UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): December 31, 2002
MID-POWER SERVICE CORPORATION
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(Exact name of registrant as specified in its charter)
Nevada 2-85602-D 87-0398403
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(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification No.)
incorporation)
3800 Howard Hughes Parkway
Suite 860A
Las Vegas, Nevada 89109
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(Address of principal executive offices) (Zip Code)
(702) 214-3615
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(Registrant's telephone number, including area code)
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ITEM 5. OTHER EVENTS
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Mid-Power Service Corporation filed pleadings in its pending Nevada
state court lawsuit against Edward Mike Davis on December 31, 2002, seeking a
temporary restraining order and a preliminary injunction to prevent Davis from
filing a Confession of Judgment for $10.2 million against Mid-Power. Mid-Power
also seeks to prevent Davis from transferring properties subject to their
Colorado and Wyoming exploration ventures and to prevent him from transferring
the approximately 17.1 million shares of common stock in Mid-Power he holds.
Mid-Power's motion has been scheduled for hearing at 9:00 o'clock a.m. Friday,
January 3, 2003.
As consideration for the acquisition in June 2002 of Red Star, Inc.,
which owned approximately 17,200 gross acres in the Clear Creek Unit in Carbon
and Emery Counties, Utah, Mid-Power paid $5.5 million in cash, delivered a $10.0
million promissory note, and issued approximately 17.1 million shares of common
stock. Pursuant to the note, Mid-Power signed and delivered a Confession of
Judgment under which Davis could, without notice to Mid-Power, obtain a judgment
for $10.2 million and execute on Mid-Power's assets if a default occurred on the
note. Mid-Power did not deposit into escrow $10.0 million on December 10, 2002,
for payment to Davis on January 3, 2003, as required by the note.
On December 18, 2002, Mid-Power filed an action, Mid-Power Service
Corporation and Mid-Power Resource Corporation v. Edward Mike Davis and Does I-X
and Roes I-X, Case No. A460833, in Clark County, Nevada District Court. The
complaint includes causes of action for fraud, breach of warranty, and
conversion associated with the Clear Creek property that the Company acquired
under its merger agreement with Red Star, Inc., of which Mr. Davis was the sole
stockholder. The complaint also includes causes of action for fraud, breach of
fiduciary duties, breach of contract, and breach of the implied covenant of good
faith and fair dealing in connection with the Colorado and Wyoming venture
agreements, and a claim under Nevada's civil RICO statute related to both the
merger agreement through which the Company acquired the Clear Creek property and
the Colorado and Wyoming venture agreements. The complaint seeks monetary
damages, punitive damages, rescission of the merger agreement with Red Star,
Inc., and declaratory relief regarding the Company's rights under the Colorado
and Wyoming venture agreements. If the court were to rescind the Red Star
merger, Davis would be required to return the $5.5 million cash paid, the $10.0
million promissory note, and the approximately 17.1 million shares of common
stock, and Mid-Power would be required to reconvey to Davis the Clear Creek
property.
Mid-Power filed the motion for temporary restraining order and
preliminary injunction in an effort to preclude Davis from filing the Confession
of Judgment and executing on Mid-Power's assets, so that Mid-Power's liability
under the note could be determined at a trial on Mid-Power's substantive
allegations in its lawsuit against Davis.
In seeking this expedited, equitable relief, Mid-Power asserts that
Davis made a number of representations respecting the value and potential of the
Clear Creek Unit, the production capability of the Oman 2-20 well then underway,
the absence of environmental or other liabilities, and the legal validity of
leases on the Clear Creek property and other matters. Mid-Power asserts that
various of Davis's representations were false, including the facts that the
validity of the leases for the properties comprising the Clear Creek Unit may be
challengeable due to a claimed lack of production in paying quantities, the Oman
2-20 well is incapable of economic production due to a high level of impurities,
and the existence of environmental problems respecting two well sites in the
Clear Creek Unit that required the Company to incur approximately $230,000 for
remediation and bonding.
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Mid-Power is also seeking to prevent Davis from transferring any
interest in any properties that are part of the Colorado and Wyoming oil and gas
exploration ventures.
In approving the filing of the motion for a temporary restraining order
and preliminary injunction, on December 30, 2002, Mid-Power's board of directors
also authorized Mid-Power's officers to seek protection from its creditors under
Chapter 11 of the Bankruptcy Act if the temporary restraining order and
preliminary injunction are not granted. As of September 30, 2002, Mid-Power's
principal unsecured creditors consisted of Davis, to whom it owed approximately
$10.2 million, and SCRS Investors LLC, to which it owed approximately $4.4
million. SCRS Investors is approximately 86% owned by Mid-Power's president,
James W. Scott. In addition to its obligations to creditors, Mid-Power has only
nominal revenues from operations and substantial ongoing operating expenses.
Mid-Power would likely be required to obtain substantial additional financing in
order to implement a Chapter 11 plan of reorganization. It has no commitment or
arrangement from anyone for any additional financing that it may require.
On December 30, 2002, Mid-Power was served with an amended complaint in
an action entitled, Edward Mike Davis v. Mid-Power Resources Corporation, case
no. 2002 CV 34, in the District Court of Washington County, Colorado, seeking
rescission of the Colorado oil and gas exploration venture, damages equal to
Mid-Power's payments to date, attorney's fees, and costs. Mid-Power intends to
contest the allegations vigorously.
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This report contains forward-looking statements. Forward-looking
statements are not guarantees of the results of pending litigation, the
availability of required funding, Mid-Power's ability to generate substantial
revenues, or Mid-Power's ability to continue. Forward-looking statements are
subject to risks and uncertainties outside Mid-Power's control. Actual events or
results may differ materially from the forward-looking statements. For a
discussion of additional contingencies and uncertainties to which information
respecting future events is subject, see Mid-Power's 2002 annual report on Form
10-KSB, as amended, and other SEC reports.
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MID-POWER SERVICE CORPORATION
Dated: December 31, 2002 By: /s/ James W. Scott
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James W. Scott, President
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