada Statute does not exclude other indemnification
rights to which a director or officer may be entitled under the articles of
incorporation, the bylaws, an agreement, a vote of shareholders or disinterested
directors, or otherwise; provided that those rights would not indemnify an
officer or director against a judgment or other final adjudication adverse to
the officer or director that establishes the officer's or director's acts or
omissions involved intentional misconduct, fraud or known violation of the law
and were material to the cause of action.
The foregoing discussion of indemnification merely summarizes certain
aspects of indemnification provisions and is limited by reference to NRS Section
78.751, Article VIII of the Company's Bylaws, and the Company's Articles of
Incorporation, or any amendments thereto.
ITEM 7. EXEMPTION FROM REGISTRATION CLAIMED
No restricted securities are being re-offered or resold pursuant to
this registration statement.
ITEM 8. EXHIBITS.
The exhibits attached to this Registration Statement are listed in the
Exhibit Index, which is found on page 8.
Included among the exhibits are the Section 10(a) Prospectus and
Consolidated Financial Statements.
ITEM 9. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement to include
any material information with respect to the
4
<PAGE>
plan of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement.
(2) To treat, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment as a new
registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(c) Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Fort Worth, Texas, on December 13, 1999.
Power Exploration, Inc.
By: /s/
----------------------
Joe Bill Bennett, as CEO
Pursuant to the requirements of the Securities Act of 1933, the
trustees (or other persons who administer the employee benefit plan) have duly
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Fort Worth, Texas, on
December 13, 1999.
The 1999 Stock Benefit Plan of Power Exploration, Inc
BY: /s/
--------------------------------
M.O. Rife III, on behalf of Plan Administrators
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below
constitutes and appoints Joe Bill Bennett with power of substitution, as his
attorney-in-fact for him, in all capacities, to sign any amendments to this
registration statement and to file the same, with exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
hereby ratifying and confirming all that said attorney-in-fact or his
substitutes may do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
/s/
- ----------------- Director and CEO December 13, 1999
Joe Bill Bennett
/s/
- ---------------- Director and CFO December 13, 1999
Mark Zouvas
/s/
- --------------- Director and Chairman December 13, 1999
M. O. Rife, III
6
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
EXHIBITS
TO
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
Power Exploration, Inc.
(A Nevada corporation)
------------------
7
<PAGE>
INDEX TO EXHIBITS
Sequentially
Exhibits Sec Ref. No. Description of Exhibit Numbered Pages
- -------- ------------ ---------------------- --------------
A 4 1999 Stock Benefit Plan of the 9
Company
B 5, 23(b) Opinion and consent of Counsel with
respect to the legality of the
issuance of securities being issued 14
C 23(a) Consent of Accountant 18
D 10 Advisory Agreement with Mr. 19
Ronald Welborn
E 10 Advisory Agreement with Mr. 26
Allen Wolfson
F 10 Option Agreement with Mr. 33
Allen Wolfson
G 10 Option Agreement with Mr. 38
Ronald Welborn
H 99 Section 10(a) Prospectus 45
I 99 Consolidated Financial Statements 51
8
EXHIBIT A
THE 1999 STOCK BENEFIT PLAN
OF
Power Exploration, Inc.
9
<PAGE>
THE 1999 STOCK BENEFIT PLAN OF POWER EXPLORATION, INC.
Power Exploration, Inc., a Nevada corporation (the "Company"), hereby
adopts The 1999 Stock Benefit Plan of Power Exploration, Inc. (the "Plan") this
27th day of October, 1999. Under the Plan, the Company may issue shares of the
Company's common stock or grant options to acquire the Company's common stock,
par value $0.02 (the "Stock"), from time to time to employees of the Company or
its subsidiaries, all on the terms and conditions set forth herein ("Options").
In addition, at the discretion of the Board of Directors, shares of the
Company's common stock or Options to acquire shares of the Company's common
stock may from time to time be granted under this Plan to other individuals,
including consultants or advisors, who contribute to the success of the Company
or its subsidiaries but are not employees of the Company or its subsidiaries,
provided that bona fide services shall be rendered by consultants and advisors
and such services must not be in connection with the offer or sale of securities
in a capital-raising transaction.
1. PURPOSE OF THE PLAN. The Plan is intended to aid the Company in maintaining
and developing a management team, attracting qualified officers and employees
capable of assuring the future success of the Company, and rewarding those
individuals who have contributed to the success of the Company. The Company has
designed this Plan to aid it in retaining the services of executives and
employees and in attracting new personnel when needed for future operations and
growth and to provide such personnel with an incentive to remain employees of
the Company, to use their best efforts to promote the success of the Company's
business, and to provide them with an opportunity to obtain or increase a
proprietary interest in the Company. It is also designed to permit the Company
to reward those individuals who are not employees of the Company but who
management perceives to have contributed to the success of the Company or who
are important to the continued business and operations of the Company. The above
goals will be achieved through the granting of stock and/or Options. The plan is
not subject to the provision of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), nor qualified under Section 401(a) of the Internal
Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION OF THIS PLAN. Administration of this Plan shall be determined
by the Company's Board of Directors (the "Board"). The address of the Board is
c/o Power Exploration, Inc., 5416 Birchman Avenue, Fort Worth, TX 76107 ,
telephone number (817) 377-4464. Subject to compliance with applicable
provisions of the governing law, the Board may delegate administration of this
Plan or specific administrative duties with respect to this Plan on such terms
and to such committees of the Board as it deems proper (hereinafter the Board or
its authorized committee shall be referred to as "Plan Administrators"). The
interpretation and construction of the terms of this Plan by the Plan
Administrators thereof shall be final and binding on all participants in this
Plan absent a showing of demonstrable error. No member of the Plan
Administrators shall be liable for any action taken or determination made in
good faith with respect to this Plan. Any Option approved by a majority vote of
those Plan Administrators attending a duly and properly held meeting shall be
valid. Any Option approved by the Plan Administrators shall be approved as
specified by the Board at the time of delegation.
10
<PAGE>
3. SHARES OF STOCK SUBJECT TO THIS PLAN. A total of four million (4,000,000)
shares of Stock may be subject to, or issued pursuant to this Plan. If any right
to acquire Stock granted under this Plan is exercised by the delivery of shares
of Stock or the relinquishment of rights to shares of Stock, only the net shares
of Stock issued (the shares of stock issued less the shares of Stock
surrendered) shall count against the total number of shares reserved for
issuance under the terms of this Plan.
4. RESERVATION OF STOCK ON GRANTING OF OPTION. At the time any Option is granted
under the terms of this Plan, the Company will reserve for issuance the number
of shares of Stock subject to such Option until it is exercised or expires. The
Company may reserve either authorized but unissued shares or issued shares
reacquired by the Company.
5. ELIGIBILITY. The Plan Administrators may grant shares of stock or Options to
employees, officers, and directors of the Company and its subsidiaries, as may
be existing from time to time, and to other individuals who are not employees of
the Company or its subsidiaries, including consultants and advisors, provided
that such consultants and advisors render bona fide services to the Company or
its subsidiaries and such services are not rendered in connection with the offer
or sale of securities in a capital-raising transaction. In any case, the Plan
Administrators shall determine, based on the foregoing limitations and the
Company's best interests, which employees, officers, directors, consultants and
advisors are eligible to participate in this Plan. Options shall be in the
amounts, and shall have the rights and be subject to the restrictions, as may be
determined by the Plan Administrators, all as may be within the provisions of
this Plan.
6. TERM OF OPTIONS AND CERTAIN LIMITATIONS ON RIGHT TO EXERCISE.
a. Each Option shall have its term established by the Plan
Administrators at the time the Option is granted.
b. The term of the Option, once it is granted, may be reduced only as
provided for in this Plan and under the express written provisions of
the Option.
c. Unless otherwise specifically provided by the written provisions of
the Option or required by applicable disclosure or other legal
requirements promulgated by the Securities and Exchange Commission
("SEC"), no participant of this Plan or his or her legal
representative, legatee, or distributee will be, or shall be deemed to
be, a holder of any shares subject to an Option unless and until such
participant exercises his or her right to acquire all or a portion of
the Stock subject to the Option and delivers the required consideration
to the Company in accordance with the terms of this Plan and then only
as to the number of shares of Stock acquired. Except as specifically
provided in this Plan or as otherwise specifically provided by the
written provisions of the Option, no adjustment to the exercise price
or the number of shares of Stock subject to the Option shall be made
for dividends or other rights for which the record date is prior to the
date on which the Stock subject to the Option is acquired by the
holder.
d. Options shall vest and become exercisable at such time or times and
on such terms as the Plan Administrators may determine at the time of
the grant of the Option.
e. Options may contain such other provisions, including further lawful
restrictions on the vesting and exercise of the Options as the Plan
Administrators may deem advisable.
11
<PAGE>
f. In no event may an Option be exercised after the expiration of its
term.
g. Options shall be non-transferable, except by the laws of descent and
distribution.
7. EXERCISE PRICE. The Plan Administrators shall establish the exercise price
payable to the Company for shares to be obtained pursuant to Options which
exercise price may be amended from time to time as the Plan Administrators shall
determine.
8. PAYMENT OF EXERCISE PRICE. The exercise of any Option shall be contingent on
receipt by the Company of the exercise price paid in either cash, certified or
personal check payable to the Company.
9. WITHHOLDING. If the grant or exercise of an Option is subject to withholding
or other trust fund payment requirements of the Internal Revenue Code of 1986,
as amended (the "Code"), or applicable state or local laws, the Company will
initially pay the Optionee's liability and will be reimbursed by Optionee no
later than six months after such liability arises and Optionee hereby agrees to
such reimbursement terms.
10. DILUTION OR OTHER ADJUSTMENT. The shares of Common Stock subject to this
Plan and the exercise price of outstanding Options are subject to proportionate
adjustment in the event of a stock dividend on the Common Stock or a change in
the number of issued and outstanding shares of Common Stock as a result of a
stock split, consolidation, or other recapitalization. The Company, at its
option, may adjust the Options, issue replacements, or declare Options void.
11. OPTIONS TO FOREIGN NATIONALS. The Plan Administrators may, in order to
fulfill the purpose of this Plan and without amending this Plan, grant Options
to foreign nationals or individuals residing in foreign countries that contain
provisions, restrictions, and limitations different from those set forth in this
Plan and the Options made to United States residents in order to recognize
differences among the countries in law, tax policy, and custom. Such grants
shall be made in an attempt to give such individuals essentially the same
benefits as contemplated by a grant to United States residents under the terms
of this Plan.
12. LISTING AND REGISTRATION OF SHARES. Each Option shall be subject to the
requirement that if at any time the Plan Administrators shall determine, in
their sole discretion, that it is necessary or desirable to list, register, or
qualify the shares covered thereby on any securities exchange or under any state
or federal law, or obtain the consent or approval of any governmental agency or
regulatory body as a condition of, or in connection with, the granting of such
Option or the issuance or purchase of shares thereunder, such Option may not be
exercised in whole or in part unless and until such listing, registration,
consent, or approval shall have been effected or obtained free of any conditions
not acceptable to the Plan Administrators.
13. EXPIRATION AND TERMINATION OF THIS PLAN. This Plan may be abandoned or
terminated at any time by the Plan Administrators except with respect to any
Options then outstanding under this Plan. This Plan shall otherwise terminate on
the earlier of the date that is five years from the date first appearing in this
Plan or the date on which the 4,000,000th share is issued hereunder.
14. AMENDMENT OF THIS PLAN. This Plan may not be amended more than once during
any six month period, other than to comport with changes in the Code or the
Employee Retirement Income Security Act or the rules and regulations promulgated
thereunder. The Plan Administrators may modify and amend this Plan in any
respect; provided, however, that to the extent such amendment or modification
would cause this Plan to no longer comply with the applicable provisions of the
Code governing incentive stock options as
12
<PAGE>
they may be amended from time to time, such amendment or modification shall also
be approved by the shareholders of the Company.
ATTEST:
/S/ JOE BILL BENNETT
--------------------------------------
Joe Bill Bennett, CEO and Director
OCTOBER 27, 1999
---------------------------------------
Date
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
13
EXHIBIT B
KIM TAYLOR
ATTORNEY- AT- LAW
1003 SOUTH 1400 EAST
SALT LAKE CITY, UTAH 84105
TELEPHONE/FAX - (801) 582-7811
December 8,1999
Board of Directors
Power Exploration, Inc.
5416 Birchman Avenue
Fort Worth, TX 76107
RE: FORM S-8 REGISTRATION STATEMENT
Gentlemen:
I have acted as a special counsel for Power Exploration, Inc., a Nevada
corporation (the "Company"), in connection with the preparation and filing with
the Securities and Exchange Commission ("the Commission") under the Securities
Act of 1933, as amended, ("the Act") of a registration statement on Form S-8
(the "Registration Statement"). The Company is registering a Benefit Plan
entitled "1999 Stock Benefit Plan of Power Exploration, Inc." (the "Benefit
Plan") pursuant to which the Company has authorized the issuance of 4,000,000
shares of the Company's common stock, par value $.02. In connection with the
Company's filing of the Registration Statement, you have requested my opinion
regarding the validity of the issuance of the aforementioned Shares.
This opinion letter (this "Opinion") is governed by, and shall be
interpreted in accordance with the Legal Opinion Accord (the "Accord") of the
ABA Section of Business Law (1991). As a consequence, it is subject to a number
of qualifications and limitations, all as more particularly described in the
Accord, and this Opinion should be read in conjunction therewith.
In connection with the preparation of this Opinion, I have examined the
following:
1. The Company's Articles of Incorporation and Bylaws;
2. The Registration Statement herein referenced;
3. The authorization and approval by the Company's Board of Directors of
the Company's Benefit Plan concerning the Shares and Registration
Statement;
4. The Company's Section 10(a) Prospectus for the Registration Statement;
15
<PAGE>
5. The Company's most recently filed Form 10-KSB and any subsequently
filed reports on Form 10-QSB;
6. Such other documents as I have deemed necessary for the purposes of this
Opinion.
Additionally, I have made such investigations of federal law as I have
considered necessary and appropriate to form a basis for this opinion. My
opinion is qualified by the scope of the decumbent review specified herein and I
make no representations as to the sufficiency of my investigation for this
opinion. I further expressly exempt from this opinion any representations as to
the completeness, adequacy, accuracy or any other aspect of the financial
statements incorporated in the Registration Statement.
The documentation and representations provided to me for this opinion by
the Company and its duly authorized representatives indicate that the Company is
validly organized under the laws of the State of Nevada; the Company is current
in its filings with the Commission; the Company's Board of Directors has
authorized the Benefit Plan; the Company's Board of Directors has authorized the
filing of the Registration Statement; and that the number of shares to be
included in the Registration Statement are available for issuance based upon
corporate documentation and on the amount of shares actually issued and
outstanding. As such, I am of the opinion that the Shares herein referenced have
been duly and validly authorized and that subject to compliance with all
provision of the Plan, the Shares will bd validly issued as fully paid and
non-assessable shares of common stock in the Company.
This opinion is based upon and subject to the qualifications and
limitations specified below:
(A) Certain of the remedial provisions of the Benefit Plan may be further
limited or rendered unenforceable by other applicable laws and interpretations.
(B) In rendering the opinion that the shares of the Common Stock to be
registered pursuant to the Registration Statement and issued under the Benefit
Plan will be validly issued, fully paid and nonassessable, I assumed that: (1)
the Company's Board of Directors has exercised good faith in establishing the
value paid for the Shares; (2) all issuances and cancellations of the capital
stock of the Company will be fully and accurately reflected in the Company's
Stock Records as provided by the Company's transfer agent; and (3) the
consideration, as determined by the Company's Board of Directors, to be received
in exchange for each issuance of common stock of the Company, has been paid in
full and actually received by the Company.)
(C) I have made no independent verification of the facts asserted to be
true and accurate by authorized representatives of the Company and have assumed
that no person or entity has engaged in fraud or misrepresentation regarding the
inducement relating to, or the execution or delivery of, the documents reviewed
(D) In rendering this opinion I have assumed that all signature are
genuine, that all documents submitted to me as copies conform substantially to
the originals, that all documents have been duly executed on or as of the date
represented on the documents, that execution and delivery of the documents was
duly authorized on the part of the parties, that all documents are legal, valid
and binding on the parties and that all corporate records are complete.
(E) I have assumed that the Company is satisfying the substantive
requirements of Form S-8 and I expressly disclaim any opinion regarding the
Company's compliance with such requirements, whether they are
16
<PAGE>
of federal or state origin, or any opinion as to the subsequent tradeability of
any Shares issued pursuant to the Benefit Plan.
(F) I am admitted to practice lay in the State of Utah. I am not admitted
to practice law in the State of Nevada or in any other jurisdiction where the
Company may own property or transact business. This opinion is with respect to
federal law only and I have not consulted legal counsel from any other
jurisdiction for the purpose of the opinion contained herein. I expressly except
form this opinion any opinion as to whether or to what extent a Nevada court or
any other court would apply Nevada law, or the law of any other state or
jurisdiction, to any particular aspect of the facts, circumstance and
transactions that are the subject ot this opinion.
(G) This opinion is strictly limited to the parameters contained and
referenced herein and is valid only as to the signature date with respect to the
same. I assume no responsibility to advise you of any subsequent changes or
developments which might affect any aspect to this opinion.
I hereby consent to the use of this opinion as an exhibit to the
Registration Statement. This opinion may not be used, relied upon, circulated,
quoted or otherwise referenced in whole or in part for any purpose without my
written consent.
Sincerely,
/S/ KIM TAYLOR
- ----------------------
Kim Taylor
17
EXHIBIT C
MERDINGER, FRUCHTER, ROSEN, & CORSO, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
888 SEVENTH AVENUE
NEW YORK, N.Y. 10106
----------------------
TEL: (212) 787-9400
FAX: (212) 767-6124
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANT
TO THE BOARD OF DIRECTORS
POWER EXPLORATION, INC.
We hereby consent to the use in this Registration Statement of Power
Exploration, Inc., on Form S-8 of our report dated October 30, 1998, except for
Note 15(a) through (e) as to which the date is January 11, 1999 and Note 15 (f)
through (u) as to which the date is November 22, 1999 relating to the financial
statements of Power Exploration, Inc. and Subsidiaries and to the reference to
our Firm under the caption "Experts" in such Registration Statement.
/S/
-----------------------------------
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
November 29, 1999
18
EXHIBIT D
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ( THE "AGREEMENT") IS MADE THIS 10TH day of
December 1999, by and between Ronald Welborn, a Texas resident ("Advisor") and
Power Exploration, Inc., a Nevada Corporation with its offices located in Fort
Worth, Texas (the "Company").
WHEREAS, Advisor and Advisors's Personnel (as defined below) have
experience in evaluating and effecting mergers and acquisitions, advising
corporate management, and in performing general administrative duties for
publicly-held companies and development stage investment ventures; and
WHEREAS, the Company desires to retain Advisor to advise and assist the
Company in its development on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Advisor
agree as follows:
1. ENGAGEMENT
The Company hereby retains Advisor, effective as of the date hereof (
the "Effective Date") and continuing until termination, as provided
herein, to assist the Company in it's effecting the purchase of
businesses and assets relative to its business and growth strategy,
general business and financial issues consulting, the introduction of
the Company to brokers and dealers, public relations firms and
consultants and others that may assist the Company in its plans and
future and to assist in the acquisition of wells and other producing
properties (the "Services"). The Services are to be provided on a "best
efforts" basis directly and through Advisor's officers or others
EMPLOYED OR RETAINED AND UNDER THE DIRECTION OF ADVISOR ("ADVISOR'S
PERSONNEL"); PROVIDED, HOWEVER, that the Services shall expressly
exclude all legal advice, accounting services or other services which
require licenses or certification which Advisor may not have.
2. TERM
This Agreement shall have an initial term of twelve (12) months (the
"Primary Term"), commencing with the Effective Date. At the conclusion
of the Primary Term this Agreement will automatically be extended on
for the same term ( the "Extension Period") unless Advisor or the
Company shall serve written notice on the other party terminating the
Agreement. Any notice to terminate given hereunder shall be in writing
and shall be delivered at least thirty (30) days prior to the end of
the Primary Term or any subsequent Extension Period.
3. TIME AND EFFORT OF ADVISOR
Advisor shall allocate time and Advisors Personnel as it deems
necessary to provide the Services. The particular amount of time may
vary from day to day or week to week. Except as otherwise
19
<PAGE>
agreed, Advisor's monthly statement identifying, in general, tasks
performed for the Company shall be conclusive evidence that the
Services have been performed. Additionally, in the absence of willful
misfeasance, bad faith, negligence or reckless disregard for the
obligations or duties hereunder by Advisor, neither Advisor nor
Advisor's Personnel shall be liable to the Company or any of its
shareholders for any act or omission in the course of or connected with
rendering the Services, including but not limited to losses that may be
sustained in any corporate act in any subsequent Business Opportunity
(as defined herein) undertaken by the Company as a result of advice
provided by Advisor or Advisors's Personnel.
4. COMPENSATION
The Company agrees to pay Advisor a fee for the Services ("Advisory
Fee") by way of the issuance by the company of Seven Hundred Fifty
Thousand (750,000) shares of the Company's common stock as an initial
fee following the closing of the acquisition of interests from Rife Oil
Properties, Inc., Seventy Thousand (70,000) of these shares shall be
delivered within seven (7) days of the closing thereof and the balance
shall not become due until thirty (30) days after the closing thereof.
As incentive to execute this Agreement the Company does hereby grant to
Advisor the right to purchase up to Seven Hundred Fifty Thousand
(750,000) shares of the Company's common stock at an option price of
$0.66667 per share, such option is valid from thirty (30) days
following the closing of the acquisition from Rife Oil until the end of
the primary term of this Agreement. Advisor's right to purchase shares
under the option shall be governed by the terms and conditions of the
Option Agreement attached hereto as Exhibit "A" and incorporated herein
by reference.
5. OTHER SERVICES
If, the Company enters into a merger or exchanges securities with, or
purchases the assets or enters into a joint venture with, or makes an
investment in a company introduced by Advisor ( a "Business
Opportunity"), the Company agrees to pay Advisor a fee equal to ten
percent (10%) of the value of each Business Opportunity introduced by
Advisor and acquired or otherwise participated in by the Company
(collectively referred to herein, in each instance, as the "Transaction
Fee"), which shall be payable immediately following the closing of each
such transaction, in restricted shares of the Company's common stock or
in kind if an acquisition is made at the Company's option, if paid in
cash the Transaction Fee shall be reduced to five percent (5%).
6. REGISTRATION OF SHARES
Company agrees that any shares issued to satisfy a Transaction Fee may
be registered by the Company with the Securities and Exchange
Commission under any subsequent applicable registration statement filed
by the Company at the Company's discretion. Such issuance or
reservation of shares shall be in reliance on representations and
warranties of Advisor set forth herein.
20
<PAGE>
7. COSTS AND EXPENSES
All third party and out-of-pocket expenses incurred by Advisor in the
performance of the Services or for the settlement of debts shall be
paid by the Company, or Advisor shall be reimbursed if paid by Advisor
on behalf of the Company, within ten (10) days of receipt of written
notice by Consultant, provided that the Company must approve in advance
all such expenses in excess of $500 per month.
8. PLACE OF SERVICES
The Services provided by Advisor or Advisor's Personnel hereunder will
be performed at Advisor's offices except as otherwise mutually agreed
by Advisor and the Company.
9. INDEPENDENT CONTRACTOR
Advisor and Advisor's Personnel will act as an independent contractor
in the performance of its duties under this Agreement. Accordingly,
Advisor will be responsible for payment of all federal, state, and
local taxes on compensation paid under this Agreement, including income
and social security taxes, unemployment insurance, and any other taxes
due relative to Advisor's Personnel, and ANY AND ALL BUSINESS LICENSE
FEES AS MAY BE REQUIRED. THIS AGREEMENT NEITHER EXPRESSLY NOR impliedly
creates a relationship of principal and agent, or employee and
employer, between Advisor's Personnel and the Company. Neither Advisor
nor Advisor's Personnel are authorized to enter into any agreements on
behalf of the Company. The Company expressly retains the right to
approve, in its sole discretion, each Asset Opportunity or Business
Opportunity introduced by Advisor, and to make all final decisions with
respect to effecting a transaction on any Business Opportunity.
10. REJECTED ASSET OPPORTUNITY OR BUSINESS OPPORTUNITY
If, during the Primary Term of this Agreement or any Extension Period,
the Company elects not to proceed to acquire, participate or invest in
any Business Opportunity identified and/or selected by Advisor,
notwithstanding the time and expense the Company may have incurred
reviewing such transaction, such Business Opportunity shall revert back
to and become proprietary to Advisor, and Advisor shall be entitled to
acquire or broker the sale or investment in such rejected Business
Opportunity for its own account, or submit such assets or Business
Opportunity elsewhere. In such event, Advisor shall be entitled to any
and all profits or fees resulting from Advisor's purchase, referral or
placement of any such rejected Business Opportunity, or the Company's
subsequent purchase or financing with such Business Opportunity in
circumvention of Advisor
11. NO AGENCY EXPRESS OR IMPLIED
This Agreement neither expressly nor impliedly creates a relationship
of principal and agent between the Company and Advisor, or employee and
employer as between Advisor's Personnel and the Company.
21
<PAGE>
12. TERMINATION
The Company and Advisor may terminate this Agreement prior to the
expiration of the Primary Term upon thirty (30) days written notice
with mutual written consent. Failing to have mutual consent, without
prejudice to any other remedy to which the terminating party may be
entitled, if any, either party may terminate this Agreement with thirty
(30) days written notice under the following conditions:
(A) BY THE COMPANY.
(i) If during the Primary Term of this Agreement or any
Extension Period, Advisor is unable to provide the
Services as set forth herein for thirty (30)
consecutive business days because of illness,
accident, or other incapacity of Advisor's Personnel;
or,
(ii) If Advisor willfully breaches or neglects the duties
required to be performed hereunder; or,
(iii) At Company's option without cause upon 30 days
written notice to Advisor; or
(B) BY ADVISOR.
(i) If the Company breaches this Agreement or fails to
make any payments or provide information required
hereunder; or,
(ii) If the Company ceases business or, other than in an
Initial Merger, sells a controlling interest to a
third party, or agrees to a consolidation or merger
of itself with or into another corporation, or enters
into such a transaction outside of the scope of this
Agreement, or sells substantially all of its assets
to another corporation, entity or individual outside
of the scope of this Agreement; or,
(iii) If the Company subsequent to the execution hereof has
a receiver appointed for its business or assets, or
otherwise becomes insolvent or unable to timely
satisfy its obligations in the ordinary course of,
including but not limited to the obligation to pay
the Initial Fee, the Transaction fee, or the Advisory
Fee; or,
(iv) If the Company subsequent to the execution hereof
institutes, makes a general assignment for the
benefit of creditors, has instituted against it any
bankruptcy proceeding for reorganization for
rearrangement of its financial affairs, files a
petition in a court of bankruptcy, or is adjudicated
a bankrupt; or,
(v) If any of the disclosures made herein or subsequent
hereto by the Company to Consultant are determined to
be materially false or misleading.
In the event Advisor elects to terminate without cause or this
Agreement is terminated prior to the expiration of the Primary Term or
any Extension Period by mutual written agreement, or by the
22
<PAGE>
Company for the reasons set forth in A(i) and (ii) above, the Company
shall only be responsible to pay Advisor for unreimbursed expenses,
Advisory Fee and Transaction Fee accrued up to and including the
effective date of termination. If this Agreement is terminated by the
Company for any other reason, or by Advisor for reasons set forth in
B(i) through (v) above, Advisor shall be entitled to any outstanding
unpaid portion of reimbursable expenses, Transaction Fee, if any, and
for the remainder of the unexpired portion of the applicable term
(Primary Term or Extension Period) of the Agreement.
13. INDEMNIFICATION
Subject to the provisions herein, the Company and Advisor agree to
indemnify, defend and hold each other harmless from and against all
demands, claims, actions, losses, damages, liabilities, costs and
expenses, including without limitation, interest, penalties and
attorneys' fees and expenses asserted against or imposed or incurred by
either party by reason of or resulting from any action or a breach of
any representation, warranty, covenant, condition, or agreement of the
other party to this Agreement.
14. REMEDIES
Advisor and the Company acknowledge that in the event of a breach of
this Agreement by either party, money damages would be inadequate and
the non-breaching party would have no adequate remedy at law.
Accordingly, in the event of any controversy concerning the rights or
obligations under this Agreement, such rights or obligations shall be
enforceable in a court of equity by a decree of specific performance.
Such remedy, however, shall be cumulative and nonexclusive and shall be
in addition to any other remedy to which the parties may be entitled.
15. MISCELLANEOUS
(A) SUBSEQUENT EVENTS. Advisor and the Company each agree to
notify the other party if, subsequent to the date of this
Agreement, either party incurs obligations which could
compromise its efforts and obligations under this Agreement.
(B) AMENDMENT. This Agreement may be amended or modified at any
time and in any manner only by an instrument in writing
executed by the parties hereto.
(C) FURTHER ACTIONS AND ASSURANCES. At any time and from time to
time, each party agrees, at its or their expense, to take
actions and to execute and deliver documents as may be
reasonably necessary to effectuate the purposes of this
Agreement.
(D) WAIVER. Any failure of any party to this Agreement to comply
with any of its obligations, agreements, or conditions
hereunder may be waived in writing by the party to whom such
compliance is owed. The failure of any party to this Agreement
to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such
provision or a waiver of the right of such party thereafter to
enforce each and every
23
<PAGE>
such provision. No waiver of any breach of or noncompliance
with this Agreement shall be held to be a waiver of any other
or subsequent breach or noncompliance.
(E) ASSIGNMENT. Neither this Agreement nor any right created by it
shall be assignable by either party without the prior written
consent of the other or as stated herein.
(F) NOTICES. Any notice or other communication required or
permitted by this Agreement must be in writing and shall be
deemed to be properly given when delivered in person to an
officer of the other party, when deposited in the United
States mails for transmittal by certified or registered mail,
postage prepaid, or when deposited with a public telegraph
company for transmittal, or when sent by facsimile
transmission charges prepared, provided that the communication
is addressed:
(i) In the case of the Company:
Power Exploration, Inc.
5416 Birchman Avenue
Fort Worth, Texas 76107
Telephone: (817) 377-4464
Telefax: (817) 377-4686
Attention: Joe Bennett
(ii) In the case of Advisor:
Ronald Welborn
11701 South Freeway
Burleson, Texas 76028
Telephone: (817) 996-3204
Telefax: (817) 293-9336
or to such other person or address designated in writing by the Company or
Advisor to receive notice.
(G) HEADINGS. The section and subsection headings in this
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this
Agreement.
(H) GOVERNING LAW. This Agreement was negotiated and is being
contracted for in Texas, and shall be governed by the laws of
the State of Texas, and the United States of America, not
withstanding any conflict-of-law provision to the contrary.
(I) BINDING EFFECT. This Agreement shall be binding upon the
parties hereto and inure to the benefit of the parties, their
respective heirs, administrators, executors, successors, and
assigns.
(J) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto and supersedes any and all prior
agreements, arrangements, or understandings between the
parties relating to the subject matter of this Agreement. No
oral understan dings, statements, promises, or inducements
contrary to the terms of this Agreement exist. No
representations, warranties, covenants, or conditions, express
or implied, other than as set forth herein, have been made by
any party.
24
<PAGE>
(K) SEVERABILITY. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in
full force and effect.
(L) COUNTERPARTS. A facsimile, telecopy, or other reproduction of
this Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument, by one or more parties hereto and such executed
copy may be delivered by facsimile or similar instantaneous
electronic transmission device pursuant to which the signature
of or on behalf of such party can be seen. In this event, such
execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party
hereto, all parties agree to execute an original of this
Agreement as well as any facsimile, telecopy or othe
reproduction hereof.
(M) TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement and of each and every provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date above written.
The "Company" "Advisor"
Power Exploration, Inc. Ronald Welborn
A Nevada Corporation A Texas Resident
BY: /S/ JOE BILL BENNETT BY: /S/ RONALD WELBORN
------------------------- ---------------------------
NAME: JOE BILL BENNETT
TITLE: CEO
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
25
EXHIBIT E
ADVISORY AGREEMENT
THIS ADVISORY AGREEMENT ( THE "AGREEMENT") IS MADE THIS 10TH day of
December 1999, by and between Allen Z. Wolfson, a Utah resident ("Advisor") and
Power Exploration, Inc., a Nevada Corporation with its offices located in Fort
Worth, Texas (the "Company").
WHEREAS, Advisor and Advisors's Personnel (as defined below) have
experience in evaluating and effecting mergers and acquisitions, advising
corporate management, and in performing general administrative duties for
publicly-held companies and development stage investment ventures; and
WHEREAS, the Company desires to retain Advisor to advise and assist the
Company in its development on the terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual promises, covenants and
agreements contained herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the Company and Advisor
agree as follows:
1. ENGAGEMENT
The Company hereby retains Advisor, effective as of the date hereof (
the "Effective Date") and continuing until termination, as provided
herein, to assist the Company in it's effecting the purchase of
businesses and assets relative to its business and growth strategy,
general business and financial issues consulting, the introduction of
the Company to brokers and dealers, public relations firms and
consultants and others that may assist the Company in its plans and
future and to assist in the acquisition of wells and other producing
properties (the "Services"). The Services are to be provided on a "best
efforts" basis directly and through Advisor's officers or others
EMPLOYED OR RETAINED AND UNDER THE DIRECTION OF ADVISOR ("ADVISOR'S
PERSONNEL"); PROVIDED, HOWEVER, that the Services shall expressly
exclude all legal advice, accounting services or other services which
require licenses or certification which Advisor may not have.
2. TERM
This Agreement shall have an initial term of twelve (12) months (the
"Primary Term"), commencing with the Effective Date. At the conclusion
of the Primary Term this Agreement will automatically be extended on
for the same term ( the "Extension Period") unless Advisor or the
Company shall serve written notice on the other party terminating the
Agreement. Any notice to terminate given hereunder shall be in writing
and shall be delivered at least thirty (30) days prior to the end of
the Primary Term or any subsequent Extension Period.
26
<PAGE>
3. TIME AND EFFORT OF ADVISOR
Advisor shall allocate time and Advisors Personnel as it deems
necessary to provide the Services. The particular amount of time may
vary from day to day or week to week. Except as otherwise agreed,
Advisor's monthly statement identifying, in general, tasks performed
for the Company shall be conclusive evidence that the Services have
been performed. Additionally, in the absence of willful misfeasance,
bad faith, negligence or reckless disregard for the obligations or
duties hereunder by Advisor, neither Advisor nor Advisor's Personnel
shall be liable to the Company or any of its shareholders for any act
or omission in the course of or connected with rendering the Services,
including but not limited to losses that may be sustained in any
corporate act in any subsequent Business Opportunity (as defined
herein) undertaken by the Company as a result of advice provided by
Advisor or Advisors's Personnel.
4. COMPENSATION
The Company agrees to pay Advisor a fee for the Services ("Advisory
Fee") by way of the issuance by the company of Seven Hundred Fifty
Thousand (750,000) shares of the Company's common stock as an initial
fee following the closing of the acquisition of interests from Rife Oil
Properties, Inc., Seventy Thousand (70,000) of these shares shall be
delivered within seven (7) days of the closing thereof and the balance
shall not become due until thirty (30) days after the closing thereof.
As incentive to execute this Agreement the Company does hereby grant to
Advisor the right to purchase up to Seven Hundred Fifty Thousand
(750,000) shares of the Company's common stock at an option price of
$0.66667 per share, such option is valid from thirty (30) days
following the closing of the acquisition from Rife Oil until the end of
the primary term of this Agreement. Advisor's right to purchase shares
under the option shall be governed by the terms and conditions of the
Option Agreement attached hereto as Exhibit "A" and incorporated herein
by reference.
5. OTHER SERVICES
If, the Company enters into a merger or exchanges securities with, or
purchases the assets or enters into a joint venture with, or makes an
investment in a company introduced by Advisor ( a "Business
Opportunity"), the Company agrees to pay Advisor a fee equal to ten
percent (10%) of the value of each Business Opportunity introduced by
Advisor and acquired or otherwise participated in by the Company
(collectively referred to herein, in each instance, as the "Transaction
Fee"), which shall be payable immediately following the closing of each
such transaction, in restricted shares of the Company's common stock or
in kind if an acquisition is made at the Company's option, if paid in
cash the Transaction Fee shall be reduced to five percent (5%).
6. REGISTRATION OF SHARES
Company agrees that any shares issued to satisfy a Transaction Fee may
be registered by the Company with the Securities and Exchange
Commission under any subsequent applicable registration statement filed
by the Company at the Company's discretion. Such issuance or
reservation of shares shall be in reliance on representations and
warranties of Advisor set forth herein.
27
<PAGE>
7. COSTS AND EXPENSES
All third party and out-of-pocket expenses incurred by Advisor in the
performance of the Services or for the settlement of debts shall be
paid by the Company, or Advisor shall be reimbursed if paid by Advisor
on behalf of the Company, within ten (10) days of receipt of written
notice by Consultant, provided that the Company must approve in advance
all such expenses in excess of $500 per month.
8. PLACE OF SERVICES
The Services provided by Advisor or Advisor's Personnel hereunder will
be performed at Advisor's offices except as otherwise mutually agreed
by Advisor and the Company.
9. INDEPENDENT CONTRACTOR
Advisor and Advisor's Personnel will act as an independent contractor
in the performance of its duties under this Agreement. Accordingly,
Advisor will be responsible for payment of all federal, state, and
local taxes on compensation paid under this Agreement, including income
and social security taxes, unemployment insurance, and any other taxes
due relative to Advisor's Personnel, and ANY AND ALL BUSINESS LICENSE
FEES AS MAY BE REQUIRED. THIS AGREEMENT NEITHER EXPRESSLY NOR impliedly
creates a relationship of principal and agent, or employee and
employer, between Advisor's Personnel and the Company. Neither Advisor
nor Advisor's Personnel are authorized to enter into any agreements on
behalf of the Company. The Company expressly retains the right to
approve, in its sole discretion, each Asset Opportunity or Business
Opportunity introduced by Advisor, and to make all final decisions with
respect to effecting a transaction on any Business Opportunity.
10. REJECTED ASSET OPPORTUNITY OR BUSINESS OPPORTUNITY
If, during the Primary Term of this Agreement or any Extension Period,
the Company elects not to proceed to acquire, participate or invest in
any Business Opportunity identified and/or selected by Advisor,
notwithstanding the time and expense the Company may have incurred
reviewing such transaction, such Business Opportunity shall revert back
to and become proprietary to Advisor, and Advisor shall be entitled to
acquire or broker the sale or investment in such rejected Business
Opportunity for its own account, or submit such assets or Business
Opportunity elsewhere. In such event, Advisor shall be entitled to any
and all profits or fees resulting from Advisor's purchase, referral or
placement of any such rejected Business Opportunity, or the Company's
subsequent purchase or financing with such Business Opportunity in
circumvention of Advisor
11. NO AGENCY EXPRESS OR IMPLIED
This Agreement neither expressly nor impliedly creates a relationship
of principal and agent between the Company and Advisor, or employee and
employer as between Advisor's Personnel and the Company.
28
<PAGE>
12. TERMINATION
The Company and Advisor may terminate this Agreement prior to the
expiration of the Primary Term upon thirty (30) days written notice
with mutual written consent. Failing to have mutual consent, without
prejudice to any other remedy to which the terminating party may be
entitled, if any, either party may terminate this Agreement with thirty
(30) days written notice under the following conditions:
(A) BY THE COMPANY.
(i) If during the Primary Term of this Agreement or any
Extension Period, Advisor is unable to provide the
Services as set forth herein for thirty (30)
consecutive business days because of illness,
accident, or other incapacity of Advisor's Personnel;
or,
(ii) If Advisor willfully breaches or neglects the duties
required to be performed hereunder; or,
(iii) At Company's option without cause upon 30 days written
notice to Advisor; or
(B) BY ADVISOR.
(i) If the Company breaches this Agreement or fails to
make any payments or provide information required
hereunder; or,
(ii) If the Company ceases business or, other than in an
Initial Merger, sells a controlling interest to a
third party, or agrees to a consolidation or merger
of itself with or into another corporation, or enters
into such a transaction outside of the scope of this
Agreement, or sells substantially all of its assets
to another corporation, entity or individual outside
of the scope of this Agreement; or,
(iii) If the Company subsequent to the execution hereof has
a receiver appointed for its business or assets, or
otherwise becomes insolvent or unable to timely
satisfy its obligations in the ordinary course of,
including but not limited to the obligation to pay
the Initial Fee, the Transaction fee, or the Advisory
Fee; or,
(iv) If the Company subsequent to the execution hereof
institutes, makes a general assignment for the
benefit of creditors, has instituted against it any
bankruptcy proceeding for reorganization for
rearrangement of its financial affairs, files a
petition in a court of bankruptcy, or is adjudicated
a bankrupt; or,
(v) If any of the disclosures made herein or subsequent
hereto by the Company to Consultant are determined to
be materially false or misleading.
In the event Advisor elects to terminate without cause or this
Agreement is terminated prior to the expiration of the Primary Term or
any Extension Period by mutual written agreement, or by the
29
<PAGE>
Company for the reasons set forth in A(i) and (ii) above, the Company
shall only be responsible to pay Advisor for unreimbursed expenses,
Advisory Fee and Transaction Fee accrued up to and including the
effective date of termination. If this Agreement is terminated by the
Company for any other reason, or by Advisor for reasons set forth in
B(i) through (v) above, Advisor shall be entitled to any outstanding
unpaid portion of reimbursable expenses, Transaction Fee, if any, and
for the remainder of the unexpired portion of the applicable term
(Primary Term or Extension Period) of the Agreement.
13. INDEMNIFICATION
Subject to the provisions herein, the Company and Advisor agree to
indemnify, defend and hold each other harmless from and against all
demands, claims, actions, losses, damages, liabilities, costs and
expenses, including without limitation, interest, penalties and
attorneys' fees and expenses asserted against or imposed or incurred by
either party by reason of or resulting from any action or a breach of
any representation, warranty, covenant, condition, or agreement of the
other party to this Agreement.
14. REMEDIES
Advisor and the Company acknowledge that in the event of a breach of
this Agreement by either party, money damages would be inadequate and
the non-breaching party would have no adequate remedy at law.
Accordingly, in the event of any controversy concerning the rights or
obligations under this Agreement, such rights or obligations shall be
enforceable in a court of equity by a decree of specific performance.
Such remedy, however, shall be cumulative and nonexclusive and shall be
in addition to any other remedy to which the parties may be entitled.
15. MISCELLANEOUS
(A) SUBSEQUENT EVENTS. Advisor and the Company each agree to
notify the other party if, subsequent to the date of this
Agreement, either party incurs obligations which could
compromise its efforts and obligations under this Agreement.
(B) AMENDMENT. This Agreement may be amended or modified at any
time and in any manner only by an instrument in writing
executed by the parties hereto.
(C) FURTHER ACTIONS AND ASSURANCES. At any time and from time to
time, each party agrees, at its or their expense, to take
actions and to execute and deliver documents as may be
reasonably necessary to effectuate the purposes of this
Agreement.
(D) WAIVER. Any failure of any party to this Agreement to comply
with any of its obligations, agreements, or conditions
hereunder may be waived in writing by the party to whom such
compliance is owed. The failure of any party to this Agreement
to enforce at any time any of the provisions of this Agreement
shall in no way be construed to be a waiver of any such
provision or a waiver of the right of such party thereafter to
enforce each and every
30
<PAGE>
such provision. No waiver of any breach of or noncompliance
with this Agreement shall be held to be a waiver of any other
or subsequent breach or noncompliance.
(E) ASSIGNMENT. Neither this Agreement nor any right created by it
shall be assignable by either party without the prior written
consent of the other or as stated herein.
(F) NOTICES. Any notice or other communication required or
permitted by this Agreement must be in writing and shall be
deemed to be properly given when delivered in person to an
officer of the other party, when deposited in the United
States mails for transmittal by certified or registered mail,
postage prepaid, or when deposited with a public telegraph
company for transmittal, or when sent by facsimile
transmission charges prepared, provided that the communication
is addressed:
(i) In the case of the Company:
Power Exploration, Inc.
5416 Birchman Avenue
Fort Worth, Texas 76107
Telephone: (817) 377-4464
Telefax: (817) 377-4686
Attention: Joe Bennett
(ii) In the case of Advisor:
Allen Z. Wolfson
268 West 400 South
Salt Lake City, Utah 84101
Telephone: (801) 575-8073
Telefax: (801) 575-8092
or to such other person or address designated in writing by the Company or
Advisor to receive notice.
(G) HEADINGS. The section and subsection headings in this
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this
Agreement.
(H) GOVERNING LAW. This Agreement was negotiated and is being
contracted for in Utah, and shall be governed by the laws of
the State of Utah, and the United States of America, not
withstanding any conflict-of-law provision to the contrary.
(I) BINDING EFFECT. This Agreement shall be binding upon the
parties hereto and inure to the benefit of the parties, their
respective heirs, administrators, executors, successors, and
assigns.
(J) ENTIRE AGREEMENT. This Agreement contains the entire agreement
between the parties hereto and supersedes any and all prior
agreements, arrangements, or understandings between the
parties relating to the subject matter of this Agreement. No
oral understan dings, statements, promises, or inducements
contrary to the terms of this Agreement exist. No
representations, warranties, covenants, or conditions, express
or implied, other than as set forth herein, have been made by
any party.
31
<PAGE>
(K) SEVERABILITY. If any part of this Agreement is deemed to be
unenforceable the balance of the Agreement shall remain in
full force and effect.
(L) COUNTERPARTS. A facsimile, telecopy, or other reproduction of
this Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but
all of which together shall constitute one and the same
instrument, by one or more parties hereto and such executed
copy may be delivered by facsimile or similar instantaneous
electronic transmission device pursuant to which the signature
of or on behalf of such party can be seen. In this event, such
execution and delivery shall be considered valid, binding and
effective for all purposes. At the request of any party
hereto, all parties agree to execute an original of this
Agreement as well as any facsimile, telecopy or other
reproduction hereof.
(M) TIME IS OF THE ESSENCE. Time is of the essence of this
Agreement and of each and every provision hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date above written.
The "Company" "Advisor"
Power Exploration, Inc. Allen Z. Wolfson
A Nevada Corporation A Utah Resident
BY: /S/ JOE BILL BENNETT BY: /S/ ALLEN WOLFSON
----------------------------- ----------------------
NAME: JOE BILL BENNETT
TITLE: CEO
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
32
EXHIBIT F
OPTION AGREEMENT
THIS OPTION AGREEMENT ("AGREEMENT") is entered into this 10th day of
December 1999, by and between Allen Z. Wolfson, a Utah resident ("Wolfson"), and
Power Exploration, Inc., a Nevada corporation (the "Company").
WHEREAS, the Company proposes to issue to Wolfson options to purchase
shares of its common stock (the "Common Stock") in connection with the Company's
engagement of Wolfson pursuant to the Advisory Agreement of even date between
the Company and Wolfson, a copy of which is attached hereto as Exhibit "A" and
incorporated by reference herein (the "Advisory Agreement"); and,
WHEREAS, to induce Wolfson to execute the Advisory Agreement the
Company hereby grants Wolfson an option to purchase shares of the Company's
Common Stock subject to the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual promises herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions set forth
below, Wolfson and the Company agree as follows:
1. THE OPTION
The Company hereby grants to Wolfson (hereinafter "Holder") an option
(the "Option") to acquire Seven Hundred Fifty Thousand (750,000) shares
of the Company's Common Stock, subject to adjustment as set forth
herein (such shares, as adjusted, are hereinafter referred to as the
"Option Shares"), at a purchase price of $.66667 per share ("Option
Price").
2. TERM AND EXERCISE OF OPTION
A. TERM OF OPTION. Subject to the terms of this Agreement, Holder
shall have the right to exercise the Option in whole or in part,
commencing thirty (30) days following the closing of the
acquisition from Rife Oil Properties, Inc. through the close of
business on December 31, 2000.
B. EXERCISE OF THE OPTION. The Option may be exercised upon written
notice to the Company at its principal office setting out the
number of Option Shares to be purchased, together with payment of
the Option Price
33
<PAGE>
C. ISSUANCE OF OPTION SHARES. Upon such notice of exercise and
payment of the Option Price, ------------------------- the
Company shall issue and cause to be delivered within five (5)
business days following the written order of Holder, or its
successor as provided for herein, and in such name or names as
the Holder may designate, a certificate or certificates for the
number of Option Shares so purchased. The rights of purchase
represented by the Option shall be exercisable, at the election
of the Holder thereof, either in full or from time to time in
part, and in the event the Option is exercised in respect of less
than all of the Option Shares purchasable on such exercise at any
time prior to the date of expiration hereof, the remaining Option
Shares shall continue to be subject to Adjustment as set forth in
paragraph 4 hereof. The Company irrevocably agrees to
reconstitute the Option Shares as provided herein.
3. RESERVATION OF OPTION SHARES
The Company shall at all times keep reserved and available, out of its
authorized Common Stock, such number of shares of Common Stock as shall
be sufficient to provide for the exercise of the rights represented by
this Agreement. The transfer agent for the Common Stock and any
successor transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of such rights of purchase, will be
irrevocably authorized and directed at all times to reserve such number
of shares as shall be requisite for such purpose. The Company will
cause a copy of this Agreement to be kept on file with the transfer
agent or its successors.
4. ADJUSTMENT OF OPTION SHARES
The number of Option Shares purchasable pursuant to this Agreement
shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
A. ADJUSTMENT FOR RECAPITALIZATION. Subject to paragraph 4.B below,
in the event the ------------------------------- Company shall
(a) subdivide its outstanding shares of Common Stock, or (b)
issue or convert by a reclassification or recapitalization of its
shares of Common Stock into, for, or with other securities (a
"Recapitalization"), the number of Option Shares purchasable
hereunder immediately following such Recapitalization shall be
adjusted so that the Holder shall be entitled to receive the kind
and number of Option Shares or other securities of the Company
measured as a percentage of the total issued and outstanding
shares of the Company's Common Stock as of the hereof which it
would have been entitled to receive immediately preceding such
Recapitalization, had such Option been exercised immediately
prior to the happening of such event or any record date with
respect thereto. An adjustment made pursuant to this paragraph
shall be calculated and effected taking into account the formula
set forth in paragraph 4.B. below and shall become effective
immediately after the effective date of such event retroactive to
the effective date.
B. ADJUSTMENT OF THE EXERCISE PRICE AND NUMBER OF OPTION SHARES. In
the event of any change in the Company's Common Stock by reason
of a reverse stock split, the number and Option Price of the
shares subject to this Option shall not change or be adjusted.
34
<PAGE>
C. PRESERVATION OF PURCHASE RIGHTS UNDER CONSOLIDATION. Subject to
paragraph 4.B above, in case of any Recapitalization or any other
consolidation of the Company with or merger of the Company into
another corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company shall prior to the
closing of such transaction, cause such successor or purchasing
corporation, as the case may be, to acknowledge and accept
responsibility for the Company's obligations hereunder and to
grant the Holder the right thereafter upon payment of the Option
Price to purchase the kind and amount of shares and other
securities and property which he would have owned or have been
entitled to receive after the happening of such consolidation,
merger, sale or conveyance. The provisions of this paragraph
shall similarly apply to successive consolidations, mergers,
sales or conveyances.
D. NOTICE OF ADJUSTMENT. Whenever the number of Option Shares
purchasable hereunder is adjusted, as herein provided, the
Company shall mail by first class mail, postage prepaid, to the
Holder notice of such adjustment or adjustments, and shall
deliver to Holder setting forth the adjusted number of Option
Shares purchasable and a brief statement of the facts requiring
such adjustment, including the computation by which such
adjustment was made.
5. FAILURE TO DELIVER OPTION SHARES CONSTITUTES BREACH UNDER ADVISORY AGREEMENT
Failure by the Company, for any reason, to deliver the certificates
representing any shares purchased pursuant to this Option within the
five (5) business day period set forth in paragraph 2 above, or the
placement of a Stop Transfer order by the Company on any Option Shares
once issued, shall constitute a "Breach" under the Advisory Agreement
and, for the purpose of determining the terms of this Agreement, shall
automatically toll the expiration of this Agreement for a period of
time equal to the delay in delivering the subject shares or term of the
Stop Transfer order.
6. ASSIGNMENT
The Option represented by this Agreement may only be assigned or
transferred by Wolfson to an Affiliate or subsidiary, or as the result
of a corporate reorganization or recapitalization. For the purpose of
this Option the term "Affiliate" shall be defined as a person or
enterprise that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with the Company, otherwise, this Agreement and the rights
hereunder shall not be assigned by either party hereto.
7. COUNTERPARTS
A facsimile, telecopy or other reproduction of this instrument may be
executed by one or more parties hereto and such executed copy may be
delivered by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party
can be seen, and such execution and delivery shall be considered valid,
binding and effective for all
35
<PAGE>
purposes. At the request of any party hereto, all parties agree to
execute an original of this instrument as well as any facsimile,
telecopy or other reproduction hereof.
8. FURTHER DOCUMENTATION
Each party hereto agrees to execute such additional instruments and
take such action as may be reasonably requested by the other party to
effect the transaction, or otherwise to carry out the intent and
purposes of this Agreement.
9. NOTICES
All notices and other communications hereunder shall be in writing and
shall be sent by prepaid first class mail to the parties at the
following addresses, as amended by the parties with written notice to
the other:
To Wolfson: Allen Z. Wolfson
268 West 400 South, Suite 300
Salt Lake City, Utah 84101
Telephone: (801) 575-8073
Telefax: (801) 575-8092
To the Company: Power Exploration, Inc.
5416 Birchman Avenue
Fort Worth, Texas 76107
Telephone: (817) 377-4464
Facsimile: (817) 377-4686
10. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11. GOVERNING LAW
This Agreement was negotiated, and shall be governed by the laws of
Utah notwithstanding any conflict-of-law provision to the contrary.
12. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding between the parties
hereto and no other prior written or oral statement or agreement shall
be recognized or enforced.
36
<PAGE>
13. SEVERABILITY
If a court of competent jurisdiction determines that any clause or
provision of this Agreement is invalid, illegal or unenforceable, the
other clauses and provisions of the Agreement shall remain in full
force and effect and the clauses and provision which are determined to
be void, illegal or unenforceable shall be limited so that they shall
remain in effect to the extent permissible by law.
14. AMENDMENT OR WAIVER
Every right and remedy provided herein shall be cumulative with every
other right and remedy, whether conferred herein, at law, or in equity,
and may be enforced concurrently herewith, and no waiver by any party
of the performance of any obligation by the other shall be construed as
a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to Closing, this
Agreement may be amended by a writing signed by all parties hereto.
15. HEADINGS
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first written above.
"Wolfson"
Allen Z. Wolfson
/S/ ALLEN WOLFSON
--------------------------------
Address: 268 West 400 South, Suite 300
Salt Lake City, Utah 84101
The "Company"
Power Exploration, Inc.
BY: /S/ JOE BILL BENNETT
--------------------------------
NAME: JOE BILL BENNETT
TITLE: CEO
Address: 5416 Birchman Avenue
Fort Worth, Texas 76107
37
<PAGE>
EXHIBIT "A"
to the
Option Agreement
DATED DECEMBER 10 , 1999
THE ADVISORY AGREEMENT
38
EXHIBIT G
OPTION AGREEMENT
THIS OPTION AGREEMENT ("AGREEMENT") IS ENTERED INTO THIS 10TH day of
December 1999, by and between Ronald Welborn, a Texas resident ("Welborn"), and
Power Exploration, Inc., a Nevada corporation (the "Company").
WHEREAS, the Company proposes to issue to Welborn options to purchase
shares of its common stock (the "Common Stock") in connection with the Company's
engagement of Welborn pursuant to the Advisory Agreement of even date between
the Company and Welborn, a copy of which is attached hereto as Exhibit "A" and
incorporated by reference herein (the "Advisory Agreement"); and,
WHEREAS, to induce Welborn to execute the Advisory Agreement the
Company hereby grants Welborn an option to purchase shares of the Company's
Common Stock subject to the terms and conditions set forth below.
NOW, THEREFORE, for and in consideration of the mutual promises herein,
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, and subject to the terms and conditions set forth
below, Welborn and the Company agree as follows:
1. THE OPTION
The Company hereby grants to Welborn (hereinafter "Holder") an option
(the "Option") to acquire Seven Hundred Fifty Thousand (750,000) shares
of the Company's Common Stock, subject to adjustment as set forth
herein (such shares, as adjusted, are hereinafter referred to as the
"Option Shares"), at a purchase price of $.66667 per share ("Option
Price").
2. TERM AND EXERCISE OF OPTION
A. TERM OF OPTION. Subject to the terms of this Agreement, Holder
shall have the right to exercise the Option in whole or in part,
commencing thirty (30) days following the closing of the
acquisition from Rife Oil Properties, Inc. through the close of
business on December 31, 2000.
B. EXERCISE OF THE OPTION. The Option may be exercised upon written
notice to the Company at its principal office setting out the
number of Option Shares to be purchased, together with payment of
the Option Price
39
<PAGE>
C. ISSUANCE OF OPTION SHARES. Upon such notice of exercise and
payment of the Option Price, the Company shall issue and cause to
be delivered within five (5) business days following the written
order of Holder, or its successor as provided for herein, and in
such name or names as the Holder may designate, a certificate or
certificates for the number of Option Shares so purchased. The
rights of purchase represented by the Option shall be
exercisable, at the election of the Holder thereof, either in
full or from time to time in part, and in the event the Option is
exercised in respect of less than all of the Option Shares
purchasable on such exercise at any time prior to the date of
expiration hereof, the remaining Option Shares shall continue to
be subject to Adjustment as set forth in paragraph 4 hereof. The
Company irrevocably agrees to reconstitute the Option Shares as
provided herein.
3. RESERVATION OF OPTION SHARES
The Company shall at all times keep reserved and available, out of its
authorized Common Stock, such number of shares of Common Stock as shall
be sufficient to provide for the exercise of the rights represented by
this Agreement. The transfer agent for the Common Stock and any
successor transfer agent for any shares of the Company's capital stock
issuable upon the exercise of any of such rights of purchase, will be
irrevocably authorized and directed at all times to reserve such number
of shares as shall be requisite for such purpose. The Company will
cause a copy of this Agreement to be kept on file with the transfer
agent or its successors.
4. ADJUSTMENT OF OPTION SHARES
The number of Option Shares purchasable pursuant to this Agreement
shall be subject to adjustment from time to time upon the happening of
certain events, as follows:
A. ADJUSTMENT FOR RECAPITALIZATION. Subject to paragraph 4.B below,
in the event the Company shall (a) subdivide its outstanding
shares of Common Stock, or (b) issue or convert by a
reclassification or recapitalization of its shares of Common
Stock into, for, or with other securities (a "Recapitalization"),
the number of Option Shares purchasable hereunder immediately
following such Recapitalization shall be adjusted so that the
Holder shall be entitled to receive the kind and number of Option
Shares or other securities of the Company measured as a
percentage of the total issued and outstanding shares of the
Company's Common Stock as of the hereof which it would have been
entitled to receive immediately preceding such Recapitalization,
had such Option been exercised immediately prior to the happening
of such event or any record date with respect thereto. An
adjustment made pursuant to this paragraph shall be calculated
and effected taking into account the formula set forth in
paragraph 4.B. below and shall become effective immediately after
the effective date of such event retroactive to the effective
date.
B. ADJUSTMENT OF THE EXERCISE PRICE AND NUMBER OF OPTION SHARES. In
the event of any change in the Company's Common Stock by reason
of a reverse stock split, the number and Option Price of the
shares subject to this Option shall not change or be adjusted.
40
<PAGE>
C. PRESERVATION OF PURCHASE RIGHTS UNDER CONSOLIDATION. Subject to
paragraph 4.B above, in case of any Recapitalization or any other
consolidation of the Company with or merger of the Company into
another corporation, or in case of any sale or conveyance to
another corporation of the property of the Company as an entirety
or substantially as an entirety, the Company shall prior to the
closing of such transaction, cause such successor or purchasing
corporation, as the case may be, to acknowledge and accept
responsibility for the Company's obligations hereunder and to
grant the Holder the right thereafter upon payment of the Option
Price to purchase the kind and amount of shares and other
securities and property which he would have owned or have been
entitled to receive after the happening of such consolidation,
merger, sale or conveyance. The provisions of this paragraph
shall similarly apply to successive consolidations, mergers,
sales or conveyances.
D. NOTICE OF ADJUSTMENT. Whenever the number of Option Shares
purchasable hereunder is adjusted, as herein provided, the
Company shall mail by first class mail, postage prepaid, to the
Holder notice of such adjustment or adjustments, and shall
deliver to Holder setting forth the adjusted number of Option
Shares purchasable and a brief statement of the facts requiring
such adjustment, including the computation by which such
adjustment was made.
5. FAILURE TO DELIVER OPTION SHARES CONSTITUTES BREACH UNDER ADVISORY AGREEMENT
Failure by the Company, for any reason, to deliver the certificates
representing any shares purchased pursuant to this Option within the
five (5) business day period set forth in paragraph 2 above, or the
placement of a Stop Transfer order by the Company on any Option Shares
once issued, shall constitute a "Breach" under the Advisory Agreement
and, for the purpose of determining the terms of this Agreement, shall
automatically toll the expiration of this Agreement for a period of
time equal to the delay in delivering the subject shares or term of the
Stop Transfer order.
6. ASSIGNMENT
The Option represented by this Agreement may only be assigned or
transferred by Welborn to an Affiliate or subsidiary, or as the result
of a corporate reorganization or recapitalization. For the purpose of
this Option the term "Affiliate" shall be defined as a person or
enterprise that directly, or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common
control with the Company, otherwise, this Agreement and the rights
hereunder shall not be assigned by either party hereto.
7. COUNTERPARTS
A facsimile, telecopy or other reproduction of this instrument may be
executed by one or more parties hereto and such executed copy may be
delivered by facsimile or similar instantaneous electronic transmission
device pursuant to which the signature of or on behalf of such party
can be seen, and such execution and delivery shall be considered valid,
binding and effective for all purposes. At the request of any party
hereto, all parties agree to execute an original of this instrument as
well as any facsimile, telecopy or other reproduction hereof.
41
<PAGE>
8. FURTHER DOCUMENTATION
Each party hereto agrees to execute such additional instruments and
take such action as may be reasonably requested by the other party to
effect the transaction, or otherwise to carry out the intent and
purposes of this Agreement.
9. NOTICES
All notices and other communications hereunder shall be in writing and
shall be sent by prepaid first class mail to the parties at the
following addresses, as amended by the parties with written notice to
the other:
To Welborn: Ronald Welborn
11701 South Freeway
Burleson, Texas 76028
Telephone: (817) 996-3204
Telefax: (817) 293-9336
To the Company: Power Exploration, Inc.
5416 Birchman Avenue
Fort Worth, Texas 76107
Telephone: (817) 377-4464
Facsimile: (817) 377-4686
10. COUNTERPARTS
This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
11. GOVERNING LAW
This Agreement was negotiated, and shall be governed by the laws of
Utah notwithstanding any conflict-of-law provision to the contrary.
12. ENTIRE AGREEMENT
This Agreement sets forth the entire understanding between the parties
hereto and no other prior written or oral statement or agreement shall
be recognized or enforced.
13. SEVERABILITY
If a court of competent jurisdiction determines that any clause or
provision of this Agreement is invalid, illegal or unenforceable, the
other clauses and provisions of the Agreement shall remain in full
force and effect and the clauses and provision which are determined to
be void, illegal or unenforceable shall be limited so that they shall
remain in effect to the extent permissible by law.
42
<PAGE>
14. AMENDMENT OR WAIVER
Every right and remedy provided herein shall be cumulative with every
other right and remedy, whether conferred herein, at law, or in equity,
and may be enforced concurrently herewith, and no waiver by any party
of the performance of any obligation by the other shall be construed as
a waiver of the same or any other default then, theretofore, or
thereafter occurring or existing. At any time prior to Closing, this
Agreement may be amended by a writing signed by all parties hereto.
15. HEADINGS
The section and subsection headings in this Agreement are inserted for
convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement the day
and year first written above.
"Welborn"
Ronald Welborn
/S/ RONALD WELBORN
------------------------------------
Address: 11701 South Freeway
Burleson, Texas 76028
The "Company"
Power Exploration, Inc.
BY: /S/ JOE BILL BENNETT
------------------------------------
NAME: JOE BILL BENNETT
TITLE: CEO
Address: 5416 Birchman Avenue
Fort Worth, Texas 76107
43
<PAGE>
EXHIBIT "A"
to the
Option Agreement
DATED DECEMBER 10 , 1999
THE ADVISORY AGREEMENT
44
EXHIBIT H
SECTION 10(A) PROSPECTUS OF
POWER EXPLORATION, INC.
DECEMBER 8, 1999: THIS DOCUMENT CONSTITUTES PART OF A PROSPECTUS
COVERING SECURITIES OF POWER EXPLORATION, INC., A NEVADA CORPORATION (THE
"COMPANY"), THAT HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"). THIS DOCUMENT, A SECTION 10(A) PROSPECTUS,
CONTAINS AND CONSTITUTES FOUR SECTIONS: FIRST, THE "GENERAL PLAN INFORMATION;"
SECOND, THE "REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION;"
THIRD, THE COMPANY'S LATEST FORM 10-KSB, FOR THE FISCAL YEAR ENDED DECEMBER 31,
1998, WHICH IS INCORPORATED HEREIN BY THIS REFERENCE, AND THEREBY CONSTRUCTIVELY
PROVIDED TO OFFEREES; AND FOURTH, A NOTICE OF EXERCISE, WHICH IS TO BE COMPLETED
AND SUBMITTED WITHIN THE TIME ALLOWED ALONG WITH TENDER OF THE APPROPRIATE
CONSIDERATION FOR THOSE WHO WISH TO EXERCISE THEIR OPTIONS.
ITEM 1. GENERAL PLAN INFORMATION
The Company's board of directors (the "Board") has adopted a stock
option plan for its employees and others entitled "The 1999 Stock Benefit Plan
of Power Exploration, Inc." (the "Plan"). Pursuant to the Plan, the Board can
authorize the issuance of, or options to purchase, up to four million
(4,000,000) shares of common stock of the Company, par value $0.02 per share
(the "Common Stock").
The Plan is intended to aid the Company in maintaining and continuing
its development of a quality management team, in attracting qualified employees,
consultants, and advisors who can contribute to the future success of the
Company, and in providing such individuals with an incentive to use their best
efforts to promote the growth and profitability of the Company.
The Plan is not subject to the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), nor qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Administration of the Plan is the exclusive province of the Board. Board members
are elected at each annual meeting of shareholders. The term each Board member
serves is therefore one year. If an annual meeting is not held the member shall
serve until the next submission of matters to a vote of Company's shareholders.
As ultimate administrators of the Plan, the Board should be contacted
with requests for additional Plan information. Alternatively, the Board may
appoint a committee to administer the Plan (hereinafter the Board or its duly
authorized committee shall be referred to as "Plan Administrators"). As no
committee has been authorized by the Board, the current Board members are the
Plan Administrators. This group includes Joe Bill Bennett, Mark Zouvas, and M.O.
Rife III. The address of the Board is c/o the Company, 5416 Birchman Avenue,
Fort Worth, Texas 76107, telephone number (817) 377-4464.
In the event a vacancy in the Board arises, the vote of a majority of
remaining directors may select a successor, or, if the vacancy is not filled by
the remaining Board, the vote of shareholders may also elect a successor to fill
such vacancy. Board members may be removed from office by the vote of
shareholders representing not less than two-thirds (2/3) of the shares entitled
to vote on such removal. Plan Administrators
46
<PAGE>
who are not Board members can be removed or appointed at any time for any reason
by the majority vote of Board members.
The Plan Administrators shall interpret the Plan (which interpretation
is binding on the participants absent demonstrable error), determine which
employees or others shall receive options, decide the number of shares subject
to such options and establish other terms of the options not already established
in the Company's Plan. Information concerning changes in the Plan Administrators
will be provided in the future either in the Company's proxy statements, annual
or other reports, or in amendments to this document.
In addition to his position as president, chief executive officer and a
director of the Company, [X], current Plan Administrator is an officer and a
director of several of the Company's affiliated subsidiaries
SECURITIES TO BE OFFERED
Shares or options to purchase shares, up to a maximum of four million
(4,000,000) shares of Common Stock may be granted under the Plan. All options
under the Plan are "non-qualified" stock options. The number of shares of Common
Stock issuable under the Plan is subject to adjustment in the event of changes
in the outstanding shares of Common Stock resulting from stock dividends, stock
splits, or recapitalizations.
EMPLOYEES WHO MAY PARTICIPATE IN THE PLAN
The Board shall determine which of the Company's employees are eligible
to receive options under the Plan. The term "Employee" includes any employee,
director, officer, or consultant or advisor of the Company or any of its
subsidiaries, provided that bona fide services shall be rendered by consultants
and advisors and such services must not be in connection with the offer or sale
of securities in a capital-raising transaction.
PURCHASE OF SECURITIES PURSUANT TO THE PLAN AND PAYMENT FOR SECURITIES OFFERED
The Plan Administrators shall determine which employees shall receive
options. The Plan is not subject to ERISA and the securities are being issued by
the Company and not purchased on the open market or otherwise.
Options granted under the Plan shall be exercisable as determined by
the Plan Administrators. If an option granted under the Plan should expire or
terminate for any reason without having been exercised in full, the unpurchased
shares subject to that option will again be available for grant under the Plan.
The exercise price payable to the Company for Option Shares shall be as
set forth from time to time by the Plan Administrator. The exercise of any
Option shall be contingent on receipt by the Company of the exercise price paid
in either cash, certified or personal check payable to the Company.
The shares of Common Stock subject to the Plan and the exercise price
of outstanding options are subject to proportionate adjustment in the event of a
stock dividend on the Common Stock or a change in the number of issued and
outstanding shares of Common Stock as a result of a stock split, consolidation,
or other recapitalization. Options and all other interests under the plan shall
be non-transferable, except by means of a will or the laws of descent and
distribution.
47
<PAGE>
AMENDMENTS AND TERMINATION
The Plan may be abandoned or terminated at any time by the Plan
Administrators except with respect to any Options then outstanding under the
Plan. The Plan shall otherwise terminate on the earlier of the date that is five
years from the date first appearing in the Plan or the date on which an option
for the four-millionth share is either granted under the Plan or on which the
four-millionth share is deregistered on a post-effective amendment on Form S-8
filed with the Securities and Exchange Commission (the "SEC"). No options may be
granted under the terms of the Plan after it has been terminated. The Board may
alter or amend the Plan only once during any six month period, except as to
comply with changes to the Code. No termination, suspension, alteration or
amendment may adversely affect the rights of a holder of a previously issued
option without the consent of that holder.
RESALE OF COMMON STOCK
Shares of Common Stock purchased on exercise of options granted under
the Plan will have been initially registered pursuant to a Form S-8 Registration
Statement filed by the Company. Subsequent resales of shares obtained pursuant
to the Plan may be eligible for immediate resale depending on whether an
exemption from registration is available or whether the shares are in fact
registered. The Company makes no statement as to subsequent salability of
specific shares obtained pursuant to the Plan and urges any persons seeking to
sell shares so obtained to seek counsel from independent attorneys.
As may be applicable for subsequent resale of shares obtained from the
Plan, the Board believes that the Company has filed all reports and other
materials required to be filed during the preceding twelve months under the
Securities Exchange Act of 1934 as of December 8, 1999.
TAX EFFECTS OF PLAN PARTICIPATION & NONSTATUTORY OPTIONS
The following discussion of the federal income tax consequences of
participation in the Plan is only a summary, does not purport to be complete,
and does not cover, among other things, state and local tax consequences.
Additionally, differences in participants' financial situations may cause
federal, state, and local tax consequences of participation in the Plan to vary.
Therefore, each participant in the Plan is urged to consult his or her own
accountant, legal or other advisor regarding the tax consequences of
participation in the Plan. This discussion is based on the provisions of the
Code as presently in effect.
Under the current provisions of the Code, if shares of Common Stock are
issued to the original holder of a non-qualified option granted and exercised
under the Plan (assuming there is not an active trading market for options of
the Company), (i) the option holder ("Holder") will not recognize income at the
time of the grant of the option; (ii) on exercise of the option the Holder will
recognize ordinary income in an amount equal to the excess of the fair market
value of the shares of Common Stock acquired at the time of exercise over the
exercise price; (iii) upon the sale of the shares of Common Stock the Holder
will recognize a short term or long term capital gain, or loss, as may be, in an
amount equal to the difference between the amount he or she receives from the
sale of those shares and the Holder's tax basis in the shares (as described
below); and (iv) the Company will be entitled to expense as compensation the
amount of ordinary income that the holder recognized, as set forth in clause
(II) above.
48
<PAGE>
If the Holder pays the exercise price entirely in cash, the tax basis
of the shares of Common Stock will be equal to the amount of the exercise price
paid plus the ordinary income recognized by the Holder from exercising the
options. This basis should equal the fair market value of the shares of Common
Stock acquired on the date of exercise. The holding period will begin on the day
after the tax basis of the shares is determined.
The ordinary income received by the Holder on exercise of the option is
considered to be compensation from the Company. As with other forms of
compensation, withholding tax and other trust fund payments will be due with
respect to the exercise of the options. The Company will initially pay the
Optionee's liability and will be reimbursed by Optionee no later than six months
after such liability arises.
ITEM 2. REGISTRANT INFORMATION AND EMPLOYEE PLAN ANNUAL INFORMATION
The Company will provide to any Employee upon request a copy, without
charge, of the Company's periodic reports filed with the SEC, including its
latest annual report on Form 10-KSB and its quarterly reports on Form 10-QSB.
The Company will also provide any Employee upon written or oral request a copy,
without charge, of the documents incorporated by reference in Item 3 of Part II
of the Form S-8 registration statement. These documents are also incorporated by
reference into the Section 10(a) prospectus, of which this document is a part.
Requests for such information should be directed to the Company at 5416 Birchman
Avenue, Fort Worth, Texas 76107, telephone number (817) 377-4464.
ITEM 3. INCORPORATION OF CERTAIN INFORMATION BY REFERENCE.
The following documents that the Company filed with the Commission are
hereby incorporated by reference into this Prospectus:
1. The Company's Annual Report on Form 10-KSB for the fiscal year ended
December 31, 1998.
2. All reports filed by the Company with the Commission pursuant to
Section 13(a) or 15(d) of the Exchange Act of 1934, as amended (the "Exchange
Act"), since the end of the fiscal year ended December 31, 1998.
3. The description and specimen certificate of the Common Stock
contained in the Company's Form S-2 Registration Statement filed on August 8,
1980 under the Securities Act, including any amendment or report filed for the
purpose of updating such description.
All documents that the Company subsequently files with the Commission
pursuant to Sections 13(a)m 13(c), 14 or 15(d) of the Exchange Act, prior to the
termination of the offering of the Shares, shall be deemed to be incorporated by
reference into this Prospectus.
[THIS SPACE HAS BEEN INTENTIONALLY LEFT BLANK]
49
<PAGE>
ITEM 4. NOTICE OF EXERCISE
NOTICE OF EXERCISE
(To be signed only upon exercise of Option)
TO: Power Exploration, Inc.
The undersigned, the owner of the attached Option, hereby irrevocably
elects to exercise the rights to purchase thereunder ______________ shares of
Common Stock of Power Exploration, Inc. and herewith pays for the shares in the
manner specified in the Option. The undersigned requests that the certificates
for such shares be delivered to them according to instructions indicated below.
If such shares are not all of the shares purchasable under the Option, the
undersigned further requests that a new option certificate be issued and
delivered to the undersigned for the remaining shares purchasable under the
Option.
DATED this ________ day of ______________, 199__.
By:_____________________________
INSTRUCTIONS FOR DELIVERY:
50
EXHIBIT I
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
51
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
INDEX
INDEPENDENT AUDITORS' REPORT 1
CONSOLIDATED BALANCE SHEETS 2
CONSOLIDATED STATEMENTS OF OPERATIONS 3
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY 4
CONSOLIDATED STATEMENTS OF CASH FLOWS 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 - 25
<PAGE>
INDEPENDENT AUDITOR'S REPORT
TO THE BOARD OF DIRECTORS AND STOCKHOLDERS
POWER EXPLORATION, INC. AND SUBSIDIARIES
We have audited the accompanying consolidated balance sheets of POWER
EXPLORATION, INC. AND SUBSIDIARIES as of September 30, 1998 and 1997 and the
related consolidated statements of operations, stockholders' equity, and cash
flows for the years then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of POWER
EXPLORATION, INC. AND SUBSIDIARIES as of September 30, 1998 and 1997 and the
consolidated results of its operations and its cash flows for the years then
ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 14 to the
financial statements, the Company has suffered recurring losses from operations
and its limited capital resources raise substantial doubt about its ability to
continue as a going concern. Management's plans in regard to these matters are
also described in Note 14. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/
MERDINGER, FRUCHTER, ROSEN & CORSO, P.C.
Certified Public Accountants
New York, New York
October 30, 1998
Except for Note 15(a) through (e) as to which the date is January 11, 1999 and
Note 15(f) through (u), as to which the date is November 22, 1999
<PAGE>
<TABLE>
<CAPTION>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30,
<S> <C> <C>
ASSETS 1998 1997
CURRENT ASSETS
Cash $ 129,901 $ 95,444
Accounts Receivable 11,477 35,482
Receivable - Related Party 121,253 -
Inventory 352,462 553,154
Prepaid Expenses 123,542 9,229
--------- ----------
Total Current Assets 738,635 693,309
---------
OILAND GAS PROPERTIES, FULL COST METHOD
Properties being amortized 5,396,496 5,050,000
Properties not subject to amortization 1,312,505 1,510,871
--------- -------------
6,709,001 6,560,871
Less: Accumulated depreciation, depletion
and amortization (5,220) (826)
------------ -------------
Net Oil and Gas Properties 6,703,781 6,560,045
---------
PROPERTY AND EQUIPMENT, Net of Accumulated
Depreciation of $46,037 and $12,634 250,774 228,706
--------- ------------
OTHER ASSETS 13,846 77,449
--------- ------------
TOTAL ASSETS $ 7,707,036 $ 7,559,509
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts Payable and Accrued Expenses $ 416,217 $ 100,707
Customer Deposits 110,000 107,300
Advances Payable 22,500 -
Debentures Payable, net of unamortized discount
of $7,692 and $130,500 242,308 652,500
Notes Payable 900,000 -
Notes Payable - Related Party 50,000 1,310,000
----------- -----------
Total Liabilities 1,741,025 2,170,507
----------- -----------
STOCKHOLDERS' EQUITY
Common Stock, $.02 par value; 50,000,000 shares
Authorized, 11,060,925 and 7,721,553 shares
issued and outstanding, respectively 221,218 154,431
Additional Paid-in Capital 10,415,872 7,209,833
Accumulated Deficit (4,671,079 (1,975,262)
---------- ------------
Total Stockholders' Equity 5,966,011 5,389,002
---------- ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 7,707,036 $ 7,559,509
========== =============
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
- 2 -
<PAGE>
<TABLE>
<CAPTION>
POWER EXPLORATION, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30,
1998 1997
REVENUE
<S> <C> <C>
Oil and Gas Sales $ 47,138 $ 22,714
Equipment Sales 398,970 90,000
------------- -----------
COST OF REVENUE 446,108 112,714
Lease Operating 228,632 52,294
Production Taxes 1,949 1,052
Depreciation, Depletion and Amortization 4,394 826
Cost of Equipment Sales 290,062 102,602
------------- -----------
525,037 156,774
------------- -----------
GROSS PROFIT (78,929) (44,060)
------------- -----------
EXPENSES
General and Administrative 2,171,255 547,173
Interest Expense 445,633 70,295
------------- -----------
TOTAL EXPENSES 2,616,888 617,468
------------- -----------
LOSS BEFORE OTHER INCOME AND
PROVISION FOR INCOME TAXES (2,695,817) (661,528)
OTHER INCOME - 2,567
LOSS BEFORE PROVISION FOR INCOME TAXES (2,695,817) (628,961)
PROVISION FOR INCOME TAXES - -
NET LOSS $(2,695,817) $( 628,961)
LOSS PER SHARE $ (.26) $ (.17)
=============== ===============
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 10,435,748 3,720,412
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
- 3 -
<PAGE>
<TABLE>
<CAPTION>
POWER EXPLORATION, INC. AND SUBSIDIARIES
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1998 AND 1997
Additional
Common Stock Paid-In Accumulated
Shares Amount Capital Deficit Total
---------- -------- ------------ ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance - September 30, 1996 1,886,851 $ 1,301,951 $ - $(1,305,780) $(3,829)
Adjustment to Par Value - (1,264,214) 1,264,214 - -
Issuance of Shares for Oil
Retrieval Systems, Inc. 2,500,000 50,000 280,000 - 330,000
Issuance of Shares for Oil
Seeps, Inc. 400,000 8,000 1,192,000 - 1,200,000
Adjustment to Record Subsidiaries - - 46,213 (40,521) 5,692
Issuance of Shares for Properties 2,000,000 40,000 3,710,000 - 3,750,000
Issuance of Shares in Conversion of Debt 434,702 8,694 458,306 - 467,000
Adjustment for Discount on Bonds - - (93,400) - (93,400)
Issuance of Shares for Services 500,000 10,000 352,500 - 362,500
Net Loss - - - (628,961) (628,961)
----------- ---------- ----------- ---------- -----------
Balance - September 30, 1997 7,721,553 154,431 7,209,833 (1,975,262) 5,389,002
Issuance of Shares for Services 1,100,000 22,000 665,500 - 687,500
Issuance of Shares in Conversion of Note
Payable 1,000,000 20,000 1,323,381 - 1,343,381
Issuance of Shares in Conversion of
Debentures 1,239,372 24,787 696,803 - 721,590
Issuance of Warrants - - 520,355 - 520,355
Net Loss - - - (2,695,817) (2,695,817)
----------- ---------- ----------- ---------- -----------
Balance - September 30, 1998 11,060,925 $ 221,218 $ 10,415,872 $(4,671,079) $ 5,966,011
=========== ========== =========== ========== ===========
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
- 4 -
<PAGE>
<TABLE>
<CAPTION>
POWER EXPLORATION, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30,
<S> <C> <C>
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES
Net Loss $ (2,695,817) $ ( 628,961)
Adjustments to Reconcile Net Income to Net
Cash Provided by Operating Activities:
Interest Expense 290,233 -
Bad Debt Expense 47,180 -
Depreciation, Depletion and Amortization 37,797 13,460
Amortization of Loan Fees 187,065 -
Amortization of Discount Bonds Payable 72,791 93,400
Write-Down of Inventory 127,380 -
Issuance of Shares for Services 708,205 362,500
(Increase) in Receivables (23,175) (35,482)
(Increase) in Receivable - Related Party (121,253) -
(Increase) Decrease in Inventory 73,312 (223,154)
(Increase) in Prepaid Expenses (4,358) (9,229)
Increase in Accounts Payable and Accrued Expenses 397,498 100,707
Increase in Customer Deposits 2,700 107,300
Increase (Decrease) in Advances Payable 22,500 (11,747)
-------------- --------------
Net Cash (Used) in Operating Activities (877,942) (231,206)
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of Oil and Gas Properties 200,000 -
Cost of Oil and Gas Properties (348,130) (310,871)
Purchase of Property and Equipment (55,471) (241,340)
Adjustment for Acquisition of Subsidiaries - (9,057)
-------------- --------------
Net Cash (Used) in Investing Activities (203,601) (561,268)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from Borrowings 1,050,000 80,000
Repayment of Borrowings (110,000) (70,000)
Net Proceeds from Sale of Debentures 176,000 870,000
-------------- --------------
Net Cash Provided by Financing Activities 1,116,000 880,000
-------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 34,457 87,526
CASH AND CASH EQUIVALENTS - BEGINNING OF PERIOD 95,444 7,918
-------------- --------------
CASH AND CASH EQUIVALENTS - SEPTEMBER 30, 129,901 $ 95,444
=============== =============
CASH PAID DURING THE YEAR FOR
Interest Expense $ 4,581 -
Income Taxes - -
</TABLE>
The Accompanying Notes are an Integral Part of These Financial Statements.
- 5 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The Company is engaged primarily in the fields of acquisition,
development, exploration for and sale of oil and gas, and the
construction and sale of oil and gas extraction equipment.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of Power
Exploration, Inc. ("Power", formerly Titan Energy Corp., Inc.) and its
100% owned subsidiaries, Oil Retrieval Systems, Inc. ("ORS"), acquired
May 16, 1997 and Oil Seeps, Inc. ("OSI") acquired June 17, 1997.
Accordingly, all references herein to Power or the "Company" include
the consolidated results of its subsidiaries. All significant
intercompany accounts and transactions have been eliminated in
consolidation.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
original maturities of three months or less to be cash equivalents.
INVENTORY
Inventory, consisting of parts and materials used in the construction
of oil extraction equipment, are stated at the lower of cost or market,
cost being determined by the average cost method.
OIL AND GAS PROPERTIES
The Company follows the full cost method of accounting for oil and gas
property acquisition, exploration, development, and production.
CAPITALIZATION POLICIES: All oil and gas property acquisition,
exploration, and development costs are capitalized as incurred. There
were no internal costs directly attributable to such activities. Net
capitalized costs of unproved property and exploration well costs are
reclassified as proved property and well costs when related proved
reserves are found. Costs to operate and maintain wells and field
equipment are expensed as incurred.
AMORTIZATION POLICIES: Except for cost of (1) unevaluated, unproved
properties and (2) major development projects in progress, all
capitalized oil and gas property costs, net of prior accumulated
amortization, are amortized by country using the unit-of-production
method based on proved reserves. The amortization base includes
estimated future costs to develop proved reserves and estimated future
dismantlement, reclamation, and abandonment costs, net of equipment
salvage values.
- 6 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
IMPAIRMENT POLICIES: Costs not being amortized are periodically
assessed for impairment. Any impairment is added to the amortization
base. Net capitalized costs of oil and gas properties, less related
deferred income taxes are limited, by country, to the sum of (1) future
net revenues (using prices and cost rates as of the balance sheet date)
from proved reserves and discounted at ten percent per annum, plus (2)
costs not being amortized, less (3) related income tax effects. Excess
costs are charged to proved property impairment expense.
SALES AND RETIREMENTS POLICIES: No gain or loss is recognized on the
sale of oil and gas properties unless nonrecognition would
significantly alter the relationship between capitalized costs and
remaining proved reserves for the affected amortization base. When gain
or loss is not recognized, the amortization base is reduced by the
amount of sales proceeds.
REVENUE RECOGNITION
Revenues from the sale of oil and gas production are recognized when
title passes, net of royalties. Natural gas revenues are generally
recognized under the entitlements method of accounting for gas
imbalances, i.e., monthly sales quantities that do not match the
Company's entitled share of joint production. Entitled quantities in
excess of sales quantities are recorded as a receivable from joint
venture partners. The receivable is carried at the lower of current
market price or the market price at the time the imbalance occurred.
Sales quantities in excess of entitled quantities are recorded as
deferred revenue carried at the gas market price received at the time
the imbalance occurred.
HEDGING
The Company may enter into derivative contracts to hedge the risk of
future oil and gas price fluctuations. Such contracts may either fix or
support oil or gas prices or limit the impact of price fluctuations
with respect to the Company's sales of oil and gas. Gains and losses on
such hedging activities are recognized in oil and gas revenues when the
hedged production is sold. Hedged oil and gas prices used in computing
the year-end standardized measure of discounted future net cash flows
relating to proved oil and gas reserves reflect the estimated effects
of hedging contracts existing at year end.
- 7 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting date. Actual results could differ
from those estimates.
DEPRECIATION AND AMORTIZATION
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives.
The costs of maintenance and repairs are charged to expense when
incurred; costs of renewals and betterments are capitalized. Upon the
sales or retirement of property and equipment, the cost and related
accumulated depreciation are eliminated from the respective accounts
and the resulting gain or loss is included in operations.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of cash, accounts
receivable, accounts payable and short-term debt. The carrying amounts
of cash, accounts receivable, accounts payable and short-term debt
approximate fair value due to the highly liquid nature of these short
term instruments.
LONG-LIVED ASSETS
Long-lived assets to be held and used are reviewed for impairment
whenever events or changes in circumstances indicate that the related
carrying amount may not be recoverable. When required, impairment
losses on assets to be held and used are recognized based on the fair
value of the assets and long-lived assets to be disposed of are
reported at the lower of carrying amount of fair value less cost to
sell.
INCOME TAXES
Provisions for income taxes are based on taxes payable or refundable
for the current year and deferred taxes on temporary differences
between the amount of taxable income and pretax financial income and
between the tax bases of assets and liabilities and their reported
amounts in the financial statements. Deferred tax assets and
liabilities are included in the financial statements at currently
enacted income tax rates applicable to the period in which the deferred
tax assets and liabilities are expected to be realized or settled as
prescribed in FASB Statement No. 109, Accounting for Income Taxes. As
changes in tax laws or rates are enacted, deferred tax assets and
liabilities are adjusted through the provision for income taxes.
- 8 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
CONCENTRATION OF CREDIT RISK
The Company places its cash in what it believes to be credit-worthy
financial institutions. However, cash balances may exceed FDIC insured
levels at various times during the year.
PER SHARE OF COMMON STOCK
Per share amounts have been computed based on the average number of
common shares outstanding during the period.
In February 1997, the Financial Accounting Standards Board issued a new
statement titled "Earnings Per Share" (SFAS No. 128). This statement is
effective for both interim and annual periods ending after December 15,
1997 and specifies the computation, presentation, and disclosure
requirements for earnings per share for entities with publicly held
common stock or potential common stock. All prior-period EPS data
presented has been restated to conform with the provisions for SFAS No.
128.
Potential common stock has been excluded from the computation of
earnings per share since the inclusion of options and warrants would be
antidilutive.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board issued a new
statement titled "Reporting Comprehensive Income" (SFAS No. 130). This
statement is effective for both interim and annual periods beginning
after December 15, 1997. This statement uses the term "comprehensive
income" to describe the total of all components of comprehensive
income, including net income. This statement uses the term "other
comprehensive net income" to refer to revenues, expenses, gains or
losses that under generally accepted accounting principles are included
in comprehensive income, but excluded from net income.
The impact of SFAS No. 130 in the financial statements, had it been
adopted as of September 30, 1998 and 1997, is not applicable, since the
Company had no other comprehensive income.
NOTE 2 - INVENTORY
Inventory at September 30 consists of the following:
1998 1997
---- ----
Raw Material $ 225,604 $ 414,946
Work in Process 126,858 138,208
------- -------
$ 352,462 $ 553,154
======= =======
- 9 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 3 - PROPERTY AND EQUIPMENT
Property and equipment at September 30 consist of the following:
1998 1997
---- ----
Shop Equipment $ 30,852 -
Furniture and Office Equipment 22,887 11,340
Machinery 243,072 230,000
------- -------
296,811 241,340
Less Accumulated Depreciation 46,037 12,634
------- ------
PRoperty and Equipment - Net $ 250,774 228,706
======= =======
Depreciation Expense Recorded in
The Statement of Operations $ 33,403 12,634
====== ======
NOTE 4 - OIL AND GAS PROPERTIES NOT SUBJECT TO AMORTIZATION
The Company's oil and gas properties are located in the United States
and Australia. Amortization expense was $1.07 and $0.62 per Bbl
production during the years ended September 30, 1998 and 1997,
respectively.
The $1,312,505 and $1,510,871 cost of unproved oil and gas leases held
at September 30, 1998 and 1997, respectively, have been excluded in
computing amortization of the full cost pool.
Costs excluded from amortization consist of the following at September
30:
1998 1997
---- ----
Acquisition Costs $ 1,200,000 $ 1,510,871
Exploration Costs 112,505 -
------------ ------------
$ 1,312,505 $ 1,510,871
============ ============
All excluded costs at September 30, 1998 are located in Australia.
At September 30, 1998, a determination cannot be made about the extent
of oil reserves that should be classified as proved reserves for this
prospect. Consequently, the associated property costs and exploration
costs have been excluded in computing amortization of the full cost
pool. The Company estimates that amortization of these costs will begin
during the calendar year 1999.
- 10 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 5 - PARTICIPATION AGREEMENT
The Company had entered into a participation agreement in the
development of the Revilo Glorieta Unit situated in Scurry County,
Texas. Under this agreement, the Company received an 18% net revenue
interest in the property, with no liability for expenses except as
described below. The agreement was effective January 15, 1997 and was
terminated by the Company during the year ended September 30, 1998.
The agreement called for the Company to furnish three oil retrieval
systems to facilitate production on the property in order to earn its
18% net revenue interest. The Company bore no expense in the operation
of the units, except to provide maintenance expense on the equipment.
NOTE 6 - NOTES PAYABLE
<TABLE>
<CAPTION>
Notes payable at September 30 consist of the following:
1998 1997
---- ----
<S> <C> <C>
a) Note Payable - Related Party $ 50,000 $ -
b) Note Payable - Bank of Commerce 100,000 -
c) Note Payable - Business Exchange Investments, Inc. 250,000 -
d) Note Payable - Dallas Cady Family, LLP 50,000 -
e) Note Payable - Benchmark Equity Group, Inc. 500,000 -
f) Note Payable - Related Party - 10,000
G) NOTE PAYABLE - RELATED PARTY - 1,300,000
------------- ----------
$ 950,000 $ 1,310,000
============= ==========
</TABLE>
a) The Company is indebted to M.O. Rife IV under terms of a promissory
note dated April 7, 1998 in the amount of $50,000. Mr. Rife is the son
of a principal stockholder of the Company. Terms of the note provide
for interest at a rate of 12% per annum, with an original maturity date
of October 6, 1998. The maturity date of the note has been extended to
January 31, 1999.
b) The Company is indebted to the Bank of Commerce under terms of a
promissory note dated July 29, 1998 in the amount of $100,000. Terms of
the note provide for interest at a rate of 9.5% per annum, with an
original maturity date of August 27, 1998. The note has been verbally
extended and was paid in full on October 22, 1998. The note has been
guaranteed by a principal stockholder of the Company.
c) The Company is indebted to Business Exchange Investment, Inc. under
terms of a promissory note dated September 15, 1998. Terms of the note
provide for interest at a rate of 10% per annum with a maturity date of
January 15, 1999. The note is collateralized by 100% of the shares of
OSI (see Note 1).
- 11 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 6 - NOTES PAYABLE (continued)
d) The Company is indebted to Dallas Cady Family , LLP under terms of a
promissory note dated September 15, 1998 in the amount of $50,000.
Terms of the note provide for interest to be paid in the form of 80,000
common stock purchase warrants with an exercise price of $1.00 per
share. The warrants have been valued at $44,160. The maturity of the
note is January 15, 1999.
e) The Company is indebted to Benchmark Equity Group, Inc. under terms
of a line of credit promissory note dated May 7, 1998 in the amount of
$500,000. Outstanding advances bear interest at 12% per annum
commencing July 1, 1998. The maturity date is October 7, 1998. At
September 30, 1998, $500,000 is outstanding under the note. The note is
payable in shares of common stock of the Company at a price of $1.00 of
debt per share. The note was paid through the issuance of 500,000
common shares on October 7, 1998.
f) At September 30, 1997, the Company was indebted to a stockholder for
$10,000 unpaid principal on an $80,000 promissory note. This amount was
repaid on November 1, 1997.
g) At September 30, 1997, the Company was indebted to the same
stockholder as in item (f) above under terms of a promissory note in
the amount of $1,300,000, dated June 11, 1997. The note was due on
November 11, 1997. The Company defaulted on payment of the note and the
note was satisfied through the issuance of 1,000,000 shares of the
Company's common stock, which had been held in trust as collateral.
NOTE 7 - DEBENTURES PAYABLE
a) During July and August 1997, the Company sold $1,250,000 of 12%
Convertible Debentures, in accordance with Regulation D of the
Securities Act of 1933, for net proceeds of $870,000.
The debentures bore interest at 12% per annum and were due and payable
on July 31, 1998, if not converted earlier. Interest was payable
quarterly.
The principal amount of the debentures is convertible at the holders
option anytime 28 days after the closing date into shares of the
Company's common stock at a conversion price for each share of Company
common stock equal to the lower of (a) 80% of the closing bid price of
the common stock for the business day immediately preceding the date of
receipt by the Company and notice of conversion or (b) 80% of the
average of the closing bid price of the common stock for the 5 business
days immediately preceding the closing date.
Costs of $130,000 incurred in connection with the issuance of these
debentures are being amortized over the life of the debentures.
Unamortized issuance costs are charged to additional paid-in capital as
debentures are converted into common stock.
- 12 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 7 - DEBENTURES PAYABLE (continued)
As of September 30, 1997, $467,000 principal amount of debentures had
been converted into 434,702 shares of common stock.
During the year ended September 30, 1998, the remaining $783,000
principal amount of debentures was converted into 1,239,372 shares of
common stock.
Accrued interest of $38,607 has been included in the above conversions.
b) On October 22, 1997, the Company sold $250,000 of 12% Convertible
Debentures in accordance with Regulation D of the Securities Act of
1933, for net proceeds of $176,000. Conversion terms are similar to
those of the debentures described in (a) above.
The Company and the buyer of the debenture were in disagreement
concerning the validity of the debenture. On October 29, 1998, the
parties reached an agreement. The agreement provides that the buyer
will remit an additional amount of $150,000 to the Company. The Company
will then issue 650,000 shares of common stock to convert the total
advances of $400,000, plus all accrued interest, into equity. This
conversion occurred on October 30, 1998.
NOTE 8 - WARRANTS
At September 30, 1998, the Company had the following common stock
purchase warrants outstanding:
a) 100,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at any time
on or before August 31, 2002 at an exercise price of $2.50 per share
(subject to customary anti-dilution adjustments). The exercise price
exceeded the market price of the underlying common stock on the date of
issuance. The warrants were issued in connection with the placement of
the debt described in Note 7(a).
b) 80,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at any time
on or before August 31, 2003 at an exercise price of $1.00 per share
(subject to customary anti-dilution adjustments). The warrants were
issued in connection with the debt described in Note 6(d) and have been
valued at $44,160.
- 13 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 8 - WARRANTS (continued)
c) 425,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at any time
on or before October 31,2003 at an exercise price of $1.00 per share
(subject to customary anti-dilution adjustments). The warrants were
issued as a fee in connection with the debt described in Note 6(e) and
have been valued at $234,600.
d) 75,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at any time
on or before October 31, 2003 at an exercise price of $2.50 per share
(subject to customary anti-dilution adjustments). The warrants were
issued as a fee in connection with the debt described in Note 6(e) and
have been valued at $103,575.
e) 20,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at any time
on or before June 1, 2003 at an exercise price of $2.50 per share
(subject to customary anti-dilution adjustments). The warrants were
issued as payment for a consulting agreement and have been valued at
$27,620.
f) 100,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at anytime
on or before June 1, 2003, at an exercise price of $1.00 per share
(subject to customary anti-dilution adjustments). The warrants were
issued as payment of interest on a $100,000 note and have been valued
at $55,200.
g) 100,000 warrants, each of which entitles the registered holder
thereof to purchase one share of Common Stock, exercisable at anytime
on or before June 1, 2003, at an exercise price of $1.00 per share
(subject to customary anti-dilution adjustments). The warrants were
issued as payment for a consulting agreement and have been valued at
$55,200.
The warrants issued do not confer upon the holders thereof any voting
or other rights of a stockholder of the Company.
The warrants described in items (b) through (g) above are subject to a
"cashless exercise" provision (the "warrant exchange").
In connection with any Warrant Exchange, the Holder's Warrant
certificate shall represent the right to subscribe for an acquire (I)
the number of Warrant Shares (rounded to the next highest integer)
equal to (A) the number of Warrant Shares specified by the Holder in
its Notice of Exchange (the "Total Share Number") less (B) the number
of Warrant Shares equal to the quotient obtained by dividing (i) the
product of the Total Share Number and the existing Exercise Price (as
defined) per Share by (ii) the Market Price (as defined) of a share of
Common Stock.
- 14 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9 - INCOME TAXES
The components of the provision for income taxes is as follows:
SEPTEMBER 31,
1998 1997
----------- -----------
Current Tax Expense
U.S. Federal $ - $ -
State and Local - -
----------- -----------
Total Current - -
----------- -----------
Deferred Tax Expense
U.S. Federal - -
State and Local - -
----------- -----------
Total Deferred - -
----------- -----------
Total Tax Provision From
Continuing Operations $ - $ -
=========== ===========
The reconciliation of the effective income tax rate to the Federal
statutory rate is as follows:
1998 1997
---- ----
Federal Income Tax Rate (34.0)% (34.0)%
Deferred Tax Charge (Credit) - -
Effect of Valuation Allowance 34.0% 34.0%
State Income Tax, Net of Federal Benefit - -
--------- --------
Effective Income Tax Rate 0.0% 0.0%
========= ========
At September 30, 1998, the Company had net carryforward losses of
approximately $3,287,000. A valuation allowance equal to the tax
benefit for deferred taxes has been established due to the uncertainty
of realizing the benefit of the tax carryforward.
Deferred tax assets and liabilities reflect the net tax effect of
temporary differences between the carrying amount of assets and
liabilities for financial reporting purposes and amounts used for
income tax purposes. Significant components of the Company's deferred
tax assets and liabilities at September 30 are as follows:
- 15 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 9 - INCOME TAXES (continued)
SEPTEMBER 30,
1998 1997
--------- -------
Deferred Tax Assets (Liabilities):
Loss Carryforwards $ 1,118,000 $ 427,000
Consulting Fees 110,000 123,000
Exploration Costs ( 28,000) -
Depreciation ( 19,000) (7,000)
LESS: VALUATION ALLOWANCE (1,181,000) (543,000)
----------- ----------
NET DEFERRED TAX ASSETS (LIABILITIES) $ - $ -
=========== =========
Net operating loss carryforwards expire in 1999 through 2012. Per year
availability of losses incurred prior to October 1, 1997 of
approximately $675,000 is subject to change of ownership limitations
under Internal Revenue Code Section 382.
Expiration dates of net operating loss carryforwards are as follows:
September 30, 1999 $ 351,000
2000 72,000
2001 89,000
2002 8,000
2003 18,000
2005 5,000
2007 65,000
2009 16,000
2010 3,000
2011 28,000
2012 303,000
2018 2,329,000
---------
$ 3,287,000
NOTE 10 - RELATED PARTY TRANSACTIONS
During the year ended September 30, 1998:
a)The Company issued a promissory note to the son of a principal
stockholder in the amount of $50,000. (See Note 6(a)).
b)A principal stockholder guaranteed the Bank of Commerce promissory
note in the amount of $100,000. (See Note 6(b)).
- 16 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 10 - RELATED PARTY TRANSACTIONS (continued)
c) The Company issued a promissory note to a Trust, one of the
beneficiaries of which is an officer of the Company, in the amount of
$100,000. This note has been repaid as of September 30, 1998. 100,000
Common Stock purchase warrants were issued as payment of interest on
the note. (See Note 8(f)).
d) The Company acquired an option to purchase Rife Oil Properties,
Inc., a principal stockholder of the Company. The option is for a one
year period commencing September 1, 1998. The price to be paid for Rife
Oil Properties, Inc., should the Company exercise the option, shall be
3,000,000 shares of Company Common Stock.
e) The Company occupies space in facilities leased by the stockholder
mentioned above. The Company pays rent to the stockholder in the amount
of $2,000 per month. The space is rented on a monthly basis.
f) The stockholder mentioned above has pledged 5,500,000 shares of
common stock of the Company as collateral for the Benchmark note
described in Note 6(e).
During the year ended September 30, 1997:
g) The Company purchased the Corsicana Field Prospect in Navarro
County, Texas from a stockholder. The purchase price was 2,000,000
shares of common stock and a promissory note in the amount of
$1,300,000.
h) The Company was indebted to the same stockholder in the amount of
$10,000, on a note dated January 18, 1997. This note had an initial
principal amount of $80,000.
i) The Company occupies space in facilities leased by the same
stockholder. No rent was paid on this space through September 30, 1997.
Where possible, the Company prefers to have Rife Oil Properties, Inc.
act as operator of the oil and natural gas properties and prospects in
which it owns an interest.
M.O. Rife III, the Company's Chairman, owns 100% of Rife Oil
Properties, Inc., and Rife Oil Properties, Inc. is one of the
Company's major stockholders. As mentioned in item (d) above, and also
in Note 12(e), the Company has an option to acquire Rife Oil
Properties, Inc.
- 17 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 11 - CONSULTING AGREEMENTS
The Company has entered into various cancelable consulting agreements
with third parties. Compensation for services provided under these
agreements has been paid in either Common Shares or Common Share
Purchase Warrants of the Company. During the year ended September 30,
1998, the Company issued 1,100,000 shares of Common Stock, valued at
$687,500, and 120,000 Common Share Purchase Warrants, valued at
$82,820.
During the year ended September 30, 1997, the Company issued 500,000
shares of Common Stock, valued at $362,500, in payment of consulting
agreements.
NOTE 12 - COMMITMENTS AND CONTINGENCIES
a) The Company has entered into various non-cancelable operating lease
agreements for office and warehouse space and equipment.
1) Warehouse facilities located in Fort Worth, Texas. The
lease term expires on September 30, 1999 and the Company has
an option to review the lease for a two year period.
2) Office facilities located in San Antonio, Texas. The lease
term expires on November 30, 1998.
3) Office facilities located in Tyler, Texas. The lease term
expires on January 31, 2000.
4) Office facilities located in Tyler, Texas. The lease term
on January 31, 1999.
5) Various office equipment leases expiring at various times
through June 25, 2003.
Future minimum lease payments under the lease agreements for each
of the years ended September 30 are as follows:
1999 $ 98,485
2000 29,209
2001 17,421
2002 7,805
2003 3,048
------------
TOTAL MINIMUM LEASE PAYMENTS $ 154,968
=========
Rent expense included in the financial statements for the year ended
September 30, 1998 totaled $83,347.
- 18 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 12 - COMMITMENTS AND CONTINGENCIES (continued)
b) The Company has pledged 100% of the shares of Oil Seeps, Inc., a
wholly owned subsidiary, as collateral for a $250,000 promissory note
due on January 15, 1999. (See Note 6(c)).
c) The note payable to Benchmark described in Note 6(e) is
collateralized by all fixed, real, tangible and intangible assets owned
by the Company. The collateral was released upon repayment of the note
on October 7, 1998.
d) A claim had been filed against ORS by a former employee. The
employee had demanded $75,000 in exchange for a full and final release.
The claim has been settled for $20,000 through mediation in December
1998. The settlement amount has been accrued in the financial
statements.
e) The Company has an option to acquire Rife Oil Properties, Inc., a
principal stockholder of the Company, for 3,000,000 shares of Company
Common Stock. The option expires on August 31, 1999.
f) The Company has entered into discussions to acquire certain assets
of Power Exploration Company, Inc., a company owned by certain officers
and directors of the Company, for 2,000,000 shares of common stock.
These shares are being held in trust pending finalization of any
acquisition and are not included in shares issued or outstanding as of
September 30, 1998.
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES
During the year ended September 30, 1998:
a) A note payable plus accrued interest was satisfied through the
issuance of 1,000,000 shares of common stock. Principal and interest
converted totaled $1,343,381.
b) Common stock totalling 1,239,372 shares was issued on conversion of
$783,000 of debentures, plus accrued interest.
c) Common stock warrants valued at $382,335 were issued in connection
with the placement of various debt agreements.
d) Common stock warrants valued at $82,820 were issued in connection
with various consulting agreements.
e) Common stock warrants valued at $55,200 were issued as payment of
interest on a note.
f) Common stock totalling 1,100,000 shares valued at $687,500 was
issued as payment for services.
- 19 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 13 - SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCIAL ACTIVITIES (continued)
During the year ended September 30, 1997:
g) Oil and gas properties valued at $5,050,000 were acquired in
exchange for common stock and debt.
h) Subsidiaries were acquired in exchange for common stock valued at
$1,530,000.
i) Common stock totaling 434,702 shares was issued in conversion of
$467,000 of debentures.
NOTE 14 - GOING CONCERN
The accompanying consolidated financial statements have been prepared
assuming the company will continue as a going concern. As of September
30, 1998, the Company has a working capital deficit of $1,002,390 and
an accumulated deficit of $4,671,079. Based upon the Company's plan of
operation, the Company estimates that existing resources, together with
funds generated from operations will not be sufficient to fund the
Company's working capital. The Company is actively seeking additional
equity financing. There can be no assurances that sufficient financing
will be available on terms acceptable to the Company or at all. If the
Company is unable to obtain such financing, the Company will be forced
to scale back operations which would have an adverse effect on the
Company's financial condition and results of operation.
NOTE 15 - SUBSEQUENT EVENTS
Subsequent to September 30, 1998, the Company
a) Repaid the Bank of Commerce Note. (See Note 6(b)).
b) Satisfied the Benchmark note through issuance of 500,000 shares of
Common Stock. (See Notes 6(e), 10(f) and 12(c)).
c) Satisfied the Debenture described in Note 7(b) through the issuance
of 650,000 shares of Common Stock.
d) Received $250,000 pursuant to a promissory note with Trident III,
LLC, due on April 20, 1999. The note bears interest at 10% per annum.
The Company has also issued 100,000 shares of Common Stock to Trident
III.
- 20 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 15 - SUBSEQUENT EVENTS (continued)
e) Purchased various oil, gas and/or mineral leases located in East
Texas along with 3-D Seismic Data. The purchase price was $350,000,
paid $50,000 in cash and $300,000 with a promissory note bearing
interest at 6% per annum and due on January 31, 1999. The note is
collateralized by all properties and data acquired through this
purchase.
f) The Company defaulted on the note described in 15(e) above. Pursuant
to the default, the Company relinguished the assets and the seller
retained the $50,000 down payment.
g) Issued 71,429 shares of common stock for services rendered.
h) Issued 1,400,000 shares of common stock for services to be provided
in connection with the promotion of the Company and to provide
expertise in future financing efforts.
i) Issued 400,000 shares of common stock for consulting services.
j) Issued 100,000 warrants to purchase common stock at $1.00 per share
for consulting services.
k) Issued 358,840 shares of common stock in a cashless conversion of
725,000 warrants.
l) Received back a total of 430,000 shares of common stock which had
been issued in connection with consulting agreements in settlement of
disputes concerning performance under these agreements.
m) Issued 400,000 shares of common stock for services to be provided in
connection with the promotion of the Company and to provide expertise
in future financing efforts.
n) Issued a total of 183,324 shares of common stock in payment of legal
services.
o) Extended the note described in 15(d) to September 30, 1999 and
agreed to issue 260,000 shares of common stock in consideration of the
extension. The Company agreed that if the Note was not paid on or
before September 30, 1999, than it will issue 50,000 shares per day
that the note is outstanding subsequent to September 30, 1999. The note
was further extended to October 30, 1999 and the provision was added
that if payment of outstanding principal and interest was made by that
date, the lender would not seek to receive the 50,000 shares per day
due under the previous extension. If payment was not made on or before
October 30, then the full 50,000 shares per day from October 1, 1999
would be due. This note remains outstanding; no payments were made on
or before October 30, 1999.
p) Issued 400,000 shares of common stock in payment of consulting
services.
- 21 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 15 - SUBSEQUENT EVENTS (continued)
q) Effected, on October 19, 1999 a 1 for 100 reverse split of its
common stock.
r) Entered into an agreement with Rife Oil Properties, Inc. to acquire
certain oil properties and leases from Rife in exchange for 8,000,000
post reverse split shares of common stock and to retire certain debt
owed to Rife aggregating approximately $950,000 in exchange for
1,000,000 shares of post reverse split common stock.
s) Entered into two advisory agreements covering financial and
investment services to be provided to the Company on a best efforts
basis. The agreements provide for the Company to issue an aggregate of
1,500,000 shares of post reverse split common stock plus options to
purchase an aggregate of 1,500,000 shares of post reverse split common
stock at an exercise price of $0.66667 per share for a period of one
year, the term of the agreements.
t) Did not pay the settlement described in Note 12(d). A suit is
pending for breach of contract against the Company.
u) Has had a suit filed against it alleging breach of contract and
seeking damage of approximately $120,000. The case is in the discovery
phase. At this time, no evaluation can be made as to the outcome. The
Company is vigorously contesting any liability for breach of the
alleged contract.
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS (UNAUDITED)
The following supplemental unaudited information regarding the
Company's oil and gas activities is presented pursuant to the
disclosure requirements of Statement of Financial Accounting Standards
No. 69.
SEPTEMBER 30,
1998 1997
--------- --------
Capitalized Costs Relating to Oil and Gas
Producing Activities at September 30,
Unproved Oil and Gas Properties $ 1,312,505 $ 1,510,871
Proved Oil and Gas Properties 5,396,496 5,050,000
----------- -----------
6,709,001 6,560,871
Less: Accumulated Amortization and Impairment (95,220) (826)
----------- -----------
Net Capitalized Costs $ 6,703,781 $ 6,560,045
=========== ===========
- 22 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
(UNAUDITED) (continued)
SEPTEMBER 30,
1998 1997
--------------- ---------------
<S> <C> <C>
Costs Incurred in Oil and Gas Producing Activities
for the Years Ending September 30,
Property Acquisition Costs:
Proved $ 235,625 $ 5,050,000
Unproved - 1,510,871
Exploration Costs 112,505 5,496
------------ -------------
$ 348,130 $ 6,566,367
=========== =============
Results of Operations for Oil and Gas Producing
Activities for the Years Ended September 30,
Oil and Gas Sales $ 47,138 $ 22,714
Production (Lifting) Costs (230,581) 53,346
Amortization Expenses (4,394) (826)
------------ -------------
(187,837) (31,458)
INCOME TAX EXPENSE - -
------------ -------------
Results of Operations for Oil and Gas Producing
Activities (excluding corporate overhead and
Financing Costs) $ (187,837) $ (31,458)
============ ==============
</TABLE>
RESERVE INFORMATION AND RELATED STANDARDIZED MEASURE OF DISCOUNTED
FUTURE NET CASH FLOWS
The following supplemental unaudited presentation of proved and proved
developed reserve quantities and related standardized measure of
discounted future net cash flow provides estimates only and does not
purport to reflect realizable values or fair market values of the
Company's reserves. Volumes reported for proved reserves are based on
reasonable estimates. These estimates are consistent with current
knowledge of the characteristics and production history of the
reserves. The Company emphasizes that reserve estimates are inherently
imprecise and that estimates of new discoveries are more imprecise than
those of producing oil and gas properties. Accordingly, significant
changes to these estimates are expected as future information becomes
available. All of the Company's reserves are located in the United
States.
Proved reserves are those estimated reserves of crude oil (including
condensate and natural gas liquids) and natural gas that geological and
engineering data demonstrate with reasonable certainly to be
recoverable in future years from known reservoirs under existing
economic and operating conditions. Proved developed reserves are those
expected to be recovered through existing wells, equipment, and
operating methods.
- 23 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
(UNAUDITED) (continued)
The standardized measure of discounted future net cash flows is
computed by applying year-end prices of oil and gas (with consideration
of price changes only to the extent provided by contractual
arrangements) to the estimated future production of proved oil and gas
reserves, less estimated future expenditures (based on year-end costs)
to be incurred in developing and producing the proved reserves, less
estimated related future income tax expenses (based on year-end
statutory tax rates, with consideration of future tax rates already
legislated), and assuming continuation of existing economic conditions.
Future income tax expenses give effect to permanent differences and tax
credits but do not reflect the impact of continuing operations
including property acquisitions and exploration. The estimated future
cash flows are then discounted using a rate of ten percent a year to
reflect the estimated timing of the future cash flows.
<TABLE>
<CAPTION>
Oil Oil
( mbbls ) ( mbbls )
------------ -------------
1998 1997
---- ----
<S> <C> <C>
Proved Developed and Undeveloped Reserves:
Beginning of Year 22,528.5 -
Purchases of Minerals in Place - 22,529.8
Revisions of Previous Estimates (779.9)
Production (4.1) (1.3)
------------- -------------
End of Year 21,744.5 22,528.5
============= =============
Proved Developed Reserves:
End of Year 3,785.0 4,568.6
============= =============
Standardized Measure of Discounted Future
Net Cash Flows at September 30,:
Future Cash Inflows $ 315,295,000 $ 405,515,000
Future Production Costs (171,519,000) (189,256,000)
Future Development Costs (18,135,000) (18,135,000)
Future Income Tax Expenses (49,693,000) (78,686,000)
--------------- -------------
Future Net Cash Flows (75,948,000) 119,438,000
10% Annual Discount for Estimated Timing
Of Cash Flows 37,063,000 55,703,000
--------------- ------------
Standardized Measure of Discounted Future
Net Cash Flows Relating to Proved Oil and
Gas Reserves $ 38,885,000 $ 63,735,000
=============== ============
</TABLE>
- 24 -
<PAGE>
POWER EXPLORATION, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1998
NOTE 16 - SUPPLEMENTAL INFORMATION ON OIL AND GAS OPERATIONS
(UNAUDITED) (continued)
<TABLE>
<CAPTION>
The following reconciles the change in the standardized measure of
discounted future net cash flows from proved reserves during the years
ended September 30,:
1998 1997
---- ----
<S> <C> <C>
Beginning of Year $ 63,735,243 $ -
Revenue from oil and gas production, net
Of production costs 187,837 31,458
Net changes in prices and production and
Development costs (36,097,791) -
Revisions of previous quantity estimates ( 2,395,456) -
Purchases of minerals in place - 105,285,699
Net change in income taxes 16,566,826 (41,550,456)
OTHER 3,111,655 (31,458)
------------- -------------
END OF YEAR $ 38,885,005 $ 63,735,243
============ ==============
</TABLE>
- 25 -
