SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934
Filed by the Registrant [x] Filed by Party other than the Registrant [ ]
[x] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Under Rule 14a-12
BREK ENERGY CORPORATION.
- --------------------------------------------------------------------------------
(Name of Registrant as specified in its charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rule 14a-6(i)(1) and 0-11.
1. Title of each class of securities to which transaction applied:
2. Aggregate number of securities to which transaction applies:
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): _____________________
4. Proposed maximum aggregate value of transaction:
5. Total fee paid: _______________________________________
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the form or schedule and the date of its filing.
1. Amount previously paid: _______________________________
2. Form, Schedule or Registration Statement No.: __________
3. Filing Party: _________________________________________
4. Date Filed: ___________________________________________
BREK ENERGY CORPORATION.
19th Floor, 80 Gloucester Road
Wanchai, Hong Kong, SAR
(852) 2289-9581
Dear Stockholder:
We invite you to attend the annual meeting of stockholders on June 5, 2002
at Pacific Place Conference Centre, Fuji Room, 88 Queensway, Hong Kong, SAR. The
meeting will begin promptly at 10:00 a.m. At the annual meeting, you will be
asked:
1. to elect seven directors to serve until the next annual meeting of
stockholders and until their successors have been elected and qualify;
2. to ratify the appointment of Deloitte Touche Tohmatsu to serve as
independent public accountants for the 2002 fiscal year;
3. to approve the amendment of Brek Energy's Articles of Incorporation to
increase the number of authorized shares of Brek Energy common stock;
4. to approve the amendment of Brek Energy's Articles of Incorporation to
authorize the issuance of preferred stock;
5. to approve the issuance of a number of shares of Brek Energy's common
stock greater than 20% of the number of shares currently outstanding
in exchange for common shares of Gasco Energy, Inc., some of which are
owned by a director of Brek Energy; and
6. to approve such other matters as may properly come before the annual
meeting or any adjournment of the annual meeting.
The accompanying formal notice of the meeting and proxy statement describe
more fully the matters to be presented at the annual meeting. The board of
directors recommends that you vote in favor of the specific proposals set forth
above.
-2-
Whether or not you expect to be present at the meeting, it is important
that you complete, sign and date the enclosed proxy card as promptly as possible
and return it in the enclosed envelope. This will ensure a quorum at the meeting
and avoid additional expense to Brek Energy for further solicitation. In the
event you are able to attend the meeting, you may revoke your proxy and vote
your shares in person.
Ian Robinson
Chairman of the Board of Directors
May 5, 2002
Hong Kong, SAR
-3-
BREK ENERGY CORPORATION.
19th Floor, 80 Gloucester Road
Wanchai, Hong Kong, SAR
(852) 2289-9581
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 5, 2002
To the Stockholders of Brek Energy Corporation.:
Time: 10:00 a.m.
Date: June 5, 2002
Place: Pacific Place Conference Centre, Fuji Room, 88
Queensway, Hong Kong, SAR
Purpose: to elect seven directors to serve until the next annual
meeting of stockholders and until their successors have
been elected and qualify;
to ratify the appointment of Deloitte Touche Tohmatsu to
serve as independent public accountants for the 2002
fiscal year;
to approve the amendment of Brek Energy's Articles of
Incorporation to increase the number of authorized
shares of Brek Energy common stock;
to approve the amendment of Brek Energy's Articles of
Incorporation to authorize the issuance of preferred
stock;
to approve the issuance of a number of shares of Brek
Energy's common stock greater than 20% of the number of
shares currently outstanding in exchange for common
shares of Gasco Energy, Inc., some of which are owned by
a director of Brek Energy; and
to approve such other matters as may properly come
before the annual meeting or any adjournment of the
annual meeting.
All stockholders are cordially invited to attend the meeting, but only
stockholders of record on April 30, 2002 are entitled to notice of and to vote
at the meeting.
Whether or not you expect to be present at the meeting, it is important
that you complete, sign and date the enclosed proxy card and return it in the
enclosed envelope as promptly as possible. This will ensure a quorum at the
meeting and avoid additional expense to Brek Energy for further solicitation. In
the event you are able to attend the
meeting, you may revoke your proxy and vote your shares in person should you
wish to do so.
BY ORDER OF THE BOARD OF DIRECTORS
Kenneth G.C. Telford
Secretary
May 5, 2002
Hong Kong, SAR
-2-
BREK ENERGY CORPORATION
19th Floor, 80 Gloucester Road
Wanchai, Hong Kong, SAR
- --------------------------------------------------------------------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
- --------------------------------------------------------------------------------
Approximate date proxy material first sent to stockholders:
May 5, 2002
- --------------------------------------------------------------------------------
Summary - Questions and Answers
Q: Who may vote at the meeting?
A: Our stockholders, as recorded in our stock register on April 30, 2002, may
vote at the meeting.
Q: How can I vote at the meeting
You may vote in person at the meeting or by proxy. We recommend you vote by
proxy even if you plan to attend the meeting. You can always change your
vote at the meeting.
Q: Who is soliciting my proxy?
A: Our Board of directors is soliciting your proxy.
Q: How do proxies work?
A: Giving us your proxy means you authorize us to vote your shares at the
meeting in the manner you direct. You may vote for all, some, or none of
our director candidates. You may also vote for or against the other
proposals or abstain from voting.
If you give us your proxy, but do not specify how to vote, we will vote
your shares in favor of our director candidates and in favor of each of the
other proposals.
Q: How can I revoke a proxy?
A: You may revoke your proxy before it is voted by:
- submitting a new proxy with a later date;
- notifying Kenneth G.C. Telford, our Secretary, in writing before the
meeting; or
- voting in person at the meeting.
Q: How many shareholders need attend the meeting?
A: In order to carry on the business of the meeting, we must have a quorum.
This means at least one-third of the outstanding shares of common stock
must be represented at the meeting, either by proxy or in person. Broker
non-votes count for purposes of a quorum. Broker non-votes occur when a
broker returns a proxy but does not have authority to vote on a particular
proposal.
Q: What if my shares are held in the name of my broker?
A: Unless otherwise instructed by you, your broker will vote in favor of each
director nominee, in favor of ratifying the auditors and in favor of
increasing the amount of common stock authorized. As to the other
proposals, your broker will vote your shares for you only if you instruct
you broker how to vote for you. Your broker should mail information to you
that will explain how to give it these instructions.
Q: What stockholder approvals are needed to approve the proposals?
A: Proposal 1 - Election of Directors
For a nominee to be elected a director, a plurality of the votes cast at
the election must be voted in favor of his election. Abstentions and broker
non-votes will have no effect on the election of directors.
Proposal 2 - Ratification of Auditors
To ratify the appointment of Deloitte Touche Tohmatsu to serve as
independent public accountants for the 2002 fiscal year, at least 10% of
the shares of common stock present in person or represented by proxy must
vote in favor of ratification.
Proposals 3, and 4 - Amendments to Articles of Incorporation to increase
the amount of authorized common stock and to authorize preferred stock
To amend Brek Energy's Articles of Incorporation, at least a majority of
the outstanding shares of common stock must vote in favor of amendment.
Abstentions and broker non-votes will have the same effect as a vote
against amendment.
Proposal 5 - Approval to issue Brek Energy common shares in a number
greater than 20% of the number currently outstanding in exchange for shares
of Gasco Energy, Inc., some of which are owned by a director of Brek.
To approve the issuance of Brek Energy common stock in exchange for those
of Gasco Energy, Inc. a plurality of the votes cast at the election must be
voted in favor of the proposal. Abstentions and broker non-votes will have
no effect on the approval.
2
Q: Why does Brek want to increase its authorized common stock and add
authorized preferred stock?
A: In order to give us more flexibility in raising capital and to provide
shares to be issued under the shareholders' rights plan we recently
adopted.
Q: Does Brek have any current plans to issue any capital stock?
A: Except for the common stock we expect to issue in exchange for Gasco
shares, we have no current plans to issue any capital stock.
Q: Why is Brek proposing to exchange its shares for shares of Gasco?
A: In order to gain complete control of Gasco and to be able to consolidate
its financial statements into ours.
Q: Is Brek offering to exchange any Gasco shares that I own.
A: No. We have already entered into agreements with the Gasco stockholders who
will be exchanging their Gasco shares for our shares.
Q: Why am I being asked to vote on the exchange proposal?
A: Because Nasdaq rules require that we obtain shareholder approval for a
transaction with an affiliate or that involves the issuance of more than
20% of our outstanding stock, and this proposal meets both tests.
Q: Who is the affiliate involved?
A. Our director Marc Bruner. He plans to exchange 3,000,000 shares of Gasco
stock for 8,250,000 shares of our stock.
Q: Is the exchange fair to Brek?
A: We believe that it is, because the market price of Gasco was discounted by
25% in establishing the exchange ratio with our shares.
Q: What does the Brek Board of directors recommend?
A: Our Board of directors recommends that our stockholders vote FOR each
director candidate and FOR all other proposals.
Q: If I have questions, who can I contact for answers?
A: You should contact: Brek Energy Investor Relations
Peter Forward, (888) 305-8233
3
Security Ownership Of Certain Beneficial Owners And Management
The following table and notes set forth as of the record date, the number
of shares of Brek Energy's common stock beneficially owned by (i) each person
who served as Brek Energy's Chief Executive Officer during the 2001 fiscal year,
(ii) the highest compensated executive officers who were serving as executive
officers at the end of the 2001 fiscal year whose individual total cash
compensation for the 2001 fiscal year exceeded US$100,000 (together with each
person who served as Brek Energy's Chief Executive Officer during the 2001
fiscal year, the "named executive officers"), (iii) each director and nominee
for director of Brek Energy, (iv) all executive officers and directors of Brek
Energy as a group and (v) each person or group of persons known by Brek Energy
to beneficially own more than five percent (5%) of the outstanding common stock.
All information is taken from or based upon information provided by such persons
to Brek Energy or available through public filings by the beneficial owner.
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
- ---------------- ------------------ ---------
Gregory M. Pek 1,782,500(3) 8.01%
Ravi K. Daswani 485,461(3) 2.18%
Power Broadcasting Inc. 1,333,333(1) 5.99%
Douglas Moore 391,667(2) 1.76%
Ian Robinson 595,000(3) 2.67%
James Pratt 95,000(3) 0.43%
Marc Bruner 75,000(3)(8) 0.34%
Andrew Leitch 100,000 0.45%
Kenneth Telford 300,000(4) 1.35%
Steve Corbin 65,415(5) 0.29%
Barry Conn 25,000(6) 0.11%
Executive Officers and
Directors as a group 3,915,043(7) 17.59%
(1) Includes warrants to purchase 333,333 shares of common stock.
(2) Includes options to purchase 125,000 shares and warrants to purchase 66,667
shares of common stock.
(3) Includes options to purchase 75,000 shares of common stock.
(4) Includes options to purchase 200,000 shares
(5) Includes options to purchase 50,000 shares of common stock.
(6) Includes options to purchase 25,000 shares of common stock.
(7) Includes options to purchase 775,000 shares and warrants to purchase 66,667
shares of common stock.
(8) Does not include 8,250,000 shares of common stock that will be issued to
Mr. Bruner if Proposal #5 described in this proxy statement is approved by
our shareholders.
4
PROPOSAL #1 - ELECTION OF DIRECTORS
Brek Energy's directors are to be elected at each annual meeting of
stockholders. The [seven] nominees for election as directors at this meeting are
set forth below. All are recommended by the board of directors of Brek Energy,
and each is currently a director of Brek Energy:
Gregory Pek
Ravi Daswani
Douglas Moore
Ian Robinson
James Pratt
Marc Bruner
Andrew Leitch
The seven nominee-directors receiving a plurality of votes cast at the
meeting will be elected as Brek Energy's directors to serve until the next
annual meeting of stockholders and until their successors are elected and
qualify.
The board of directors unanimously recommends that stockholders vote for
each nominee for the board of directors.
Directors And Executive Officers
The following table sets forth certain information concerning the Directors
and Executive Officers of Brek Energy:
Nominee Principal Occupation Age
- ------- -------------------- ---
Gregory Pek Director, President and Chief Executive Officer
of Brek Energy 47
Kenneth G.C. Telford Chief Financial Officer and Secretary of Brek
Energy 52
Ravi Daswani Director of Brek Energy 35
Douglas Moore Director of Brek Energy and Chief Executive
Officer of Henderson Cyber Limited (listed on
the Growth Enterprise Market of the Stock
Exchange of Hong Kong) 44
Ian Robinson Chairman of the board of directors and
independent management consultant 62
James Pratt Director of Brek Energy and Deputy-Chairman of
GSM Association 53
5
Nominee Principal Occupation Age
- ------- -------------------- ---
Marc Bruner Director of Brek Energy and Chairman of the
Board of Gasco Energy, Inc. 52
Andrew Leitch Director of Brek Energy and Board member of
Kerry Packer Group Companies, Citicorp
Everbright China Fund Limited and Education
OnLine USA Inc. 58
Mr. Gregory Pek, 47, was a co-founder of Brek Energy and has served on Brek
Energy's board of directors since March 1999. He was appointed Chairman of the
Board in June 2000, relinquishing the role of CEO and President, which he had
held since March 1999. He resumed the position of President and CEO in October
2000, and resigned as Chairman in November 2000. From March 1994 to February
1999, Mr. Pek was an Executive Director of David Resources Company Limited and
Kong Tai International Holdings Company Limited, and from 1998 to February 1999
he was a director of Singapore Hong Kong Properties Investment Limited. Prior to
taking residence in Hong Kong, Mr. Pek was a director and officer of a number of
public companies in Canada. Mr. Pek has broad business experience in
manufacturing, marketing, finance, regulatory issues (in the United States,
Canada, and Hong Kong), and acquisitions.
Mr. Ken Telford, 52, has been Brek Energy's Chief Financial Officer and
Secretary since June 2000. Mr. Telford is both a Chartered Accountant (Canada)
and Certified Public Accountant (USA). Mr. Telford has been a partner in
Sadovnick Telford + Skov, Chartered Accountants in Canada and Telford Sadovnick,
PLLC, Certified Public Accountants in the United States since 1994. Mr. Telford
was previously also an audit partner in the international accounting firm Touche
Ross & Co. (now Deloitte & Touche LLP) as well as Chief Operating Officer and
Chief Financial Officer of an automotive rental company. Mr. Telford has advised
numerous companies, operating in both North America and the Asia Pacific region,
on a broad range of financial and business matters including the financial
management requirements of U.S. publicly listed companies.
Mr. Ravi Daswani, 35, was a co-founder of Brek Energy and has served as the
Chief Operating Officer and member of the board of directors since March 1999.
Mr. Daswani retired as Chief Operating Officer of Brek Energy in August 2001 to
pursue other business interests. From December 1997 to February 1999, Mr.
Daswani was the Managing Director of Asia Internet Limited, a Hong Kong ISP and
one of the reputable system integration companies in Hong Kong. During his
tenure with Asia Internet, Mr. Daswani helped establish Sing Web Pte. Ltd., a
Singapore based IPP. For more than three years before December 1997, he was the
managing director of a wholesale and retail apparel business. He has established
international operations trading in dry goods, consumer electronics, apparel,
and internet services in Africa, Latin America, and Asia.
6
Mr. Douglas Moore, 44, has been a member of the board of directors since
October 1999. Since April 2000, Mr. Moore has been the Chief Executive Officer
and executive director (elected May 25, 2001) of Henderson Cyber Limited, the
high technology subsidiary of the Henderson Group, which consists of Henderson
Land Development Company Limited and its subsidiaries. Mr. Moore is also the
Head of Strategic Planning of Henderson Land. Mr. Moore is also a non-executive
director of Blu Spa, a botanical beauty product company listed on the Growth
Enterprise Market of the Stock Exchange of Hong Kong. From 1994 until April 2000
Mr. Moore was the head of the Hong Kong Market of Credit Suisse and a director
of Credit Suisse Investment Advisory (Hong Kong) Limited. Prior to 1994 Mr.
Moore practiced international and Canadian taxation law with the Hong Kong and
Toronto offices of McMillan, Binch, a major Canadian law firm.
Mr. Ian Robinson, 62, has served on Brek Energy's board of directors since
February 2000 and was appointed Vice-Chairman of the Board on November 29, 2000
and Chairman in January 2001. Mr. Robinson has 45 years of experience as a
professional accountant and was a Senior Partner with Ernst and Young, one of
the largest international accounting firms until 1994. He has been based in Hong
Kong since1980, from which he has serviced the Asian region, and has had
experience in major countries around the world. Mr. Robinson has specialized in
corporate rescue, restructuring, insolvency, investigation, business valuation
and trouble shooting generally. He also holds a number of directorships
including being a member of the Supervisory Board and member of the Executive
Committee of the Hong Kong Housing Society.
Mr. James Pratt, 53, was appointed to Brek Energy's board of directors in
June 2000. Mr. Pratt is the Deputy Chairman of the GSM Association. Previously,
from June 2000 to August 2001, Mr. Pratt was Managing Director of Asia Wireless,
a division of Telstra International, Telstra Corporation of Australia where he
oversaw all of Telstra Group's wireless operations and investments throughout
the Asia Pacific Region. Mr. Pratt was Chief Executive Officer of Peoples Phone
in Hong Kong from 1996 until 2000. Prior to this he was general manager of the
telecommunications division of Mitsubishi Electric Australia. Mr. Pratt has more
than 30 years of international management experience in the Asia Pacific
telecommunications industry.
Mr. Marc Bruner, 52, was appointed to Brek Energy's board of directors in
July 2001. Mr. Bruner is Chairman of the Board of Gasco Energy, Inc., an oil and
gas exploration company the stock of which is traded on the OTCBB. Brek Energy
owns an interest in Gasco and is seeking stockholder approval to acquire (in
part from Mr. Bruner) an even greater interest.in it. In 1998, Mr Bruner founded
Pannonian Energy Inc., which merged with Gasco in 2001. Previously, from 1996 to
1998, Mr. Bruner was the founding Chairman of Ultra Petroleum, a natural gas
company the stock of which is listed on the American Stock Exchange and the
Toronto Stock Exchange. Mr. Bruner was a founder in 1998 of Pennaco Energy,
Inc., a coal bed methane company, and in 1996 of RIS Resources International, a
natural gas company.
Mr. Andrew Leitch, 58, was appointed to Brek Energy's board of directors in
April 2002. Mr. Leitch is both a Chartered Accountant (Canada) and a Certified
Public Accountant (USA). He has an international and diversified career spanning
some 25 years with Deloitte & Touche and has held senior executive positions in
certain varied commercial enterprises. Mr. Leitch has 20 plus years of
experience in international business. He worked as the Chief Operating Officer
for Vapotronics Inc. in San Diego from 2000-2001. While Mr. Leitch was with
Deloitte &
7
Touche, Hong Kong from 1994-2000, he was the Vice Chairman of the Management
Committee (1997-2000) and Executive Partner of Corporate Finance (1994-1997).
Mr. Leitch currently holds board positions in various Kerry Packer Group
Companies, Citicorp Everbright China Fund Limited and Education OnLine USA Inc.
Committees of The Board Of Directors
The Audit Committee
The Audit Committee consists of Ian Robinson, Douglas Moore and James Pratt. The
Audit Committee is responsible for (i) reviewing the scope of and the fees for
the annual audit, (ii) reviewing with the independent auditors the corporate
accounting practices and policies, (iii) reviewing with the independent auditors
their final report, and (iv) being available to the independent auditors during
the year for consultation purposes. Each of the members of the Audit Committee
is independent within the meaning of Rule 4200(a)(15) of the NASD listing
standards.
The Compensation Committee
Brek Energy established a Compensation Committee in February 2000. The
Compensation Committee is responsible for (i) approving compensation of the
Chief Executive Officer and (ii) granting stock options to employees. The
Compensation Committee consists of Douglas Moore, James Pratt and Ian Robinson.
The Nominating Committee
Brek Energy does not have a nominating committee of the board of directors.
The nominees for election as directors at the meeting were selected by the board
of directors of Brek Energy.
Director Compensation
Directors who are employees of Brek Energy receive no additional
compensation for service on the board of directors or any committee of the
board. Commencing April 1, 2001, Brek Energy began remunerating its directors
who are not employees of Brek Energy HK$ 20,000 (approximately US$ 2,564) per
quarter and the Chairman HK$35,000 (approximately US$ 4,487) per month. Eric
Pinkney, who served as a director of Brek Energy from November 29, 2000 until
June 25, 2001, received consulting fees of US$ 10,000 per month from December
2000 through February 2001. On October 31, 2001 all directors, except Douglas
Moore, who had existing options and warrants rescinded those options and
warrants and received 75,000 fully vested options exercisable at $0.40 until
October 31, 2006. Douglas Moore rescinded his options and warrants and received
125,000 fully vested options exercisable at $0.40 until October 31, 2006. All
Directors who had not previously been granted options received 75,000 options
exercisable at $0.40 until October 31, 2006.
8
Meetings of the Board and Committees
During 2001 the board held five meetings with the remaining board action
taken by unanimous consent of the directors. Each of the Audit Committee and
Compensation Committee held three meetings during 2001. During 2001, all
incumbent directors attended 75% or more of the meetings of the board and the
committees on which they served.
Summary Compensation Table
The following summary compensation table sets forth the cash compensation
earned for 2001, 2000 and 1999, by each named executive officer. Brek Energy
paid no compensation to any employee in 1997 or 1998.
Annual compensation Long term compensation
------------------------------------ --------------------------------------
Awards Payouts
---------------------- -------
Share of
common
Restricted stock
Other annual stock underlying LTIP All Other
Name and Principal Position Year Salary Bonus compensation award(s) options Payouts Compensation
- --------------------------- ---- ------ ----- ------------ -------- ------- ------- ------------
Gregory Pek, CEO 2001 $218,710 $107,097 $ 15,484 -- 75,000 -- --
2000 238,172 -- -- -- 200,000 -- --
1999 167,742 -- -- -- 100,000 -- --
Ravi Daswani, COO (1) 2001 154,839 109,677 4,473 -- 75,000 -- --
2000 238,172 -- -- -- 200,000 -- --
1999 167,742 -- -- -- 100,000 -- --
Kenneth Telford, CFO 2001 259,994 117,419 13,005 -- 200,000 -- --
2000 Did not -- -- -- 100,000 -- --
exceed
100,000
Steve Corbin, President,
First Ecom Systems
Limited 2001 202,581 45,800 1,548 -- 50,000 -- --
2000 Did not -- -- -- 30,000 -- --
exceed
100,000
1999 Did not -- -- -- 20,000 -- --
exceed
100,000
Barry Conn, Senior Vice
President, First Ecom
Systems Limited 2001 157,419 -- 1,548 -- 25,000 -- --
2000 Did not -- -- -- 20,000 -- --
exceed
100,000
- ----------
(1) Resigned August 2001.
9
Employment Agreements
We have employment agreements with Gregory Pek, our President and Chief
Executive Officer, and Kenneth Telford, our Chief Financial Officer. These
agreements were entered into in August 2001.They each provide for an aggregate
monthly salary of HK $165,000 (approximately US$ 21,150) plus an additional
month's salary per calendar year of service as a year-end payment. These
agreements will terminate on August 31, 2002 unless we choose to extend their
terms. If we do not choose to extend their terms, the agreements provide that we
must pay a termination payment in August 2002 equal to three months' salary.
Option Grants In Last Fiscal Year
The following table presents information concerning individual grants of
options to purchase common stock made during the fiscal year ended December 31,
2001 to each of the named executive officers.
- -------------------------------------------------------------------------------------------------------------------------------
Option grants in Fiscal year ended Dec. 31,2001
Individual grants
- -------------------------------------------------------------------------------------------------------------------------------
Potential realizable value
at assumed annual rates of
Stock price appreciation
for option term
------------------------------
Number of Percent of
securities Total options
underlying granted to Exercise Value at
options granted employees in of base Market Expiration grant date
Name (1) fiscal year price ($/Sh) price Date 0% 5% 10%
- ------------- --------------- ------------- ------------ ------ ---------- ----- ----- ------
Gregory Pek, CEO 75,000 5.9% $0.40 $0.41 31-Oct-06 750 9,246 19,523
Ravi Daswani (2) 75,000 5.9% 0.40 0.41 31-Oct-06 750 9,246 19,523
Ian Robinson 75,000 5.9% 0.40 0.41 31-Oct-06 750 9,246 19,523
Douglas Moore 125,000 9.8% 0.40 0.41 31-Oct-06 1,250 15,409 32,539
James Pratt 75,000 5.9% 0.40 0.41 31-Oct-06 750 9,246 19,523
Marc Bruner 75,000 5.9% 0.40 0.41 31-Oct-06 750 9,246 19,523
Ken Telford 200,000 15.6% 0.40 0.41 31-Oct-06 2,000 24,655 52,062
Steve Corbin 50,000 3.9% 0.40 0.41 31-Oct-06 500 6,164 13,015
Barry Conn 25,000 2.0% 0.40 0.41 31-Oct-06 250 3,082 6,508
- ----------
(1) All of the options granted are fully vested and exercisable until
October 31, 2006
(2) Resigned August 2001.
10
Aggregated Option Exercises In Last Fiscal Year and Fiscal Year End
Option Values
The following table sets forth the value of unexercised options to purchase
common stock for each named executive officer on December 31, 2001. No options
were exercised by the named executive officers during 2001.
Number of securities underlying Value of Unexercised In-The
unexercised options at fiscal -Money options at fiscal year
Shares year end(#) end (1) ($)
acquired on value -----------------------------------------------------------------
Name exercise (#) realized ($) Exercisable Unexercisable Exercisable Unexercisable
Gregory Pek, CEO 0 0 75,000 0 $0 0
Ravi Daswani (2) 0 0 75,000 0 0 0
Ian Robinson 0 0 75,000 0 0 0
Douglas Moore 0 0 125,000 0 0 0
James Pratt 0 0 75,000 0 0 0
Marc Bruner 0 0 75,000 0 0 0
Ken Telford 0 0 200,000 0 0 0
Steve Corbin 0 0 50,000 0 0 0
Barry Conn 0 0 25,000 0 0 0
- ----------
(1) Based on a December 31, 2001 closing price of US$0.40 per share.
(2) Resigned August 2001.
11
Report of Audit Committee
The Audit Committee reviewed and discussed Brek Energy's audited financial
statements as of and for the year ended December 31, 2001 with management, and
discussed with Brek Energy's independent auditors at that time the matters
required to be discussed by SAS 61. The Audit Committee also received the
written disclosures and the letter from the independent accountants required by
Independence Standards Board Standard No. 1 and discussed with them their
independence. Based upon the foregoing, the Audit Committee recommended to the
board of directors that the audited financial statements be included in Brek
Energy's 2001 Annual Report on Form 10-K.
The Audit Committee
Ian Robinson
Douglas Moore
James Pratt
Compensation Committee Report on Executive Compensation
Brek Energy offers compensation packages designed to attract and retain
outstanding employees and to encourage and reward the achievement of corporate
goals. Through broad-based employee ownership of Brek Energy's common stock,
Brek Energy seeks to align employee financial interests with long-term
stockholder value.
Executive officers receive total compensation packages in line with their
responsibilities and expertise. Brek Energy believes that the majority of an
executive's compensation should be closely tied to overall performance of Brek
Energy. Accordingly, base salaries for executive officers in most cases are
relatively competitive, but are accompanied by significant stock option grants.
Base Salaries.
Salaries for Brek Energy's executive officers are based on the executive's
contribution to Brek Energy's performance, level of responsibility, experience
and breadth of knowledge. Base salaries for executive officers generally are
designed to be competitive with those paid by competitors in the electronic
commerce and internet industries. These base salaries are combined with stock
option grants, so that a good portion of the executive's pay is tied to Brek
Energy performance. Brek Energy did not utilize salary surveys for executive
officers in 2001.
Stock-Based Compensation.
Brek Energy seeks to align the long-term interests of its executive officers
with those of its stockholders. As a result, each executive officer receives a
significant stock option grant when he or she joins Brek Energy or is promoted
to executive officer. Grant sizes are determined based on various subjective
factors, primarily related to the individual's anticipated
12
contributions to Brek Energy's success. Brek Energy intends to grant additional
stock options to executive officers from time-to-time based on performance and
potential.
Replacement Option Grants
On October 31, 2001, the named executive officers set forth below rescinded
options and warrants to purchase Brek Energy common stock, and Brek Energy
reissued a like number of new options having five-year terms and exercise prices
equal to the then-fair value of the stock (which were lower than the exercise
prices of the options and warrants rescinded). The Compensation Committee felt
replacing the options for the named executive officers set forth in the table
below with options having a lower exercise price was warranted to provide the
desirable long-term incentive to such named executive officers and to align
their interests with those of the stockholders.
Length (months) of
Number of Exercise price of option/warrant term
options/warrants options/warrants remaining at Date of
rescinded rescinded Replacement
---------------------- ------------------- ------------------------
Number New
of new exercise
Name options price Options Warrants Options Warrants Options Warrants
- ---- ------- ----- ------- -------- ------- -------- ------- --------
Gregory Pek, CEO 75,000 0.40 150,000 -- 5.05 -- 46 --
50,000 -- 7.65 -- 32 --
Ravi Daswani(1) 75,000 0.40 150,000 -- 5.05 -- 46 --
50,000 -- 7.65 -- 32 --
Ian Robinson 75,000 0.40 50,000 50,000 5.05 1.25 46 53
Douglas Moore 125,000 0.40 100,000 30,000 5.05 1.25 46 53
James Pratt 75,000 0.40 50,000 30,000 5.05 1.25 46 53
Ken Telford 200,000 0.40 100,000 50,000 5.05 1.25 46 53
Steve Corbin 50,000 0.40 20,000 50,000 5.05 1.25 46 53
10,000 7.65 32
Barry Conn 25,000 0.40 20,000 25,000 5.05 1.25 46 53
- ----------
(1) Resigned August 2001.
Chief Executive Officer Compensation.
Mr. Pek received US$ 341,291 in cash compensation from Brek Energy during
2001. Mr. Pek's compensation was competitive with what may have been paid to an
individual with similar responsibilities in a similar industry.
Ongoing Review.
The Compensation Committee will evaluate Brek Energy's compensation
policies on an ongoing basis to determine whether they enable Brek Energy to
attract, retain and motivate key
13
personnel. To meet these objectives, Brek Energy may from time to time increase
salaries, award additional stock options or provide other short- and long-term
incentive compensation to executive officers.
Section 162(m).
Compensation payments in excess of US$ 1 million to the Chief Executive
Officer or the other four most highly compensated executive officers are subject
to a limitation on deductibility for Brek Energy under Section 162(m) of the
Internal Revenue Code of 1986. Certain performance-based compensation is not
subject to the limitation on deductibility. The Compensation Committee does not
expect cash compensation in 2002 to its Chief Executive Officer or any other
executive officer to be in excess of US$ 1 million. Brek Energy intends to
maintain qualification of its 2001 and 1999 Stock Option Plans for the
performance-based exception to the US$ 1 million limitation on deductibility of
compensation payments.
The Compensation Committee
Ian Robinson
Douglas Moore
James Pratt
14
Stock Performance Graph
The following graph provides a comparison of the performance of Brek Energy's
common stock for the 2001 year, against the performance of the Technology and
NASDAQ indices during the same period. The Stock Performance Graph shall not be
deemed incorporated by reference by any general statement incorporating by
reference this proxy statement into any filing under the Securities Act of 1933
or the Securities Exchange Act of 1934, except to the extent that First Ecom.com
specifically incorporates this information by reference, and shall not otherwise
be deemed filed under such Acts.
[THE FOLLOWING TABLE WAS REPRESENTED BY A LINE GRAPH IN THE PRINTED MATERIAL.]
Stock Price 2001
Date Brek Nasdaq IIX
---- ---- ------ ---
05-Jan-01 1 2,407.65 263.73
12-Jan-01 1 2,626.50 299.91
19-Jan-01 1.38 2,770.38 320.10
26-Jan-01 1.88 2,781.30 320.13
02-Feb-01 1.69 2,660.50 289.72
09-Feb-01 1.41 2,470.97 259.28
16-Feb-01 1.13 2,425.38 255.71
23-Feb-01 1.25 2,262.51 229.98
02-Mar-01 1.19 2,117.63 206.94
09-Mar-01 1.38 2,052.78 195.15
16-Mar-01 1.06 1,890.91 179.65
23-Mar-01 0.97 1,928.68 183.66
30-Mar-01 0.81 1,840.26 167.47
06-Apr-01 0.84 1,720.36 148.44
13-Apr-01 0.94 1,961.43 181.97
20-Apr-01 0.87 2,163.41 207.53
27-Apr-01 1.08 2,075.68 192.74
04-May-01 1.35 2,191.53 213.40
11-May-01 1.04 2,107.43 199.12
18-May-01 1.05 2,198.88 211.57
25-May-01 1 2,251.03 217.46
01-Jun-01 0.95 2,149.44 197.81
08-Jun-01 1 2,215.10 196.84
15-Jun-01 0.93 2,028.43 174.19
22-Jun-01 0.87 2,034.84 175.52
29-Jun-01 0.91 2,161.24 188.95
06-Jul-01 0.8 2,004.16 171.23
13-Jul-01 0.64 2,084.79 178.31
20-Jul-01 0.49 2,029.07 166.13
27-Jul-01 0.51 2,029.07 168.97
03-Aug-01 0.45 2,066.33 172.50
10-Aug-01 0.48 1,956.47 158.07
17-Aug-01 0.39 1,867.01 144.21
24-Aug-01 0.39 1,916.80 148.72
31-Aug-01 0.35 1,805.43 133.65
07-Sep-01 0.33 1,687.70 118.99
17-Sep-01 0.34 1,579.55 112.14
21-Sep-01 0.32 1,423.19 101.58
28-Sep-01 0.33 1,498.80 102.32
05-Oct-01 0.33 1,605.30 112.79
12-Oct-01 0.44 1,703.40 126.78
19-Oct-01 0.33 1,671.31 120.59
26-Oct-01 0.44 1,768.96 131.00
02-Nov-01 0.45 1,745.73 122.83
09-Nov-01 0.62 1,828.48 139.02
16-Nov-01 0.56 1,898.58 148.91
23-Nov-01 0.46 1,903.20 147.49
30-Nov-01 0.43 1,930.58 147.46
07-Dec-01 0.44 2,021.26 152.21
14-Dec-01 0.37 1,953.17 145.60
21-Dec-01 0.37 1,945.83 143.89
28-Dec-01 0.4 1,987.26 148.91
15
PROPOSAL #2 - RATIFICATION OF APPOINTMENT OF AUDITORS
The board of directors of Brek Energy has selected the firm of Deloitte
Touche Tohmatsu to serve as its independent auditors for the year ended December
31, 2002. While the ratification of the selection of Deloitte Touche Tohmatsu as
Brek Energy's independent public accountants is not required to be submitted for
stockholder approval, the board has elected, as a matter of policy, to seek
ratification of its selection by the affirmative vote of at least 10% of the
shares represented and voting at the meeting. If the stockholders fail to ratify
the selection of Deloitte Touche Tohmatsu, the board will reconsider the matter.
Notwithstanding the ratification by the stockholders of the appointment of
Deloitte Touche Tohmatsu, the board of directors may, if the circumstances
dictate, appoint other independent accountants.
The board of directors unanimously recommends that the stockholders vote
for the ratification of Deloitte Touche Tohmatsu to serve as Brek Energy's
independent auditors for the fiscal year ending December 31, 2002.
Representatives of Deloitte Touche Tohmatsu will attend the annual meeting,
will have the opportunity to make a statement should they wish to do so and will
be available to respond to appropriate questions.
Deloitte Touche Tohmatsu was confirmed as Brek Energy's independent
accountants by the shareholders at the 2001 annual meeting held January 29,
2002. Deloitte Touch Tohmatsu expressed an unqualified opinion on Brek Energy's
financial statements for the year ended December 31, 2001 and for the period
from September 16,1998 (date of inception) to December 31, 2001 on March 11,
2002.
Audit Fees
The aggregate fees paid to Deloitte Touche Tohmatsu for professional
services rendered for the audit of our annual financial statements for the
fiscal year ended December 31, 2001, and for the reviews of the financial
statements included in our quarterly reports on Form 10-Q for that fiscal year,
were US$ 80,000.
Financial Information System Design and Implementation Fees
We did not pay any fees to Deloitte Touche Tohmatsu for financial
information systems design and implementaion services for the fiscal year ended
December 31, 2001.
All Other Fees
In 2001, in addition to the fees for the audit services described under the
caption "Audit Fees" above, we paid Deloitte Touche Tohmatsu US$19,500 for
reviewing certain SEC filings and
16
advising us regarding our accounting for certain transactions and US$ 21,800 for
corporate income tax services. We also paid Deloitte & Touche, an affiliate of
Deloitte Touche Tohmatsu, US$9,500 for performing a due diligence review of
Gasco before we invested in it and $26,000 for performing a due diligence review
of another company we considered acquiring.
PROPOSAL #3
AMEND ARTICLES OF INCORPORATION TO AUTHORIZE ADDITIONAL SHARES OF COMMON STOCK
Brek Energy's Articles of Incorporation currently authorize the issuance of
up to 300,000,000 shares of common stock. The board of directors has approved,
subject to approval by Brek Energy's stockholders, an amendment to the Articles
of Incorporation to increase the authorized number of shares of common stock to
500,000,000. The purpose of the proposed increase is to make additional shares
of common stock available for issuance from time to time as and when the board
of directors deems it advisable as well as shares to be issued under the
Shareholders' Rights issued on March 20, 2002. The proposed increase is
reflected in Article Three of the form of Amended and Restated Articles of
Incorporation which is annexed to this proxy statement as Annex A.
The additional shares of common stock, if so authorized, could be issued at
the discretion of the board of directors without any further action by the
stockholders, except as required by applicable law or regulation, in connection
with acquisitions, future financings and other corporate purposes. The
additional shares of common stock could also be used to permit a stock split or
a stock dividend, or to render more difficult or prevent a merger, tender offer,
proxy contest or other change in control of Brek Energy. Such shares will only
be issued upon a determination by the Board of Directors that a proposed
issuance is in the best interests of Brek Energy and its stockholders.
Brek Energy's common shares do not have preemptive rights. No change in
total stockholder equity would result from the proposed increase of the number
of authorized shares of common stock; however, any future issuance of such
additional shares of common stock could, depending on the circumstances, reduce
total stockholder equity, have a dilutive effect on earnings per share, reduce
the voting power of currently issued and outstanding shares of common stock, and
have other similar dilutive effects on the currently issued and outstanding
shares of common stock.
The board of directors unanimously recommends that the stockholders vote to
approve the amendment to the Articles of Incorporation to increase the number of
authorized shares of common stock from 300,000,000 to 500,000,000.
17
PROPOSAL #4
APPROVAL OF AMENDMENT TO ARTICLES OF INCORPORATION TO
AUTHORIZE THE ISSUANCE OF SHARES OF PREFERRED STOCK
Brek Energy's Articles of Incorporation currently authorizes only one class
of capital stock - shares of Brek Energy common stock. The board of directors
has approved, subject to approval by Brek Energy's stockholders, an amendment to
the Articles of Incorporation to create a class of preferred stock initially
consisting of 50,000,000 shares, which shares may be designated and issued in
one or more series with rights, preferences and privileges determined by the
board of directors. Such proposed class of preferred stock is reflected in
Article Three of the form of Amended and Restated Articles of Incorporation
which is annexed to this proxy statement as Annex A.
We cannot state or estimate at the present time the terms of the preferred
stock we propose be authorized because the Brek Energy board does not
contemplate any offering of such preferred stock in the near future, although
the board will not seek further authorization by the stockholders in the event
there is any issuance of such preferred stock by the board.
The terms of the preferred stock to be authorized, including dividend
rates, conversion rights, voting rights, redemption prices, maturity dates,
designations, preferences, limitations, restrictions and other similar matters
will be determined by the board at a later date, without the vote or approval of
the stockholders. Any future issuance of the preferred stock to be authorized
could, depending on the circumstances, reduce total stockholder equity, have a
dilutive effect on earnings per share, reduce the voting power of currently
issued and outstanding shares of Brek Energy common stock, and have other
similar dilutive effects on the currently issued and outstanding shares of
common stock. Such preferred stock will only be issued upon a determination by
the board that a proposed issuance is in the best interests of Brek Energy and
its stockholders.
The purpose of authorizing the shares of preferred stock is to make an
additional class of shares apart from the shares of common stock available for
issuance should the board ever deem such an issuance to be advisable. The board
believes that the availability of authorized but unissued shares of preferred
stock can be of considerable value by providing an alternative form of
consideration in connection with the raising of capital or the acquisition of
other businesses through the issuance of securities by Brek Energy, the terms
and characteristics of which can be determined by the board at the time of the
actual issuance based on market conditions and to meet other circumstances
existing at such time.
The shares of preferred stock to be authorized could also be used to
implement a stockholder rights plan, or issued in order to defeat a hostile
takeover attempt. Any such stockholder rights plan would likely contain
provisions that would allow Brek Energy's stockholders (other than an acquiring
person who has not been approved by the Brek Energy board) to obtain either Brek
Energy shares or shares of the acquiring person at a substantial discount from
the market price of such shares. In addition, if Brek Energy were to become the
target of a hostile takeover attempt, Brek Energy could try to prevent the
takeover by issuing shares of preferred stock, the effect of which would be to
reduce the voting power of the then issued and outstanding shares of common
stock and increase the cost of the takeover. The adoption of a stockholder
rights plan or the issuance of shares of preferred stock could make it
18
more difficult for any person to obtain control of Brek Energy through a merger,
tender offer, proxy contest or other means, which could potentially inhibit
stockholders from realizing a higher share price for their stock than that which
would be available in the public markets. However, the board believes that such
measures would have the effect of (i) deterring those transactions in Brek
Energy's common stock that could lead to a "creeping" takeover of Brek Energy
without the payment of a control premium, (ii) encouraging prospective acquirors
to negotiate with the board and (iii) maximizing stockholder value in the event
of a sale of Brek Energy. The board has no knowledge of any current, threatened
or contemplated attempt to take over the control of Brek Energy.
The board of directors unanimously recommends that the stockholders vote to
approve the amendment to the Articles of Incorporation to authorize the issuance
of 50,000,000 shares of preferred stock in one or more series.
PROPOSAL #5
APPROVAL OF ISSUANCE OF BREK'S COMMON STOCK IN EXCHANGE FOR
COMMON STOCK OF GASCO OWNED, IN PART, BY A DIRECTOR OF BREK
We have entered into agreements (which are conditioned upon obtaining
stockholder approval of the same) with the holders of 7,000,000 shares of common
stock of Gasco Energy, Inc. to issue 19,250,000 shares of our common stock in
exchange for that Gasco common stock. Of the 7,000,000 shares of Gasco common
stock that are the subject of this proposed exchange, our director Marc Bruner
owns 3,000,000, and of the 19,250,000 shares of our common stock being issued,
Mr. Bruner will receive 8,250,000. The 19,250,000 shares of our common stock
that we propose to issue is equal to 86.5% of our total presently outstanding
shares of common stock. Upon completion of the exchange, Brek will own
approximately 45% of the equity of Gasco and will control approximately 53% of
the voting power of Gasco. Thereafter, for so long as we maintain voting control
of Gasco, Gasco's financial statements will be consolidated into ours.
The exchange agreements were agreed to on and entered into as of January
16, 2002, on which Brek shares last traded at $0.48 and Gasco shares last traded
at $1.76. The exchange ratio of 2 3/4 Brek shares for each Gasco share reflected
a discount of 25% on the value of Gasco shares on that date. On April 16, 2002,
the exchange ratio reflected a discount of 8.3% on the value of Gasco shares on
that date.
The exchange agreements require us to file a registration statement with
the SEC to register the resale of the 19,250,000 shares of common stock that we
will issue in exchange for Gasco shares within 120 days of their issuance.
Gasco is engaged in locating and developing hydrocarbon prospects,
primarily located in the Rocky Mountain region. It applies new technologies to
generate and develop high-potential prospects. All of Gasco's properties are
located in the continental United States.
Our Board of Directors, with the knowledge that the transaction was in part
with Mr. Bruner, one of our directors, resolved unanimously that the issuance of
19,250,000 shares of our
19
common stock in exchange for 7,000,000 shares of Gasco common stock (of which
3,000,000 are owned by Mr. Bruner) was fair as to us.
The board of directors unanimously recommends that the stockholders vote to
approve the issuance of our common stock in exchange for common stock of Gasco,
owned in part by a director of ours.
Past Contacts, Transactions, Negotiations and Agreements
During April 2001, management of Gasco traveled to Hong Kong to meet with
our management to discuss an investment in Gasco by us. Several days of meetings
were held. By agreement dated July 5, 2001, we acquired a series of preferred
stock of Gasco Energy, Inc. which is convertible into approximately 26% of the
equity of Gasco. The holder of this preferred stock is by its terms entitled to
26% of the combined voting power of the preferred (on an as-converted basis) and
the common stock, which vote together as a single class. We have converted half
of this preferred stock into common stock.
On January 16, 2002 our directors Mr. Gregory Pek and Mr. Marc Bruner met
in London, England to discuss with other shareholders what would be the best
future course of action for us with respect to our investment in and
relationship with Gasco. They agreed that the best alternative would be for us
to acquire more than 50% of the voting power of Gasco so as to be able to
consolidate their financial position and results of operations in our own
financial statements. The terms of an exchange of our shares for Gasco shares
owned by Mr. Bruner and our other shareholders who were present or represented
at that meeting were agreed to on that date, subject to the transaction being
approved by our full board of directors, which it did. Accordingly, we entered
into agreements with certain shareholders of Gasco (including Mr. Bruner) which
provide for Brek to acquire additional 7,000,000 shares of common stock of Gasco
in exchange for 19,250,000 shares of Brek common stock
20
SELECTED FINANCIAL INFORMATION
OF BREK ENERGY
The following selected financial data should be read in conjunction with our
audited consolidated financial statements appearing in our 2001 Annual Report on
Form 10-K, which is incorporated herein by reference.
Year ended Year ended Year ended
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Revenue
Payment processing $ 301,978 $ 38,223 $ 2,634
------------ ------------ -----------
Operating expenses
Sales and marketing 611,628 2,113,149 1,563,246
General and administrative 7,153,141 8,297,692 4,241,389
Systems and technology 836,134 1,489,056 552,221
Charges for impairment of certain long-lived
and prepaid assets 3,159,505 949,418 --
------------ ------------ -----------
Total expenses $ 11,760,408 $ 12,849,315 $ 6,356,856
Loss from operations $(11,458,430) $(12,811,092) $(6,354,222)
------------ ------------ -----------
Other income/(expenses)
Interest income $ 704,725 $ 1,527,959 $ 36,761
Interest expense -- (2,121) (471,424)
Loss on write down of marketable securities (314,339) (1,632,353) --
------------ ------------ -----------
$ 390,386 $ (106,515) $ (434,663)
------------ ------------ -----------
Equity in loss of affiliates $ (882,146) $ (292,118) $ --
------------ ------------ -----------
Loss from continuing operations $(11,950,190) $(13,209,725) $(6,788,885)
------------ ------------ -----------
Income (loss) from discontinued
operations
Net income (loss) $ (236,683) $ (4,219,736) $ --
Gain on discontinuance (net of $Nil tax
effects) 1,725,551 -- --
------------ ------------ -----------
$ 1,488,868 $ (4,219,736) $ --
------------ ------------ -----------
Loss before cumulative effect of accounting
changes $(10,461,322) $(17,429,461) $(6,788,885)
21
Year ended Year ended Year ended
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
Cumulative effect of accounting change -- (380,000) --
------------ ------------ -----------
Net loss $(10,461,322) $(17,809,461) $ (6,788,885)
============ ============ ============
Basic and diluted loss per share
applicable to common stockholders
Continuing operations $ (0.62) $ (0.73) $ (0.56)
Discontinued operations 0.08 (0.23) --
Cumulative effect of accounting
change -- (0.02) --
------------ ------------ -----------
$ (0.54) $ (0.98) $ (0.56)
Weighted average shares used in computing per
share amounts 19,210,037 18,064,980 12,043,662
============ ============ ==========
Balance Sheet Data: 2001 2000 1999
------------ ------------ -----------
Current Assets $ 2,596,852 $ 32,282,424 $ 12,159,946
Note Receivable 1,865,244 -- --
Loan Receivable 270,055 -- --
Property and Equipment 257,321 578,866 1,046,237
Total Assets 23,497,378 35,969,172 13,206,183
Deferred Rent -- -- 62,017
Obligation under capital lease
(including current installments) -- -- 3,788
Total Liabilities 271,379 509,373 1,263,936
Stockholders Equity 23,225,999 35,459,799 11,942,247
22
SELECTED FINANCIAL INFORMATION
OF GASCO ENERGY, INC.
The following selected financial data should be read in conjunction with Gasco's
audited consolidated financial statements appearing in its 2001 Annual Report on
Form 10-K, which is incorporated herein by reference. All information for
periods prior to March 30, 2001 represents the historical information of
Pannonian Energy, Inc. because that corporation was considered the acquiring
entity for accounting purposes in its merger with Gasco on that date.
As of and for the Year Ended December 31,
-----------------------------------------
2001 2000 1999 1998
------------ ----------- ----------- -------
Summary of Operations
Revenue $ 36,850 -- -- --
General & administrative expense 4,331,825 $ 951,734 $ 738,153 $ 6,000
Net loss (4,129,459) (843,261) (736,834) (6,000)
Net loss per share (0.63) (0.06) (.06) --
Balance Sheet
Working capital (deficit) $ 11,860,584 $ (420,370) $ (65,798) $(6,000)
Cash 12,296,585 881,041 163,490 --
Oil and gas properties 9,152,740 1,991,290 2,484,919 --
Total assets 21,658,525 3,007,259 2,688,826 --
Stockholders' equity 21,065,425 1,578,905 2,422,166 (6,000)
23
PRO FORMA FINANCIAL INFORMATION
The unaudited pro forma consolidated financial information set forth below
is based upon the historical consolidated financial statements of Brek adjusted
to give effect to the acquisition of a 45% equity interest (53% voting right) in
Gasco as if the acquisition had occurred on January 1, 2001. This pro forma
financial information should be read in conjunction with the consolidated
financial statements of BREK and the related notes thereto included in Brek's
2001 Annual Report on Form 10-K incorporated by reference in this proxy
statement and the financial statements of GASCO and the related notes thereto
included in Gasco's 2001 Annual Report on Form 10-K incorporated by reference in
this proxy statement.
Unaudited pro forma condensed
consolidated balance sheets
at December 31, 2001
(Expressed in United States Dollars)
Historical Historical Total Pro Forma
Brek Gasco Adjustment Consolidated
---- ----- ---------- ------------
Assets
Current assets
Cash and cash equivalents $2,088,484 $12,296,585 $ $14,385,069
Accounts receivable and other receivables 32,184 157,099 189,283
Marketable securities 53,309 53,309
Prepaid expenses and deposits 422,875 422,875
-----------------------------------------------------------------------------
Total current assets 2,596,852 12,453,684 15,050,536
Note receivable 1,865,244 1,865,244
Loan receivable 270,055 270,055
Oil and gas properties, at cost 9,152,740 18,760,559(2) 27,913,299
Property and equipment, net 257,321 52,101 309,422
Equity in affiliate 18,507,906 (18,507,906)(1,2,3) --
-----------------------------------------------------------------------------
Total assets $23,497,378 $21,658,525 $ 252,653 $45,408,556
=============================================================================
Liabilities and stockholders' equity
Current liabilities
Accounts payable and accrued liabilities $271,379 $ 593,100 $864,479
-----------------------------------------------------------------------------
Total current liabilities 271,379 593,100 864,479
Minority interest 9,314,782(2,4) 9,314,782
Stockholders' equity
Preferred stock, $0.001 par value
Authorized 5,000,000 shares
Issued and outstanding 1,000 shares 1 (1)(2)
Common stock, $0.001 par value
Authorized 200,000,000; 100,000,000 shares
Issued and outstanding 38,460,037; 27,252,500 shares 19,211 2,725 16,525(1,2) 38,461
Additional paid-in capital 58,266,456 38,569,923 (29,349,173)(1,2) 67,487,206
Deferred compensation (261,375) 261,375(2) --
Deficit accumulated during the development stage (35,059,668) (17,115,554) 19,878,850(2,3,4) (32,296,372)
Less: Cost of Treasury stock of 73,700 common shares -- (130,295) 130,295(2) --
-----------------------------------------------------------------------------
Total stockholders' equity 23,225,999 21,065,425 (9,062,129) 35,229,295
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity $23,497,378 $21,658,525 $ $252,653 $45,408,556
=============================================================================
24
Unaudited pro forma condensed consolidated
statement of operations for the year ended
December 31, 2001
(Expressed in United States Dollars)
Historical Total
Historical Brek Gasco Adjustment Consolidated
--------------- ---------- ---------- ------------
Revenue
Payment processing $ 301,978 $ -- $ $ 301,978
Oil and gas -- 36,850 36,850
------------------------------------------------- ------------
301,978 36,850 338,828
------------------------------------------------- ------------
Operating expenses
Sales and marketing 611,628 611,628
General and administrative 7,153,141 4,331,825 -- 11,484,966
Systems and technology 836,134 836,134
Lease operating 12,679 12,679
Charges for impairment of
certain long-lived and prepaid assets 3,159,505 3,159,505
------------------------------------------------- ------------
Total operating expenses 11,760,408 4,344,504 16,104,912
------------------------------------------------- ------------
Loss from operations (11,458,430) (4,307,654) (15,766,084)
------------------------------------------------- ------------
Other income (expenses)
Interest income 704,725 193,352 (8,217)(6) 889,860
interest expense -- (67,363) 8,217 (6) (59,146)
Other 52,206 52,206
Loss on write down of marketable securities (314,339) (314,339)
------------------------------------------------- ------------
Total other income (expenses) 390,386 178,195 -- 568,581
------------------------------------------------- ------------
Equity in loss of affiliate (882,146) -- 492,09(3) (390,052)
------------------------------------------------- ------------
Loss from continuing operations (11,950,190) (4,129,459) 492,094 (15,587,555)
------------------------------------------------- ------------
Income (loss) from discontinued operations
Net loss (236,683) -- (236,683)
Gain on discontinuance (net of $Nil tax effect) 1,725,551 -- 1,725,551
------------------------------------------------- ------------
Total income (loss) from discontinued operations 1,488,868 -- -- 1,488,868
------------------------------------------------- ------------
Loss before minority interest (10,461,322) (4,129,459) 492,094 (14,098,687)
Minority interest -- -- 2,271,20(4) 2,271,202
------------------------------------------------- ------------
Net loss $(10,461,322) $ (4,129,459) $ 2,763,296 $(11,827,485)
================================================= ============
Preferred stock deemed distribution -- (11,400,000) 11,400,000(5) --
Net loss attributable to common shareholders $(10,461,322) $(15,529,459) $14,163,296 $(11,827,485)
================================================= ============
Basic and diluted loss per share
applicable to common shareholders
Continuing operations (0.62) (0.63) (0.41)
Discontinued operations 0.08 -- 0.04
Cumulative effect of accounting changes -- -- --
------------------------------------------------- ------------
(0.54) (0.63) (0.37)
================================================= ============
Weighted average shares used in
computing per share amounts 19,210,037 24,835,144 38,460,037
================================================= ============
25
Notes to unaudited pro forma condensed consolidated financial data
(Expressed in United States Dollars)
1. Basis of Preparation
The unaudited pro forma condensed consolidated financial statements (the
"pro forma financial statements") are based upon the historical
consolidated financial statements of Brek Energy Corporation (formerly
First Ecom.com, Inc.) and subsidiaries ("BREK") as adjusted to give effect
to the acquisition of 45% equity interest (53% voting right) in Gasco
Energy, Inc. ("GASCO") as if the transactions had occurred on January 1,
2001.
The historical consolidated financial statements of BREK include a 26%
voting and equity interest in GASCO which was acquired in July 2001 in the
form of 1000 GASCO preferred shares, each preferred share being convertible
into 9,500 GASCO common shares. In January 2002 BREK entered into
agreements with existing GASCO shareholders to acquire 7 million GASCO
common shares in exchange for 19,250,000 Brek common shares (the "Share
Exchange") and in March 2002 BREK exercised the right to convert on half of
its preferred shares into GASCO common shares while retaining the full 26%
voting rights for the remaining preferred shares. These transactions have
the combined effect of giving BREK a 53% voting interest and 45% equity
interest in GASCO. The Share Exchange is subject to the approval of Brek
shareholders.
The pro forma financial statements are presented for illustrative purposes
only and are not necessarily indicative of the operating results or
financial position that might have been achieved had the transactions
occurred as of an earlier date, and they are not necessarily indicative of
future operating results or financial position. These pro forma amounts do
not, therefore, project our financial position or results of operations for
any future date or period.
These pro forma financial statements should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Result of
Operations and the consolidated financial statements of BREK and the
related notes thereto included in BREK'S annual report for the year ended
December 31, 2001 filed on Form 10-K, and the financial statements of GASCO
and the related notes thereto included in GASCO's annual report for the
year ended December 31, 2001 filed on Form 10-K.
2. Pro Forma Adjustments
(1) To record the acquisition of 7,000,000 common shares of GASCO from
existing GASCO shareholders through the issuance of 19,250,000 common
shares of BREK at $0.48 per share
(2) To record the consolidation adjustments of BREK and GASCO by
elimination of BREK investment in GASCO and recording excess value of
$18,760,559 in oil and gas properties
(3) To record the elimination of equity in loss of GASCO
(4) To record the minority interest in GASCO
(5) To record the reversal of preferred stock deemed distribution of GASCO
(6) To eliminate loan interest income and loan interest expense between
BREK and GASCO
26
OTHER MATTERS
The board of directors knows of no business other than the matters set
forth in this proxy statement which will be presented at the meeting. Inasmuch
as matters not known at this time may come before the meeting, the enclosed
proxy confers discretionary authority with respect to such matters as may
properly come before the meeting and it is the intention of the persons named in
the proxy to vote in accordance with their judgment on such matters.
STOCKHOLDER PROPOSALS FOR NEXT YEAR
Any stockholder proposal for the annual meeting to be held in 2003 must be
sent to the Secretary at Brek Energy's principal executive office. The deadline
for receipt of a proposal to be considered for inclusion in the proxy statement
is August 10, 2002. The deadline for notice of a proposal for which a
shareholder will conduct his or her own solicitation is October 24, 2002.
DISSENTERS' RIGHTS
Stockholders of Brek Energy will have no dissenters' or appraisal rights
with respect to any of the proposals to be voted upon at the annual meeting.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires that our
directors, executive officers and greater-than-ten-percent beneficial owners
file reports of their ownership and changes in ownership of Brek Energy stock on
Forms 3, 4 and 5 with the Securities and Exchange Commission. To our knowledge,
based solely on a review of copies of reports furnished to us and certain
written representations, during the fiscal year ended December 31, 2001 all
Section 16(a) filing requirements applicable to our directors, executive
officers and greater-than-ten-percent beneficial owners were complied with.
ADDITIONAL INFORMATION
All information contained in this proxy statement relating to the
occupations, affiliations and securities holdings of directors and officers of
Brek Energy and their relationship and transactions with Brek Energy is based
upon information received from the individual directors and officers. All
information relating to any beneficial owner of more than five percent of Brek
Energy's common stock is based upon information contained in reports filed by
such owner with the Securities and Exchange Commission.
INCORPORATION BY REFERENCE
The annual report of Brek Energy on Form 10-K for the year ended December
31, 2001, which includes financial statements and accompanies this proxy
statement, is being mailed to
27
stockholders together with this proxy statement, and is hereby incorporated in
this proxy statement by reference.
The annual report of Gasco on Form 10-K for the year ended December 31,
2001, which includes financial statements and accompanies this proxy statement,
is being mailed to stockholders together with this proxy statement, and is
hereby incorporated in this proxy statement by reference.
A copy of the exhibits to the annual reports will be furnished to any
stockholder upon written request and payment of a nominal fee.
28
Brek Energy Corporation Proxy
solicited by the board of directors for the annual
meeting of stockholders to be held June 5, 2002
The undersigned hereby constitutes, appoints, and authorizes Gregory Pek
and Ian Robinson, and each of them acting individually, as the true and lawful
attorney and proxy of the undersigned, with full power of substitution and
appointment, for and in the name, place and stead of the undersigned to act for
and vote as designated below, all of the undersigned's shares of the common
stock of Brek Energy Corporation, a Nevada corporation, at the annual meeting of
the stockholders to be held June 5, 2002, at Pacific Place Conference Centre,
Fuji Room, 88 Queensway, Hong Kong, SAR at 10:00 a.m. Hong Kong time, and at any
and all adjournments thereof, with respect to the matters set forth below and
described in the Notice of Annual Meeting dated May 5, 2002, receipt of which is
hereby acknowledged.
1. Election of Directors For All Withold from all
[ ] [ ]
For all nominees except:
2. Ratification of Independent Auditors For Against Abstain
[ ] [ ] [ ]
3. Increase Authorized Common Stock For Against Abstain
[ ] [ ] [ ]
4. Authorize Preferred Stock For Against Abstain
[ ] [ ] [ ]
5. Approval of Exchange of BREK Shares For Against Abstain
for Common Shares of GASCO [ ] [ ] [ ]
The proxy is authorized to vote upon any other business as may properly
come before the annual meeting or any adjournment thereof.
29
The undersigned hereby revokes any proxies as to said shares heretofore
given by the undersigned, and ratifies and confirms all that said attorney and
proxy may lawfully do by virtue hereof.
This proxy when properly executed will be voted in the manner directed herein by
the undersigned stockholder(s). If no direction is made, this proxy will be
voted "for" proposals 1, 2, 3, 4 and 5. This proxy confers discretionary
authority in respect of matters not known or determined at the time of the
mailing of the notice of the annual meeting of stockholders to the undersigned.
DATED: ______________________, 2002 NUMBER OF SHARES _________
Signature(s) of Stockholder(s)
- --------------------------------------------------------------------------------
Signature(s) of Stockholder(s)
Signature(s) should agree with the name(s) shown hereon. Executors,
administrators, trustees, guardians and attorneys should indicate their capacity
when signing. Attorneys should submit powers of attorney. When shares are held
by joint-tenants, both should sign. If a corporation, please sign in full
corporate name by president or other authorized officer. If a partnership,
please sign in partnership name by authorized person.
This proxy is solicited on behalf of the board of directors
of Brek Energy Corporation
Please sign and return this proxy
using the enclosed pre-paid envelope.
The giving of a proxy will not affect your
right to vote in person if you attend the meeting.
30
ANNEX A
FORM OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BREK ENERGY CORPORATION
The undersigned hereby adopts the following Restated Articles of
Incorporation:
ARTICLE ONE [NAME].
The name of the corporation is: BREK ENERGY COPORATION
ARTICLE TWO [PURPOSES].
The purposes for which the corporation is organized are to engage in any
activity or business not in conflict with the laws of the State of Nevada or of
the United States of America, and without limiting the generality of the
foregoing, specifically:
(A) [OMNIBUS]. To have to exercise all the powers now or hereafter
conferred by the laws of the State of Nevada upon corporations organized
pursuant to the laws under which the corporation is organized and any and
all acts amendatory thereof and supplemental thereto.
(B) [CARRYING ON BUSINESS OUTSIDE STATE]. To conduct and carry on its
business or any branch thereof in any state or territory of the United
States or in any foreign country in conformity with the laws of such state,
territory, or foreign country, and to have and maintain in any state,
territory, or foreign country a business office, plant, store or other
facility.
(C) [PURPOSES TO BE CONSTRUED AS POWERS]. The purpose specified herein
shall be construed both as purposes and powers and shall be in no way
limited or restricted by reference to, or inference from, the terms of any
other clause in this or any other article, but the purposes and powers
specified in each of the clauses herein shall be regarded as independent
purposes and powers, and the enumeration of specific purposes and powers
shall not be construed to limit or restrict in any manner the meaning of
general terms or the general powers of the corporation; nor shall the
expression of one thing be deemed to exclude another, although it be of
like nature not expressed.
A-1
ARTICLE THREE [CAPITAL STOCK].
The corporation shall have authority to issue an aggregate of FIVE Hundred
Million (500,000,000) shares of common stock, PAR VALUE ONE MILL ($0.001) per
share (the "Common Stock"), and FIFTY Million (50,000,000) shares of preferred
stock (the "Preferred Stock", and together with the Common Stock, the "Capital
Stock")). Authority is hereby vested in the board of directors to prescribe the
classes, series and the number of each class or series of stock and the voting
powers, designations, preferences, limitations and restrictions and relative
rights of each class or series of stock. The board shall establish all such
designations by resolution and shall file a certificate of designation with the
Nevada secretary of state setting forth the resolution before the issuance of
any shares of the class or series.
The holders of shares of Capital Stock of the corporation shall not be
entitled to pre-emptive or preferential rights to subscribe to any unissued
stock or any other securities which the corporation may now or hereafter be
authorized to issue.
The corporation's Capital Stock may be issued and sold from time to time
for such consideration as may be fixed by the Board of Directors, provided that
the consideration so fixed is not less than par value.
The stockholders shall not possess cumulative voting rights at all
shareholders meetings called for the purpose of electing a Board of Directors.
ARTICLE FOUR [DIRECTORS].
The affairs of the corporation shall be governed by a Board of Directors of
no more than eight (8) nor less than one (1) person.
ARTICLE FIVE [ASSESSMENT OF STOCK]
The capital stock of the corporation, after the amount of the subscription
price or par value has been paid in, shall not be subject to pay debts of the
corporation, and no paid up stock and no stock issued as fully paid up shall
ever be assessable or assessed.
ARTICLE SIX [PERIOD OF EXISTENCE].
The period of existence of the corporation shall be perpetual.
A-2
ARTICLE SEVEN [BY-LAWS].
The initial By-laws of the corporation shall be adopted by its Board of
Directors. The power to alter, amend, or repeal the By-laws, or to adopt new
By-laws, shall be vested in the Board of Directors, except as otherwise may be
specifically provided in the By-laws.
ARTICLE EIGHT [STOCKHOLDERS' MEETINGS].
Meetings of stockholders shall be held at such place within or without the
State of Nevada as may be provided by the By-laws of the corporation. Special
meetings of the stockholders may be called by the President or any other
executive officer of the corporation, the Board of Directors, or any member
thereof, or by the record holder or holders of at least ten percent (10%) of all
shares entitled to vote at the meeting. Any action otherwise required to be
taken at a meeting of the stockholders, except election of directors, may be
taken without a meeting if a consent in writing, setting forth the action so
taken, shall be signed by stockholders having at least a majority of the voting
power.
ARTICLE NINE [CONTRACTS OF CORPORATION].
No contract or other transaction between the corporation and any other
corporation, whether or not a majority of the shares of the capital stock of
such other corporation is owned by this corporation, and no act of this
corporation shall in any way be affected or invalidated by the fact that any of
the directors of this corporation are pecuniarily or otherwise interested in, or
are directors or officers of such other corporation. Any director of this
corporation, individually, or any firm of which such director may be a member,
may be a party to, or may be pecuniarily or otherwise interested in any contract
or transaction of the corporation; provided, however, that the fact that he or
such firm is so interested shall be disclosed or shall have been known to the
Board of Directors of this corporation, or a majority thereof; and any director
of this corporation who is also a director or officer of such other corporation,
or who is so interested, may be counted in determining the existence of a quorum
at any meeting of the Board of Directors of this corporation that shall
authorize such contract or transaction, and may vote thereat to authorize such
contract or transaction, with like force and effect as if he were not such
director or officer of such other corporation or not so interested.
ARTICLE TEN [LIABILITY OF DIRECTORS AND OFFICERS].
No director or officer shall have any personal liability to the corporation
or its stockholders for damages for breach of fiduciary duty as a director or
officer, except that this Article Ten shall not eliminate or limit the liability
of a director or officer for (i) acts or omissions which involve intentional
misconduct, fraud or a knowing violation of law, or (ii) the payment of
dividends in violation of the Nevada Revised Statutes.
A-3
IN WITNESS WHEREOF, the undersigned, has executed these Amended and
Restated Articles of Incorporation this __ day of _________, 2002.
- --------------------------------------------------------------------------------
Name:
Title:
A-4