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Alumifuel Power Corp. (AFPW)--Shareholder demand letter

We have been advised that a shareholder has made a demand upon AFPW today for a shareholder meeting and also threatening a derivative suit. Here is the letter, redacted for now until we obtain the shareholders' legal team to consent to release of the shareholder's name:

First, pursuant to Wyoming Business Corporation Act 17-16-703, [shareholder] demands that the Company notice and thereafter hold an annual meeting of shareholders. As continued from Nevada, the Company has not held an annual meeting for many years. Should the Company not comply with this demand within 30 days, [shareholder] intends to enforce its statutory rights. We note that in accordance with the attached letter (you have doubtlessly received a copy from the transfer agent) a large number of shares issued in the latter part of 2014 to the present are void and cannot vote at the meeting. The Company must ensure that the void shares are not voted. Furthermore, we request that the Company provide us with the shareholders list as required by Section 17-16-720.

Second, pursuant to Wyoming Business Corporation Act 17-16-1602, [shareholder] demands that it be permitted to inspect the business records set forth in Section 1716-1601(e) on or before April 22, 2015. Please inform at the above address of the location and the date. Alternatively, you could arrange to email the records to the undersigned at ______.

Third, according to the Company's Code of Ethics, you, as officers and Mr. Fong as director, are required to "Provide full, fair, accurate, timely and understandable disclosure in reports and documents that the Company files with, or submits to, the SEC and in other public communications by the Company."

According to the 2013 Annual Report on Form 10-K the Company issued 607,322,918 shares of common stock to holders of convertible notes amd 1,840,000 shares on conversion of debt. This increased the number of shares outstanding from 22,238,636 at the beginning of the year to 631,402,195, over 28-fold. None of the recipients of the common stock were identified, as required by S-K Item 701. According to the Quarterly Report on Form 10-Q for the quarter ended September 30, 2014, the Company issued 2,811,651,426 share of common stock to convertible noteholders, and 247,145,713 shares of common stock on conversion of debt, resulting in a six-fold increase in shares outstanding during the period. None of the recipients of the common stock were identified as required by S-K Item 701. In addition, the shares issued in conversion of convertible notes were issued at a discount to par value of $1,621,742. The recipients of these shares are required, therefore, to pay to the Company the difference between par value and the consideration paid.

As a shareholder, we demand that you amend your filings to comply with SEC rules and your Code of Ethics, or file an 8-K, to disclose the names of the persons receiving shares, and please inform us of the steps being taken to obtain the funds which were not paid to the Company in connection with the conversion. It also seems very strange that the Company has been issuing so many shares and diluting the stockholders, and appears that the proceeds from sales of the converting shareholders might be making their way back to the Company, resulting in an unregistered public offering. Our inquiries are designed in part to learn if this is the case.

Fourthly, we note that in the several reports on Form 8-K with respect to the purported amendment of the Wyoming Articles of Incorporation, that the amendment was approved by "55% of the common stock and equivalents." However, the corporate charter that was filed in the certificate of domestication does not authorized the issuance of any specific class of preferred stock. Therefore, at this time, the Company does not have any "equivalents" outstanding.

Finally, as the letter provided to the transfer agent makes clear, the Company must recall all of the void shares and only issue them after a duly called and held meeting of shareholders.

Failure to correct these matters may subject the Company and its officers and directors to legal action. This letter constitutes notice under Wyoming Business Corporation Act 17-16-742.

Alumifuel Power Corp. (AFPW)--The Overisssuance Problem

AFPW has an overissuance problem. That is, it has more shares outstanding than have been legally authorized, and to cure the situation is a big mess.

The Articles of Domestication purportedly filed with the State of Wyoming authorized 3.5 billion shares of common stock and 10 million shares of preferred. In a Current Report on Form 8-K dated September 18, 2014, AFPW filed a copy of Amended and Restated Articles of Incorporation Amended and Restated Articles of Incorporation (the "Restatement"), and in the 8-K filed on November 17, 2014, an Amendment to the Articles of Incorporation were filed with the SEC (the "Amendment." The Restatement purports to increase the number of authorized shares of common stock from 3.5 billion to an "unlimited" number of shares, and the Amendment purports to effect a reverse stock split. The authorization of an unlimited number of common stock is permitted under Wyoming law, but as I will explain, the increase in authorized, and the reverse stock split, are invalid, and any shares issued to date in excess of the 3.5 billion must be recalled. You will also note that on the Company's Form 10-Q for the quarter ended September 30, 2014 as filed on EDGAR; the cover page thereof states that as of November 1, 2014, there were 3,840,199,334 shares outstanding. The balance sheet of the 10-Q states that as of September 30, 2014, there were 3,640,199,334 common shares outstanding. As I will show below, the number of authorized common shares has never been legally increased over 3.5 billion. Therefore, as of November 1, 2014, there were 340,199,334 pre-split shares overissued. Since the reverse stock split is also invalid, as I show below, then there are more shares issued since November 1, 2014 which also must be recalled and reissued.

The Restatement was not Duly Authorized and is Invalid.

The Company redomesticated in Wyoming and therefore the Wyoming Business Corporation Act is the relevant statute. If you examine the Restatement, it states in Section 4 thereof, at the end,

"These Amended and Restated Articles of Incorporation were duly adopted by the: (i) Board of Directors of the Corporation in accordance with Section 17-16-1003 of the Wyoming Business Corporations Act and (ii) vote of the holders of a majority of the outstanding shares of the Corporation entitled to vote thereon in accordance with Sections 17-16-1003 and 17-16-1004 of the Wyoming Business Corporations Act. (emphasis added)

Unlike statutes in many other states, the Wyoming Business Corporation Act (the "Act") does not automatically permit shareholder approval to be given by majority consent action. Section 17-16-704 (a) of the Act states as follows:

"Action required or permitted by this act to be taken at a shareholders' meeting may be taken without a meeting if the action is taken by all the shareholders entitled to vote on the action. The action shall be evidenced by one (1) or more written consents bearing the date of signature and describing the action taken, signed by the holders of the requisite number of shares entitled to vote on the action, and delivered to the corporation for inclusion in the minutes or filing with the corporate records. (emphasis added)

I believe it goes without saying that a "majority" is not the same as "all." Notably, Wyoming Business Corporation Act Section 17-16-704 (b) (the next subparagraph) does permit the majority shareholders to approve a shareholder action, provided that notice is provided to the non-consenting shareholders AND the use of a majority vote is expressly authorized in the Articles of Incorporation. A review of the Articles of Domestication 8-K reflects that it does not contain any provision authorizing the taking of shareholder actions by majority shareholder consent. Therefore, the Restatement was not validly adopted by the shareholders, it is void, and the number of authorized common shares is limited to 3.5 billion.

Since the Company's charter documents do not provide any authority to amend its Articles of Incorporation by majority consent action, the Company has no choice. It must hold a shareholders' meeting as soon as practicable. Until the meeting is held, all overissued shares must be recalled.

The Reverse Stock Split was not Duly Authorized and is Invalid

I now direct your attention to the Amendment. It suffers from a similar defect. The Amendment states that it was approved by shareholders holding 55% of the outstanding common stock. This percentage is less than all, eg. 100%. Therefore the Amendment was not duly adopted by the shareholders and the reverse stock split is void.

Effect of the Invalidity of the Restatement and the Amendment

Because the Restatement is void, there was no increase in authorized common shares. Because the Amendment was invalid, the reverse stock split was never effected. The result is that all shares issued in excess of the 3.5 billion authorized are invalid and are overissuances. This includes shares issued after the invalid reverse stock split as well, since the reverse stock split never legally happened.

The Deficient Restatement and Amendment Cannot be Ratified to Cure the Overissuance.

There is no Wyoming case law that I am aware of concerning the effect of an overissuance. The key question is whether an overissuance is voidable-could it be cured by ratification-or is it void-all shares must be cancelled and reissued.

Delaware case law is clear. The seminal case on this issue is Starr Surgical Company v. Waggoner (Waggoner II), 588 A.2d 1130 (1991). In Starr, the company issued preferred shares to its founder, Tom Waggoner, without approval of the board of directors. Waggoner subsequently converted some of the preferred into 2 million shares of common stock ,and voted his remaining preferred shares to remove the other board members. Waggoner sought an injunction to hold a shareholder meeting to ratify the issuance of his shares. Starr firmly holds that unless all corporate formalities are observed, shares issued without proper approval are void and cannot be ratified.

The other leading case in Delaware, Triplex Shoe Co. v. Rich & Hutchins, Inc., 152 A 342 (Del. 1930), is also notable. In that case, shares were issued in excess of the authorized after the increase was approved but before the amendment was filed with the Secretary of State. The court held that the overissuance was not cured by the subsequent filing of the amendment.

The resulting problem is this: any shares issued by AFPW after it exceeded the 3.5 billion threshold are void. They cannot vote. They must be recalled by AFPW. If they have made their way into the public float, at best case they could be repurchased by AFPW and then reissued after, and only after, the Articles of Incorporation have been amended at a duly called shareholders' meeting. However, for purposes of state corporation law, the fungibility of overissued shares is not free from doubt, - there may no way AFPW can repurchase the exact shares which were overissued, so the problem may be incurable.