<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB/A
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 For the Fiscal Year Ended October 31, 1999
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD ______________ TO ______________
Commission File No. 0-21785
NEW VISUAL ENTERTAINMENT, INC.
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(Name of small business issuer in its charter)
UTAH 95-4543704
- ---- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
5920 FRIARS ROAD, SUITE 104, SAN DIEGO, CALIFORNIA 92108
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number - (619) 692-0333
--------------
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $0.001 PAR VALUE
------------------------------
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Sections
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X]; No [ ].
Check if disclosure of delinquent filers in response to Item 405 of Regulation
S-B is not contained in this form, and no disclosure will be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ ]
State issuer's revenues for its most recent fiscal year. $129,845
As of April 5, 2000, the registrant had outstanding 91,336,246 shares of its
Common Stock, par value of $0.001, its only class of voting securities. The
aggregate market value of the shares of Common Stock of the registrant held by
non-affiliates on April 5, 2000, was approximately $ 164,975,908 based on the
average of the closing bid and ask prices on the OTC:BB on such date (See Item
5).
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DOCUMENTS INCORPORATED BY REFERENCE
None
Transitional Small Business Disclosure Format (Check one): Yes ; No X .
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<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
New Visual Entertainment, Inc. (previously known as Bellwether Investment
Corporation) (the "Company"), was incorporated under the laws of the State of
Utah on December 5th, 1985. On October 18th, 1995, the Company acquired all of
the outstanding shares of Siliwood Entertainment Corporation ("Siliwood"), a
developmental stage company with no operations. The Company then changed its
name to Siliwood Entertainment Corporation.
On June 10th, 1996, the Company acquired certain assets and assumed various
liabilities from Infinity Vision Entertainment, a Nevada Corporation ("IVE").
Following the asset purchase, Siliwood changed its name to New Visual
Entertainment, Inc. ("NV Entertainment"). There were no operations of NV
Entertainment prior to the IVE acquisition. There were minimal operations of IVE
at the time of the acquisition. The Company is currently engaged in the
development, design and distribution of software techniques, videos, and
theaters for stereoscopic ("3D") entertainment.
NV Entertainment was founded with the mission to produce and distribute
high-impact 3D films for the growth oriented specialty venue markets, such as
theme parks, amusement parks, family entertainment centers and casinos. The
Company utilizes a low cost 3D production and exhibition technology to compete
in these markets. The technology allows the Company to produce and show its
brand of 3D films at costs roughly 15-25% of industry leading competitors such
as IMAX. The Company plans to make use of this cost advantage to continue to
produce high-quality, cost-effective 3D films and market them to venues which
have not been accessible to other 3D systems and software providers due to cost
prohibitiveness.
During 1998 and 1999, the Company engaged in three (3) on-location shoots
producing the following three proprietary rough-cut releases: "Wonder in Belize"
an underwater 3D film, "Big Waves" in Hawaii and "A Day at the Beach", an
off-road and surfing lifestyle adventure. The Company also completed two (2)
customer-driven productions, which resulted in modest revenues: "Miss Hawaiian
Tropic '99" for C3D, and "Game On", a paintball film for JT USA.
NV Entertainment is currently located at 5920 Friars Road, Suite 104, San Diego,
California 92108.
PRODUCTS
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CAMERA & 3D SIGNATURE
---------------------
NV Entertainment owns certain licenses to use intellectual property relating to
its business. The Company utilizes a patented dual element, single lens system
utilized in connection with the production of 3D motion pictures. NV
Entertainment owns one of six 3D video cameras in the world capable of capturing
broadcast quality 3D for home video, cable on satellite TV.
3
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MARKETING AND DISTRIBUTION
The Company's primary functions are to facilitate the production and
distribution of its 3D technology and establish new, innovative platforms for
the presentation of 3D media. NV Entertainment has already produced five 3D
films: "Edge of Reality", " Beyond 3D", "A Day at the Beach", "Wonder in Belize"
and "3DBW (Big Waves of Surfing). The Company also filmed the Miss Hawaiian
Tropics International Pageant for a 3D satellite television distributor. New
Visual Entertainment, Inc. licensed the rights of "Edge of Reality" to a Taiwan
theme park for one year. "Edge of Reality" was also licensed for U.S.
distribution with C3D.
The Company intends to market its 3D technology by providing the necessary tools
to allow for 3D production and viewing within the current 2D infrastructure. The
Company plans to:
(i) Produce and distribute 3D content for the video, special
venue, theatrical, internet, motion picture and
cable/satellite industries;
(ii) Establish special theaters for showcasing 3D content;
(iii) Create a mass audience and mainstream distribution channel;
and
(iv) License its technology to the entertainment industry and for
business to business internet consumption.
3D MARKETS
Three-dimensional entertainment markets are currently characterized by
relatively short content (one hour or less), and explosive action in color,
images, events or scenery. Prime 3D markets include music videos, action
television programming, nature documentaries, sports events, promotional
material, merchandising tie-ins, and specialized films for location-based visual
entertainment. The Company believes that with continued technology development
the re-emergence of full-length 3D movies may reappear in the near future.
VISUAL ENTERTAINMENT MARKET
The total potential market for NV Entertainment's 3D technology encompasses
three distinct entertainment industries; broadcast and cable television, video
software, and motion pictures. In addition, Location Based Entertainment ("LBE")
theaters represent a profitable and rapidly growing market segment.
4
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I) BROADCAST AND CABLE TELEVISION INDUSTRY
Television advertising revenues approach $40 billion annually. Household TV
penetration now exceeds 98% of the total households in the United States, with
nearly 100% being color television sets. Currently, the TV population in the
United States exceeds 220 million sets, with the average household having a TV
on over seven hours each day. NV Entertainment believes there is substantial
opportunity for enhancing the visual experience with 3D technology.
Initial 3D penetration of visual broadcast markets will be focused on sports
events, music videos and special programming. As the mass TV audience acquires
3D viewers, NV Entertainment believes the scope of 3D programming will expand.
Syndicated 3D programs, or even dedicated time slots or channels, may be
broadcast in 3D and could facilitate widespread video software and motion
picture opportunities.
(II) VIDEO SOFTWARE INDUSTRY
Video software (dubbed videotapes) is a $20 billion retail industry divided
almost equally between sales and rentals. Video software volume exceeds 500
million pre-recorded tapes in addition to approximately 400 million blank video
cassettes. Revenue generated by video (content) suppliers approaches $10
billion annually. Over 75 million households in the United States have video
cassette recorders ("VCR's"), or 80% of all households with televisions.
Currently, distribution of 3D content to the home entertainment market is nearly
non-existent. 10,000 copies of "Beyond 3D" were sold to C3D.
Distribution of video software is primarily controlled by over 27,000 specialty
video stores such as Blockbuster Entertainment. These video specialty stores
generate over 80% of total revenue from video rentals. Video tapes are primarily
sold through mass merchants, video specialty stores, and discount stores.
Collectively, these stores generate over 75% of video tape sales. NV
Entertainment is currently negotiating joint distribution agreements with
entertainment companies.
DEPENDENCE ON PRODUCTION OF FILM SOFTWARE
The ability of the Company to generate substantial revenues depends upon its
ability to successfully create, produce, and market entertainment or educational
software for exhibition in its theater systems and home markets. The size and
quality of the Company's library of film software titles is a material factor in
competing for sales of the Company's attractions and developing the Company's
base of recurring revenue.
The Company intends to produce and develop specialty films and videos for its
library with production budgets in a range of approximately $ 100,000 to $ 4
million. While the Company may enter into participation, licensing or other
financial arrangements with third parties in order to minimize its financial
involvement in production, the Company will be subject to substantial financial
risks relating to the production and development of new entertainment and
educational software. The Company expects that it will typically be required to
pay for the production of software during the production period prior to release
but will most likely be unable to recoup these costs from revenues from
exhibition licenses within 24 to 36 months following release.
5
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DISTRIBUTION METHOD OF PRODUCTS
-------------------------------
The primary markets for New Visual products are: home entertainment, motion
pictures production, theatrical/LBE exhibition, and theme/amusement park
markets. Other ancillary markets include PC gaming and special event venue
markets. The Company intends to distribute its products through network and
exhibition contracts, and through distribution agreements with other video and
programming distributors. Hardware products will, in most cases, accompany the
sale of software (content) in a bundled 3D viewer kit containing a video, 3D
eyewear, and 3D emitter/decoder box.
COMPETITION
-----------
Although a considerable number of companies have 3D products, NV Entertainment
believes it is positioned to deliver 3D content to mass in-home audiences which
presently is not done by its competitors.
A low price structure is required to appeal to these markets that few
competitors are able to meet. The competitive environment in the home market
consists of limited suppliers of 3D viewers and content (CD-ROM, video tape)
kits, such as V-REX, VIDMAX, and others. Conversely, competition in the special
venue markets (theatrical) is much more developed. Currently, there are four
companies other than NV Entertainment that have carved a substantial niche in
special venue markets:
o IMAX
IMAX is the most formidable presence in both hardware and software
special format entertainment.
The fact that IMAX uses a 15 perforation 70mm system limits its
ability to market 3D content. As the leading 3D content hardware and
software provider; however, IMAX is regarded as NV Entertainment's
foremost competitor in special venue markets.
o IWERKS
IWERKS specializes in "ridefilm," an experience that combines motion
simulation with visual immersion and functions in either a fixed base
or portable capacity.
o SHOWSCAN
Showscan also specializes in motion simulation entertainment for
specialty theaters.
o CINEMA RIDE, INC.
Cinema Ride, Inc. is also a competitor in specialty theater and motion
simulated entertainment. Cinema Ride technology combines 3D films with
motion to provide unique on screen action.
6
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NV Entertainment believes that it is in position to begin successfully marketing
of 3D entertainment, particularly to mass in-home markets. The cost structure of
its technology positions it to be viable in the home market. Of the home 3D
technologies available, NV Entertainment believes that its technology presently
delivers the highest image quality and is the most adaptable to the home viewing
environment. Furthermore, due to NV Entertainment's low cost, single camera 3D
lens production and exhibition technologies, it is positioned to provide 3D
systems and software to the motion picture industry and special venue markets.
NV Entertainment's stereographic 3D media is differentiated from past or
traditional 3D media in that it is true stereo-imagery as it is produced and
exhibited. It is also different in that NV Entertainment 3D is produced and
exhibited through a single lens. Prior methods used to create and exhibit 3D
employed simulated 3D filming and projection techniques using 2 cameras for
production and 2 projectors for exhibition. Production of true stereo imagery
requires the emulation of depth perception known to normal human eyesight, which
results from two (right and left) converging fields of perception on an object
from slightly different perspectives. The differing perspectives occur due to
the distance between a human's eyes. 3D content can be produced in a number of
formats for Film, Video, Computer/Internet and Broadcast TV. The shutter glass
viewing system can be utilized to view all of these formats, yet is primarily
used for video, computer/Internet, broadcast TV and satellite transmission
mediums.
Once 3D content has been produced, whether by single or dual camera methods, it
can be viewed on any standard television monitor for most TV broadcast standards
(NTSC-North America, PAL-Asia, Australia) when accompanied by the shutter glass
system. When a 3D video tape or broadcast signal is displayed on the TV, the
naked eye sees two (2) separate, overlapping images; one for the right eye and
one for the left eye. The viewing system, however, isolates the right and left
eye views so as to allow the right eye to see only the right eye view, and the
left eye to see only the left eye view, but from slightly differing
perspectives. This is accomplished by the Liquid Crystal shutters within the
glasses that alternate, Lon-Roff, Ron-Loff, at a rate of 60-120 hertz, or 30-60
times per second for each eye. The timing of the shutter is synchronized with
the action on the monitor by the wireless transmitter. The transmitter
communicates with the transmission medium (video tape, broadcast signal, etc.),
interprets the synchronization code and transmits instructions to the glasses by
means of an infrared signal.
EMPLOYEES
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The Company has nine (9) full-time and two (2) part-time employees, none of whom
are represented by a labor union. The Company considers its employee relations
to be good.
7
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ITEM 2. PROPERTIES
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The Company's current corporate offices are located in San Diego,
California at 5920 Friars Road, Suite 104, San Diego, CA. This property is
occupied under a five-year lease that commenced on February 1, 2000. The Company
believes that this space will meet the Company's administrative needs for at
least the next 12 months.
ITEM 3. LEGAL PROCEEDINGS
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None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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None.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
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MARKET INFORMATION
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The Company's Common Stock is currently listed on the NASDAQ Stock
Market's over-the-counter bulletin board under the symbol "NVXE".
The following chart shows the quarterly high and low bid-ask prices of
the Company's common stock for the last three fiscal years, as reported on the
NASDAQ OTC bulletin board. The prices represent quotations by dealers without
adjustments for retail mark-ups, mark-downs or commission and may not represent
actual transactions.
COMMON STOCK
------------
BID ASK
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HIGH LOW HIGH LOW
FISCAL QUARTERS
November 1996 through October 1997
- ----------------------------------
First Quarter 1 1/4 7/16 1 1/4 .55
Second Quarter 13/16 3/8 1 7/16
Third Quarter 3/8 .18 1/2 3/16
Fourth Quarter 3/16 1/16 1/4 .09
November 1997 through October 1998
- -----------------------------------
First Quarter 3/16 .10 5/16 .11
Second Quarter .14 1/16 3/16 1/16
Third Quarter .13 .06 5/16 1/16
Fourth Quarter .08 .02 .11 .04
November 1998 through October 1999
- -----------------------------------
First Quarter .07 .03 1/8 .03
Second Quarter 1/16 .03 1/16 .03
Third Quarter .22 .03 .32 .03
Fourth Quarter 1.08 3/16 1.48 .24
8
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HOLDERS
- -------
The approximate number of record holders of the Company's Common Stock as of
April 5, 2000 was 733, an undetermined number of which represent more than
one individual participant in securities positions with the Company.
DIVIDENDS
- ---------
The Company has never paid cash dividends on its common stock, and
intends to utilize current resources to expand its operations. Therefore, it is
not anticipated that cash dividends will be paid on the Company's common stock
in the foreseeable future.
RECENT SALES OF UNREGISTERED SECURITIES
- ---------------------------------------
The Company has issued 56,470,967 shares of its common stock in the
preceding three fiscal years, in transactions exempt from registration under
Section 4(2) of the Securities Act of 1933. See Note 4 to the Financial
Statements attached hereto.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS
----------------------------------------------------------
The following discussion should be read in conjunction with the Company's
Consolidated Financial Statements set forth on pages F-1 through F-18.
PLAN OF OPERATION
- -----------------
New Visual Entertainment, Inc. was founded with the mission to produce and
distribute high-impact 3D films for the growth oriented specialty venue markets
such as theme parks, amusement parks, family entertainment centers and casinos.
The Company, through its proprietary technology, utilizes a low cost 3D
production and exhibition technology to compete in these markets. The Company
plans to use this proprietary technology to continue to produce high-quality,
cost effective 3D films and market them to venues not accessible to other 3D
systems and software providers due to cost prohibitiveness.
Through the use of this proprietary technology, the Company developed three new
feature films during 1998 and 1999. They were 1) "Wonder in Belize", an
underwater 3D Film; 2) "Big Waves" in Hawaii; and 3) "A Day at the Beach", an
off-road and surfing lifestyle adventure. The Company also produced two
customer-driven productions in 1999: "Miss Hawaiian Tropic '99" for C3D, and
"Game On", a paintball film for JT USA.
With the production of the above films, the Company has strengthened its
position as a special venue content producer of 3D material. Additionally, it
has positioned itself to produce and distribute multi-media and alternative
format content for traditional and web-based consumption.
The Company's plan of operation for the 2000 fiscal year will consist of
activities aimed at:
o Investigating and, if appropriate, pursuing definitive agreements for
acquisitions believed by the Board to be consistent with the Company's
plan to develop and distribute 3D content over a variety of traditional
and new media (such as 3D films for special venues, computer software,
videotape, television and internet distribution).
o Establishing strategic partnerships for the production, marketing,
sales, licensing and other distribution of the Company's 3D content.
o Developing new 3D content and otherwise expanding the Company's library
of 3D material.
o Acquiring additional studio production and editing equipment, cameras,
lenses, and mobile theater transport equipment.
9
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company believes, with the right strategic partnerships, it can function as
a full-scale production studio capable of financing, producing and distributing
3D and traditional content to multiple mass markets.
RESULTS OF OPERATIONS
COMPARISON OF THE YEAR ENDED OCTOBER 31, 1999 TO OCTOBER 31, 1998
REVENUES. Revenues increased to approximately $130,000 for fiscal 1999 from
approximately $17,000 for fiscal 1998. The increase of $113,000 was primarily
due to revenue recognized from film and video library productions.
COST OF SALES. Cost of sales consists of amortization of the costs of film
and/or video productions. Costs of sales increased to approximately $81,000 for
fiscal 1999 from approximately $27,000 for fiscal 1998. The increase of $54,000
was primarily due to the matching of the amortization of the projects costs with
related revenue recognized.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses consists of non-cash charges related to stock issuances
for consultants and the compensatory elements and other cash charges for
professional and personnel costs. Selling, general and administrative expenses
increased to approximately $1,918,000 for fiscal 1999 from $1,454,000 in fiscal
1998. The increase consisted primarily of increases to professional and
personal costs.
OTHER EXPENSES. Other expenses include writedowns of projects and valuation
allowances in long-term assets. These two category expenses decline from
$1,648,000 in fiscal 1998 to $175,000 in fiscal 1999. No further significant
writedowns in such assets were deemed necessary.
NET LOSS. The Net Loss for fiscal 1999 was approximately $2,045,000 as compared
to a net loss in fiscal 1998 of $3,112,000 due to lower writedowns in projects
offset by an increase in selling, general and administrative costs.
COMPARISON OF THE YEAR ENDED OCTOBER 31, 1998 TO OCTOBER 31, 1997
Due to the small volume of revenue activities in these years, the analysis of
these years would not be meaningful.
LIQUIDITY AND CAPITAL RESOURCES.
Over the last three years, operations have been financed through private sales
of common stock resulting in net proceeds of $863,000, $463,000 and $522,000 in
fiscal 1999, 1998 and 1997, respectively. In addition, during these years a
substantial portion of expenses were paid by the issuance of stock.
Net cash used by operating activities approximately $800,000 for fiscal 1999.
Net used for operating activities for fiscal 1999 included 330,000 for new
project production costs and the funding of cash portions of selling, general
and administrative costs. Net cash used by operating activities for fiscal 1998
approximated $469,000 and consisted of $171,000 of new project production costs
and the cash portion of selling, general and administrative costs.
MERGERS AND ACQUISITIONS
In September 1999, the Company entered into a merger agreement with
Astounding.com, Inc. ("Astounding"). The merger agreement provided for the
Company to issue 10,000,000 shares of its common stock for all of the
outstanding shares of Astounding. The closing of the merger was subject to
various conditions including the receipt of debt or equity financing of at least
$1,000,000 and requisite shareholder approval. As of the date hereof, the
Company terminated its previously announced merger with Astounding because
certain conditions had not been satisfied.
In January 2000, the Company completed the acquisition of 100% of the common
stock of Impact Pictures, Inc., a small San Diego-based multi-media production
firm, for 50,000 shares of the Company's common stock.
10
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On February 14, 2000, we acquired New Wheel Technology, Inc., a California
corporation based in Pleasanton, California, pursuant to a Plan of
Reorganization and Agreement of Merger. In accordance with this Agreement, New
Wheel was merged with Astounding Acquisition Corporation, a Delaware corporation
and our wholly-owned subsidiary. In consideration of the merger, the New Wheel
stockholders received 2,000,000 restricted shares of our common stock. An
additional 10,000,000 restricted shares of common stock have been delivered to
an escrow agent and will be released to the former stockholders of New Wheel
only upon New Wheel's achievement of a technological development milestone or
our failure to meet certain funding obligations set forth in the Plan of
Reorganization and Agreement of Merger. Additional compensation will be paid to
these former stockholders in the event New Wheel's high speed digital
transmission technology generates revenues for us in excess of $1 billion, or if
(a) there is a sale of assets or stock or a merger resulting in a change of
control of our company or any of our affiliates and (b) the New Wheel technology
comprises at least 15% of the consideration for such change in control. New
Wheel is a development stage company formed in February 2000 by Allan Blevins
and Michael Shepperd. It has no prior operating history and no revenues from
operations. New Wheel's principal assets consist of certain intellectual
property rights relating to high speed digital transmission technology for a
variety of applications.
GOING CONCERN CONSIDERATION
The Company has continued losses in each of its years of operation, negative
cash flow and liquidity problems. These conditions raise substantial doubt about
the consolidated Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include any adjustments
relating to the recoverability of reported assets or liabilities should the
Company be unable to continue as a going concern.
The Company has been able to continue based upon the financial support of
certain of its stockholders and the continued existence of the company is
dependent upon this support and its ability to acquire assets by the issuance of
stock. Management's plans in this regard are to receive the continued support of
the stockholders and/or to obtain other financing until profitable operation and
positive cash flow are achieved and maintained. There can be no guarantee that
the stockholders will provide this support.
ITEM 7. FINANCIAL STATEMENTS
--------------------
The Consolidated Financial Statements of New Visual Entertainment, Inc.,
together with the report thereon, are set forth on pages 4 through F-18
hereof.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
NONE
11
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PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
-------------------------------------------------------------
Ray Willenberg, Jr., age 48, has served as our Chairman of the Board, Chief
Executive Officer, and President since April 1997. Mr. Willenberg joined New
Visual as a Director and Vice President and Corporate Secretary in 1996. From
1972 to 1995, Mr. Willenberg was Chief Executive Officer of Mesa Mortgage
Company in San Diego, California.
C. Rich Wilson III, age 31, has served as a Director and our Vice President and
Secretary since April 2000, and has served as an employee or independent
contractor for New Visual since July 1995, providing marketing, sales and
business development services. Since June 1998, Mr. Wilson has also served as
the President of Impact Pictures, Inc., a multimedia design firm he founded. New
Visual acquired Impact Pictures Inc., which now operates as Impact Multimedia,
Inc. From March 1993 through July 1995, Mr. Wilson was National Marketing
Manager for Spevco, Inc., a special events marketing firm. Mr. Wilson has a B.A.
in English from the University of North Carolina at Charlotte.
John Howell, age 54, has served as a Director since April 2000. From January,
1998 until his retirement in October 1998, Mr. Howell was Vice President of
TeraGLOBAL Communications Corp., a manufacturer of hardware for the convergence
of voice, video, and data. From 1997 to 1998, Mr. Howell was Chief Executive
Officer of EVERSYS Corporation, a manufacturer of computer equipment. From 1993
to 1996, Mr. Howell served as Chief Executive Officer of Polar Bear Station No.
1, Inc. d/b/a/ Paradise Sport Fishing, an owner and operator of sport fishing
boats. Mr. Howell has a B.S. in Aerospace Engineering from Oregon State
University.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's officers and directors and persons who own more than 10% of a
registered class of the Company's equity securities to file initial reports of
ownership and reports of changes in ownership with the Securities and Exchange
Commission (the "SEC"). Such persons are required by SEC regulation to furnish
the Company with copies of all Section 16(a) forms they file. Based solely on
its review of the copies of such forms received by it with respect to fiscal
year 1999, or written representations from certain reporting persons, the
Company believes the following directors filed late Form 3's and Form 5's for
fiscal year 1999: Ray Willenberg, Jr. (representing a total of seven
transactions), Elorian Landers (representing a total of five transactions), and
Herb Lightman (representing a total of six transactions). Messr. Landers and
Lightman resigned from the board of directors in April 2000.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
For services rendered to the Company during the fiscal year ended October 31,
1999 and for the prior two fiscal years, no executive officers received cash
compensation in excess of $100,000. The following table sets forth information
concerning all annual cash compensation paid to the chief executive officer of
the Company for services rendered to the Company during the twelve month periods
ended October 31, 1999, 1998 and 1997.
<TABLE>
<CAPTION>
NAME AND FISCAL OTHER ALL
PRINCIPAL YEAR ANNUAL OTHER
POSITION END SALARY BONUS COMPENSATION COMPENSATION
-------- --- ------ ----- ------------ ------------
<S> <C> <C> <C> <C> <C>
Ray Willenberg, Jr. 1999 $62,500 -0- -0- -0-
President 1998 $40,000 -0- $127,500*(1) -0-
1997 $29,000 -0- -0- -0-
</TABLE>
- --------------------
*1 Represents the issuance to Mr. Willenberg of 3,187,500 shares of common
stock valued @ .04/share.
12
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ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
---------------------------------------------------
The following table sets forth information, as of April 5, 2000,
concerning all persons known by the Company to own beneficially more than 5% of
any class of the Company's voting securities and concerning shares of each
director and executive officer and by all directors and executive officers as a
group. Unless expressly indicated otherwise, each stockholder exercises sole
voting and investment power with respect to the shares beneficially owned.
NAME & ADDRESS NUMBER OF SHARES PERCENT
CLASS OF BENEFICIAL OWNER BENEFICIALLY OWNED (1) OF CLASS
- ----- ------------------- ------------------ --------
Common Ray Willenberg, Jr. 16,343,119 (2) 17.7%
Stock 5920 Friars Road, Suite 104
San Diego, CA 92108
Common John Howell 113,700 (3) *
Stock 5920 Friars Road, Suite 104
San Diego, CA 92108
Common C. Rich Wilson III 432,501 (4) *
Stock 5920 Friars Road, Suite 104
San Diego, CA 92108
Common All directors and executive 16,889,320 (5) 18.3%
Stock officers as a group (3 persons)
Common Allan Blevins 6,000,000 (6) 6.6%
Stock 1207 Soda Canyon Rd.
Napa, CA 94558
Common Michael Shepperd 6,000,000 (7) 6.6%
Stock 624 Oriole Ave.
Livermore, CA 94550
- ----------------------------
* Represents less than one percent.
(1) Pursuant to Rule 13d-3 under the Exchange Act, a person has beneficial
ownership of any securities as to which such person, directly or indirectly,
through any contract, arrangement, undertaking, relationship or otherwise has or
shares voting power and/or investment power or as to which such person has the
right to acquire such voting and/or investment power within 60 days. Percentage
of beneficial ownership as to any person as of a particular date is calculated
by dividing the number of shares beneficially owned by such person by the sum of
the number of shares outstanding as of such date and the number of unissued
shares as to which such person has the right to acquire voting and/or investment
power within 60 days. The number of shares shown includes outstanding shares of
Common Stock owned as of April 5, 2000 by the person indicated and shares
underlying options owned by such person on April 5, 2000 that were exercisable
within 60 days of that date.
(2) Includes options to purchase 750,000 shares of common stock at an exercise
price of $1.00 per share. Also includes 10,000,000 shares of common stock held
of record by Allan Blevins and Michael Shepperd, which Mr. Willenberg has the
right to vote pursuant to a proxy until such shares are released from escrow.
See notes 6 and 7 below.
(3) Mr. Howell shares voting and investment control with respect to 1,900
shares.
(4) Include options to purchase 125,000 shares of common stock at an exercise
price of $1.00 per share.
(5) Includes options to purchase 875,000 shares of common stock that may be
acquired through the exercise of options held by certain executive officers.
(6) Represents 5,000,000 shares of common stock held in escrow that will be
released to Mr. Blevins if certain technological development milestones are met
by our New Wheel Technology, Inc. subsidiary. Pursuant to the escrow agreement,
Mr. Willenberg holds a proxy to vote the shares held in escrow. See note 1
above.
(7) Represents 5,000,000 shares of common stock held in escrow that will be
released to Mr. Shepperd if certain technological development milestones are met
by our New Wheel Technology, Inc. subsidiary. Pursuant to the escrow agreement,
Mr. Willenberg holds a proxy to vote the shares held in escrow. See note 1
above.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
----------------------------------------------
On February 11, 2000, we entered into an employment agreement with Ray
Willenberg, Jr. to serve as our Chief Executive Officer. The agreement became
effective April 1, 2000, is effective through April 1, 2003, and will
automatically renew for successive one-year periods unless either Mr. Willenberg
or New Visual gives written notice of termination at least 60 days prior to the
expiration date of the agreement. Under the agreement, Mr. Willenberg receives a
base salary of $250,000 per year plus an annual increase of $50,000 effective
each April 1st. Mr. Willenberg is also eligible to receive other salary
increases and bonus awards at the discretion of the board. Pursuant to the
agreement, Mr. Willenberg may be terminated by us at any time for "cause", as
defined in the agreement. In the event Mr. Willenberg is terminated "without
cause" or leaves New Visual for "good reason," each as defined in the agreement,
then Mr. Willenberg will receive a severance payment equal to the lesser of his
salary for the remainder of his term of employment or two years of Mr.
Willenberg's salary at the time of his termination. If Mr. Willenberg is
terminated without cause or with good reason within one year of a "change in
control," then Mr. Willenberg will receive a severance package equal to two
years of his salary at the time of his termination.
13
<PAGE>
PART IV
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) EXHIBITS.
EXHIBIT NO. DESCRIPTION
- ----------- -----------
2.1 (1) Agreement and Plan of Merger by and among New Visual
Entertainment, Inc., Astounding Acquisition Corporation and
Allan Blevins, Michael Shepperd and New Wheel Technology,
Inc., dated as of February 14, 2000
2.2* (2) Agreement and Plan of Merger by and among New Visual
Entertainment, Inc., Intelecon Acquisition, Inc., Intelecon
Services, Inc. and certain shareholders of Intelecon
Services, Inc., dated as of March 30, 2000
2.3* First Amendment to Agreement and Plan of Merger by and among
New Visual Entertainment, Inc., Intelecon Acquisition, Inc.,
Intelecon Services, Inc. and certain shareholders of
Intelecon Services, Inc., dated as of April 20, 2000
3.1* Restated Articles of Incorporation
3.2* Bylaws
4.1* Specimen Common Stock Certificate
21.1* Subsidiaries of the registrant
27.1* Financial Data Schedule
- ------------------
(1) Previously filed as an Exhibit 2.1 to the Registrant's Form 8-K filed on
February 8,2000 and incorporated herein by reference.
(2) Pursuant to Item 601(b)(2) of Regulation S-B, the following schedules to
Exhibit 2.2 have been omitted from this Report and will be provided to the
Commission upon request:
(a) Exhibit A - List of Shareholders
(b) Exhibit B - Letter of Transmittal
(c) Exhibit C - Form of Employment Agreement of Eddie Vakser
(d) Exhibit D - Form of Employment Agreement of Vladimir Vakser
(e) Exhibit E - Form of Shareholders' Release
(f) Exhibit F - Form of Escrow Agreement
* Filed herewith
(b) REPORTS ON FORM 8-K. None.
14
<PAGE>
SIGNATURES
----------
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
New Visual Entertainment, Inc.
Date: April 27, 2000 By /s/ RAY WILLENBERG, JR.
--------------------------------------------
Ray Willenberg, Jr., Chief Executive Officer
In accordance with the Securities Exchange Act of 1934, this Report has
been signed below by the following persons on behalf of the registrant and in
the capacities and on the dates indicated:
Signature Date
/s/ Ray Willenberg, Jr. April 27, 2000
- ------------------------------------------------
Ray Willenberg, Jr.
Chief Executive Officer and Director
(principal executive officer)
/s/ C. Rich Wilson III April 27, 2000
- ------------------------------------------------
C. Rich Wilson III
Vice President and Secretary and Director
(principal financial and accounting officer)
/s/ John Howell April 27, 2000
- ------------------------------------------------
John Howell
Director
15
<PAGE>
NEW VISUAL ENTERTAINMENT, INC.
AND SUBSIDIARY
------------------------------
FINANCIAL REPORT
OCTOBER 31, 1999
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page Nos.
---------
INDEPENDENT AUDITORS' REPORT F-2
CONSOLIDATED BALANCE SHEETS
At October 31, 1999, 1998 and 1997 F-3
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended October 31, 1999, 1998 and 1997 F-4
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
For the Years Ended October 31, 1999, 1998 and 1997 F-5 - F-7
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended October 31, 1999, 1998 and 1997 F-8
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-9 - F-18
F-1
<PAGE>
Board of Directors and Stockholders
New Visual Entertainment, Inc. and Subsidiary
INDEPENDENT AUDITORS' REPORT
We have audited the accompanying consolidated balance sheets of New Visual
Entertainment, Inc. and Subsidiary (the "Company") as of October 31, 1999, 1998
and 1997 and the related consolidated statements of operations, stockholders'
equity (deficiency), and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of New Visual
Entertainment, Inc. at October 31, 1999, 1998 and 1997 and the results of its
operations and its cash flows for the years then ended, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 7, the
Company has minimal historical operations, negative cash flows, and liquidity
problems. These matters raise substantial doubt as to the Company's ability to
continue as a going concern. The Company's future operations are dependent upon
generating funds to finance the marketing and expansion of its operations. Also,
as discussed in Note 7, management plans to generate these funds through support
from stockholder loans and the issuance of the Company's stock. There is no
assurance that this will generate sufficient funds to enable the Company to
continue its operations for the next twelve months. The financial statements do
not include any adjustments that might result from the outcome of this
uncertainty.
/s/ TABB, CONIGLIARO & McGANN, P.C.
New York, New York
January 20, 2000
F-2
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<CAPTION>
At October 31,
-------------------------------------------------
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Current Assets:
Cash $ 62,872 $ - $ 6,293
Receivable from related parties 31,422 23,072 61,638
-------------- -------------- --------------
Total Current Assets 94,294 23,072 67,931
Property and equipment - net of accumulated depreciation 102,530 163,391 228,768
Other assets 5,000 5,000 52,819
Film and video library, net 100,557 - -
Projects under development, net 32,883 60,124 1,515,563
-------------- -------------- --------------
Total Assets $ 335,264 $ 251,587 $ 1,865,081
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current Liabilities:
Notes payable - related parties $ - $ 285,500 $ 294,500
Accounts payable and accrued expenses 420,699 325,430 252,176
-------------- -------------- --------------
Total Current Liabilities 420,699 610,930 546,676
-------------- -------------- --------------
Commitments, Contingencies and Other Matters (Notes 6, 7
and 8)
Stockholders' Equity (Deficiency):
Cumulative convertible preferred stock, Series A and B - $30
par value; 200,000,000 shares authorized; liquidation price,
$30 per share; -0- shares issued and outstanding - - -
Common stock - $0.001 par value; 100,000,000 shares
authorized; 68,896,194, 51,866,128 and 35,788,650 shares
issued and outstanding at October 31, 1999, 1998 and 1997,
respectively 68,896 51,866 35,788
Additional paid-in capital 12,145,702 9,844,309 8,426,549
Accumulated deficit (12,360,033) (10,255,518) (7,143,932)
-------------- -------------- --------------
Total Stockholders' Equity (Deficiency) (85,435) (359,343) 1,318,405
-------------- -------------- --------------
Total Liabilities and Stockholders' Equity (Deficiency) $ 335,264 $ 251,587 $ 1,865,081
============== ============== ==============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
For the Years Ended October 31,
---------------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
REVENUES $ 129,845 $ 16,696 $ 61,504
------------- ------------- -------------
EXPENSES:
Cost of sales 81,159 26,988 20,302
Projects written off 175,000 1,599,413 1,546,539
Valuation allowance on long-term assets - 47,820 666,006
Selling, general and administrative expenses 1,918,201 1,454,061 3,389,452
------------- ------------- -------------
TOTAL EXPENSES 2,174,360 3,128,282 5,622,299
------------- ------------- -------------
LOSS BEFORE INCOME TAXES (2,044,515) (3,111,586) (5,560,795)
INCOME TAX EXPENSE - - -
------------- ------------- -------------
NET LOSS $ (2,044,515) $ (3,111,586) $ (5,560,795)
============= ============= =============
NET LOSS PER COMMON SHARE $ (.03) $ (.07) $ (.23)
============= ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON SHARES
OUTSTANDING 60,520,000 43,827,000 24,106,000
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<CAPTION>
Convertible Total
Preferred Stock Common Stock Additional Stockholders'
-------------- ----------------------- Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
------ ------ ---------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - October 31, 1998 - $ - 51,866,128 $ 51,866 $ 9,844,309 $(10,255,518) $ (359,343)
Issuance of common stock for services:
($.04 per share at December 1998) - - 100,000 100 3,900 - 4,000
($.04 per share at July 1999) - - 2,500,000 2,500 97,500 - 100,000
($.05 - $1.00 per share at August
1999) - - 2,296,645 2,297 121,389 - 123,686
($.35 - $.50 per share at September
1999) - - 1,735,267 1,735 608,327 - 610,062
Issuance of common stock for cash
(November 1, 1998 - October 31, 1999) - - 7,398,367 7,398 855,652 - 863,050
Issuance of common stock for
compensation and directors fees and
consulting
($.25 per share at August 1999) - - 375,000 375 93,375 - 93,750
($.25 per share at September 1999) - - 500,000 500 174,500 - 175,000
Issuance of common stock in settlement
of debt
($.05 per share at December 1998) - - 1,000,000 1,000 49,000 - 50,000
($.28 - $.35 per share at August 1999) - - 729,287 730 206,520 - 207,250
($.12 - $.50 per share at September
1999) - - 395,500 395 91,230 - 91,625
Net loss - - - - - (2,044,515) (2,044,515)
------ ------ ---------- ---------- ----------- ------------- ------------
Balance - October 31, 1999 - $ - 68,896,194 $ 68,896 $12,145,702 $(12,300,033) $ (85,435)
====== ====== ========== ========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<CAPTION>
Convertible Total
Preferred Stock Common Stock Additional Stockholders'
-------------- ----------------------- Paid-in Accumulated Equity
Shares Amount Shares Amount Capital Deficit (Deficiency)
------ ------ ---------- ---------- ----------- ------------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance - October 31, 1997 - $ - 35,788,650 $ 35,788 $ 8,426,549 $ (7,143,932) $ 1,318,405
Issuance of common stock for services:
($.06 per share at March 1998) - - 100,000 100 5,400 - 5,500
($.05 per share at August 1998) - - 187,000 187 10,513 - 10,700
($.05 per share at September 1998) - - 60,000 60 2,940 - 3,000
Issuance of common stock for
compensation and directors fees
(November 1, 1997 to October 31, 1998) - - 4,792,500 4,793 735,033 - 739,826
Issuance of common stock in settlement
of debt:
($.04 - $.05 per share at April 1998) - - 3,000,000 3,000 127,000 - 130,000
($.05 - $.12 per share at June 1998) - - 410,000 410 31,090 - 31,500
Issuance of common stock for an aborted
acquisition ($.05 per share at
November 1997) - - 1,000,000 1,000 49,000 - 50,000
Issuance of common stock for cash
(November 1, 1997 to October 31, 1998) - - 6,527,978 6,528 456,784 - 463,312
Net loss - - - - - (3,111,586) (3,111,586)
------ ------ ---------- ---------- ----------- ------------- ------------
Balance - October 31, 1998 - $ - 51,866,128 $ 51,866 $ 9,844,309 $(10,255,518) $ (359,343)
====== ====== ========== ========== =========== ============= ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED OCTOBER 31, 1999, 1998 AND 1997
<CAPTION>
Stock Note
Convertible Receivable Total
Preferred Stock Common Stock Additional and Stockholders'
-------------- --------------------- Paid-in Accumulated Subscription Equity
Shares Amount Shares Amount Capital Deficit Receivable (Deficiency)
------ ------ ------------ -------- ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance - October 31, 1996 200,000 $2,100,000 12,425,227 $ 12,425 $ 5,201,988 $(1,583,137) $ (512,770) $ 5,218,506
Issuance of common stock for services:
($.50 per share at December 1996) - - 1,750,000 1,750 873,250 - - 875,000
($.22 per share at March 1997) - - 220,000 220 48,180 - - 48,400
($.05 per share at September 1997) - - 100,000 100 4,900 - - 5,000
($.25 per share at October 1997) - - 100,000 100 49,650 - - 49,750
Issuance of common stock for settlement
of debt ($.28 per share at August
1997) - - 400,000 400 109,600 - - 110,000
Issuance of common stock for consulting
fees ($.04 per share at September
1997) - - 800,000 800 31,200 - - 32,000
Issuance of common stock from stock
option plan (November 1, 1996 to
October 31, 1997) - - 4,990,000 4,990 476,148 - - 481,138
Issuance of common stock for
compensation (April 1 to August 31,
1997) - - 11,500,000 11,500 1,113,500 - - 1,125,000
Issuance of common stock for cash
(November 1, 1996 to October 31, 1997) - - 3,503,423 3,503 1,038,380 - - 1,041,883
Cancellation of preferred stock for
acquisition of music rights (200,000)(2,100,000) - - - - - (2,100,000)
Reduction of stock subscription
receivable - - - - - - 512,770 512,770
Cost associated with private placement - - - - (520,247) - - (520,247)
Net loss - - - - - (5,560,795) - (5,560,795)
------ ------ ------------ -------- ----------- ------------ ------------ ------------
Balance - October 31, 1997 - $ - 35,788,650 $ 35,788 $ 8,426,549 $(7,143,932) $ - $ 1,318,405
====== ====== ============ ======== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-7
<PAGE>
<TABLE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
<CAPTION>
For the Years Ended October 31,
-----------------------------------------------
1999 1998 1997
------------- ------------- -------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $ (2,044,515) $ (3,111,586) $ (5,560,795)
Adjustments to reconcile net loss to net cash used by operating
activities:
Consulting fees and other compensatory elements of
stock issuances 1,106,498 970,526 3,134,058
Project in progress written-off 175,000 1,599,413 1,546,539
Depreciation and amortization 142,019 87,690 81,864
Valuation allowance on long-term assets - 47,820 666,006
Increase (decrease) from changes in:
Receivables - - 5,200
Due from related parties (8,350) 38,566 30,403
Projects under development (329,475) (170,962) (420,691)
Accounts payable and accrued expenses 158,645 68,928 1,092
------------- ------------- -------------
NET CASH USED IN OPERATING ACTIVITIES (800,178) (469,605) (516,324)
------------- ------------- -------------
CASH USED IN INVESTING ACTIVITIES
Acquisition of property and equipment - - -
------------- ------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock 863,050 463,312 1,041,883
Costs of private placement - - (520,247)
------------- ------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 863,050 463,312 521,636
------------- ------------- -------------
INCREASE (DECREASE) IN CASH 62,872 (6,293) 5,312
CASH AND CASH EQUIVALENTS - BEGINNING - 6,293 981
------------- ------------- -------------
CASH AND CASH EQUIVALENTS - ENDING $ 62,872 $ - $ 6,293
============= ============= =============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ - $ - $ -
============= ============= =============
Income taxes $ - $ - $ -
============= ============= =============
Notes, interest and accounts payable satisfied
by issuance of stock $ 348,875 $ - $ -
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-8
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1- SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of
New Visual Entertainment, Inc. ("NVE") (formerly known as
Siliwood) and its subsidiary, NV Entertainment ("NV")
(collectively, the "Company"). All significant intercompany
balances and transactions have been eliminated.
DESCRIPTION OF BUSINESS
The Company, (previously known as Bellwether Investment Inc.),
was incorporated under the laws of the State of Utah on
December 5, 1985. On October 18, 1995, the Company acquired
all of the outstanding shares of Siliwood Entertainment
Corporation ("Siliwood"), a development-stage company with no
operations. The Company issued 5,911,592 shares of common
stock to the shareholders of Siliwood to effect the reverse
acquisition. The reverse acquisition was accounted for as a
recapitalization and was accounted for in a manner similar to
a pooling of interest. The Company then changed its name to
Siliwood Entertainment Corporation.
On June 10, 1996, the Company acquired certain assets and
assumed various liabilities from Infinity Vision Entertainment
("IVE"). Immediately following the purchase, Siliwood changed
its name to New Visual Entertainment, Inc. ("NVE").
Accordingly, former IVE partners held an interest in NVE
(formerly known as Siliwood) stock. The acquisition of these
assets and the assumption of these liabilities was
accounted for as a purchase and the costs were allocated based
on fair market value. There were no operations of NVE prior to
acquisition. The Company is currently engaged in the
development, design and distribution of software techniques,
videos and theaters for stereoscopic (3-D) authoring and
visualization.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company
to concentrations of credit risks, are principally trade
accounts receivable. The Company maintains an allowance for
uncollectible accounts receivable and, generally, does not
require collateral. At October 31, 1999, 1998 and 1997, no
allowance for uncollectible accounts was deemed necessary by
management.
CASH AND CASH EQUIVALENTS
The Company considers all short-term highly liquid investments
with a maturity of three months or less when purchased to be
cash or cash equivalents.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is
computed on a straight-line method over the estimated useful
lives of the assets which generally range from five to seven
years. Maintenance and repair expenses are charged to
operations as incurred.
F-9
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
INTANGIBLE ASSETS
Intangible assets consists of a stereoscopic imaging
technology and the rights to certain stereoscopic/3-D titles.
These costs are stated at the lower of cost or net realizable
value and will be amortized over their estimated economic life
of 5 years. These costs are evaluated quarterly to determine
the net realizable value. During the year ended October 31,
1997, a valuation allowance of $330,893 was charged to
operations related to such assets.
FILM AND VIDEO LIBRARY AND PROJECTS UNDER DEVELOPMENT
Film and video library and projects under development are
stated at the lower of amortized cost or market. Upon
completion, costs are amortized on an individual production
basis in the proportion that current gross revenues bear to
management's estimate of total gross revenues with such
estimates being reviewed at least quarterly. In each of the
three years ended October 31, 1999, 1998 and 1997, several
projects under development were determined to have no
estimated realizable value and were accordingly written-off.
Project costs written-off during the years ended October 31,
1999, 1998 and 1997 were $175,000, $1,599,413 and $1,546,539,
respectively. For the years ended October 31, 1999, 1998 and
1997, amortization expense related to the film and video
library was $81,159, $26,988 and $20,302, respectively.
INCOME TAXES
Income taxes are accounted for in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109). SFAS No. 109 employs an asset and
liability method of accounting for income taxes. Under the
asset and liability method, deferred income taxes are
recognized for tax consequences of temporary differences by
applying enacted statutory tax rates applicable to future
years to difference between the financial statement carrying
amounts and the tax bases of existing assets and liabilities.
Under SFAS No. 109, the effect on deferred income taxes of a
change in tax rates is recognized income in the period that
includes the enactment date.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with
generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosures of contingent
assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those
estimates.
F-10
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Quoted market prices generally are not available for all of
the Company's financial instruments. Accordingly, fair values
are based on judgements regarding current economic conditions,
risk characteristics of various financial instruments and
other factors. These estimates involve uncertainties and
matters of judgement and, therefore, cannot be determined with
precision. Changes in assumptions could significantly affect
the estimates.
A description of the methods and assumptions used to estimate
the fair value of each class of the Company's financial
instruments is as follows:
Cash, receivables, accounts payables and accrued expenses have
carrying amounts that approximate fair value due to the short
maturity of these instruments. Management was not able to
practically estimate the fair value of notes payable due to
their related party nature.
REVENUE RECOGNITION
Substantially all revenues are derived from the production and
licensing of videos and commercial films. Revenue is
recognized over the shorter of the license term or the
expected revenue term.
ADVERTISING
Advertising costs are charged to operations when incurred.
There was no advertising expense for the years ended October
31, 1999, 1998 and 1997.
LOSS PER SHARE
Basic earnings per share ("Basic EPS") is computed by dividing
net income available to common stockholders by the weighted
average number of common shares outstanding during the period.
Diluted earnings per share ("Diluted EPS") gives effect to all
dilutive potential common shares outstanding during a period.
In computing diluted EPS, the treasury stock method is used in
determining the number of shares assumed to be purchased from
the conversion of common stock equivalents.
STOCK-BASED COMPENSATION
As permitted by SFAS No. 123, "Accounting for Stock-Based
Compensation", the Company accounts for its stock-based
compensation arrangements pursuant to APB Opinion No. 25,
"Accounting for Stock Issued to Employees". In accordance with
the provisions of SFAS No. 123, the Company discloses the
proforma effects of accounting for these arrangements using
the minimum value method to determine fair value.
F-11
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF ACCOUNTING POLICIES (Continued)
IMPAIRMENT OF LONG-LIVED ASSETS
During 1996, the Company adopted the Statement of Financial
Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of". Under the provisions of this statement, the
Company has evaluated its long-lived assets for financial
impairment, and will continue to evaluate them as events or
changes in circumstances indicate that the carrying amount of
such assets may not be fully recoverable.
The Company evaluates the recoverability of long-lived assets
by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them.
At the time such evaluations indicate that the future
undiscounted cash flows of certain long-lived assets are not
sufficient to recover the carrying value of such assets, the
assets are adjusted to their fair values.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
Effective November 1, 1998, the Company adopted the provisions
of SFAS No. 130, "Reporting Comprehensive Income". SFAS No.
130 establishes standards for reporting comprehensive income,
defined as all changes in equity from non-owner sources.
Adoption of SFAS No. 130 did not have a material effect on the
Company's financial position or results of operations.
Effective November 1, 1998, the Company adopted the provisions
of SFAS No. 131, "Disclosures About Segments of an Enterprise
and Related Information". SFAS No. 131 establishes standards
for the way public enterprises report information about
operating segments in annual financial statements and requires
those enterprises to report selected information about
operating segments in interim financial reports issued to
stockholders. Adoption of SFAS No. 131 did not have a material
effect on the Company's financial position or results of
operations.
Effective November 1, 1998, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 132, "Employers'
Disclosures About Pensions and Postretirement Benefits", which
standardizes the disclosure requirements for pensions and
other postretirement benefits. The Statement addresses
disclosure only. It does not address liability measurement or
expense recognition. There was no effect on financial position
or net income as a result of adopting SFAS No. 132.
F-12
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - PROPERTY AND EQUIPMENT, NET
Property and equipment, at October 31, 1999, 1998 and 1997,
consists of the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Furniture and fixtures $ 2,376 $ 2,376 $ 10,376
Camera equipment 278,660 278,660 276,868
Office equipment 26,442 26,442 26,442
----------- ----------- -----------
307,478 307,478 313,686
Less: Accumulated depreciation 204,947 144,087 84,918
----------- ----------- -----------
Total $ 102,531 $ 163,391 $ 228,768
=========== =========== ===========
</TABLE>
For the years ended October 31, 1999, 1998 and 1997,
depreciation expense was $60,860, $60,702 and $61,562,
respectively.
NOTE 3 - NOTES PAYABLE, RELATED PARTIES
Notes payable at October 31, 1999, 1998 and 1997 consists of
the following:
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Note payable to stockholder, interest, due monthly at
12%, due on January 6, 2000. $ - $ 200,000 $ 200,000
Notes payable to stockholders, no interest, due on
demand. - 25,000 34,000
Notes payable to officer, no interest, due on demand. - 31,250 31,250
Note payable to former IVE shareholder, no interest,
due on demand. - 28,000 28,000
Note payable to former IVE shareholder, interest at
10%, due on demand. - 1,250 1,250
----------- ----------- -----------
$ - $ 285,500 $ 294,500
=========== =========== ===========
</TABLE>
The Company incurred interest expense of $16,000, $24,000 and
$24,000 for the years ended October 31, 1999, 1998 and 1997,
respectively.
F-13
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PREFERRED STOCK, COMMON STOCK AND WARRANTS
DESCRIPTION OF SECURITIES
On October 18, 1995, the Company approved a 1-for-2 reverse
stock split. All common shares and price per share information
disclosed in the financial statements and notes have been
adjusted to give effect to the 1-for-2 reverse stock split.
On July 23, 1996, the Company issued 200,000 shares of
non-voting series "B" cumulative convertible preferred stock
(3-to-1 conversion feature for common stock) with a
liquidation value of $30 per share for the acquisition of the
rights of a music library, which consist of 2,100 titles. Each
music title was appraised at a value range of $1,000 to
$3,000. The value of the acquisition was based upon the fair
market value of the stock that was issued. In September 1999,
the Company's Board of Directors elected to cancel the
preferred shares of NVE stock. The decision was made and
executed as the Company sought to take delivery of the music
library and the seller was unable to provide the content.
At October 31, 1996, the Company had a non-interest bearing,
non-recourse note receivable due from a shareholder for
$350,020 related to the purchase of the Company's common
stock. The Company has subscription receivables of $162,750
related to a private placement offering completed in July
1996. This full amount of $512,770 was charged to operations
as compensation expense for the year ended October 31, 1997.
During the Year Ended October 31, 1997:
--------------------------------------
For the period from November 1, 1996 to October 31, 1997, the
Company issued 3,503,423 shares of common stock at prices
ranging from $.05 to $1.50 per share totalling $1,041,883
pursuant to Rule 144.
On December 3, 1996, the Company issued 1,750,000 shares of
common stock at $.50 for professional services totalling
$875,000.
On March 31, 1997, the Company issued 220,000 shares of common
stock at $.22 for professional services totalling $48,400.
On August 8, 1997, the Company issued 400,000 shares of common
stock at $.28 in settlement of debt totalling $110,000.
During September 1997, the Company issued 100,000 shares of
common stock at $.05 for professional services totalling
$5,000.
On September 25, 1997, the Company issued 800,000 shares of
common stock at $.04 for professional services totalling
$32,000.
During October 1997, the Company issued 100,000 shares of
common stock at $.25 for professional services totalling
$49,750.
F-14
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PREFERRED STOCK, COMMON STOCK AND WARRANTS (CONTINUED)
During the Year Ended October 31, 1997: (Continued)
--------------------------------------
For the year ended October 31, 1997, the Company issued
4,990,000 shares of common stock at various amounts in
connection with the stock option plan totalling $481,138.
For the year ended October 31, 1997, the Company issued
11,500,000 shares of common stock between $.05 and $.35 for
professional services totalling $1,125,000.
For the Year ended October 31, 1998:
------------------------------------
For the period from November 1, 1997 to October 31, 1998, the
Company issued 6,527,978 shares of common stock at prices
ranging from $.04 to $1.00 per share totalling $463,312
pursuant to Rule 144.
For the period November 1, 1997 to October 31, 1998, the
Company issued 4,792,500 shares of common stock at various
amounts for officers compensation and director fees totalling
$739,826.
In November 1997, the Company issued 1,000,000 shares of
common stock at $.05 totalling $50,000 for a subsequently
aborted acquisition.
On March 25, 1998, the Company issued 100,000 shares of common
stock at $.06 for professional services totalling $5,500.
On April 13, 1998, the Company issued 3,000,000 shares of
common stock at $.05 in settlement of debt totalling $130,000.
On June 2, 1998, the Company issued 410,000 shares of common
stock between $.05 and $.12 in settlement of debt totalling
$31,500.
During August 1998, the Company issued 187,000 shares of
common stock at $.05 for professional services totalling
$10,700.
On September 8, 1998, the Company issued 60,000 shares of
common stock at $.05 for professional services totalling
$3,000.
During the Year Ended October 31, 1999:
--------------------------------------
For the period from November 1, 1998 to October 31, 1999, the
Company issued 7,398,367 shares of common stock at prices
ranging from $.02 to $.41 per share totalling $610,062
pursuant to Rule 144.
On December 15, 1998, the Company issued 100,000 shares of
common stock at $.04 for professional services totalling
$4,000.
F-15
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 4 - PREFERRED STOCK, COMMON STOCK AND WARRANTS (CONTINUED)
During the Year Ended October 31, 1999: (Continued)
--------------------------------------
On December 28, 1998, the Company issued 1,000,000 shares of
common stock at $.05 in settlement of debt totalling $50,000.
On July 23, 1999, the Company issued 2,500,000 shares of
common stock at $.04 for professional services totalling
$100,000.
During August 1999, the Company issued 2,296,645 shares of
common stock between $.05 and $1.00 for professional services
totalling $123,686.
On August 13, 1999, the Company issued 375,000 shares of
common stock at $.25 for director fees totalling $93,750.
On August 20, 1999, the Company issued 729,287 shares of
common stock between $.28 and $.35 in settlement of debt
totalling $207,250.
During September 1999, the Company issued 395,500 shares of
common stock between $.12 and $.50 in settlement of debt
totalling $91,625.
During September 1999, the Company issued 1,735,267 shares of
common stock between $.35 and $.50 for professional services
totalling $610,062.
On September 27, 1999, the Company issued 500,000 shares of
common stock at $.35 for consulting fees totalling $175,000.
STOCK OPTIONS
During 1997, the Board of Directors of the Company approved
the 1997 Stock Option Plan (the "Plan"), which provides for
the granting of up to 5,000,000 shares of common stock,
pursuant to which key employees and consultants are eligible
to receive incentive and/or nonqualified stock options.
Options granted under the Plan are exercisable for a period of
up to 5 years from the date of grant at an exercise price,
which shall be determined by the committee and may be more,
equal to, or less than, the then current market price of the
Company's common stock as the committee may deem to be
appropriate, but in no event may such price be less than par
value, provided, however, that in the event that the committee
shall determine to grant an option at less than 85% of the
current market price of the Company's common stock, such
option shall not be granted without the prior approval of the
Board of Directors. During the year ended October 31, 1997,
4,990,000 options under this plan were granted and exercised
in consideration of services valued at $481,138.
F-16
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 5 - INCOME TAXES
At October 31, 1999, the Company has unused federal and state
net operating loss carryforwards of approximately $4,200,000
available to offset future years' taxable income from 2009
through 2017. The Tax Reform Act of 1996 contains provisions
which limit the federal net operating loss carryforwards
available that can be used in any given year in the event of
certain occurrences, which include significant ownership
changes. At October 31, 1999, the Company has established a
valuation allowance equal to the net deferred tax asset of
$1,680,000, as the Company cannot conclude that it is more
likely than not that the net deferred tax asset will be
realized. There were no current year tax provisions for the
years ended October 31, 1999, 1998 and 1997 as a result of net
operating losses incurred during those years.
NOTE 6 - COMMITMENTS AND CONTINGENCIES
The Company hired a television company to produce 26
episodes of live music acts in 3-D. As of October 31, 1997,
the Company paid $1,515,563 to the television company. All
26 episodes were yet to be completed as of October 31, 1998 in
3-D. Since no revenues were recognized, the Company wrote-off
the accumulated project cost of $1,515,563 during the year
ended October 31, 1998.
The Company's projects under development stipulate royalty
payments which are based on percentages of revenue.
The Company's headquarters are located in San Diego,
California, which has a month to month lease. Rent expense for
the years ended October 31, 1999, 1998 and 1997 were $6,000,
$8,900 and $60,619, respectively.
PROPOSED MERGER
In September 1999, the Company entered into a merger agreement
with Astounding Acquisition Corporation ("Astounding"). The
merger agreement provides for the Company to issue 10,000,000
shares of its common stock for all of the outstanding shares
of Astounding. The closing of the merger is subject to various
conditions including the receipt of a debt or equity financing
of at least $1,000,000 and requisite shareholders approval.
CONSULTING AGREEMENT
In September 1999, the Company entered into a consulting
agreement for financial advisory services. The agreement
provides for the Company to pay consulting fees of $2,500 per
month, plus out-of-pocket expenses for 10 months. In addition,
the Company shall issue to the consultant warrants to purchase
up to 350,000 shares of common stock at an exercise price of
$.60 per share. The warrants are exercisable provided certain
financial conditions are achieved and expire on September 23,
2003.
F-17
<PAGE>
NEW VISUAL ENTERTAINMENT, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 6 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
CONCENTRATION OF CREDIT RISK
For the years ended October 31, 1999, 1998 and 1997,
substantially all of the net revenues were derived from three
companies. At October 31, 1999, no receivables were due from
the above customers.
NOTE 7 - GOING CONCERN CONSIDERATION
The Company has continued losses in each of its years of
operation, negative cash flow and liquidity problems. These
conditions raise substantial doubt about the consolidated
Company's ability to continue as a going concern. The
accompanying consolidated financial statements do not include
any adjustments relating to the recoverability of reported
assets or liabilities should the Company be unable to continue
as a going concern.
The Company has been able to continue based upon the financial
support of certain of its stockholders and the continued
existence of the company is dependent upon this support and
its ability to acquire assets by the issuance of stock.
Management's plans in this regard are to receive the continued
support of the stockholders and/or to obtain other financing
until profitable operation and positive cash flow are achieved
and maintained. There can be no guarantee that the
stockholders will provide this support.
NOTE 8 - SUBSEQUENT EVENTS
LEASE
On January 3, 2000, the Company entered into an operating
lease for office space in San Diego, California. The lease
commences on February 1, 2000 and expires on January 2005. The
lease provides for a minimum annual rental of approximately
$54,000 with a 3% annual increase each year starting on
February 1, 2001 and each year thereafter.
ACQUISITION
In January 2000, the Company completed the acquisition of 100%
of the common stock of Impact Pictures, Inc., a small San
Diego-based multi-media production firm, for 50,000 shares of
the Company's common shares.
LETTER OF INTENT
In January 2000, the Company entered into a letter of intent
to acquire the intellectual rights to a certain technology in
exchange for shares of the Company's common stock based on
attainment of certain operational objectives.
F-18
AGREEMENT AND PLAN OF MERGER
by and among
NEW VISUAL ENTERTAINMENT, INC.,
INTELECON ACQUISITION, INC.,
INTELECON SERVICES, INC.,
and certain
SHAREHOLDERS OF
INTELECON SERVICES, INC.
Dated as of March 30, 2000
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
<S> <C> <C>
ARTICLE I THE MERGER
1.1 The Merger.............................................................................. 1
1.2 The Closing............................................................................. 2
1.3 Effective Time.......................................................................... 2
ARTICLE II THE SURVIVING CORPORATION
2.1 Certificate of Incorporation............................................................ 2
2.2 Bylaws.................................................................................. 2
2.3 Directors............................................................................... 2
2.4 Officers................................................................................ 2
ARTICLE III CONVERSION OF INTELECON STOCK
3.1 Conversion of Intelecon Stock........................................................... 3
3.2 Exchange of Certificates................................................................ 4
3.3 Escrow Shares........................................................................... 5
3.4 Restrictions Against Transfer........................................................... 5
ARTICLE IV REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of Intelecon and the Shareholders........................ 6
4.1.1 Authorization.................................................................. 6
4.1.2 Corporate Status............................................................... 6
4.1.3 Capitalization................................................................. 7
4.1.4 No Conflicts................................................................... 7
4.1.5 Financial Statements........................................................... 8
4.1.6 Absence of Undisclosed Liabilities............................................. 8
4.1.7 Taxes.......................................................................... 9
4.1.8 Absence of Changes............................................................. 10
4.1.9 Litigation..................................................................... 12
4.1.10 Compliance with Laws; Governmental Approvals................................... 12
4.1.11 Title to Assets................................................................ 12
4.1.12 Contracts...................................................................... 13
4.1.13 Territorial Restrictions....................................................... 15
4.1.14 Inventories.................................................................... 15
4.1.15 Bank Accounts.................................................................. 15
4.1.16 Licenses....................................................................... 15
4.1.17 Intellectual Property.......................................................... 16
4.1.18 Insurance...................................................................... 17
4.1.19 Environmental Matters.......................................................... 17
4.1.20 Employees and Labor Matters.................................................... 18
4.1.21 Employee Benefit Plans and Related Matters..................................... 19
4.1.22 Brokers; Finders, etc.......................................................... 21
AGREEMENT AND PLAN OF MERGER - PAGE i
<PAGE>
4.1.23 Disclosure..................................................................... 21
4.1.24 Investment Intent.............................................................. 21
4.1.25 Accounts Receivable............................................................ 22
4.2. Representations and Warranties of New Visual and Acquisition............................ 22
4.2.1 Authorization.................................................................. 22
4.2.2 Corporate Status............................................................... 23
4.2.3 Capitalization................................................................. 23
4.2.4 No Conflicts................................................................... 24
4.2.5 Brokers; Finders, etc.......................................................... 24
4.2.6 Validity of Merger Shares...................................................... 24
4.2.7 SEC Reports and Financial Statements........................................... 25
4.2.8 Absence of Certain Changes..................................................... 25
4.2.9 Litigation..................................................................... 25
4.2.10 Disclosure..................................................................... 25
4.2.11 Absence of Undisclosed Liabilities............................................. 25
ARTICLE V COVENANTS
5.1. Conduct of Business..................................................................... 26
5.2 No Solicitation......................................................................... 28
5.3 Access and Information; Cooperation for SEC Filings by New Visual;
Schedules............................................................................. 29
5.4 Public Announcements.................................................................... 30
5.5 Vote or Consent on Merger; Other Actions................................................ 30
5.6 Financial Statements.................................................................... 31
5.7 Further Actions......................................................................... 31
5.8 Further Assurances...................................................................... 32
5.9 Election of Officers and Directors...................................................... 32
5.10 Employee Benefits....................................................................... 32
ARTICLE VI CONDITIONS PRECEDENT
6.1 Conditions to Obligations of Each Party................................................. 33
6.1.1 No Injunction, etc............................................................. 33
6.2 Conditions to Obligations of New Visual and Acquisition................................. 33
6.2.1 Representations; Performance................................................... 33
6.2.2 Consents ...................................................................... 33
6.2.3 No Material Adverse Effect..................................................... 34
6.2.4 Transaction Agreements ........................................................ 34
6.2.5 Estoppel Letters............................................................... 34
6.2.6 1999 Financial Statements...................................................... 34
6.2.7 Intelecon Liabilities.......................................................... 34
6.2.8 Greenbriar Transactions........................................................ 34
6.2.9 No Liens on Intelecon Shares................................................... 35
6.2.10 Debt Exchange Agreement........................................................ 35
AGREEMENT AND PLAN OF MERGER - PAGE ii
<PAGE>
6.2.11 Loan Agreement................................................................. 35
6.3 Conditions to Obligations of Intelecon and the Shareholders............................. 35
6.3.1 Representations; Performance, etc.............................................. 35
6.3.2 Transaction Agreements......................................................... 36
6.3.3 Consents ...................................................................... 36
6.3.4 Funding Commitment............................................................. 36
6.3.5 NASDAQ Application............................................................. 36
ARTICLE VII TERMINATION
7.1 Termination............................................................................. 36
7.2 Effect of Termination................................................................... 38
ARTICLE VIII INDEMNIFICATION; MISCELLANEOUS
8.1 Indemnification ...................................................................... 39
8.2 Survival of Representations and Warranties; etc......................................... 41
8.3 Expenses ............................................................................... 41
8.4 Severability............................................................................ 41
8.5. Notices ............................................................................... 42
8.6. Miscellaneous........................................................................... 43
8.6.1 Headings ...................................................................... 43
8.6.2 Entire Agreement............................................................... 43
8.6.3 Counterparts................................................................... 43
8.6.4 Governing Law.................................................................. 43
8.6.5 Arbitration.................................................................... 43
8.6.6 Binding Effect................................................................. 43
8.6.7 Assignment..................................................................... 44
8.6.8 No Third Party Beneficiaries .................................................. 44
8.6.9 Amendment; Waiver, etc......................................................... 44
8.6.10 Confidentiality................................................................ 44
</TABLE>
LIST OF EXHIBITS
Exhibit A - List of Shareholders
Exhibit B - Letter of Transmittal
Exhibit C - Form of Employment Agreement of Eddie Vakser
Exhibit D - Form of Employment Agreement of Vladimir Vakser
Exhibit E - Form of Shareholders' Release
Exhibit F - Form of Escrow Agreement
AGREEMENT AND PLAN OF MERGER - PAGE iii
<PAGE>
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER, dated as of March 30, 2000, by and
among New Visual Entertainment, Inc., a Utah corporation ("New Visual"),
Intelecon Acquisition, Inc., a Delaware corporation ("Acquisition"), Intelecon
Services, Inc., a Texas corporation ("Intelecon"), and the shareholders of
Intelecon listed on Exhibit A hereto as parties to this Agreement (collectively,
the "Shareholders" and severally, a "Shareholder").
WHEREAS, each of New Visual, Acquisition and Intelecon desire to effect
a business combination pursuant to which Intelecon will be merged with and into
Acquisition and the holders of common stock, $0.01 par value, of Intelecon
("Intelecon Common Stock") will receive shares of common stock, par value $0.001
per share, of New Visual ("New Visual Common Stock") in exchange for their
shares of Intelecon Common Stock (the "Merger");
WHEREAS, the Boards of Directors of New Visual, Acquisition and
Intelecon each have approved the Merger provided for herein upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Shareholders, the beneficial owners and holders of record
of at least 97% of the issued and outstanding common stock of Intelecon, desire
to join in and be a party to this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger shall qualify as a reorganization within the meaning of Section 368 of
the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the parties hereto desire to make certain representations,
warranties, covenants and agreements in connection with the Merger.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements made herein and of the mutual benefits to
be derived hereby, the parties hereto agree as follows:
ARTICLE 1
THE MERGER
1.1 THE MERGER. Subject to the terms and conditions of this Agreement,
at the Effective Time (as defined in Section 1.3), Intelecon shall be merged
with and into Acquisition (the "Merger") and the separate corporate existence of
Intelecon shall thereupon cease. Acquisition shall be the surviving corporation
in the Merger (sometimes hereinafter referred to as the "Surviving
Corporation"). The Merger shall have the effects specified in Section 259 of the
Delaware General Corporation Law (the "DGCL") and Section 5.06 of the Texas
AGREEMENT AND PLAN OF MERGER - PAGE 1
<PAGE>
Business Corporation Act (the "TBCA"). Notwithstanding anything to the contrary
herein, upon the mutual agreement of New Visual and Intelecon, the Merger shall
be restructured in the form of a reverse triangular merger of Acquisition into
Intelecon, with Intelecon being the surviving corporation. In such event, this
Agreement shall be deemed appropriately modified to reflect such form of merger.
1.2 THE CLOSING. Subject to the terms and conditions of this Agreement,
the closing of the Merger (the "Closing") shall take place (a) at the office of
Arter & Hadden LLP, 1717 Main Street, Suite 4100, Dallas, Texas 75201, at 9:00
a.m., Central time, on the fifth business day following the day on which the
last to be fulfilled or waived of the conditions set forth in Article 6 shall be
fulfilled or waived in accordance herewith or (b) at such other time, date or
place as New Visual and Intelecon may agree. The date on which the Closing
occurs is hereinafter referred to as the "Closing Date".
1.3 EFFECTIVE TIME. If the conditions to the Merger set forth in
Article 6 shall have been fulfilled or waived in accordance herewith and this
Agreement shall not have been terminated as provided in Article 7, the parties
hereto shall cause a Certificate of Merger meeting the requirements of Section
252 of the DGCL and Articles of Merger meeting the requirements of Section 5.04
of the TBCA to be properly executed and filed in accordance with such sections
as soon as practicable after the Closing. The Merger shall become effective at
the time of filing of the Certificate of Merger with the Secretary of State of
the State of Delaware in accordance with the DGCL, or at such later time which
the parties hereto shall have agreed upon and designated in such filing as the
effective time of the Merger (the "Effective Time").
ARTICLE II
THE SURVIVING CORPORATION
2.1 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
Acquisition in effect immediately prior to the Effective Time shall be the
Certificate of Incorporation of the Surviving Corporation, until duly amended in
accordance with applicable law, except that the name of the Surviving
Corporation shall be "Intelecon Services, Inc."
2.2 BYLAWS. The Bylaws of Acquisition in effect immediately prior to
the Effective Time shall be the Bylaws of the Surviving Corporation, until duly
amended in accordance with applicable law.
2.3 DIRECTORS. The directors of Acquisition immediately prior to the
Effective Time shall be the directors of the Surviving Corporation as of the
Effective Time.
2.4 OFFICERS. The officers of Acquisition immediately prior to the
Effective Time shall be the officers of the Surviving Corporation as of the
Effective Time.
AGREEMENT AND PLAN OF MERGER - PAGE 2
<PAGE>
ARTICLE III
CONVERSION OF INTELECON STOCK
3.1 CONVERSION OF INTELECON STOCK.
(a) At the Effective Time, each share of common stock, par value $.01
per share, of Acquisition outstanding immediately prior to the Effective Time
shall remain outstanding and shall represent one share of common stock, par
value $.01 per share, of the Surviving Corporation.
(b) Subject to the provisions of Sections 3.1(d) and 3.2(d) hereof, at
the Effective Time, the shares of Intelecon Common Stock issued and outstanding
immediately prior to the Effective Time shall, by virtue of the Merger and
without any action on the part of the holders thereof, be converted into the
right to receive an aggregate of 5,500,000 shares of New Visual Common Stock
(the "Merger Shares"). Two million (2,000,000) shares of the Merger Shares shall
be referred to herein as the "Initial Shares" and the remaining 3,500,000 shares
shall be referred to as the "Escrow Shares."
(c) As a result of the Merger and without any action on the part of the
holder thereof, all shares of Intelecon Common Stock shall cease to be
outstanding and shall be canceled and retired and shall cease to exist, and each
holder of a certificate (a "Certificate") representing any shares of Intelecon
Common Stock shall thereafter cease to have any rights with respect to such
shares, except the right to receive upon the surrender of such Certificate,
without interest, the New Visual Common Stock and cash (in lieu of fractional
shares) into which the shares represented by such Certificate have been
converted in accordance with Sections 3.1(b), 3.2(d) and 3.3 of this Agreement.
(d) Each share of Intelecon Common Stock issued and held in Intelecon's
treasury at the Effective Time shall, by virtue of the Merger, cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor.
(e) All options (individually, an "Intelecon Option" and collectively,
the "Intelecon Options") outstanding immediately prior to the Effective Time
under Intelecon's 1997 Stock Option Plan, as amended (the "Intelecon Stock
Option Plan"), shall remain outstanding following the Effective Time. At the
Effective Time, such Intelecon Options shall, by virtue of the Merger and
without any further action on the part of Intelecon or the holder of any such
Intelecon Options, be assumed by New Visual in such manner that New Visual (i)
is a corporation "assuming a stock option in a transaction to which Section
424(a) applied" within the meaning of Section 424 of the Code, or (ii) to the
extent that Section 424 of the Code does not apply to any such Intelecon
Options, would be such a corporation if Section 424 was applicable to such
option. Each Intelecon Option assumed by New Visual shall be exercisable upon
the same terms and conditions as under the applicable Intelecon Stock Option
Plan and the applicable option agreement issued thereunder, except that (i) each
such Intelecon Option shall (for every share of Intelecon Common Stock covered
thereby) be exercisable for 4.873 shares of New Visual Common Stock (to the
nearest whole share), and (ii) the option price per share of New Visual Common
AGREEMENT AND PLAN OF MERGER - PAGE 3
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Stock shall be an amount equal to the option price per share of Intelecon Common
Stock subject to such Intelecon Option in effect immediately prior to the
Effective Time divided by 4.873 (the price per share, as so determined, being
rounded down to the nearest full cent). Within ten days after the Closing Date,
New Visual shall notify each holder of an option under the Intelecon Stock
Option Plan of the assumption of such options by New Visual and the revisions to
the options effected thereby. No payment shall be made for fractional interests.
>From and after the date of this Agreement, no additional options shall be
granted by Intelecon under the Intelecon Stock Option Plan or otherwise.
3.2 EXCHANGE OF CERTIFICATES.
(a) At or after the Effective Time, each holder of Certificates
theretofore representing shares of Intelecon Common Stock, upon the surrender
thereof to New Visual together with a duly executed and completed Letter of
Transmittal, in the form attached hereto as Exhibit B ("Letter of Transmittal"),
shall be entitled to receive in exchange therefor the shares of New Visual
Common Stock and cash (in lieu of fractional shares) into which such shares of
Intelecon Common Stock have been converted as provided in Sections 3.1 and
3.2(d) hereof (other than the portion of such shares of New Visual Common Stock
that comprise Escrow Shares), and the Certificate so surrendered shall be
canceled. No interest will be paid or accrued on the value of any New Visual
Common Stock payable to holders of Certificates. Until so surrendered, each
Certificate shall be deemed for all purposes, other than as provided below with
respect to the payment of dividends or other distributions, if any, in respect
of New Visual Common Stock, to represent the number of whole shares of New
Visual Common Stock and cash (in lieu of fractional shares) into which the
shares of Intelecon Common Stock theretofore represented thereby shall have been
converted.
(b) Notwithstanding any other provisions of this Agreement, no
dividends on New Visual Common Stock shall be paid with respect to any shares of
Intelecon Common Stock represented by a Certificate until such Certificate is
surrendered for exchange as provided herein. Subject to the effect of applicable
laws, following surrender of any such Certificate, there shall be paid to the
holders of the Certificates representing whole shares of New Visual Common Stock
issued in exchange therefor, without interest, (i) at the time of such
surrender, the amount of dividends or other distributions with a record date
after the Effective Time theretofore payable with respect to such whole shares
of New Visual Common Stock and not paid, less the amount of any withholding
taxes which may be required thereon, and (ii) at the appropriate payment date,
the amount of dividends or other distributions with a record date after the
Effective Time but prior to surrender and a payment date subsequent to surrender
payable with respect to such whole shares of New Visual Common Stock, less the
amount of any withholding taxes which may be required thereon.
(c) At or after the Effective Time, there shall be no transfers on the
stock transfer books of Intelecon of the shares of Intelecon Common Stock which
were outstanding immediately prior to the Effective Time.
AGREEMENT AND PLAN OF MERGER - PAGE 4
<PAGE>
(d) No fractional shares of New Visual Common Stock shall be issued
pursuant hereto. In lieu of the issuance of any fractional shares of New Visual
Common Stock pursuant to Section 3.1 hereof, cash adjustments will be paid to
holders in respect of any fractional shares of New Visual Common Stock that
would otherwise be issuable, and the amount of such cash adjustment shall be
equal to such fractional proportion of the "Average Price" of a share of New
Visual Common Stock, as defined in this section 3.2(d). As used herein, the
"Average Price" of a share of New Visual Common Stock shall be the average of
the closing bid prices thereof on the OTC Bulletin Board of the National
Association of Securities Dealers or, if not quoted at such time on the OTC
Bulletin Board, in the NQB Pink Sheets published by the National Quotation
Bureau Incorporated, in each case over the five trading days immediately
preceding the Closing Date.
3.3 ESCROW SHARES. As soon as practicable after the Effective Time, New
Visual shall deposit the Escrow Shares with the escrow agent under an escrow
agreement substantially in the form of Exhibit F attached hereto (the "Escrow
Agreement"). The Escrow Shares shall be held by the escrow agent during the
period specified in the Escrow Agreement, and shall be released to the former
holders of Intelecon Common Stock or New Visual, or both, as the case may be,
only in accordance with the terms thereof.
3.4 RESTRICTIONS AGAINST TRANSFER. In addition to any restrictions on
transfer prescribed by state or federal law, the Merger Shares shall be subject
to the following restrictions on transfer:
(a) Neither the Merger Shares, nor any right or interest therein, shall
be sold, transferred, assigned, or otherwise disposed of, whether voluntarily or
by operation of law, by the holder thereof before the expiration of eighteen
(18) months from the Effective Time of the Merger (in the case of the Initial
Shares) or the release of such shares from escrow pursuant to the Escrow
Agreement (in the case of the Escrow Shares)(the "Lock-Up Period").
(b) Following the expiration of the Lock-Up Period, no holder of Merger
Shares shall, during any thirty (30) day period, sell, transfer, assign or
otherwise dispose of more than ten percent (10%) of the sum of the total number
of Initial Shares issued to such holder and the total number of Escrow Shares
that have been released to such holder from escrow pursuant to this Agreement
and the Escrow Agreement. The sale of Merger Shares by one holder of Merger
Shares shall not prohibit the sale of Merger Shares by another holder of Merger
Shares during the same thirty (30) day period.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF INTELECON AND THE SHAREHOLDERS.
Intelecon and each Shareholder represents and warrants to New Visual and
Acquisition as follows:
4.1.1 AUTHORIZATION. Intelecon has the requisite corporate power and
authority to execute and deliver this Agreement and all agreements contemplated
AGREEMENT AND PLAN OF MERGER - PAGE 5
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hereby (collectively, the "Transaction Agreements"), and, subject only to the
approval of this Agreement and the transactions contemplated hereby by the
holders of two-thirds of the outstanding shares of Intelecon Common Stock (the
"Requisite Shareholder Approval"), to perform fully its obligations hereunder
and thereunder and to consummate the transactions contemplated hereby and
thereby. The execution and delivery by Intelecon of this Agreement and the other
Transaction Agreements and, subject to obtaining the Requisite Shareholder
Approval, the consummation of the transactions contemplated hereby and thereby,
have been duly authorized by all requisite corporate action of Intelecon.
Intelecon and the Shareholders have duly executed and delivered this Agreement
and on the Closing Date Intelecon and the Shareholders will have duly executed
and delivered the Transaction Agreements to which they are parties. Subject to
obtaining the Requisite Shareholder Approval, this Agreement is, and on the
Closing Date each of the Transaction Agreements will be, legal, valid and
binding obligations of Intelecon and/or the Shareholders, as the case may be,
enforceable against each of them in accordance with their respective terms,
except as may be limited by applicable bankruptcy and other laws regarding
creditors' rights generally, and general principles of equity.
4.1.2 CORPORATE STATUS.
(a) Intelecon is a corporation duly organized, validly
existing and in good standing under the laws of the State of Texas, with full
corporate power and authority to carry on its business and to own or lease and
to operate its properties as and in the places where such business is conducted
and such properties are owned, leased or operated.
(b) Intelecon is duly qualified or licensed to do business in
the jurisdictions specified in Schedule 4.1.2, which are the only jurisdictions
in which the operation of its business or the character of the properties owned,
leased or operated by it makes such qualification or licensing necessary.
(c) Within ten days after the date hereof, Intelecon will
deliver to New Visual complete and correct copies of its articles of
incorporation and bylaws, each as amended and in effect on the date so
delivered. Intelecon is not in violation of any of the provisions of its
articles of incorporation or bylaws. The minute books and other corporate
records of Intelecon contain a true and complete record of all action taken at
all meetings and by all written consents in lieu of meetings of the
shareholders, the Board of Directors and committees of the Board of Directors of
Intelecon. The stock transfer ledgers and other similar records of Intelecon
currently reflect all record transfers prior to the execution of this Agreement
in the capital stock of Intelecon.
4.1.3 CAPITALIZATION.
(a) The authorized capital stock of Intelecon consists solely
of (i) 25,000,000 shares of Intelecon Common Stock, of which 410,421 shares are
issued and outstanding and no shares are held in its treasury, and (ii) 500
shares of preferred stock, $1.00 par value ("Intelecon Preferred Stock"), of
which 100 shares of 1998 Cumulative Redeemable Preferred Stock are issued and
outstanding and no shares are held in its treasury. All issued and outstanding
AGREEMENT AND PLAN OF MERGER - PAGE 6
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shares of Intelecon Common Stock and Intelecon Preferred Stock are duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights. Except as set forth in Schedule 4.1.3, all shares of Intelecon Common
Stock are owned by the Shareholders and Ikso Vakser, free and clear of all
liens, pledges, assessments, charges, security interests, claims or other
encumbrances of any kind (each, a "Lien"). All shares of Intelecon Preferred
Stock are owned by Greenbriar, Ltd., an Isle of Man company ("Greenbriar").
(b) Except for (i) options to purchase an aggregate of 14,300
shares of Intelecon Common Stock granted under the Intelecon Stock Option Plan,
and (ii) that certain Warrant issued to Greenbriar by Intelecon, dated November
1, 1998 (the "Greenbriar Warrant"), no subscriptions, options, warrants,
conversion or other rights, agreements, commitments, arrangements or
understandings of any kind obligating Intelecon, contingently or otherwise, to
issue or sell, or cause to be issued or sold, any shares of Intelecon Common
Stock, or any securities convertible into or exchangeable for any such shares,
are outstanding, and no authorization therefor has been given. There are no
outstanding contractual or other rights or obligations to or of Intelecon to
repurchase, redeem or otherwise acquire any outstanding shares of Intelecon
Common Stock.
(c) Intelecon does not own directly or indirectly any interest
or investment (whether equity or debt) in any corporation, partnership, joint
venture, business, trust or entity (other than investments in short-term
investment securities).
4.1.4 NO CONFLICTS. The execution, delivery and performance by
Intelecon and the Shareholders of this Agreement and of the other Transaction
Agreements to which they are parties, and the consummation of the transactions
contemplated hereby and thereby, do not and will not conflict with or result in
a violation of or a default under (with or without the giving of notice or the
lapse of time or both), create in any other person a right or claim of
termination, amendment, modification, acceleration or cancellation of, or result
in the creation of any Lien (or any obligation to create any Lien) upon any of
the properties or assets of Intelecon under, (i) any law, statute, ordinance,
governmental rule or regulation (each, a "Law") applicable to Intelecon or any
of its properties or assets, or to any Shareholder, (ii) the articles of
incorporation or bylaws of Intelecon or (iii) except as set forth in Schedule
4.1.4., any contract (whether written or oral), agreement, arrangement or other
instrument (each, a "Contract") to which Intelecon or any Shareholder is a party
or by which Intelecon, any Shareholder or any of the properties or assets of
Intelecon may be bound or affected, except, in the case of clause (iii), for
violations or defaults that, individually and in the aggregate, would not have a
material adverse effect on the business, results of operations, condition
(financial or otherwise) or prospects of Intelecon (a "Material Adverse Effect")
and would not materially impair the ability of Intelecon or any Shareholder to
perform its obligations hereunder or under the other Transaction Agreements to
which they are parties. Except as specified in Schedule 4.1.4, no governmental
approval or other approval or other consent of any party is required to be
obtained or made by Intelecon or any Shareholder in connection with the
execution and delivery of this Agreement or the other Transaction Agreements or
the consummation of the transactions contemplated hereby or thereby.
AGREEMENT AND PLAN OF MERGER - PAGE 7
<PAGE>
4.1.5 FINANCIAL STATEMENTS.
(a) Intelecon has delivered to New Visual complete and correct copies
of (a) the balance sheets as of December 31, 1997 and December 31, 1996 of
Intelecon and the related statements of income, changes in shareholders' equity
and changes in cash flows for the respective years then ended, the related notes
and schedules thereto, and the report of its independent public accountants with
respect thereto (collectively, the "Audited Financial Statements"), and (b) the
unaudited balance sheet (the "Latest Balance Sheet") as of December 31, 1999
(the "Balance Sheet Date") and December 31, 1998 of Intelecon and the related
unaudited statements of income for the periods then ended and the related notes
and schedules, if any, thereto (collectively, the "Unaudited Financial
Statements").
(b) The Audited Financial Statements are, and the 1999 Financial
Statements (as defined in Section 5.6) will be when delivered, complete and
correct in all material respects, have been derived from the accounting books
and records of Intelecon and have been and will be, as applicable, prepared in
accordance with generally accepted accounting principles ("GAAP") throughout the
periods indicated. The Unaudited Financial Statements have been prepared in all
material respects on a basis consistent with the Audited Financial Statements.
(c) The balance sheets included in the Audited Financial Statements and
the Unaudited Financial Statements (collectively, the "Financial Statements")
present fairly the financial position of Intelecon as of the respective dates
thereof, and the related statements of income, changes in shareholders' equity
and changes in cash flows included in such Financial Statements present fairly
the result of operations, changes in shareholders' equity and changes in cash
flows of Intelecon for the respective periods indicated.
(d) The 1999 Financial Statements (as defined in Section 5.6) will,
when delivered, present fairly the financial position of Intelecon at December
31, 1999 and December 31, 1998 and the result of operations, changes in
shareholders' equity and changes in cash flows of Intelecon for the years then
ended.
4.1.6. ABSENCE OF UNDISCLOSED LIABILITIES. Intelecon has no liabilities
or obligations of any nature, whether known or unknown, absolute, accrued,
contingent or otherwise and whether due or to become due, except (a) as set
forth in Schedule 4.1.6, (b) as and to the extent disclosed and adequately
reserved against in the Latest Balance Sheet (excluding the notes thereto) and
(c) for liabilities and obligations that (i) were incurred after the Balance
Sheet Date, in the ordinary course of business consistent with prior practice
and (ii) individually and in the aggregate are not material to Intelecon and
have not had or resulted in, and will not have or result in, a Material Adverse
Effect.
4.1.7 TAXES.
(a) All federal, state, local or foreign income, gross
receipts, license, payroll, employment, excise, stamp, occupation, customer
AGREEMENT AND PLAN OF MERGER - PAGE 8
<PAGE>
duties, capital stock, franchise, profits, withholding, social security,
unemployment, disability, real property, personal property, sales, use,
transfer, registration, value added, alternative, add-on minimum taxes, or other
tax of any kind whatsoever, including any interest, penalty, or addition thereto
(each, a "Tax" and collectively, "Taxes") that are or may be required to be
paid, collected or withheld by or with respect to Intelecon or any of its assets
or properties on or before the Closing Date or that are chargeable as a Lien on
any assets or properties of Intelecon have been timely paid or collected or
withheld and remitted to the appropriate taxing or other governmental
authorities, except (i) as set forth on Schedule 4.1.7, (ii) for any Taxes which
are being contested in good faith by appropriate proceedings and for which
adequate reserves with respect thereto have been established and are being
maintained in accordance with GAAP and (iii) for any Taxes that are not yet due
and payable and are adequately reserved in the Latest Balance Sheet or have
arisen in the ordinary course of business since the Balance Sheet Date and
before the Closing Date.
(b) Except as set forth on Schedule 4.1.7 and without limiting
the representation made in Section 4.1.7(a), all federal, state, local and
foreign tax returns that are or may be required to be filed by or with respect
to Intelecon, or any of its assets or properties, on or before the Closing Date
have been timely filed with the appropriate taxing or other governmental
authorities and have reflected only such positions on such tax returns as were
believed in good faith by the person preparing each such tax return and the
person on whose behalf each such tax return was filed to be supported under then
prevailing Law. All Taxes shown to be due on each such tax return have been
paid.
(c) Except as set forth on Schedule 4.1.7, Intelecon (i) has
not received any written notice of deficiency or assessment from any taxing or
other governmental authority with respect to Taxes, (ii) is not currently under,
and has not received notice of commencement of, any audit by any taxing or other
governmental authority concerning any Taxes and (iii) has not executed any
waiver of the statute of limitations with respect to any taxable period.
(d) Except as set forth on Schedule 4.1.7, (i) no written
ruling (as such term is used in the Code) has been received from, and no closing
or other similar agreement has been executed with, any taxing or other
governmental authority that will be binding upon Intelecon or any of its assets
or properties after the Closing and (ii) no power of attorney has been given by
or with respect to Intelecon to any person with respect to Taxes that will be
binding upon Intelecon.
4.1.8 ABSENCE OF CHANGES. Except as set forth in Schedule 4.1.8, since
the Balance Sheet Date, Intelecon has conducted its business only in the
ordinary course consistent with prior practice and has not:
(a) suffered any Material Adverse Effect;
(b) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock or otherwise purchased or redeemed,
directly or indirectly, any shares of its capital stock;
AGREEMENT AND PLAN OF MERGER - PAGE 9
<PAGE>
(c) issued or sold any shares of its capital stock, or any
securities convertible into or exchangeable for any such shares, or issued,
sold, granted or entered into any subscriptions, options, warrants, conversion
or other rights, agreements, commitments, arrangements or understandings of any
kind, contingent or otherwise, to purchase or otherwise acquire any such shares
or any securities convertible into or exchangeable for any such shares;
(d) incurred any indebtedness for borrowed money, issued or
sold any debt securities or prepaid any debt (including, without limitation, any
borrowings from or prepayments to any Shareholder), except for borrowings and
prepayments in the ordinary course of business;
(e) mortgaged, pledged or otherwise subjected to any Lien, any
of its properties or assets, tangible or intangible, except for (i) mortgages
and encumbrances which secure indebtedness which is properly reflected in the
Latest Balance Sheet; (ii) Liens filed of record; (iii) Liens for taxes accrued
but not yet payable; (iv) Liens arising as a matter of law in the ordinary
course of business with respect to obligations incurred after the Balance Sheet
Date; PROVIDED that the obligations secured by such Liens are not delinquent or
are being contested in good faith; (v) such imperfections of title and
encumbrances, if any, as do not materially detract from the value of or
materially interfere with the present use of any of such properties or assets or
the pending sale of any of such owned properties or assets; and (vi) capital
leases, if any, with third parties for fair and adequate consideration
(collectively, "Permitted Liens");
(f) forgiven, cancelled, compromised, waived or released any
debts, claims or rights, except for debts of, or claims and rights against,
persons other than any Shareholder that have been forgiven, cancelled,
compromised, waived or released in the ordinary course of business;
(g) paid or committed to pay any bonus, other incentive
compensation, change in control or similar compensation to any officer,
director, employee, Shareholder or affiliate, or granted or committed to grant
to any officer, director, employee, Shareholder or affiliate any other increase
in, or additional, compensation in any form;
(h) entered into, instituted, adopted or amended or committed
to enter into, institute, adopt or amend any employment, consulting, retention,
change-in-control, collective bargaining, bonus or other incentive compensation,
profit-sharing, health or other welfare, stock option or other equity, pension,
retirement, vacation, severance, deferred compensation or other employment,
compensation or benefit plan, policy, agreement, trust, fund or arrangement in
respect of or for the benefit of any officer, director, employee, Shareholder or
affiliate;
(i) encountered any labor union organizing activity or had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts, or
had any material adverse change in its relations with its employees, agents,
customers or suppliers;
(j) amended either of its articles of incorporation or bylaws;
AGREEMENT AND PLAN OF MERGER - PAGE 10
<PAGE>
(k) changed in any respect its accounting practices, policies or
principles;
(l) incurred, assumed, guaranteed or otherwise become directly
or indirectly liable with respect to any liability or obligation in excess of
$500,000 in each case or $750,000 in the aggregate at any one time outstanding
(whether absolute, accrued, contingent or otherwise and whether direct or
indirect, or as guarantor or otherwise with respect to any liability or
obligation of any other person) other than agreements for purchases of goods or
services in the ordinary course of business;
(m) sold any assets with a value in excess of $100,000 in each
case or $250,000 in the aggregate, other than inventory in the ordinary course
of business;
(n) received any notice of termination of any Contract which, in
any case or in the aggregate, would have or result in a Material Adverse Effect;
(o) transferred or granted any rights under, or entered into
any settlement regarding the breach or infringement of, any United States or
foreign patents, copyrights, trademarks, service marks, trade names, trade
dress, logos, business and product names, slogans, inventions, trade secrets,
industrial models, formulas, processes, designs, confidential and technical
information, manufacturing, engineering and technical drawings, product
specifications, know-how, and intellectual property rights to or similar to and
registrations and applications for registration relating to any of the foregoing
("Intellectual Property"), or modified any existing rights with respect thereto;
(p) suffered any damage, destruction or loss (whether or not
covered by insurance), or any employment-related problem, that, individually or
in the aggregate, would have or result in a Material Adverse Effect;
(q) made any capital expenditures or capital additions or
improvements in excess of an aggregate of $250,000;
(r) instituted, settled or agreed to settle any litigation,
action or proceeding before any court or governmental body involving amounts in
excess of $50,000;
(s) entered into any transaction, Contract or commitment other
than in the ordinary course of business, or paid or agreed to pay any legal,
accounting, brokerage or finder's fees, taxes or other expenses in connection
with, or incurred any severance pay obligations by reason of, this Agreement,
the other Transaction Agreements or the transactions contemplated hereby or
thereby; or
(t) taken any action or omitted to take any action that would
result in the occurrence of any of the foregoing.
4.1.9 LITIGATION. Except as set forth in Schedule 4.1.9, there is no
action, claim, demand, suit, proceeding, arbitration, grievance, citation,
AGREEMENT AND PLAN OF MERGER - PAGE 11
<PAGE>
summons, subpoena, inquiry or investigation of any nature, civil, criminal,
regulatory or otherwise, in law or in equity, pending or, to the knowledge of
Intelecon or any Shareholder, threatened against or relating to Intelecon or
against or relating to the transactions contemplated by this Agreement or the
other Transaction Agreements, and neither Intelecon nor any Shareholder knows or
has reason to be aware of any basis for the same.
4.1.10 COMPLIANCE WITH LAWS; GOVERNMENTAL APPROVALS.
(a) Except as disclosed in Schedule 4.1.10(a), Intelecon is not,
and since January 1, 1997, Intelecon has not been, in violation of or default
under any Law applicable to it or any of its properties or business, except for
any such violations or defaults that, individually and in the aggregate, have
not had and will not have a Material Adverse Effect. Neither Intelecon nor any
Shareholder has received any notice alleging any such violation or default.
(b) Except as disclosed in Schedule 4.1.10(b), all material
governmental approvals necessary for the conduct of the business and operations
of Intelecon have been duly obtained and are in full force and effect. As of the
date hereof, there are no proceedings pending or, to the knowledge of Intelecon
or any Shareholder, threatened that could result in the revocation, cancellation
or suspension, or any materially adverse modification, of any such governmental
approval, and the execution and delivery of this Agreement and the other
Transaction Agreements, and the consummation of the transactions contemplated
hereby and thereby will not result in any such revocation, cancellation,
suspension or modification.
4.1.11 TITLE TO ASSETS.
(a) On the Balance Sheet Date, Intelecon had and, except with
respect to assets disposed of for adequate consideration in the ordinary course
of business since such date, as of the date of this Agreement, has good and
merchantable title to all real property and all other material properties and
assets reflected on the Latest Balance Sheet, and has good and merchantable
title to all real property and all other material properties and assets acquired
since such date, in each case free and clear of all Liens except for Permitted
Liens. Intelecon owns, or has valid leasehold interests in or license to, all
material properties and assets used in the conduct of the business of Intelecon
as now conducted. Intelecon has adequate rights of ingress and egress with
respect to its real property and all buildings, structures, facilities, fixtures
and other improvements thereon. Within ten days after the date hereof, Intelecon
will deliver or make available to New Visual copies of the deeds and other
instruments (as recorded) by which Intelecon acquired such real property, and
copies of all title insurance policies, opinions, abstracts, and surveys in the
possession of Intelecon or any Shareholder and relating to such real property.
(b) With respect to each lease of any real property or a
material amount of personal property to which Intelecon is a party, (i) such
lease is a legal, valid and binding agreement, is in full force and effect and
is enforceable in accordance with its terms; (ii) all rents and other monetary
amounts that have become due and payable thereunder have been paid; (iii) there
exists no default, or event, occurrence, condition or act, which with the giving
AGREEMENT AND PLAN OF MERGER - PAGE 12
<PAGE>
of notice, the lapse of time or the happening of any further event, occurrence,
condition or act would become a default under such lease; and (iv) the execution
and delivery of this Agreement and the other Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby will not
constitute a breach under, or cause a termination of, such lease.
(c) Intelecon does not have any legal obligation, absolute or
contingent, to any other person to sell or otherwise dispose of any substantial
part of its assets; or to sell or dispose of any of its assets except in the
ordinary course of business consistent with past practices.
(d) None of Intelecon's real property, buildings, structures,
facilities, fixtures or other improvements, or the use thereof, contravenes or
violates any building, zoning, administrative, occupational safety and health or
other applicable Law in any material respect.
(e) The improvements on Intelecon's real property are in good
operating condition and in a state of good maintenance and repair, ordinary wear
and tear excepted, are adequate and suitable for the purposes for which they are
presently being used and there are no condemnation or appropriation proceedings
pending or, to the knowledge of Intelecon or any Shareholder, threatened against
any of such real property or the improvements thereon. There is no writ,
injunction, decree, order or judgment outstanding, nor any action, claim, suit
or proceeding, pending or, to the knowledge of Intelecon or any Shareholder,
threatened, relating to the ownership, lease, use, occupancy or operation of any
such real property or the improvements thereon.
4.1.12 CONTRACTS.
(a) Schedule 4.1.12(a) contains a complete and correct list of
all Contracts of the types described below (true and complete copies or, if
none, reasonably complete and accurate written descriptions of which, together
with all amendments and supplements thereto and all waivers of any terms
thereof, have been made available to New Visual prior to the date of this
Agreement), to which Intelecon is a party or by which any of its assets or
properties is bound:
(i) leases, licenses, and other material Contracts
concerning or relating to real property;
(ii) written or oral employment Contracts for officers,
directors, management or key personnel, consulting, agency, collective
bargaining or other similar Contracts and agreements under which current or
future obligations exist relating to or for the benefit of current, future or
former employees, officers, directors, sales representatives, distributors,
dealers, agents, independent contractors or consultants, in each case that are
not cancelable on notice of 30 days or less and do not require payments in the
event of termination;
(iii) loan agreements, indentures, letters of credit,
mortgages, security agreements, pledge agreements, deeds of trust, bonds, notes,
guarantees, and other agreements and instruments effecting, evidencing or
securing the borrowing of money or obtaining of or extension of credit (other
than ordinary trade credit);
AGREEMENT AND PLAN OF MERGER - PAGE 13
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(iv) brokerage or finder's agreements;
(v) joint venture, partnership and similar Contracts
involving a sharing of profits or expenses;
(vi) asset purchase agreements and other acquisition or
divestiture agreements (other than agreements for sales of inventory in the
ordinary course of business) and any agreements relating to the sale, lease or
disposal of any capital assets in the amount of $100,000 or more;
(vii) other Contracts with respect to which the aggregate
amount that could reasonably be expected to be paid or received thereunder in
the future exceeds $250,000 per annum or $500,000 in the aggregate;
(viii) Contracts between or among Intelecon, on the one
hand, and any officer, director or affiliate of Intelecon, or any Shareholder,
on the other hand; and
(ix) any other Contracts, agreements or commitments that are
material to Intelecon or its business.
(b) All Contracts are in full force and effect and enforceable
against Intelecon and each Shareholder who is a party thereto, and, to the
knowledge of Intelecon and each Shareholder, against each other party thereto.
There does not exist under any Contract any event of default or event or
condition that, after notice or lapse of time or both, would constitute a
violation, breach or event of default thereunder on the part of Intelecon, each
Shareholder who is a party thereto or, to the knowledge of Intelecon and each
Shareholder, any other party thereto except as set forth in Schedule 4.1.12(b)
and except for such events or conditions that, individually and in the
aggregate, (i) have not had or resulted in, and will not have or result in, a
Material Adverse Effect and (ii) have not and will not materially impair the
ability of Intelecon to perform its obligations hereunder or under the other
Transaction Agreements to which it is a party. Except as set forth in Schedule
4.1.12(b), no consent of any third party is required under any Contract as a
result of or in connection with, and the enforceability of any Contract will not
be affected in any manner by, the execution, delivery and performance of this
Agreement or any of the other Transaction Agreements or the consummation of the
transactions contemplated hereby or thereby.
4.1.13 TERRITORIAL RESTRICTIONS. Except as otherwise described on
Schedule 4.1.13, Intelecon is not restricted by any Contract, agreement or
understanding with any other person from carrying on its business anywhere in
the world.
4.1.14 INVENTORIES. Except for excess and obsolete inventory for which
reserves have been established on the Latest Balance Sheet: (a) all of the
inventories of Intelecon of raw materials, supplies, work in process, finished
products, spare parts, and replacement and component parts are of good, usable
and merchantable quality in all material respects and, except as set forth on
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Schedule 4.1.14, do not include excess, obsolete or discontinued items; (b) all
such inventories are of such quality as to meet the quality control standards of
Intelecon, and any applicable governmental quality control standards; (c) all
such inventories that are finished goods are saleable as current inventories at
the current prices thereof in the ordinary course of business and (d) all such
inventories are recorded on the books of Intelecon at the lower of cost or
market value determined in accordance with GAAP.
4.1.15 BANK ACCOUNTS. Schedule 4.1.15 sets forth a complete and correct
list containing the names of each bank or other financial institution in which
Intelecon has an account or safe deposit or lock box, the account or box number,
as the case may be, and the name of every person authorized to draw thereon or
having access thereto.
4.1.16. LICENSES. Intelecon has all necessary licenses, permits,
approvals, registrations and similar consents and authorizations (collectively,
the "Licenses") required to lawfully conduct its business as presently
conducted, including but not limited to all material Licenses required for
Intelecon to operate as it currently operates and in accordance with all
applicable Laws or orders or permits of any governmental authority, and (a) each
such License is valid, binding and in full force and effect, (b) no such License
is subject to revocation or forfeiture by virtue of any existing circumstance,
(c) there is no pending or, to the knowledge of Intelecon or any Shareholder,
threatened proceeding to modify in any material respect or revoke any License,
(d) no such License is subject to any outstanding order, decree, judgment,
stipulation, or investigation known to Intelecon or any Shareholder that would
materially affect such License, and (e) Intelecon is not, and neither Intelecon
nor any Shareholder has received any notice that Intelecon is, in default (or
with the giving of notice or lapse of time or both, would be in default) under
any such License.
4.1.17 INTELLECTUAL PROPERTY.
(a) TITLE. Schedule 4.1.17(a)(i) contains a complete and correct
list of all Intellectual Property that is owned by Intelecon other than
Intellectual Property that is both not registered or subject to application for
registration and not material to the business of Intelecon. All Intellectual
Property related to, used in, held for use in connection with, or necessary for
the conduct of, or otherwise material to, the business of Intelecon (the
"Intellectual Property Assets") are owned by Intelecon, except as disclosed on
Schedule 4.1.17(a)(ii).
(b) NO INFRINGEMENT. To the knowledge of Intelecon and each
Shareholder, the conduct of its business by Intelecon does not infringe or
otherwise conflict with any rights of any person in respect of any Intellectual
Property. To the knowledge of Intelecon and each Shareholder, none of the
Intellectual Property Assets is being infringed.
(c) LICENSING ARRANGEMENTS. Schedule 4.1.17(c)(i) sets forth all
Contracts, agreements or arrangements pursuant to which Intelecon has licensed
any Intellectual Property Assets to, or the use of such Intellectual Property
Assets is otherwise permitted (through non-assertion, settlement or similar
agreements or otherwise) by, any other person. Schedule 4.1.17(c)(ii) sets forth
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all Contracts, agreements or arrangements pursuant to which Intelecon has had
Intellectual Property primarily related to, used in, held for use primarily in
connection with, or necessary for the conduct of or otherwise material to its
business licensed to it, or has otherwise been permitted to use such
Intellectual Property (through non-assertion, settlement or similar agreements
or otherwise) (other than off-the-shelf commercially available software). All of
the Contracts, agreements or arrangements that are or should be set forth on
Schedules 4.1.17(c)(i) and (ii) (the "Intellectual Property Licenses") (x) are
in full force and effect in accordance with their terms and no default exists
thereunder by Intelecon or, to the knowledge of Intelecon or any Shareholder, by
any other party thereto, (y) are free and clear of all Liens, and (z) do not
contain any change in control or other terms or conditions that will become
applicable or inapplicable as a result of the consummation of the transactions
contemplated by this Agreement and the other Transaction Agreements. Intelecon
has made available to New Visual true and complete copies of all Intellectual
Property Licenses (including amendments, supplements, renewals, waivers and
other modifications) set forth on Schedule 4.1.17(c)(i) and (ii). All royalties,
license fees, charges and other amounts payable by, on behalf of, to, or for the
account of Intelecon in respect of any Intellectual Property Assets are set
forth on Schedules 4.1.17(c)(i) and (ii) and are reflected in the Financial
Statements.
(d) NO INTELLECTUAL PROPERTY LITIGATION. Except as set forth in
Schedule 4.1.17(d), no claim or demand of any person has been made nor is there
any proceeding that is pending, or to the knowledge of Intelecon or any
Shareholder, threatened, which (i) challenges the rights of Intelecon in respect
of any Intellectual Property Assets, (ii) asserts that Intelecon is infringing
or otherwise in conflict with, or is, except as set forth in Schedule
4.1.17(c)(ii), required to pay any royalty, license fee, charge or other amount
with regard to, any Intellectual Property, or (iii) claims that any default
exists under any Contract, agreement or arrangement listed on Schedule
4.1.17(c)(i) or (ii). Except as set forth in Schedule 4.1.17(d), none of the
Intellectual Property Assets is subject to any outstanding order, ruling,
decree, judgment or stipulation by or with any court, arbitrator, or
administrative agency, or has been the subject of any litigation within the last
five years, whether or not resolved in favor of Intelecon.
4.1.18 INSURANCE. Schedule 4.1.18 contains a complete and correct list
of all insurance policies maintained by Intelecon. Within ten days after the
date hereof, Intelecon will make available to New Visual complete and correct
copies of all such policies, together with all riders and amendments thereto.
Such policies are in full force and effect, all premiums due thereon have been
paid and Intelecon has not received notice of a material premium increase or
cancellation with respect to such policies or of any default thereunder.
Intelecon has complied in all material respects with the terms and provisions of
such policies. Within the past two years, Intelecon has not been refused any
basic insurance coverage applied for, and Intelecon has no reason to believe
that its existing insurance coverage cannot be renewed as and when the same
shall expire, upon terms and conditions standard in the market at the time
renewal is sought.
4.1.19 ENVIRONMENTAL MATTERS.
(a) (i) Intelecon has obtained all Licenses that are required to
be obtained by it in connection with the operation of its business and ownership
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of its properties (collectively, the "Subject Properties") under any applicable
Environmental Law Requirements (as hereinafter defined), except where failure to
obtain such Licenses would not have a Material Adverse Effect;
(ii) Intelecon is in compliance in all respects with all
terms and conditions of such Licenses and with all applicable Environmental Law
Requirements, except where the failure to so comply would not have a Material
Adverse Effect;
(iii) there are no past or present events, conditions,
circumstances, activities or plans, in each case by or relating in any manner to
Intelecon or its use of the Subject Properties, that did or would violate or
prevent compliance or continued compliance with any Environmental Law
Requirements or give rise to any Environmental Liability (as hereinafter
defined), except for such matters as would not have a Material Adverse Effect;
(iv) there is no civil, criminal or administrative action,
suit, demand, claim, order, judgment, hearing, notice or demand letter, notice
of violation, investigation or proceeding pending or, to the knowledge of
Intelecon or any Shareholder, threatened by any person against Intelecon or any
prior owner of any of the Subject Properties, and relating in any way to any
Environmental Law Requirement or seeking to impose any Environmental Liability,
except for such matters as would not have a Material Adverse Effect;
(v) no hazardous material generated by Intelecon has been
recycled, treated, stored, disposed of or released by Intelecon at any location;
(vi) no oral or written notification of a release of a
hazardous material has been filed by or on behalf of Intelecon and no site or
facility now or previously owned, operated or leased by Intelecon is listed or
proposed for listing on any federal, state or local list of sites requiring
investigation or clean-up; and
(vii) there have been no environmental investigations,
studies, audits, tests, reviews or other analyses conducted by, or that are in
the possession of, Intelecon in relation to any site or facility now or
previously owned, operated or leased by Intelecon which have not been delivered
to New Visual prior to the execution of this Agreement.
(b) "Environmental Law Requirement" shall mean any Law,
ordinance, rule, regulation, notice, plan or demand letter relating to pollution
or protection of human health, safety or the environment, including those
relating to emissions, discharges, releases, or threatened releases of
pollutants, contaminants, chemicals or industrial, toxic or hazardous substances
or wastes into the environment (including without limitation, ambient air,
surface water, groundwater, soil, wetlands, subsurface strata or land) or
otherwise relating to the manufacture, processing, distribution, use, treatment,
storage, disposal, transport or handling of pollutants, contaminants, chemicals,
or industrial, toxic or hazardous substances or wastes.
(c) "Environmental Liability" shall mean (i) any liability or
obligation arising under any Environmental Law Requirement that has resulted in
AGREEMENT AND PLAN OF MERGER - PAGE 17
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or is reasonably likely to result in a Material Adverse Effect, or (ii) any
liability or obligation under any other current theory of law or equity
(including without limitation, any liability for personal injury, property
damage or remediation) that results from, or is based upon or related to, the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling, or the emission, discharge, release or threatened release
into the environment, of any pollutant, contaminant, chemical, or industrial,
toxic or hazardous substance or waste, which liability or obligation has
resulted in or is reasonably likely to result in a Material Adverse Effect.
4.1.20 EMPLOYEES AND LABOR MATTERS. Except as set forth in Schedule
4.1.20, Intelecon is not a party to or bound by any collective bargaining
agreement and there are no labor unions or other organizations representing,
purporting to represent or attempting to represent any employees of Intelecon.
Since January 1, 1997, there has not occurred or been threatened any material
strike, slowdown, picketing, work stoppage, concerted refusal to work overtime
or other similar labor activity with respect to any employees of Intelecon, and
since such date, Intelecon has complied in all material respects with all
applicable Laws relating to the employment of labor, including without
limitation those relating to wages, hours, occupational safety and health and
collective bargaining. There are no material labor disputes currently subject to
any grievance procedure, arbitration or litigation and there is no
representation petition pending or threatened with respect to any employee of
Intelecon. Intelecon has not received any written notice of, and is not
otherwise aware of, any federal, foreign, state or local administrative
proceeding (excluding workers compensation proceedings or except as set forth in
Schedule 4.1.20) pending or, to the knowledge of Intelecon or any Shareholder,
threatened with respect to any employee of Intelecon. There is no unfair labor
practice, sex, age, race or other discrimination or labor arbitration proceeding
pending or, to the knowledge of Intelecon or any Shareholder, threatened against
Intelecon.
4.1.21 EMPLOYEE BENEFIT PLANS AND RELATED MATTERS.
(a) EMPLOYEE BENEFIT PLANS.
(i) Schedule 4.1.21(a) sets forth a true and complete list
of each plan, fund or program that provides for its participants or their
beneficiaries, through the purchase of insurance or otherwise, medical,
surgical, or hospital care or benefits, or benefits in the event of sickness,
accident, disability, death or unemployment, or vacation benefits,
apprenticeship or other training programs, or day care centers, scholarship
funds, prepaid legal services, or supplemental income benefits for transferred
employees, or retirement income, or results in a deferral of income by employees
for periods extending to the termination of covered employment or beyond,
regardless of the method of calculating the contributions made to any such plan,
fund or program, or the method of calculating the benefits under any such plan,
fund or program or the method of distributing benefits from any such plan, fund
or program, and each bonus, incentive or deferred compensation, severance,
termination, retention, change in control, stock option or other equity-based,
performance or other employee or retiree benefit or compensation plan, program,
arrangement, agreement or policy, in any such case, whether written or unwritten
(in each case that applies to more than one person), that (x) provides or may
provide benefits or compensation in respect of any employee or former employee
AGREEMENT AND PLAN OF MERGER - PAGE 18
<PAGE>
employed or formerly employed by Intelecon or the beneficiary or dependent of
any such employee or former employee (such employees, former employees,
beneficiaries and dependents collectively, the "Employees") or under which any
Employee is or may become eligible to participate or derive a benefit and (y) is
or has been entered into, maintained or established by Intelecon, or to which
Intelecon contributes or is or has been obligated or required to contribute or
otherwise with respect to which Intelecon may have any liability (collectively,
the "Plans").
(ii) With respect to each such Plan, Intelecon will make
available to New Visual within ten days after the date hereof complete and
correct copies of: all written Plans; descriptions of all unwritten Plans; all
trust agreements, insurance contracts or other funding arrangements; the two
most recent actuarial reports prepared for any Plan that is a defined benefit
plan and for which actuarial reports are prepared; the two most recent annual
and similar reports filed with any governmental authority, including all
schedules thereto and all reports attached thereto; the most recent Internal
Revenue Service ("IRS") determination letter issued in respect of any Plan;
current summary plan descriptions and other explanatory literature or
announcements provided to Employees; all material communications received from
or sent to the IRS, the Pension Benefit Guaranty Corporation or the Department
of Labor in respect of any Plan during the preceding two years; statements or
other communications regarding withdrawal or other multi-employer plan
liabilities in respect of any Plan which is a multi-employer Plan, if any; and
all amendments and modifications to any such document. Except as disclosed in
Schedule 4.1.21(a), Intelecon has not communicated to any Employee any intention
or commitment to modify any Plan or to establish or implement any other employee
or retiree benefit or compensation arrangement.
(b) QUALIFICATION. Each Plan intended to be qualified under
Section 401(a) of the Code, and the trust (if any) forming a part thereof, has
received a favorable determination letter from the IRS as to its qualification
under the Code and to the effect that each such trust is exempt from taxation
under Section 501(a) of the Code, and, to the knowledge of Intelecon and each
Shareholder, nothing has occurred since the date of such determination letter
that could adversely affect such qualification or tax-exempt status.
(c) COMPLIANCE; LIABILITY.
(i) No Plan covered by Title IV of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA") or Section 412 of the Code is
now, or ever was, to the knowledge of Intelecon or any Shareholder, maintained
by Intelecon or any predecessor of either of them. Neither any Plan nor
Intelecon has incurred any liability or penalty under Section 4975 of the Code
or Sections 409, 502(i) or 502(l) of ERISA.
(ii) Each of the Plans has been operated and administered in
all respects in substantial compliance with all applicable Laws, including
without limitation all applicable provisions of ERISA and the Code. There are no
pending or, to the knowledge of Intelecon or any Shareholder, threatened or
anticipated claims, in excess of $50,000 individually or $100,000 in the
AGREEMENT AND PLAN OF MERGER - PAGE 19
<PAGE>
aggregate, against or involving any of the Plans and no suit, action or other
litigation (excluding claims for benefits incurred in the ordinary course of
Plan activities) has been brought against or with respect to any such Plan.
(iii) All contributions required to be made as of the date
of this Agreement to the Plans have been made or provided for. Neither Intelecon
nor any entity under "common control" with Intelecon within the meaning of
Section 4001 of ERISA has contributed to, or been required to contribute to, any
"multi-employer plan" (as defined in Sections 3(37) and 4001(a)(3) of ERISA).
(iv) No Employee is or may become entitled to
post-employment benefits of any kind by reason of employment by Intelecon,
including, without limitation, death or medical benefits (whether or nor
insured), other than (a) coverage provided pursuant to the terms of any Plan
specifically identified as providing such coverage in Schedule 4.1.21(a) or
mandated by Section 4980B of the Code, (b) retirement benefits payable under any
Plan qualified under Section 401(a) of the Code or (c) deferred compensation
fully and adequately accrued as a liability on the Latest Balance Sheet or
incurred with respect to services rendered after the Balance Sheet Date in the
ordinary course of business consistent with prior practice, pursuant to the
terms of a Plan. The consummation of the transactions contemplated by this
Agreement will not result in an increase in the amount of compensation or
benefits or the acceleration of the vesting or timing of payment of any
compensation or benefits payable to or in respect of any Employee.
4.1.22 BROKERS; FINDERS, ETC. Neither Intelecon nor any Shareholder has
engaged any broker, finder, consultant or intermediary in connection with the
transactions contemplated by this Agreement who would be entitled to a brokerage
or finder's commission, fee or similar compensation in connection therewith or
upon the consummation thereof. All negotiations relating to this Agreement and
the transactions contemplated hereby have been carried on without the
participation of any person acting on behalf of Intelecon or any Shareholder in
such manner as to give rise to any valid claim against New Visual or any of its
subsidiaries or affiliates for any brokerage or finder's commission, fee or
similar compensation, or for any bonus payable to any officer, director,
employee, agent or sales representative of or consultant to Intelecon or any
Shareholder upon consummation of the transactions contemplated hereby.
4.1.23 DISCLOSURE. To the knowledge of Intelecon and each Shareholder,
no representation or warranty by Intelecon and the Shareholders contained in
this Agreement nor any statement or certificate furnished or to be furnished by
or on behalf of Intelecon or any Shareholder to New Visual or its
representatives in connection herewith or pursuant hereto contains or will
contain any untrue statement of a material fact, or omits or will omit to state
any material fact required to make the statements contained herein or therein
not misleading. To the knowledge of Intelecon and each Shareholder, there is no
fact (other than matters of a general economic or political nature which do not
affect the Intelecon business uniquely) that has not been disclosed by Intelecon
or the Shareholders to New Visual and/or its representatives that might
reasonably be expected to have or result in a Material Adverse Effect.
AGREEMENT AND PLAN OF MERGER - PAGE 20
<PAGE>
4.1.24 INVESTMENT INTENT.
(a) Each Shareholder is acquiring the Merger Shares solely for
the purpose of investment for his own account and not with a view to or for sale
in connection with any distribution thereof within the meaning of Section 2(11)
of the Securities Act of 1933 (the "Securities Act"). Each Shareholder
acknowledges that the Merger Shares are being issued to each Shareholder in
reliance upon one or more exemptions from registration contained in the
Securities Act and applicable state securities laws. The reliance by New Visual
upon such exemptions is based in part upon the representations set forth in this
Section 4.1.24.
(b) Each Shareholder understands that the Merger Shares have not
been registered under the Securities Act, and that he has no right to demand the
registration of the Merger Shares under the Securities Act. Each Shareholder
understands and agrees that the Merger Shares must be held subject to Section
3.4 hereof and cannot be transferred for a period of at least eighteen months,
and unless they are subsequently registered under the Securities Act or any
exemption from such registration is available with respect to such transfer.
(c) Each Shareholder understands that the Merger Shares
represent a speculative investment which involves a high degree of risk of loss
to each Shareholder.
(d) Each Shareholder has such knowledge and experience in
financial and business matters that he is capable of evaluating the merits and
risks of an investment in the Merger Shares and of making an informed investment
decision.
(e) Each Shareholder acknowledges and agrees that the Merger
Shares issued to each Shareholder or any subsequent holder thereof who acquires
the Merger Shares in a transaction exempt from registration under the Securities
Act may be imprinted with a restrictive legend concerning registration and the
provisions of Section 3.4 hereof deemed appropriate by New Visual.
(f) Each Shareholder acknowledges and agrees that New Visual's
stock records may be marked to indicate the provisions of this Section 4.1.24
and Section 3.4 hereof, and that New Visual may direct any transfer agent to
enter a stop transfer order in its records with respect to the Merger Shares in
accordance with this Section 4.1.24 and Section 3.4 hereof.
4.1.25 ACCOUNTS RECEIVABLE. All accounts receivable of Intelecon that
are reflected on the Latest Balance Sheet or on the accounting records of
Intelecon as of the Closing Date (collectively, the "Accounts Receivable")
represent or will represent valid obligations arising from sales actually made
or services actually performed in the ordinary course of business. Unless paid
prior to the Closing Date, the Accounts Receivable are or will be as of the
Closing Date current and collectible net of the respective reserves shown on the
Latest Balance Sheet or on the accounting records of Intelecon as of the Closing
Date (which reserves are adequate and calculated consistent with past practices
and, in the case of the reserve as of the Closing Date, will not represent a
greater percentage of the Accounts Receivable as of the Closing Date than the
AGREEMENT AND PLAN OF MERGER - PAGE 21
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reserve reflected in the Latest Balance Sheet represented of the Accounts
Receivable reflected therein and will not represent a material adverse change in
the composition of such Accounts Receivable in terms of aging). Subject to such
reserves, each of the Accounts Receivable either has been or will be collected
in full, without any set-off, within ninety days after the day on which it first
becomes due and payable. There is no contest, claim, or right of set-off, other
than returns in the ordinary course of business, under any Contract with any
obligor of an Accounts Receivable relating to the amount or validity of such
Accounts Receivable. Schedule 4.1.25 contains a complete and accurate list of
all Accounts Receivable as of the date of the Latest Balance Sheet, which list
sets forth the aging of such Accounts Receivable.
4.2. REPRESENTATIONS AND WARRANTIES OF NEW VISUAL AND ACQUISITION. New
Visual and Acquisition represent and warrant to Intelecon and each Shareholder
as follows:
4.2.1 AUTHORIZATION. Each of New Visual and Acquisition has the
requisite corporate power and authority to execute and deliver this Agreement
and the other Transaction Agreements to which it is a party, to perform fully
its obligations hereunder and thereunder, and to consummate the transactions
contemplated hereby and thereby. The execution and delivery by New Visual and
Acquisition of this Agreement and the other Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby have been duly
authorized by all requisite corporate action of New Visual and Acquisition. Each
of New Visual and Acquisition has duly executed and delivered this Agreement and
on the Closing Date will have duly executed and delivered the other Transaction
Agreements to which it is a party. This Agreement is, and on the Closing Date
each of the other Transaction Agreements to which New Visual or Acquisition is a
party will be, legal, valid and binding obligations of New Visual and/or
Acquisition, as the case may be, enforceable against each such party in
accordance with their respective terms, except as may be limited by applicable
bankruptcy and other laws regarding creditors' rights generally, and general
principles of equity.
4.2.2 CORPORATE STATUS.
(a) Each of New Visual and Acquisition is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, with full corporate power and authority to
carry on its respective business and to own or lease and to operate its
respective properties as and in the places where such business is conducted and
such properties are owned, leased or operated.
(b) Each of New Visual and Acquisition is duly qualified and
licensed to do business in the jurisdictions specified in Schedule 4.2.2, which
are the only jurisdictions in which the operation of its respective business or
the character of the properties owned, leased, or operated by it makes such
qualification or licensing necessary.
(c) Each of New Visual and Acquisition will deliver to Intelecon,
within ten (10) days after the date hereof, complete and correct copies of their
respective articles of incorporation and bylaws. The minute books and other
AGREEMENT AND PLAN OF MERGER - PAGE 22
<PAGE>
corporate records of New Visual and Acquisition contain a true and complete
record of all action taken at all meetings and by all written consents in lieu
of meetings of the shareholders, the Board of Directors and committees of the
Board of Directors of New Visual and Acquisition.
4.2.3 CAPITALIZATION.
(a) The authorized capital stock of New Visual consists solely of
(i) 100,000,000 shares of New Visual Common Stock, of which 82,028,831 shares
were issued and outstanding as of March 23, 2000, and (ii) 200,000,000 shares of
New Visual preferred stock, $30 par value, no shares of which are outstanding.
All issued and outstanding shares of New Visual Common Stock are duly
authorized, validly issued, fully paid, non-assessable and free of preemptive
rights.
(b) The authorized capital stock of Acquisition consists solely
of 10,000 shares of Acquisition Common Stock, 1,000 shares of which are issued
and outstanding. All issued and outstanding shares of Acquisition Common Stock
are duly authorized, validly issued, fully paid, non-assessable, free of
preemptive rights, and owned by New Visual.
(c) Except as set forth on Schedule 4.2.3, no subscriptions,
options, warrants, conversion or other rights, agreements, commitments,
arrangements or understandings of any kind obligating New Visual or Acquisition,
contingently or otherwise, to issue or sell, or cause to be issued or sold, any
shares of New Visual Common Stock or Acquisition Common Stock or any securities
convertible into or exchangeable for any such shares, are outstanding; and no
authorization therefor has been given. There are no outstanding contractual or
other rights or obligations to or of New Visual or Acquisition to repurchase,
redeem or otherwise acquire any outstanding shares of New Visual Common Stock or
Acquisition Common Stock.
4.2.4 NO CONFLICTS. The execution, delivery and performance by New
Visual and Acquisition of this Agreement and of the other Transaction Agreements
to which they are parties, and the consummation of the transactions contemplated
hereby and thereby, do not and will not conflict with or result in a violation
of or a default under (with or without the giving of notice or the lapse of time
or both), create in any other person a right or claim of termination, amendment,
modification, acceleration or cancellation of, or result in the creation of any
Lien (or any obligation to create any Lien) upon any of the properties or assets
of New Visual or Acquisition under (i) any Law applicable to New Visual or
Acquisition or any of the properties or assets of New Visual or Acquisition,
(ii) the certificate or articles of incorporation or bylaws of New Visual or
Acquisition or (iii) except as set forth in Schedule 4.2.4, any Contract to
which New Visual or Acquisition is a party or by which New Visual or Acquisition
or any of their properties or assets may be bound or affected, except, in the
case of clause (iii), for violations or defaults that, individually and in the
aggregate, would not have a material adverse effect on the business, results of
operations, condition (financial or otherwise) or prospects of New Visual and
Acquisition, taken as a whole (a "New Visual Material Adverse Effect"), and
would not materially impair the ability of New Visual or Acquisition to perform
its respective obligations hereunder or under the other Transaction Agreements
to which they are parties. Except as specified in Schedule 4.2.4, no
AGREEMENT AND PLAN OF MERGER - PAGE 23
<PAGE>
governmental approval or other consent of any party is required to be obtained
or made by New Visual or Acquisition in connection with the execution and
delivery of this Agreement or the other Transaction Agreements or the
consummation of the transactions contemplated hereby or thereby.
4.2.5 BROKERS; FINDERS, ETC. New Visual has not engaged any broker,
finder, consultant or intermediary in connection with the transactions
contemplated by this Agreement who would be entitled to a brokerage or finder's
commission, fee or similar compensation in connection therewith or upon the
consummation thereof. All negotiations relating to this Agreement and the
transactions contemplated hereby have been carried on without the participation
of any person acting on behalf of New Visual in such manner as to give rise to
any valid claim against Intelecon or any Shareholder for any brokerage or
finder's commission, fee or similar compensation.
4.2.6 VALIDITY OF MERGER SHARES. The Merger Shares, when issued and
delivered in accordance with the terms of this Agreement, will have been duly
authorized and validly issued and will be fully paid and non-assessable.
4.2.7 SEC REPORTS AND FINANCIAL STATEMENTS. New Visual has filed with
the United States Securities and Exchange Commission (the "Commission"), its
Annual Report on Form 10-KSB for the fiscal year ended October 31, 1999 and its
Quarterly Report on Form 10-QSB for the period ended January 31, 2000 (as such
documents have been amended through the date hereof, the "New Visual Reports").
The consolidated financial statements of New Visual included in the New Visual
Reports comply in all material respects with applicable accounting requirements
and with the published rules and regulations of the Commission with respect
thereto, have been prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the periods involved (except as
may be indicated in the notes thereto), and fairly present the consolidated
financial position of New Visual and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended.
4.2.8 ABSENCE OF CERTAIN CHANGES. Except as disclosed in the New Visual
Reports or as set forth in Schedule 4.2.8, since January 31, 2000, (i) New
Visual and Acquisition have conducted their respective businesses only in the
ordinary course and consistent with prior practice and (ii) there has not been
(A) any event or occurrence which will have a New Visual Material Adverse Effect
or (B) any material change by New Visual in its accounting principles, practices
or methods (except to the extent required by GAAP).
4.2.9 LITIGATION. Except as set forth in Schedule 4.2.9, there is no
action, claim, demand, suit, proceeding, arbitration, grievance, citation,
summons, subpoena, inquiry or investigation of any nature, civil, criminal,
regulatory or otherwise, in law or in equity, pending or, to the knowledge of
New Visual or Acquisition, threatened against or relating to New Visual or
Acquisition or against or relating to the transactions contemplated by this
Agreement or the other Transaction Agreements, and neither New Visual nor
Acquisition knows or has reason to be aware of any basis for the same.
AGREEMENT AND PLAN OF MERGER - PAGE 24
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4.2.10 DISCLOSURE. To the knowledge of New Visual and Acquisition, no
representation or warranty by New Visual and Acquisition contained in this
Agreement nor any statement or certificate furnished or to be furnished by or on
behalf of New Visual or Acquisition to Intelecon or its representatives in
connection herewith or pursuant hereto contains or will contain any untrue
statement of a material fact, or omits or will omit to state any material fact
required to make the statements contained herein or therein not misleading. To
the knowledge of New Visual and Acquisition, there is no fact (other than
matters of a general economic or political nature which do not affect New
Visual's business uniquely) known to New Visual or Acquisition that has not been
disclosed by New Visual or Acquisition to Intelecon and/or its representatives
that might reasonably be expected to have or result in a New Visual Material
Adverse Effect.
4.2.11. ABSENCE OF UNDISCLOSED LIABILITIES. New Visual has no
liabilities or obligations of any nature, whether known or unknown, absolute,
accrued, contingent or otherwise and whether due or to become due, except (a) as
set forth in Schedule 4.2.11, (b) as and to the extent disclosed and adequately
reserved against in the latest balance sheet included in the New Visual Reports
(excluding the notes thereto) and (c) for liabilities and obligations that (i)
were incurred after January 31, 2000, in the ordinary course of business
consistent with prior practice and (ii) individually and in the aggregate are
not material to New Visual and have not had or resulted in, and will not have or
result in, a New Visual Material Adverse Effect.
ARTICLE V
COVENANTS
5.1 CONDUCT OF BUSINESS. On and after the date hereof and until the
Effective Time, except as expressly permitted or required by this Agreement or
as otherwise expressly consented to by New Visual in writing, Intelecon will,
and the Shareholders will cause Intelecon to:
(a) carry on its business in, and only in, the ordinary course,
in substantially the same manner as heretofore conducted, and use all
commercially reasonable efforts to preserve intact its present business
organization, maintain its properties in good operating condition and repair,
keep available the services of its present officers and significant employees,
and preserve its relationship with customers, suppliers and others having
business dealings with it, to the end that its goodwill and going business shall
be in all material respects unimpaired following the Closing;
(b) not prepay any accounts payable, delay payment of any trade
payables or other obligations, or make any other cash payments other than in the
ordinary course of business;
(c) maintain all of its tangible assets in good repair, working
order and operating condition subject only to ordinary wear and tear;
(d) use all reasonable efforts to keep in full force and effect
insurance comparable in amount and scope of coverage to insurance now carried by
it;
AGREEMENT AND PLAN OF MERGER - PAGE 25
<PAGE>
(e) maintain its books of account and records in the usual, regular
and ordinary manner consistent with past policies and practices and not change
such policies and practices;
(f) comply in all material respects with all Laws applicable to
Intelecon and its business;
(g) use all reasonable efforts to maintain its good standing in its
jurisdiction of incorporation and in the jurisdictions in which it is qualified
to do business as a foreign corporation and to maintain all governmental
approvals and consents necessary for, or otherwise material to, Intelecon and
its business;
(h) not merge or consolidate with, or agree to merge or consolidate
with, or purchase substantially all of the assets of, or otherwise acquire, any
business, business organization or division thereof, of any other person;
(i) promptly advise New Visual in writing of any event, occurrence,
fact, condition, change, development or effect that, individually or in the
aggregate, could, to the knowledge of Intelecon or any Shareholder, reasonably
be expected to have or result in a Material Adverse Effect or could cause a
breach of this Section 5.1;
(j) perform in all material respects all of its obligations under
all Contracts relating to or affecting Intelecon and its business;
(k) not declare, set aside, make or pay any dividend or other
distribution in respect of its capital stock or otherwise purchase or redeem,
directly or indirectly, any shares of its capital stock;
(l) not issue or sell any shares of any class of its capital stock,
or any securities convertible into or exchangeable for any such shares, or
issue, sell, grant or enter into any subscriptions, options, warrants,
conversion or other rights, agreements, commitments, arrangements or
understandings of any kind, contingently or otherwise, to purchase or otherwise
acquire any such shares or any securities convertible into or exchangeable for
any such shares;
(m) not incur any indebtedness for borrowed money, issue or sell
any debt securities or prepay any debt (including, without limitation, any
borrowings from or prepayments to any Shareholder or other affiliate) except for
borrowings and prepayments (other than to or from any Shareholder or other
affiliate) in the ordinary course of business;
(n) not mortgage, pledge or otherwise subject to any Lien, any of
its real property or other properties or assets, tangible or intangible, except
in the ordinary course of business;
(o) not forgive, cancel, compromise, waive or release any debts,
claims or rights, except for debts of, or claims and rights against, persons
AGREEMENT AND PLAN OF MERGER - PAGE 26
<PAGE>
other than any Shareholder or other affiliate that are forgiven, cancelled,
compromised, waived or released in the ordinary course of business;
(p) not pay or commit to pay any bonus, other incentive
compensation, change in control or similar compensation to any officer,
director, employee, Shareholder or affiliate or grant or commit to grant to any
officer, director, employee, Shareholder or affiliate any other increase in, or
additional, compensation in any form;
(q) not enter into, institute, adopt or amend or commit to enter
into, institute, adopt or amend any employment, consulting, retention,
change-in-control, collective bargaining, bonus or other incentive compensation,
profit-sharing, health or other welfare, stock option or other equity, pension,
retirement, vacation, severance, deferred compensation or other employment,
compensation or benefit plan, policy, agreement, trust, fund or arrangement in
respect of or for the benefit of any officer, director, employee, Shareholder or
affiliate;
(r) not amend either its articles of incorporation or bylaws;
(s) not incur, assume, guarantee or otherwise become directly or
indirectly liable with respect to any liability or obligation in excess of
$500,000 in each case or $750,000 in the aggregate at any one time outstanding
(whether absolute, accrued, contingent or otherwise and whether direct or
indirect, or as guarantor or otherwise with respect to any liability or
obligation of any other person) other than agreements for purchases of goods or
services in the ordinary course of business;
(t) not sell any assets with a value in excess of $100,000 in each
case or $250,000 in the aggregate, other than inventory in the ordinary course
of business;
(u) not transfer or grant any rights under, or enter into any
settlement regarding the breach or infringement of any Intellectual Property, or
modify any existing rights with respect thereto;
(v) not make any capital expenditures or capital additions or
improvements in excess of an aggregate of $250,000;
(w) not institute, settle or agree to settle any litigation, action
or proceeding before any court or governmental body involving amounts in excess
of $50,000;
(x) not liquidate, dissolve or wind-up its affairs; or
(y) not enter into any transaction, Contract or commitment other
than in the ordinary course of business, or pay or agree to pay any legal,
accounting, brokerage or finder's fee, Taxes or other expenses in connection
with, or incur any severance pay obligations by reason of, this Agreement, the
other Transaction Agreements or the transactions contemplated hereby or thereby.
AGREEMENT AND PLAN OF MERGER - PAGE 27
<PAGE>
5.2 NO SOLICITATION. From the date hereof until the earlier of the
Effective Time or the termination of this Agreement in accordance with the terms
hereof, Intelecon agrees (a) that it shall not, and Intelecon shall direct and
use its best efforts to cause its officers, directors, employees, agents and
representatives (including, without limitation, any investment banker, attorney
or accountant retained by it) not to, initiate, solicit or encourage, directly
or indirectly, any inquiries or the making or implementation of any proposal or
offer (including, without limitation, any proposal or offer to its shareholders)
with respect to a merger, acquisition, consolidation or similar transaction
involving, or any purchase of all or any significant portion of the assets or
equity securities of, Intelecon (any such proposal or offer being hereinafter
referred to as an "Acquisition Proposal") or engage in any negotiations
concerning, or provide any confidential information or data to, or have any
discussions with, any person relating to an Acquisition Proposal, or otherwise
facilitate any effort or attempt to make or implement an Acquisition Proposal;
(b) that it will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing and Intelecon will take the necessary steps
to inform the individuals or entities referred to above of the obligations
undertaken in this Section 5.2; and (c) that it will notify New Visual
immediately of the identity of the potential acquiror and the terms of such
person's or entity's proposal if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it; provided, however,
that nothing contained in this Section 5.2 shall prohibit the Board of Directors
of Intelecon from (i) furnishing information to or entering into discussions or
negotiations with any person or entity that makes an unsolicited written
proposal to acquire Intelecon pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business combination
or other similar transaction, if, and only to the extent that, (A) the Board of
Directors of Intelecon determines in good faith that such action is required for
the Board of Directors to comply with its fiduciary duties to shareholders, (B)
prior to furnishing such information to, or entering into discussions or
negotiations with, such person or entity, Intelecon provides written notice to
New Visual to the effect that it is furnishing information to, or entering into
discussions or negotiations with, such person or entity, and (C) subject to any
confidentiality agreement with such person or entity (which Intelecon determined
in good faith was required to be executed in order for the Board of Directors to
comply with its fiduciary duties to shareholders), Intelecon keeps New Visual
informed of the status of any such discussions or negotiations and (ii) to the
extent applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Acquisition Proposal. Nothing in this Section 5.2 shall (x)
permit Intelecon to terminate this Agreement (except as specifically provided in
Article VII during the term of this Agreement (it being agreed that during the
term of this Agreement, Intelecon shall not enter into any agreement with any
person that provides for, or in any way facilitates, an Acquisition Proposal
(other than a confidentiality agreement in customary form)), or (z) affect any
other obligation of any party under this Agreement.
AGREEMENT AND PLAN OF MERGER - PAGE 28
<PAGE>
5.3 ACCESS AND INFORMATION; COOPERATION FOR SEC FILINGS BY NEW VISUAL;
SCHEDULES.
(a) From the date hereof until the earlier of the Effective Time or
the termination of this Agreement in accordance with the terms hereof, each of
the parties hereto will give the other parties hereto and such other parties'
accountants, counsel, consultants, employees and agents, access at all
reasonable times to, and furnish them with all documents, records, work papers
and information with respect to, all of the assets, properties, books,
contracts, commitments, reports and records of such party, as any of the other
parties hereto shall from time to time reasonably request. In addition, each of
the parties hereto will permit the other parties hereto and their respective
accountants, counsel, consultants, employees and agents, reasonable access to
personnel of such party and persons acting on such parties' behalf as may be
necessary or useful to each of the other parties hereto in its review of the
properties, assets and business of such party and the above-mentioned documents,
records and information. Without limiting the foregoing, each of New Visual and
Intelecon agrees that the other shall be permitted during the thirty (30) day
period commencing on the date of this Agreement (hereinafter called the "Due
Diligence Period") to conduct such diligence and investigation concerning the
other party and its properties, assets and business and the above-mentioned
documents, records and information, as the investigating party, in its
discretion, reasonably deems appropriate. Intelecon and the Shareholders will
keep New Visual reasonably informed as to the affairs of Intelecon and its
business, and New Visual will keep Intelecon reasonably informed as to the
affairs of New Visual and its business.
(b) Intelecon and the Shareholders will use reasonable good faith
efforts to cause the accountants of Intelecon to cooperate with New Visual, and
deliver to New Visual such written consents as it shall reasonably request, in
connection with any required filings with the Commission under the Securities
Act and the Exchange Act.
(c) On or before April 7, 2000, each of the parties hereto will
deliver to the other parties hereto all Schedules referred to herein that are
required to be delivered by such party.
5.4 PUBLIC ANNOUNCEMENTS. Except as required by applicable Law, none of
the parties hereto shall, nor shall any person acting on behalf of any of them,
make any public announcement in respect of this Agreement or the transactions
contemplated hereby without the prior written consent of New Visual and
Intelecon.
5.5 VOTE OR CONSENT ON MERGER; OTHER ACTIONS.
(a) Intelecon and each Shareholder agree to take all action
necessary in accordance with applicable Law and Intelecon's articles of
incorporation and bylaws to convene or cause to be convened a meeting of the
shareholders of Intelecon to consider and vote upon, or to otherwise take action
by shareholder consent to approve, this Agreement and the Merger and the other
Transactions contemplated hereby, as promptly as practicable. Intelecon, through
its Board of Directors, agrees to recommend to the shareholders of Intelecon
approval of this Agreement and the Merger and the other Transactions
contemplated hereby.
AGREEMENT AND PLAN OF MERGER - PAGE 29
<PAGE>
(b) Each Shareholder agrees to vote, or cause to be voted, all of
his shares of Intelecon Common Stock in favor of, or to otherwise take action by
shareholder consent to approve, any proposal submitted by the Board of Directors
of Intelecon for shareholder approval of this Agreement and the Merger and the
other Transactions contemplated hereby.
(c) Each Shareholder agrees that he will not, prior to the
Effective Time or the earlier termination of this Agreement pursuant to Section
7 of this Agreement, without the prior written consent of New Visual, (i) sell,
transfer, pledge, assign or otherwise dispose of, or enter into any Contract,
option or other arrangement or understanding with respect to the sale, transfer,
pledge, assignment or other disposition of any of his shares of Intelecon Common
Stock, (ii) grant any proxy with respect to any of his shares of Intelecon
Common Stock or enter into any voting trust or similar agreement or arrangement
in respect of the voting of any of his shares of Intelecon Common Stock or (iii)
vote any of the shares of Intelecon Common Stock to amend the articles of
incorporation or bylaws of Intelecon, to authorize any merger or consolidation
of Intelecon, or sale of all or substantially all of the assets of Intelecon, or
the dissolution, liquidation or winding-up of the affairs of Intelecon, or
authorize the issuance of any shares of capital stock of Intelecon, or approve
any new employee benefit, pension, stock option or other similar plan or
arrangement of Intelecon or any amendment to any existing plan or arrangement to
increase the size of any such plan or arrangement or materially increase the
benefits payable thereunder.
5.6 FINANCIAL STATEMENTS. As soon as practicable after the execution of
this Agreement, Intelecon agrees to engage Tabb, Conigliaro & McGann, P.C.
("TCM") as its accountants to audit Intelecon's balance sheets as of December
31, 1999 and 1998 and the related statements of income, changes in shareholders'
equity and changes in cash flows for the respective years then ended, and the
related notes and schedules thereto, and to prepare its report of independent
public accountants with respect thereto (the "1999 Financial Statements"). Up to
$30,000 of the cost of the preparation of the 1999 Financial Statements shall be
paid by Intelecon upon its receipt of TCM's bill for such services. Intelecon
shall deliver the 1999 Financial Statements to New Visual as soon as practicable
after the date hereof. New Visual agrees to pay any fees of TCM relating to the
preparation of the 1999 Financial Statements in excess of $30,000, regardless of
whether the Closing occurs.
5.7 FURTHER ACTIONS.
(a) Each of the parties hereto agrees to use and to cause all
persons acting on its behalf to use all reasonable good faith efforts to take
all actions and to do all things necessary, proper or advisable to consummate
the transactions contemplated hereby by the Closing Date.
(b) Each of New Visual and Intelecon, as promptly as practicable,
will file or supply, or cause to be filed or supplied, all applications,
notifications and information required to be filed or supplied by it pursuant to
applicable Law in connection with this Agreement and the other Transaction
Agreements and the consummation of the transactions contemplated hereby and
thereby.
AGREEMENT AND PLAN OF MERGER - PAGE 30
<PAGE>
(c) Each of New Visual and Intelecon, as promptly as practicable,
will use all reasonable efforts to obtain, or cause to be obtained, all consents
(including, without limitation, all governmental approvals and any consent
required under any Contract) necessary to be obtained by it in order to
consummate the transactions contemplated by this Agreement.
(d) Each of the parties hereto will, and will cause all persons
acting on its or their behalf to, coordinate and cooperate with the other
parties hereto in exchanging such information and supplying such assistance as
may be reasonably requested by the other parties hereto in connection with the
filings and other actions contemplated hereby.
(e) At all times prior to the Effective Time, Intelecon and the
Shareholders shall promptly notify New Visual in writing of any fact, condition,
event or occurrence (including any fact that would cause the representations and
warranties of Intelecon and the Shareholders set forth in this Agreement to be
incorrect in any material respect) that will or may result in the failure of any
of the conditions contained in Sections 6.1 and 6.2 to be satisfied, promptly
upon becoming aware of the same. At all times prior to the Effective Time, New
Visual shall promptly notify Intelecon in writing of any fact, condition, event
or occurrence (including any fact that would cause any of the representations
and warranties of New Visual set forth in this Agreement to be incorrect in any
material respect) that will or may result in the failure of any of the
conditions contained in Sections 6.1. and 6.3 to be satisfied, promptly upon
becoming aware of the same. Additionally, in the event any party, whether during
the course of its due diligence review or otherwise, discovers prior to the
Closing that any representation and warranty made by any other party is
incorrect in any material respect, the discovering party shall give such other
party prompt written notice of the inaccuracy, which notice shall describe the
inaccuracy in reasonable detail.
5.8 FURTHER ASSURANCES. Following the Closing, each of the parties
hereto shall, and shall cause all persons acting on its or their behalf to, from
time to time, execute and deliver such additional instruments, documents,
conveyances or assurances and take such other actions as shall be necessary, or
otherwise reasonably requested by any of the other parties hereto, to confirm
and assure the rights and obligations provided for in this Agreement and in the
other Transaction Agreements and render effective the consummation of the
transactions contemplated hereby and thereby.
5.9 ELECTION OF DIRECTORS AND OFFICERS. Immediately following the
Effective Time, the Board of Directors of New Visual shall cause Eddie Vakser
and Vladimir Vakser to be appointed to the Board of Directors of New Visual, and
shall cause Eddie Vakser to be elected President of New Visual, and Vladimir
Vakser to be elected Chief Operating Officer and Chief Financial Officer of New
Visual. Immediately following the Effective Time, the Board of Directors of
Acquisition shall cause Eddie Vakser and Vladimir Vakser to be elected officers
and members of the Board of Directors of Acquisition.
5.10 EMPLOYEE BENEFITS. From and after the Effective Time, subject to
applicable law, Acquisition will honor in accordance with their terms, all
AGREEMENT AND PLAN OF MERGER - PAGE 31
<PAGE>
Plans; provided, however, that nothing herein shall preclude any change effected
on a prospective basis in any Plan that is permitted pursuant to the following
sentence of this Section 5.10. For a period of not less than six months
following the Effective Time, subject to applicable law, Acquisition will
provide benefits to Intelecon employees who become employees of Acquisition
which will, in the aggregate, be no less favorable than those provided by
Intelecon to its employees immediately prior to the Effective Time. New Visual
agrees that, if its shareholders approve a stock option plan of New Visual, its
Board of Directors will cause stock options with respect to an aggregate of
1,000,000 shares of New Visual Common Stock to be granted to certain Intelecon
employees (other than the Shareholders) who become employees of Acquisition.
Eddie Vakser and Vladimir Vakser will submit their recommendations concerning
the employees to whom stock options will be granted and the number of shares to
be covered by each such stock option; provided, however, that the employees to
whom stock options will be granted and all terms of such options shall be
approved by the New Visual Board of Directors or committee administering such
stock option plan. Nothing herein shall preclude additional stock option grants
to Intelecon employees who become employees of Acquisition.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY. The respective obligations
of the parties to consummate the transactions contemplated hereby shall be
subject to the fulfillment on or prior to the Closing Date of the following
condition:
6.1.1 NO INJUNCTION, ETC. Consummation of the transactions contemplated
hereby shall not have been restrained, enjoined or otherwise prohibited by any
applicable Law, including any order, injunction, decree or judgment of any court
or governmental authority. No court or governmental authority shall have
determined any applicable Law to make illegal the consummation of the
transactions contemplated hereby or by the other Transaction Agreements, and no
proceedings with respect to the application of any such Law to such effect shall
be pending or threatened.
6.2 CONDITIONS TO OBLIGATIONS OF NEW VISUAL AND ACQUISITION. The
obligations of New Visual and Acquisition to consummate the transactions
contemplated hereby shall be subject to the fulfillment (or waiver in writing by
New Visual) on or prior to the Closing Date of the following additional
conditions, which Intelecon and the Shareholders agree to use their good faith
efforts to cause to be fulfilled:
6.2.1 REPRESENTATIONS; PERFORMANCE. The representations and warranties
of Intelecon and the Shareholders contained in this Agreement and the Exhibits
and Schedules hereto (i) shall be true and correct in all material respects at
and as of the date hereof, and (ii) shall be repeated and shall be true and
correct in all material respects on and as of the Closing Date with the same
effect as though made on and as of the Closing Date. Intelecon and the
Shareholders shall have duly performed and complied in all material respects
with all agreements and conditions required by this Agreement to be performed or
complied with by each of them prior to or on the Closing Date. Intelecon and the
AGREEMENT AND PLAN OF MERGER - PAGE 32
<PAGE>
Shareholders shall have delivered to New Visual a certificate, dated the Closing
Date and signed by Intelecon's duly authorized officer and by each Shareholder,
to the foregoing effect.
6.2.2 CONSENTS. Intelecon shall have obtained and shall have delivered
to New Visual copies of (i) all governmental approvals required to be obtained
by Intelecon in connection with the execution and delivery of this Agreement and
the other Transaction Agreements and the consummation of the transactions
contemplated hereby and thereby and (ii) all consents (including, without
limitation, all consents required under any Contract) necessary to be obtained
by Intelecon or the Shareholders in order to consummate the Merger pursuant to
this Agreement.
6.2.3 NO MATERIAL ADVERSE EFFECT. No event, occurrence, fact,
condition, change, development or effect shall have occurred, exist or come to
exist since the Balance Sheet Date that, individually or in the aggregate, has
constituted or resulted in, or could reasonably be expected to constitute or
result in, a Material Adverse Effect.
6.2.4 TRANSACTION AGREEMENTS. The Shareholders shall have entered into
the following agreements with New Visual and/or Acquisition:
(a) Employment Agreements, in the forms attached hereto as
Exhibits C and D, shall be entered into by Eddie Vakser and Vladimir Vakser,
respectively;
(b) the Shareholders' Release, in the form attached hereto as
Exhibit E, shall be entered into by the Shareholders and Ikso Vakser; and
(c) the Escrow Agreement shall be entered into by the
Shareholders and Ikso Vakser.
6.2.5 ESTOPPEL LETTERS. Intelecon shall have delivered to New Visual
estoppel letters, reasonably satisfactory to New Visual, from the lessors of the
leases listed in Schedule 6.2.5 to the effect that Intelecon has paid all rent
and other amounts due under such lease, is not otherwise in default in any
material respect thereunder and, if required under such lease, consenting to the
assumption of such lease by Acquisition as the Surviving Corporation in the
Merger.
6.2.6 1999 FINANCIAL STATEMENTS. Intelecon shall have provided New
Visual with the completed 1999 Financial Statements, and such 1999 Financial
Statements shall be satisfactory to New Visual, in its sole discretion.
6.2.7 INTELECON LIABILITIES. Intelecon's liabilities on the Closing
Date shall not exceed $1.5 million, excluding (i) liabilities relating to
capital leases, and (ii) indebtedness of up to $6 million relating to the
repayment of the Greenbriar Note (as defined below), the cancellation of the
Greenbriar Warrant (as defined in Section 4.1.3) and the redemption of the
Intelecon Preferred Stock. Intelecon shall have delivered to New Visual the
certificate of its President and Chief Financial Officer, dated the Closing
Date, listing the liabilities of Intelecon, by balance sheet category and
amount, and confirming Intelecon's compliance with this Section 6.2.7. As used
AGREEMENT AND PLAN OF MERGER - PAGE 33
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herein, "Greenbriar Note" refers to that certain promissory note of Intelecon to
Greenbriar, dated November 1, 1998, in the original principal amount of
$2,688,000.
6.2.8 GREENBRIAR TRANSACTIONS. Intelecon shall have fully repaid the
Greenbriar Note, and all indebtedness due to Greenbriar, the Greenbriar Warrant
and any other agreement with Greenbriar shall have been canceled, and all
outstanding Intelecon Preferred Stock shall have been redeemed and retired, and
Greenbriar shall have released Intelecon from any and all liability or
obligation relating to any of the foregoing matters. Intelecon shall have
received, and delivered to New Visual, the certificate of a duly authorized
representative of Greenbriar to the foregoing effect.
6.2.9 NO LIENS ON INTELECON SHARES OR ASSETS. All Liens on the
Intelecon Common Stock, including without limitation the pledge of the
Shareholders' shares to Greenbriar, and all Liens on any of Intelecon's assets,
shall have been released, and Intelecon and the Shareholders shall provide to
New Visual reasonably satisfactory documentation confirming such releases of
Liens. All issued and outstanding shares of Intelecon Common Stock shall be
owned by the Shareholders and Ikso Vakser at the Effective Time, free and clear
of all Liens.
6.2.10 DEBT EXCHANGE AGREEMENT. New Visual and Intelecon shall have
entered into a Debt Exchange Agreement with Martin Silvergerg or his affiliates
("Silverberg"), which agreement shall be in a form acceptable to New Visual and
provide for the issuance to Silverberg of up to 2 million restricted shares of
New Visual Common Stock immediately after the Effective Time in full and
complete repayment of any and all indebtedness of Intelecon (which shall not
exceed $6 million) incurred for the purpose of repaying the Greenbriar Note,
canceling the Greenbriar Warrant, redeeming all outstanding Intelecon Preferred
Stock and effecting any other transactions contemplated by Section 6.2.8. The
shares to be issued pursuant to the Debt Exchange Agreement shall be subject to
the same restrictions on transferability to which the Merger Shares to be issued
in the Merger shall be subject, except that the Lock-Up Period shall be twelve
(12) months.
6.2.11 LOAN AGREEMENT. Intelecon shall have entered into a loan
agreement with Silverberg, the form of which shall be satisfactory to New
Visual, pursuant to which Intelecon shall have borrowed up to $6 million for the
purpose of effecting the transactions described in Section 6.2.8 hereof.
6.3 CONDITIONS TO OBLIGATIONS OF INTELECON AND THE SHAREHOLDERS. The
obligations of Intelecon and the Shareholders to consummate the transactions
contemplated hereby shall be subject to the fulfillment (or waiver in writing by
Intelecon or the Shareholders, as the case may be), on or prior to the Closing
Date, of the following additional conditions, which New Visual and Acquisition
agree to use their good faith efforts to cause to be fulfilled.
6.3.1 REPRESENTATIONS; PERFORMANCE, ETC. The representations and
warranties of New Visual and Acquisition contained in this Agreement and the
Exhibits and Schedules hereto (i) shall be true and correct in all material
respects at and as of the date hereof and (ii) shall be repeated and shall be
AGREEMENT AND PLAN OF MERGER - PAGE 34
<PAGE>
true and correct in all material respects on and as of the Closing Date with the
same effect as though made at and as of the Closing Date. Each of New Visual and
Acquisition shall have duly performed and complied in all material respects with
all agreements and conditions required by this Agreement to be performed or
complied with by it prior to or on the Closing Date. Each of New Visual and
Acquisition shall have delivered to Intelecon a certificate, dated the Closing
Date and signed by its duly authorized officer, to the foregoing effect.
6.3.2 TRANSACTION AGREEMENTS. New Visual and/or Acquisition shall have
executed and delivered each of the Transaction Agreements to which it will be a
party.
6.3.3 CONSENTS. New Visual or Acquisition shall have obtained and shall
have delivered to Intelecon copies of (i) all governmental approvals required to
be obtained by New Visual or Acquisition in connection with the execution and
delivery of this Agreement and the other Transaction Agreements and the
consummation of the transactions contemplated hereby and thereby and (ii) all
consents necessary to be obtained by either of them in order to consummate the
Merger pursuant to this Agreement.
6.3.4 FUNDING COMMITMENT. New Visual shall have received, and delivered
to Intelecon a copy of, a letter of intent or commitment letter from Lilly Beter
Capital Group, Ltd. ("LBCG") with respect to the placement of at least
$18,000,000 of New Visual's debt and/or equity securities within twelve (12)
months after the Effective Time. Such letter of intent or commitment letter
shall be subject to conditions to which New Visual and LBCG may agree, including
without limitation, market conditions, LBCG's satisfaction with its due
diligence and the financial statements of New Visual and Intelecon, and other
conditions customary in such letters.
6.3.5 NASDAQ APPLICATION. New Visual shall have filed an application
for the listing of its outstanding common stock and the Merger Shares on the
NASDAQ Stock Market.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time:
(a) by the written agreement of New Visual and Intelecon;
(b) by either Intelecon or New Visual, by written notice delivered
to the other party hereto before the expiration of the Due Diligence Period if
either Intelecon or New Visual determines in good faith that the results of its
due diligence investigation are unsatisfactory or disclose matters which lead
such party's board of directors to determine that the consummation of the Merger
would not be in its best interests or the best interests of its shareholders;
(c) by either Intelecon or New Visual, by written notice to the
other party hereto by 5:00 p.m., Central time, on or after June 30, 2000 if the
Closing shall not have occurred by such date (unless the failure of the Closing
AGREEMENT AND PLAN OF MERGER - PAGE 35
<PAGE>
to occur shall be due to any breach of this Agreement by the party seeking to
terminate), unless such date shall be extended by the mutual written consent of
Intelecon and New Visual;
(d) by Intelecon, if there has been a breach on the part of New
Visual or Acquisition in the representations, warranties or covenants of New
Visual and Acquisition set forth herein, or a failure on the part of New Visual
or Acquisition to perform their respective obligations hereunder; PROVIDED that
Intelecon shall have performed and complied with, in all material respects, all
agreements and covenants required by this Agreement to have been performed and
complied with by Intelecon prior to such time, or any other events or
circumstances shall have occurred such that, in any such case, any of the
conditions to the Closing set forth in Sections 6.1 or 6.3 could not be
satisfied on or prior to the termination date contemplated by Section 7.1(b)
hereof;
(e) by New Visual, if there has been a breach on the part of
Intelecon or the Shareholders in the representations, warranties or covenants of
Intelecon or the Shareholders set forth herein or any failure on the part of
Intelecon or the Shareholders to perform their respective obligations hereunder;
PROVIDED that New Visual shall have performed and complied with, in all material
respects, all agreements and covenants required by this Agreement to have been
performed or complied with by New Visual prior to such time, or any other events
or circumstances shall have occurred such that, in any case, any of the
conditions to the Closing set forth in Sections 6.1 or 6.2 could not be
satisfied on or prior to the termination date contemplated by Section 7.1(b)
hereof;
(f) by New Visual if there has been a material breach by Intelecon
or the Shareholders of any of the covenants contained in Sections 5.2, 5.5(a) or
5.5(b) hereof, or a breach of such Sections resulting in an Acquisition
Proposal; or
(g) by Intelecon if the Average Price (as defined in Section 3.2(d)
hereof) of a share of New Visual Common Stock over the five trading day period
ending three business days prior to the Closing Date (the "Determination
Period") shall be less than $4.00; PROVIDED, HOWEVER, that:
(i) If Intelecon elects to terminate this Agreement pursuant
to this Section 7.1(g), it shall provide written notice to New Visual
within one business day after the Determination Period;
(ii) During the two business day period commencing with its
receipt of such termination notice, New Visual shall have the option to
elect to increase the number of Merger Shares to be issued hereunder to
equal a number determined as follows: (1) the revised number of Initial
Shares shall equal $8 million divided by the Average Price over the
Determination Period; and (2) the revised number of Escrow Shares shall
equal $14 million divided by the Average Price over the Determination
Period, in each case rounded to the nearest whole share.
AGREEMENT AND PLAN OF MERGER - PAGE 36
<PAGE>
(iii) If New Visual makes an election contemplated by
subsection (ii) within such two business day period, it will give
prompt written notice to Intelecon of such election and all references
to the number of Merger Shares in this Agreement and in any agreement
contemplated hereby shall be appropriately adjusted to reflect the
revised number of Merger Shares, no termination shall have occurred
pursuant to this Section 7.1(g), and this Agreement shall continue in
effect in accordance with its terms (except with respect to the
modifications in the number of Merger Shares required by this Section
7.1(g)).
7.2 EFFECT OF TERMINATION.
(a) If New Visual terminates this Agreement pursuant to Section
7.1(f) and as of the date of such termination, (x) there has been no breach by
New Visual of a representation or warranty which would have or would be
reasonably likely to have a New Visual Material Adverse Effect, or (y) there has
been no material breach of any of the covenants or agreements set forth in this
Agreement on the part of New Visual, then immediately, but in any event no later
than five business days after such termination, Intelecon shall pay to New
Visual an amount in cash equal to $1,500,000, plus actual out of pocket expenses
incurred by New Visual and Acquisition in connection with the transactions
contemplated hereby (including but not limited to fees and disbursements of
counsel, fees and expenses of investment bankers, accountants and lenders, and
printing costs) (collectively, the "Termination Fee"). If New Visual has
received the Termination Fee, it shall not (i) assert or pursue in any manner,
directly or indirectly, any claim or cause of action based in whole or in part
upon alleged tortious or other interference with rights under this Agreement
against any entity or person submitting an Acquisition Proposal or (ii) assert
or pursue in any manner, directly or indirectly, any claim or cause of action
against Intelecon or any of its officers or directors based in whole or in part
upon its or their receipt, consideration, recommendation, or approval of an
Acquisition Proposal.
(b) In the event of the termination of this Agreement pursuant to
the provisions of Section 7.1, this Agreement shall become void and have no
effect and all obligations of the parties hereto shall terminate, except the
obligations of the parties pursuant to this Section 7.2 and except for the
provisions of Sections 8.3 and 8.6.
(c) In the event of termination of this Agreement pursuant to
Sections 7.1(d) or 7.1(e), nothing herein shall prejudice the ability of the
non-breaching party from seeking damages from any other party for any breach of
this Agreement, including, without limitation, attorneys' fees and the right to
pursue any remedy at law or in equity.
(d) At any time prior to the Effective Time, any party hereto, by
action taken by its Board of Directors, may, to the extent legally allowed, (a)
extend the time for the performance of any of the obligations or other acts of
the other parties hereto, (b) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (c) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein. Any agreement on the
AGREEMENT AND PLAN OF MERGER - PAGE 37
<PAGE>
part of a party hereto to any such extension or waiver shall be valid only if
set forth in an instrument in writing signed on behalf of such party.
ARTICLE VIII
INDEMNIFICATION; MISCELLANEOUS
8.1 INDEMNIFICATION.
(a) BY THE SHAREHOLDERS. Each Shareholder severally covenants and
agrees to defend, indemnify and hold harmless New Visual, its officers,
directors, employees, agents, advisers, representatives and affiliates
(collectively, the "Buyer Indemnitees") from and against any and all claims,
suits, demands, proceedings and actions (collectively, "Claims"), and pay or
reimburse the Buyer Indemnitees for any and all damage, loss, liability, or
expense (including reasonable attorney's fees and expenses of investigating,
defending or prosecuting any Claim, but excluding any Claim for lost profits
(collectively, "Damages") resulting from or arising out of:
(i) any inaccuracy of any representation or warranty made by
Intelecon or any Shareholder herein or under any other Transaction Agreement or
in connection herewith or therewith; and
(ii) any failure of Intelecon or any Shareholder to perform
any covenant or agreement hereunder or under any other Transaction Agreement or
to fulfill any other obligation in respect hereof or thereof.
(b) BY NEW VISUAL. New Visual covenants and agrees to defend,
indemnify and hold harmless each Shareholder and his respective agents,
advisers, representatives and affiliates (collectively, the "Seller
Indemnitees") from and against any and all Claims and Damages (but excluding any
Claim for lost profits) resulting from or arising out of:
(i) any inaccuracy of any representation or warranty made by
New Visual or Acquisition herein or under any other Transaction Agreement or in
connection herewith or therewith; and
(ii) any failure of New Visual or Acquisition to perform any
covenant or agreement hereunder or under any other Transaction Agreement or to
fulfill any other obligation in respect hereof or thereof.
(c) LIMITATIONS ON INDEMNIFICATION. Notwithstanding the provisions
of Sections 8.1(a) and 8.1(b) hereof, a party otherwise required to provide
indemnification under this Section 8.1 shall not be liable for indemnification
pursuant hereto to the extent that any Claim or Damage is found by a court or
arbitration panel of competent jurisdiction, after full hearing on the merits,
to have resulted from the fraudulent, grossly negligent, bad faith or criminal
act or omission of a party otherwise entitled to indemnification hereunder or of
such party's officers, directors, employees, agents, advisers, representatives
or affiliates. The aggregate maximum liability of an Indemnifying Party (as
defined below) pursuant to this Section 8.1 shall be limited to $25 million.
AGREEMENT AND PLAN OF MERGER - PAGE 38
<PAGE>
Except with respect to third-party claims as described in Section 8.1(e) below,
no party shall make an indemnification claim hereunder until the dollar amount
of Damages to such party for all Claims exceeds, in the aggregate, $50,000;
provided, however, that no Shareholder shall be liable for a breach of the
representation contained in Section 4.1.25 unless the dollar amount of Damages
resulting from or arising out of such breach exceeds $200,000.
(d) ADJUSTMENTS TO INDEMNIFICATION PAYMENTS. Without limiting the
obligations of the Indemnifying Party (as hereinafter defined) under this
Agreement, (including the timely indemnification of the Indemnified Party), any
amount payable by any Shareholder to any Buyer Indemnitee, on the one hand, or
by New Visual to any Seller Indemnitee, on the other hand, pursuant to this
Section 8.1 in respect of any Claim shall be net of any insurance proceeds
realized by and paid to the Indemnified Party in respect of such Claim. The
Indemnified Party shall use its reasonable efforts to make insurance claims
relating to any Claim for which it is seeking indemnification pursuant to this
Section 8.1; PROVIDED that the Indemnified Party shall not be obligated to make
such an insurance claim if the Indemnified Party in its reasonable judgment
believes that the cost of pursuing such an insurance claim together with any
corresponding increase in insurance premiums or other chargebacks to the
Indemnified Party, would exceed the value of the Claim for which the Indemnified
Party is seeking indemnification. In the event the Indemnified Party receives
such insurance proceeds after being indemnified by the Indemnifying Party with
respect to any Damage, the Indemnified Party shall pay to the Indemnifying Party
the net amount of such insurance proceeds (less attorney's fees and other
expenses incurred in connection with such recovery) paid to the Indemnified
Party.
(e) INDEMNIFICATION PROCEDURES. In the case of any Claim asserted
by a third party against a party entitled to indemnification under this
Agreement (the "Indemnified Party"), notice shall be given by the Indemnified
Party to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has actual knowledge of any Claim
as to which indemnity may be sought, and the Indemnified Party shall permit the
Indemnifying Party (at the expense of such Indemnifying Party) to assume the
defense of any claim or any litigation resulting therefrom; PROVIDED that (i)
the counsel for the Indemnifying Party who shall conduct the defense of such
Claim or litigation shall be reasonably satisfactory to the Indemnified Party,
(ii) the Indemnified Party may participate in such defense at such Indemnified
Party's expense and (iii) the omission by any Indemnified Party to give notice
as provided herein shall not relieve the Indemnifying Party of its
indemnification obligation under this Agreement except to the extent that such
omission results in a failure of actual notice to the Indemnifying Party and
such Indemnifying Party is materially damaged as a result of such failure to
give notice. Except with the prior written consent of the Indemnified Party, no
Indemnifying Party, in the defense of any such claim or litigation, shall
consent to entry of any judgment or enter into any settlement that provides for
injunctive or other nonmonetary relief affecting the Indemnified Party or that
does not include as an unconditional term thereof the giving by each claimant or
plaintiff to such Indemnified Party of a release from all liability with respect
to such Claim or litigation. In the event that the Indemnified Party shall in
good faith determine that the conduct of the defense of any claim subject to
indemnification hereunder or any proposed settlement of any such Claim by the
Indemnifying Party might be expected to affect adversely the Indemnified Party
AGREEMENT AND PLAN OF MERGER - PAGE 39
<PAGE>
or that the Indemnified Party may have available to it one or more defenses or
counterclaims that are inconsistent with one or more of those that may be
available to the Indemnifying Party in respect of such Claim or any litigation
relating thereto, the Indemnified Party shall have the right at all times to
take over and assume control over the defense, settlement, negotiations or
litigation relating to any such Claim at the sole cost of the Indemnifying
Party; PROVIDED that if the Indemnified Party does so take over and assume
control, the Indemnified Party shall not settle such Claim or litigation without
the prior written consent of the Indemnifying Party. In the event that the
Indemnifying Party does not accept the defense of any matter as above provided,
the Indemnified Party shall have the full right to defend against any such Claim
or demand and shall be entitled to settle or agree to pay in full such Claim or
demand. In any event, the Indemnifying Party and the Indemnified Party shall
cooperate in the defense of any Claim or litigation subject to this Section 8.1
and the records of each shall be available to the other with respect to such
defense.
(f) Except as provided in Section 8.1(c), the indemnification
provided in this Section 8.1 shall be applicable regardless of whether or not
negligence of the Indemnified Party is alleged or proven.
8.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ETC. The provisions of
this Agreement shall survive the consummation of the Merger contemplated hereby.
No investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties that are contained herein, and
each such representation and warranty shall survive such investigation and the
consummation of the transactions contemplated hereby for a period of twenty-four
(24) months, other than representations and warranties set forth in Sections
4.1.19 and 4.1.21 hereof, which shall survive indefinitely, and the
representations and warranties set forth in Section 4.1.7, which shall survive
for six (6) years after the Closing. The foregoing limits on survival will not
estop any party from obtaining indemnification from another party after such
survival date if the claim relating thereto has been timely made prior to
expiration of the relevant time period.
8.3 EXPENSES. Except as otherwise provided herein, Intelecon and the
Shareholders, on the one hand, and New Visual and Acquisition, on the other
hand, shall bear their respective expenses, costs and fees (including attorneys'
and auditors' fees) in connection with the transactions contemplated hereby,
including the preparation, execution and delivery of this Agreement and
compliance herewith, whether or not the transactions contemplated hereby shall
be consummated.
8.4 SEVERABILITY. If any provision of this Agreement, including any
phrase, sentence, clause, section or subsection is inoperative or unenforceable
for any reason, such circumstances shall not have the effect of rendering the
provision in question inoperative or unenforceable in any other case or
circumstance, or of rendering any other provision or provisions herein contained
invalid, inoperative, or unenforceable to any extent whatsoever.
8.5 NOTICES. All notices, requests, demands, waivers and other
communications required or permitted to be given under this Agreement shall be
AGREEMENT AND PLAN OF MERGER - PAGE 40
<PAGE>
in writing and shall be deemed to have been duly given if (a) delivered
personally, (b) mailed by first-class, registered or certified mail, return
receipt requested, postage prepaid, or (c) sent by next-day or overnight mail or
delivery or (d) sent by telecopy or telegram:
(i) if to Intelecon or the Shareholders, at:
Intelecon Services, Inc.
8818 John Carpenter Frwy.
Dallas, Texas 75247
Telecopy: 214.571.0670
Attention: Eddie Vakser
with copies to:
Jackson Walker LLP
901 Main Street
Dallas, Texas 75202
Telecopy: 214.953.5822
Attention: Brad Whitlock
(ii) if to New Visual or Acquisition, at:
New Visual Entertainment, Inc.
5920 Friars Road, Suite 104
San Diego, California 92108
Telecopy: 619.718.7446
Attention: Ray Willenberg, Jr.
with copies to:
Arter & Hadden LLP
1717 Main Street, Suite 4100
Dallas, Texas 75201
Telecopy: 214.741.7139
Attn: Lawrence B. Mandala
or, in each case, at such other address as may be specified in writing to the
other parties hereto.
All such notices, requests, demands, waivers and other communications
shall be deemed to have been received (w) if by personal delivery, on the day
after such delivery, (x) if by certified or registered mail, on the fifth
business day after the mailing thereof, (y) if by next-day or overnight mail or
delivery, on the day delivered, (z) if by telecopy or telegram, on the next day
following the day on which such telecopy or telegram was sent, provided that a
copy is also sent by certified or registered mail.
AGREEMENT AND PLAN OF MERGER - PAGE 41
<PAGE>
8.6 MISCELLANEOUS.
8.6.1 HEADINGS. The headings contained in this Agreement are for
purposes of convenience only and shall not affect the meaning or interpretation
of this Agreement.
8.6.2 ENTIRE AGREEMENT. This Agreement (including the Schedules
hereto), the other Transaction Agreements (when executed and delivered) and the
representations, warranties, agreements and covenants contained herein and
therein constitute the entire agreement and supersede all prior agreements,
understandings, representations, warranties, covenants and discussions, both
written and oral, between the parties with respect to the subject matter hereof,
including without limitation that certain letter of understanding dated January
21, 2000, between the parties hereto.
8.6.3 COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed an original and all of which shall
together constitute one and the same instrument.
8.6.4 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of Texas (regardless of the laws that
might otherwise govern under applicable principles of conflicts of law).
8.6.5 ARBITRATION. Except to the extent provided elsewhere in this
Agreement, any controversy of any nature whatsoever, including but not limited
to tort claims, statutory claims or contract disputes, between the parties to
this Agreement (including their directors, officers, executives, agents,
successors, assigns, heirs, executors and beneficiaries) relating to the
formation, execution, interpretation, breach or enforcement of this Agreement,
or relating to any other matter arising from the transactions contemplated
herein, shall be submitted to arbitration before the American Arbitration
Association ("AAA"), in accordance with their rules then in effect and the
substantive law of the State of Texas and the United States. The arbitration
shall be held in Dallas County, Texas. Each of the parties to this Agreement
shall appoint one person as an arbitrator to hear and determine such disputes,
and if they should be unable to agree, then the two arbitrators shall choose a
third arbitrator from a panel made up of experienced arbitrators selected
pursuant to the procedures of the AAA and, once chosen, the third arbitrator's
decision shall be final, binding and conclusive upon the parties to this
Agreement. The arbitrators may not award punitive or exemplary damages for tort,
contract or other common law claims, but will have the power to award such
damages to the extent permitted by an applicable statute and to award
prejudgment interest and attorneys' fees to the prevailing party. The award of
the arbitration panel may be confirmed by any state or federal court of
competent jurisdiction located in Dallas County, Texas, and may be challenged
only upon the grounds provided in Section 10 of the Federal Arbitration Act,
Title 9, United States Code. This agreement to arbitrate shall survive the
execution of this Agreement. THE RIGHT TO ARBITRATE IS INTEGRAL TO AND NOT
SEVERABLE FROM THIS AGREEMENT. THE PARTIES ACKNOWLEDGE THAT THEY HAVE READ THIS
ARBITRATION AGREEMENT AND KNOWINGLY CONSENT TO ITS CONSEQUENCES, INCLUDING THE
AGREEMENT AND PLAN OF MERGER - PAGE 42
<PAGE>
WAIVER OF THE RIGHT TO LITIGATE CERTAIN DISPUTES. The expenses of such
arbitration will be borne by the losing party or in such proportion as the
arbitrators decide. A material or anticipatory breach of any section of this
Agreement will not release either party from the obligations of this Section
8.6.5.
8.6.6 BINDING EFFECT. This Agreement shall be binding upon and inure to
the benefit of the parties hereto and their respective heirs, successors and
permitted assigns.
8.6.7 ASSIGNMENT. This Agreement shall not be assignable or otherwise
transferable by any party hereto without the prior written consent of the other
parties hereto; PROVIDED that New Visual may assign this Agreement to any
subsidiary of New Visual.
8.6.8 NO THIRD PARTY BENEFICIARIES. Except as provided in Section 8.1
with respect to indemnification hereunder, nothing in this Agreement shall
confer any rights upon any person or entity other than the parties hereto and
their respective heirs, successors and permitted assigns
8.6.9 AMENDMENT; WAIVER, ETC. No amendment, modification or discharge
of this Agreement, and no waiver hereunder, shall be valid or binding unless set
forth in writing and duly executed by the party against whom enforcement of the
amendment, modification, discharge or waiver is sought. Any such waiver shall
constitute a waiver only with respect to the specific matter described in such
writing and shall in no way impair the rights of the party granting such waiver
in any other respect or at any other time. Neither the waiver by any of the
parties hereto of a breach of or a default under any of the provisions of this
Agreement, nor the failure by any of the parties, on one or more occasions, to
enforce any of the provisions of this Agreement or to exercise any right or
privilege hereunder, shall be construed as a waiver of any other breach or
default of a similar nature, or as a waiver of any of such provisions, rights or
privileges hereunder. The rights and remedies of any party based upon, arising
out of or otherwise in respect of any inaccuracy or breach of any
representation, warranty, covenant or agreement or failure to fulfill any
condition shall in no way be limited by the fact that the act, omission,
occurrence or other state of facts upon which any claim of any such inaccuracy
or breach is based may also be the subject matter of any other representation,
warranty, covenant or agreement as to which there is no inaccuracy or breach.
The representations and warranties of Intelecon and the Shareholders shall not
be affected or deemed waived by reason of any investigation made by or on behalf
of New Visual (including but not limited to by any of its advisors, consultants
or representatives) or by reason of the fact that New Visual or any of such
advisors, consultants or representatives knew or should have known that any such
representation or warranty is or might be inaccurate.
8.6.10 CONFIDENTIALITY. Except as otherwise provided in this Agreement,
each party to this Agreement will, and will cause its affiliates (and their
respective accountants, counsel, consultants, employees and agents to whom they
disclose such information) to, keep confidential and not disclose all
information obtained by and in the possession of such party and its affiliates
or to which such party and its affiliates are given access that in any way
relates to the business or operations of the other party hereto. The provisions
of this Section 8.6.10 shall not apply to the disclosure by any party hereto or
their respective affiliates of any information, documents or materials (i) which
AGREEMENT AND PLAN OF MERGER - PAGE 43
<PAGE>
are, or become, publicly available, other than by reason of a breach of this
Section 8.6.10 by the disclosing party or any affiliate of the disclosing party,
(ii) received from a third party not bound by any confidentiality agreement with
the other party hereto, (iii) required by applicable Law to be disclosed by such
party, or (iv) necessary to establish such party's rights under either this
Agreement or any other Transaction Agreement; PROVIDED that, in the case of
clauses (iii) and (iv), the person intending to make disclosure of confidential
information will promptly notify the party to whom it is obligated to keep such
information confidential and, to the extent practicable, provide such party a
reasonable opportunity to prevent public disclosure of such information. If the
transactions contemplated by this Agreement are not consummated, such
information will be immediately returned to the applicable party (to the extent
such information consists of originals or copies of records, documents, reports
or other written materials).
[SIGNATURE PAGE FOLLOWS]
AGREEMENT AND PLAN OF MERGER - PAGE 44
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
SHAREHOLDERS: NEW VISUAL ENTERTAINMENT, INC.
/s/ Eddie Vakser By: /s/ Ray Willenberg, Jr.
- ------------------------------ ------------------------------
EDDIE VAKSER Name: Ray Willenberg, Jr.
Title: President
INTELECON ACQUISITION, INC.
/s/ Vladimir Vakser By: /s/ Ray Willenberg, Jr.
- ------------------------------ ------------------------------
VLADIMIR VAKSER Name: Ray Willenberg, Jr.
Title: President
INTELECON SERVICES, INC.
By: /s/ Eddie Vakser
------------------------------
Name: Eddie Vakser
Title: President
AGREEMENT AND PLAN OF MERGER - PAGE 45
FIRST AMENDMENT
TO
AGREEMENT AND PLAN OF MERGER
THIS FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER (this
"Amendment"), is dated as of April 20, 2000, by and among New Visual
Entertainment, Inc., a Utah corporation ("New Visual"), Intelecon Acquisition,
Inc., a Delaware corporation ("Acquisition"), Intelecon Services, Inc., a Texas
corporation ("Intelecon"), Eddie Vakser and Vladimir Vakser.
WHEREAS, the parties hereto are party to that certain Agreement and
Plan of Merger, pursuant to which Intelecon will be merged with and into
Acquisition and the holders of common stock, $0.01 par value, of Intelecon
("Intelecon Common Stock") will receive shares of common stock, par value $0.001
per share, of New Visual ("New Visual Common Stock") in exchange for their
shares of Intelecon Common Stock (the "Merger"), all on the terms and subject to
the conditions contained in the Merger Agreement; and
WHEREAS, the parties desire to amend the Merger Agreement as provided
herein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants and agreements made herein and in the Merger Agreement,
and of the mutual benefits to be derived hereby and thereby, the parties hereto
agree as follows:
1. AMENDMENT. The Merger Agreement is amended to add a new
Section 8.6.11, to read in its entirety as follows:
8.6.11 ADJUSTMENTS. Notwithstanding anything to the contrary
in the Agreement or any of the other Transaction Documents, the parties agree
that (a) any and all shares of New Visual Common Stock to be issued to any
person pursuant to the Agreement or other Transaction Documents, or any cash
payments in lieu of fractional shares, (b) the provisions of section 7.1(g) of
the Agreement and (c) any similar provisions of the Agreement in which the
market price or number of shares of New Visual Common Stock is referenced, shall
be adjusted as appropriate to reflect fully the effect of any stock split,
reverse stock split, stock dividend (including any dividend or distribution of
securities convertible into Common Stock), reorganization, recapitalization or
other like change with respect to the New Visual Common Stock occurring after
the date of execution of the Agreement and prior to the Effective Time.
2. FACSIMILE SIGNATURES; COUNTERPARTS. This Amendment may be
executed by facsimile signatures, and may be executed in several counterparts,
each of which shall be deemed an original and all of which shall together
constitute one and the same instrument.
3. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Texas (regardless of the
laws that might otherwise govern under applicable principles of conflicts of
law).
<PAGE>
4. MISCELLANEOUS. This Amendment shall be binding upon and inure
to the benefit of the parties hereto and their respective heirs, successors and
permitted assigns. Except as amended hereby, the Merger Agreement shall remain
in full force and effect in accordance with its terms. Defined terms used in
this Amendment and not defined herein shall have the meanings set forth in the
Merger Agreement.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the
date first above written.
SHAREHOLDERS: NEW VISUAL ENTERTAINMENT, INC.
/s/ Eddie Vakser By: /s/ Ray Willenberg, Jr.
- ------------------------------ ------------------------------
EDDIE VAKSER Name: Ray Willenberg, Jr.
Title: Chief Executive Officer
INTELECON ACQUISITION, INC.
/s/ Vladimir Vakser By: /s/ Ray Willenberg, Jr.
- ------------------------------ ------------------------------
VLADIMIR VAKSER Name: Ray Willenberg, Jr.
Title: President
INTELECON SERVICES, INC.
By: /s/ Eddie Vakser
------------------------------
Name: Eddie Vakser
Title: President
2.
ARTICLES OF RESTATEMENT
OF THE
ARTICLES OF INCORPORATION
OF
NEW VISUAL ENTERTAINMENT, INC.
Pursuant to the provisions of Section 16-10a-1007 of the Utah Revised
Business Corporation Act, New Visual Entertainment, Inc., a Utah corporation
(the "Corporation"), files these Articles of Restatement of the Articles of
Incorporation of the Corporation. The Restated Articles of Incorporation
("Restated Articles") accurately reflect the original Articles of Incorporation
and all amendments thereto that are in effect to date (collectively, the
"Original Articles") and contain no other change in the provisions thereof.
1. The name of the Corporation is NEW VISUAL ENTERTAINMENT, INC.
2. The Original Articles are hereby superseded by the following
Restated Articles, which accurately copy the entire text thereof:
ARTICLE I
CORPORATE NAME
The name of the corporation (hereinafter called "Corporation")
is New Visual Entertainment, Inc.
ARTICLE II
DURATION
The duration of the Corporation shall be perpetual.
ARTICLE III
GENERAL PURPOSES
This Corporation is organized for the following purposes:
A. To purchase, sell and invest in new products,
technologies and businesses of any and all types and
kinds.
B. To acquire or merge into existing businesses.
<PAGE>
C. To buy, sell, mortgage, exchange, lease, hold for
investment or otherwise operate real and personal
property of all kinds and any interest therein.
D. For any other purposes allowed by law.
E. The provisions of this Article shall be construed as
purposes and powers and each as an independent
purpose and power. The enumeration of specific
purposes and powers shall not be held to limit or
restrict in any manner the purposes and powers of the
Corporation, and the purposes and powers therein
specified shall not be limited or restricted by
reference to, or inference from, the terms of any
provisions of this or any other article hereof.
ARTICLE IV
AUTHORIZED SHARES
(a) This corporation is authorized to issue two
classes of shares, designated respectively "Common Stock" and
"Preferred Stock." One hundred million (100,000,000) shares of
Common Stock may be issued at $.001 par value. Two hundred
million (200,000,000) shares of Preferred Stock may be issued
with a par value of $30.
The Board of Directors is authorized, subject to
limitations prescribed by law and the provisions of this
Article Fourth, to provide by resolution or resolutions for
the issuance of the shares of Preferred Stock in one or more
series, and by filing a certificate pursuant to the applicable
laws of Utah to establish from time to time the number of
shares included in any such series, and to fix the
designation, powers, preferences and rights of the shares of
any such series and the qualifications, limitations or
restrictions thereof.
ARTICLE V
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until at least ONE
THOUSAND DOLLARS ($1,000) in cash or property has been received by it
as consideration for the issuance of its shares.
ARTICLE VI
PRE-EMPTIVE RIGHTS
The shareholders shall have no pre-emptive rights to acquire
any securities of this Corporation.
<PAGE>
ARTICLE VII
NON-ASSESSABILITY
Shares of the Corporation shall not be subject to assessment
for payment of the debts of the Corporation.
ARTICLE VIII
EXEMPTION FROM CORPORATE DEBTS
The private property of the shareholders shall not be subject
to the payment of any corporate debts to any extent whatsoever.
ARTICLE IX
COMMON DIRECTORS - TRANSACTIONS BETWEEN CORPORATIONS
No contract or other transaction between this Corporation and
any one or more of its directors or any other corporation, firm,
association, or entity in which one or more of its directors or
officers are financially interested, shall be either void or voidable
because of such relationship or interest, or because such director or
directors are present at the meeting of the Board of Directors, or a
committee thereof, which authorizes, approves, or ratifies such
contract or transaction, or because his or their votes are counted for
such purpose if: (a) the fact of such relationship or interest is
disclosed or known to the Board of Directors or committee which
authorizes, approves, or ratifies the contract or transaction by vote
or consent sufficient for the purpose without counting the votes or
consents of such interested directors; or (b) the fact of such
relationship or interest is disclosed or known to the shareholders
entitled to vote and they authorize, approve, or ratify such contract
or transaction by vote or written consent, or (c) the contract or
transaction is fair and reasonable to the Corporation.
Common or interested directors may be counted in determining
the presence of a quorum at a meeting of the Board of Directors or
committee thereof which authorizes, approves or ratifies such contract
or transaction.
3. The Restated Articles do not contain an amendment to the Original
Articles requiring shareholder approval.
4. The Restated Articles were adopted by the Board of Directors by
unanimous written consent on April 4, 2000. Shareholder action was not required.
<PAGE>
5. The Restated Articles supersede the Original Articles and all prior
amendments to them.
DATED this 5th day of April, 2000.
NEW VISUAL ENTERTAINMENT, INC.
By: /s/ Ray Willenberg, Jr.
--------------------------
Name: Ray Willenberg, Jr.
Title: Chief Executive Officer
BYLAWS OF
NEW VISUAL ENTERTAINMENT, INC.
1. OFFICES
1.1 OFFICES. The Corporation may have offices at such places within
or without the State of Utah as the Board of Directors may from time to time
determine or the business of the Corporation may require.
2. MEETINGS OF SHAREHOLDERS
2.1 ANNUAL MEETING. The annual meeting of shareholders for the
election of Directors and such other business as may properly be brought before
the meeting shall be held at such place within or without the State of Utah and
at such date and time as shall be designated by the Board of Directors and
stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
2.2 SPECIAL MEETINGS. Special meetings of the shareholders may be
called (a) by the Chief Executive Officer, the President or the Board of
Directors, or (b) by the holders of at least 10% of all the shares entitled to
vote at the proposed meeting. The record date for determining shareholders
entitled to call a special meeting shall be the earliest date of any demands
pursuant to which the meeting is called or the date that is 60 days prior to the
date the first of the written demands pursuant to which the meeting is called is
received by the Corporation, whichever is later. Only business within the
purpose or purposes described in the notice of a special meeting of shareholders
may be conducted at such meeting.
2.3 NOTICE AND WAIVERS OF NOTICE.
(a) Written notice stating the place, date and hour of the
meeting and, in the case of a special meeting, the purpose or purposes
for which the meeting is called, shall be delivered not less than 10
nor more than 60 days before the date of the meeting, either personally
or by mail, by or at the direction of the Chief Executive Officer, the
President, the Secretary, or the officer or persons calling the
meeting, to each shareholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be delivered when deposited in
the United States mail addressed to the shareholder at his address as
it appears on the share transfer records of the Corporation.
(b) Notice may be waived in writing signed by the person or
persons entitled to such notice. Such waiver may be executed at any
time before or after the holding of such meeting. Attendance at a
meeting shall constitute a waiver of notice, except where the person
attends for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called.
(c) Any notice required to be given to any shareholder, under
any provision of the Utah Revised Business Corporation Act (the "Act"),
the Articles of Incorporation or these Bylaws, need not be given to the
shareholder if (1) notice of two consecutive annual meetings and all
notices of meetings held during the period between those annual
meetings, if any, or (2) all (but in no event less than two) payments
(if sent by first class mail) of distributions or interest on
securities during a 12-month period have been mailed to that person,
addressed at his address as shown on the records of the Corporation,
and have been returned undeliverable. Any action or meeting taken or
held without notice to such a person shall have the same force and
effect as if the notice had been duly given and, if the action taken by
the Corporation is reflected in any articles or document filed with the
Secretary of State, those articles or that document may state that
notice was duly given to all persons to whom notice was required to be
given. If such a person delivers to the Corporation a written notice
setting forth his then current address, the requirement that notice be
given to that person shall be reinstated.
2.4 RECORD DATE. For the purpose of determining shareholders entitled
to notice of or to vote at any meeting of shareholders or any adjournment
thereof, or entitled to receive payment of any dividend, the Board of Directors
may in advance establish a record date which may not be more than 70 days prior
to such meeting.
BYLAWS - Page 1
<PAGE>
2.5 SHAREHOLDERS' LIST FOR MEETING. The officer or agent having
charge of the stock transfer books for shares of the Corporation shall make, at
least ten days before each meeting of shareholders, a complete list of the
shareholders entitled to be given notice of such meeting or any adjournment
thereof, arranged in alphabetical order, with the address of and the number of
shares held by each, which list shall be kept on file at the principal office of
the Corporation beginning on the earlier of ten days prior to the meeting for
which the list was prepared or two business days after notice of the meeting is
given and shall be subject to inspection by any shareholder (or agent of a
shareholder) at any time during usual business hours. Such list shall also be
produced and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the meeting. The
original stock transfer book shall be prima facie evidence as to who are the
shareholders entitled to examine such list or transfer books or vote at any
meeting of shareholders. Failure to comply with the requirements of this section
shall not affect the validity of any action taken at such meeting.
2.6 QUORUM OF SHAREHOLDERS. With respect to any matter, a quorum
shall be present at a meeting of shareholders if the holders of a majority of
the shares entitled to vote on that matter are represented at the meeting, in
person or by proxy, unless otherwise provided in the Articles of Incorporation.
Unless otherwise provided in the Articles of Incorporation, the shareholders
represented in person or by proxy at a meeting of shareholders at which a quorum
is not present may adjourn the meeting until such time and to such place as may
be determined by a vote of the holders of a majority of the shares represented
in person or by proxy at that meeting.
2.7 WITHDRAWAL OF QUORUM. Unless otherwise provided in the Articles
of Incorporation, once a quorum is present at a meeting of shareholders, the
shareholders represented in person or by proxy at the meeting may conduct such
business as may properly be brought before the meeting until it is adjourned,
and the subsequent withdrawal from the meeting of any shareholder or the refusal
of any shareholder represented in person or by proxy to vote shall not effect
the presence of a quorum at the meeting.
2.8 VOTING. At each meeting present and entitled to be cast in person
or by proxy of the shareholders, each holder of the shares of capital stock of
the Corporation shall be entitled to such voting rights as are designated in the
Articles of Incorporation and may exercise such voting right either in person or
by proxy appointed by an instrument in writing subscribed by such shareholder or
his duly authorized attorney. No such proxy shall be voted or acted upon after
eleven (11) months from its date unless the proxy provides for a longer period.
Voting need not be by ballot. All elections of directors shall be decided by a
plurality vote of the votes present and entitled to be cast in person or by
proxy and all questions decided and actions authorized by a majority vote of the
votes present and entitled to be cast in person or by proxy, except as otherwise
required by law.
2.9 ACTION WITHOUT MEETINGS. Any action required by law to be taken
at any annual or special meeting of shareholders may be taken without a meeting,
without prior notice, and without a vote, if a consent or consents in writing,
setting forth the action so taken, shall be signed by the holders of outstanding
shares having not less than the minimum number of votes that would be necessary
to authorize or take the action at a meeting at which all shares entitled to
vote thereon were present and voting. An action taken pursuant to this Section
2.9 is not effective unless all written consents on which the Corporation relies
for the taking of such action are received by the Corporation within a 60-day
period and not revoked. The Secretary shall file such consents with the minutes
of the meetings of the shareholders.
2.10 CONDUCT OF MEETING. The Chairman of the Board, if such office
has been filled, and, if not or if the Chairman of the Board is absent or
otherwise unable to act, the Chief Executive Officer shall preside at all
meetings of shareholders and if the Chairman of the Board and the Chief
Executive Officer are absent or otherwise unable to act, the President shall
preside at meetings of the shareholders. The Secretary shall keep the records of
each meeting of shareholders. In the absence or inability to act of any such
officer, such officer's duties shall be performed by the officer given the
authority to act for such absent or non-acting officer under these Bylaws or by
a person appointed by the meeting.
2.11 SHAREHOLDER PROPOSALS AT ANNUAL MEETINGS. At an annual meeting
of the shareholders, only such business shall be conducted as shall have been
properly brought before the meeting. To be properly brought before an annual
meeting, business must be specified in the notice of meeting (or any supplement
BYLAWS - Page 2
<PAGE>
thereto) given by or at the direction of the Board of Directors, otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or otherwise properly brought before the meeting by a shareholder. In
addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary of the Corporation. To
be timely, a shareholder's notice must be delivered to or mailed and received at
the principal executive offices of the Corporation not less than 30 days nor
more than 60 days prior to the meeting; provided, however, that in the event
that less than 40 day's notice or prior public disclosure of the date of the
meeting is given or made to shareholders, notice by the shareholder to be timely
must be so received not later than the close of business on the 10th day
following the day on which such notice of the date of the annual meeting was
mailed or such public disclosure was made. A shareholder's notice to the
Secretary shall set forth as to each matter the shareholder proposes to bring
before the annual meeting, (i) a brief description of the busines desired to be
brought before the annual meeting and the reasons for conducting such business
at the annual meeting, (ii) the name and record address of the shareholder
proposing such business, (iii) the class and number of shares of the Corporation
that are beneficially owned by the shareholder, and (iv) any material interest
of the shareholder in such business. Notwithstanding anything in these Bylaws to
the contrary, no business shall be conducted at the annual meeting except in
accordance with the procedures set forth in this Section 2.11, provided,
however, that nothing in this Section 2.11 shall be deemed to preclude
discussion by any shareholder of any business properly brought before the annual
meeting in accordance with said procedure.
2.12 NOMINATIONS OF PERSONS FOR ELECTION TO THE BOARD OF DIRECTORS.
In addition to any other applicable requirements, only persons who are nominated
in accordance with the following procedures shall be eligible for election as
Directors. Nominations of persons for election to the Board of Directors of the
Corporation may be made at a meeting of shareholders by or at the direction of
the Board of Directors, by any nominating committee or person appointed by the
Board of Directors or by any shareholder of the Corporation entitled to vote for
the election of Directors at the meeting who complies with the notice procedures
set forth in this Section 2.12. Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
in writing to the Secretary of the Corporation. To be timely, a shareholder's
notice shall be delivered to or mailed and received at the principal executive
offices of the Corporation not less than 30 days nor more than 60 days prior to
the meeting; provided, however, that in the event that less than 40 days' notice
or prior public disclosure of the date of the meeting is given or made to
shareholders, notice by the shareholder to be timely must be so received not
later than the close of business on the 10th day following the day on which such
notice of the date of the meeting was mailed or such public disclosure was made.
Such shareholder's notice shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of the Corporation beneficially owned by the person, and (iv) any other
information relating to the person that is required to be disclosed in
solicitations for proxies for election of Directors pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended; and (b) as to the
shareholder giving the notice, (i) the name and record address of the
shareholder, and (ii) the class and number of shares of the Corporation
beneficially owned by the shareholder. The Corporation may require any proposed
nominee to furnish such other information as may reasonably be required by the
Corporation to determine the eligibility of such proposed nominee to serve as a
Director of the Corporation. No person shall be eligible for election as a
Director of the Corporation unless nominated in accordance with the procedures
set forth herein. These provisions shall not apply to nomination of any persons
entitled to be separately elected by holders of preferred stock.
2.13 INSPECTORS. The Board of Directors may, in advance of any
meeting of shareholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the Chairman of the meeting shall, or if inspectors shall not
have been appointed, the Chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
BYLAWS - Page 3
<PAGE>
vote, count and tabulate all votes, ballots, or consents, determine the results,
and do such acts as are proper to conduct the election or vote with fairness to
all shareholders. On request of the Chairman of the meeting, the inspectors
shall make a report in writing of any challenge, request, or matter determined
by them and shall execute a certificate of any fact found by them. No Director
or candidate for the office of Director shall act as an inspector of an election
of Directors. Inspectors need not be shareholders.
3. DIRECTORS
3.1 POWERS. The powers of the Corporation shall be exercised by or
under authority of, and the business and affairs of the Corporation and all
corporate powers shall be managed under the direction of, the Board of
Directors.
3.2 NUMBER, TERM OF OFFICE AND QUALIFICATIONS.
(a) The property and business of the Corporation shall be
managed and controlled by a Board of Directors consisting of such
number of Directors as shall be determined from time to time by the
Board of Directors, but in no event shall there be less than three
Directors.
(b) Any vacancy occurring in the Board of Directors may be
filled by the shareholders, the Board of Directors or if the Directors
remaining in office constitute fewer than a quorum of the Board of
Directors, they may fill the vacancy by the affirmative vote of a
majority of all the Directors remaining in office. A Director elected
to fill a vacancy shall be elected for the unexpired term of his
predecessor in office. If a Director is elected to fill a vacancy
created by reason of an increase in the number of Directors, then the
term of the Director expires at the next shareholder's meeting at which
Directors are elected, unless the vacancy is filled by a vote of the
shareholders, in which case the term shall expire on the later of: (i)
the next meeting of shareholders at which directors are elected or (ii)
the term designated for the Director at the time of the creation of the
position being filled. Directors need not be residents of the State of
Utah or shareholders of the Corporation.
3.3 ELECTION. The Directors shall be elected at the annual meetings
of the shareholders, and each Director elected shall serve until his successor
shall have been elected and qualified.
3.4 REMOVAL OF DIRECTORS. At any meeting of shareholders called
expressly for the purpose of removing a Director, any Director or the entire
Board of Directors may be removed, with or without cause, by a vote of the
holders of a majority of the shares then entitled to vote at an election of
Directors.
4. MEETINGS OF THE BOARD OF DIRECTORS
4.1 PLACE. Meetings of the Board of Directors, regular or special,
may be held either within or without the State of Utah.
4.2 REGULAR MEETINGS. Regular meetings of the Board of Directors
shall be held at such dates and times and at such places as shall from time to
time be determined by the Board of Directors. Regular meetings may be held with
or without notice, as determined by the Board of Directors.
4.3 SPECIAL MEETINGS. Special meetings of the Board of Directors may
be called by the Chairman of the Board of Directors or the Chief Executive
Officer or the President and shall be called by the Secretary on the written
request of any two Directors. Notice of each special meeting of the Board of
Directors shall be given to each Director at least 48 hours before the meeting
is scheduled to convene.
4.4 NOTICE AND WAIVER OF NOTICE. Attendance of a Director at any
meeting shall constitute a waiver of notice of such meeting, except where a
Director attends for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or convened.
Except as may be otherwise provided by law or by the Articles of Incorporation
or by these Bylaws, neither the business to be transacted at, nor the purpose
BYLAWS - Page 4
<PAGE>
of, any regular or special meeting of the Board of Directors need be specified
in the notice or waiver of notice of such meeting.
4.5 QUORUM OF DIRECTORS; VOTE REQUIRED. At all meetings of the Board
of Directors a majority of the Directors shall constitute a quorum for the
transaction of business and the act of a majority of the Directors present at
any meeting at which there is a quorum shall be the act of the Board of
Directors. If a quorum shall not be present at any meeting of Directors, the
Directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
4.6 ACTION WITHOUT MEETINGS; MEETINGS BY TELECOMMUNICATION.
(a) Any action required or permitted to be taken at a meeting
of the Board of Directors or any committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, is
signed by all the members of the Board of Directors or committee, as
the case may be.
(b) Any and all of the members of the Board of Directors may
participate in a regular or special meeting by, or may conduct the
meeting through the use of, any means of communication by which all
Directors participating may hear each other during the meeting. A
Director participating in a meeting by this means is considered to be
present in person at the meeting.
4.7 COMMITTEES.
(a) The Board of Directors, by resolution adopted by a
majority of the full Board of Directors, (i) may designate from among
its members one or more committees, each of which shall be comprised of
two or more of its members, (ii) may adopt a charter for any such
committee setting forth the authority and scope of action for such
committee, and (iii) may designate one or more of its members as
alternate members of any committee, who may, subject to any limitations
imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. Any such committee, to the
extent provided in such resolution (or, if applicable, its charter),
shall have and may exercise all of the authority of the Board of
Directors, subject to the limitations set forth below and in the Act.
(b) No committee of the Board of Directors shall have the
authority of the Board of Directors in reference to:
1. amending the Articles of Incorporation, except
that a committee may, to the extent provided in the resolution
designating that committee or in the Articles of Incorporation
or the Bylaws, exercise the authority of the Board of
Directors vested in it in accordance with Article 16-10a-602
of the Act;
2. proposing a reduction of the stated capital of the
Corporation;
3. approving a plan of merger or share exchange of
the Corporation;
4. recommending to the shareholders the sale, lease,
or exchange of all or substantially all of the property and
assets of the Corporation otherwise than in the usual and
regular course of its business;
5. recommending to the shareholders a voluntary
dissolution of the Corporation or a revocation thereof;
6. amending, altering, or repealing these Bylaws of
the Corporation or adopting new Bylaws of the Corporation;
7. filling vacancies in the Board of Directors;
BYLAWS - Page 5
<PAGE>
8. filling vacancies in or designating alternate
members of any such committee;
9. filling any Directorship to be filled by reason of
an increase in the number of Directors;
10. electing or removing officers of the Corporation
or members or alternate members of any such committee;
11. fixing the compensation of any member or
alternate members of such committee; or
12. altering or repealing any resolution of the Board
of Directors that by its terms provides that it shall not be
so amendable or repealable.
(c) Unless the resolution designating a particular committee,
the charter adopted for such committee, the Articles of Incorporation,
or these Bylaws expressly so provide, no committee of the Board of
Directors shall have the authority to authorize a distribution or to
authorize the issuance of shares of the Corporation.
(d) The designation of a committee of the Board of Directors
and the delegation thereto of authority shall not operate to relieve
the Board of Directors, or any member thereof, of any responsibility
imposed by law.
4.8 COMPENSATION. The Directors shall receive such compensation for
their services as Directors as may be determined by resolution of the Board of
Directors. Each Director shall be reimbursed for travel and other reasonable
out-of-pocket expenses incurred by such Director in attending regular and
special meetings of the Board of Directors or any committee. The receipt of
compensation or reimbursement of expenses shall not preclude any Director from
serving the Corporation in any other capacity and receiving compensation
therefor.
5. OFFICERS
5.1 ELECTION, NUMBER, QUALIFICATION, TERM, COMPENSATION. The officers
of the Corporation shall be elected by the Board of Directors and shall consist
of a Chief Executive Officer, Chief Financial Officer, a President, a Vice
President, a Secretary and a Treasurer. The Board of Directors may also elect a
Chairman of the Board, additional Vice Presidents, one or more assistant
secretaries and assistant treasurers and such other officers and assistant
officers and agents as it shall deem necessary, who shall hold their offices for
such terms and shall have such authority and exercise such powers and perform
such duties as shall be determined from time to time by the Board by resolution
not inconsistent with these Bylaws. Two or more offices may be held by the same
person. None of the officers need be Directors, except the Chief Executive
Officer. The Board of Directors shall have the power to enter into contracts for
the employment and compensation of officers for such terms as the Board deems
advisable. The salaries of all officers of the Corporation shall be fixed by the
Board of Directors.
5.2 REMOVAL. The officers of the Corporation shall hold office until
their successors are elected or appointed and qualify, or until their death or
until their resignation or removal from office. Any officer elected or appointed
by the Board of Directors may be removed at any time by the Board, with or
without cause. Such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Election or appointment of an officer shall
not of itself create contract rights.
5.3 VACANCIES. Any vacancy occurring in any office of the Corporation
by death, resignation, removal or otherwise shall be filled by the Board of
Directors.
5.4 AUTHORITY. Officers and agents shall have such authority and
perform such duties in the management of the Corporation as may be provided in
these Bylaws.
BYLAWS - Page 6
<PAGE>
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board, if one is
elected, shall preside at all meetings of the Board of Directors and of the
shareholders and shall have such other powers and duties as may from time to
time be prescribed by the Board of Directors upon written directions given to
him pursuant to resolutions duly adopted by the Board of Directors.
5.6 VICE CHAIRMAN OF THE BOARD. The Vice Chairman of the Board, if
elected, shall preside at meetings of the Board of Directors and of shareholders
in the absence of the Chairman of the Board. The Vice Chairman of the Board
shall have such other powers and duties as from time to time may be prescribed
by the Board of Directors.
5.7 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall have
general control and management of all the business and affairs of the
Corporation and shall see that all orders and resolutions of the Board of
Directors are carried into effect. He shall preside at all meetings of the
shareholders and of the Board of Directors unless a Chairman of the Board or
Vice Chairman of the Board has been elected, in which event the Chief Executive
Officer shall preside at all meetings of the shareholders and the Board of
Directors in the absence or disability of the Chairman of the Board or the Vice
Chairman of the Board. The Chief Executive Officer shall have authority to sign
all contracts of the Corporation.
5.8 PRESIDENT. If a Chief Executive Officer has not been elected, the
President shall be the chief executive officer of the Corporation, shall have
general and active management of the business and affairs of the Corporation and
shall see that all orders and resolutions of the Board of Directors are carried
into effect. The President shall perform such other duties and have such other
authority and powers as the Board of Directors may from time to time prescribe.
The President shall sign all certificates of stock of the Corporation. The
President shall have authority to sign all contracts of the Corporation. The
President shall participate at all meetings of the shareholders and of the Board
of Directors. In the absence or disability of the Chairman of the Board, Vice
Chairman of the Board and the Chief Executive Officer, the President shall
preside at meetings of the shareholders and of the Board of Directors.
5.9 VICE PRESIDENT. Vice Presidents, including executive vice
presidents and senior vice presidents, in the order of their seniority, unless
otherwise determined by the Board of Directors, shall, in the absence or
disability of the President, perform the duties and have the authority and
exercise the powers of the President. They shall perform such other duties and
have such other authority and powers as the Board of Directors may from time to
time prescribe or as the Chief Executive Officer or President may from
time to time delegate.
5.10 SECRETARY. The Secretary shall attend all meetings of shareholders
and record all of the proceedings of the meetings of the Board of Directors and
of the shareholders in a minute book to be kept for that purpose and shall
perform like duties for the standing committees when required. He shall give, or
cause to be given, notice of all meetings of the shareholders and special
meetings of the Board of Directors, and shall perform such other duties as may
be prescribed by the Board of Directors or the Chief Executive Officer or
President, under whose supervision he shall be. He shall keep in safe custody
the seal of the Corporation and, when authorized by the Board of Directors,
shall affix the same to any instrument requiring it and, when so affixed, it
shall be attested by his signature or by the signature of an Assistant Secretary
or of the Treasurer.
5.11 CHIEF FINANCIAL OFFICER. The Chief Financial Officer of the
Corporation shall have the following powers and duties:
(a) The Chief Financial Officer shall perform, in general, all
duties incident to the office of the Chief Financial Officer and such
other duties as may be specified in these Bylaws or as may be assigned
by the Board of Directors or the Chief Executive Officer.
BYLAWS - Page 7
<PAGE>
(b) The Chief Financial Officer shall have charge and
supervision over and be responsible for the moneys, securities,
receipts and disbursements of the Corporation, and shall keep or cause
to be kept full and accurate records of all receipts of the
Corporation.
(c) The Chief Financial Officer shall cause the moneys and other
valuable effects of the Corporation to be deposited in the name and to
the credit of the Corporation in such banks or trust companies or with
such bankers or other depositaries as shall be selected in accordance
with these Bylaws.
(d) The Chief Financial Officer shall the cause the moneys of
the Corporation to be disbursed by checks or drafts upon the authorized
depositaries of the Corporation and cause to be taken and preserved
proper vouchers for all moneys disbursed.
(e) The Chief Financial Officer shall render to the Board of
Directors or the Chief Executive Officer, whenever requested, a
statement of all transactions executed as Chief Financial Officer, and
shall render a full financial report at the annual meeting of
stockholders, if called upon to do so.
(f) The Chief Financial Officer shall be empowered from time to
time to require from all officers or agents of the Corporation reports
or statements giving such information as may be desired with respect to
any and all financial transactions of the Corporation.
(g) The Chief Financial Officer shall perform, in general, all
duties incident to the office of Chief Financial Officer and such other
duties as may be specified in these Bylaws or as may be assigned by the
Board of Directors or the Chief Financial Officer.
5.12 TREASURER. The Treasurer of the Corporation shall have the
following powers and duties:
(a) The Treasurer shall have primary responsibility, subject to
the direction of the Chief Financial Officer, for establishing and
maintaining credit facilities and banking relationships for the
Corporation and pledging the credit of the Corporation, and shall have
authority to execute and deliver all necessary credit agreements,
promissory notes, indentures, documents, statements, collateral
filings, certificates and other similar documents and instruments for
the Corporation relating to such credit facilities and banking
relationships.
(b) The Treasurer shall perform, in general, all duties incident
to the office of Treasurer, subject to the direction of the Chief
Financial Officer, and such other duties as may be specified in these
Bylaws or as may be assigned by the Board of Directors or the Chief
Financial Officer.
5.13 ASSISTANT SECRETARY AND ASSISTANT TREASURER. In the absence of
the Secretary or Treasurer, an Assistant Secretary or Assistant Treasurer,
respectively shall perform the duties of the Secretary or Treasurer. Assistant
Treasurers may be required to give bond as provided in section 5.11(c). The
assistant secretaries and assistant treasurers, in general shall have such
powers and perform such duties as the Treasurer or Secretary, respectively, or
the Board of Directors or Chief Executive Officer or President may prescribe.
6. INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES AND AGENTS
6.1 RIGHT TO INDEMNIFICATION. Subject to the limitations and
conditions as provided in this Article 6, and in Part 9 of the Act (relating
among other matters to liability for receipt of an improper personal benefit or
liability to the Corporation), as from time to time amended, each person who
was, is or is threatened to be made a named defendant or respondent in any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative or investigative (hereinafter a
"proceeding"), or any appeal in such a proceeding or any inquiry or
investigation that could lead to such a proceeding, by reason of the fact that
he or she, is or was a director or officer of the Corporation or while a
director or officer of the Corporation is or was serving at the request of the
Corporation as a director, officer, partner, trustee, employee, fiduciary or
agent of another foreign or domestic corporation or other person or of an
employee benefit plan shall be indemnified by the Corporation against judgments,
BYLAWS - Page 8
<PAGE>
penalties (including excise and similar taxes), fines, settlements and
reasonable expenses (including, without limitation, attorneys' fees) actually
incurred by such person in connection with such proceeding if and only if it is
determined that such person met the standard of conduct required in 6.2 below
and, as to expenses, that such expenses are reasonable, such determinations to
be made in accordance with the procedures described in Section 6.3 below;
provided that if such person is found liable to the Corporation or is found
liable on the basis that personal benefit was improperly received by such
person, indemnification is limited to reasonable expenses actually incurred by
such person in connection with the proceeding and shall not be made in respect
of any proceeding in which such person shall have been found liable for willful
or intentional misconduct in the performance of his or her duty to the
Corporation. It is expressly acknowledged that the indemnification provided in
this Article 6 could involve indemnification for negligence or under theories of
strict liability.
6.2 STANDARD OF CONDUCT. The Corporation shall indemnify a person
pursuant to Section 6.1 above if, and only if, it is determined that such
person: (i) conducted himself or herself in good faith; (ii) reasonably believed
that his or her conduct was in, or not opposed to, the Corporation's best
interest; and (iii) in the case of any criminal proceeding, had no reasonable
cause to believe his or her conduct was unlawful.
6.3 DETERMINATION WHETHER STANDARD OF CONDUCT MET; ADVANCE OF
EXPENSES. Determination of whether the standard of conduct has been met for
indemnification and for advance of expenses under this Section 6.3 must be made:
(i) by a majority vote of a quorum consisting of directors who at the time of
the vote are not named defendants or respondents in the proceeding; (ii) if such
a quorum cannot be obtained, by a majority vote of a committee of the board of
directors, designated to act in the matter by a majority vote of all directors,
consisting of two or more directors, all of whom are, at the time of the votes,
not named defendants or respondents in the proceeding; (iii) by special legal
counsel selected by the board of directors or a committee of the board of
directors by vote as set forth in clause (i) or (ii) of this sentence or, if
such a quorum cannot be obtained and such a committee cannot be established, by
a majority vote of all directors; or (iv) by the shareholders in a vote that
excludes the shares held by directors who are named defendants or respondents in
the proceeding. The authorization of indemnification and advance of expenses
must be made in the same manner as the determination that the standard of
conduct has been met, except that if the determination that the standard of
conduct has been met is made by special legal counsel, the authorization of
indemnification and advance of expenses must be made by special legal counsel.
6.4 MANDATORY INDEMNIFICATION OF EXPENSES. The Corporation shall
indemnify a director against reasonable expenses incurred by him in connection
with the defense of any proceeding in which he is a named defendant or
respondent because he is or was a director if he has been wholly successful, on
the merits or otherwise, in the defense of the proceeding.
6.5 SURVIVAL; AMENDMENT. Indemnification under this Article 6 shall
continue as to a person who has ceased to serve in the capacity which initially
entitled such person to indemnity hereunder. The rights granted pursuant to this
Article 6 shall be deemed contract rights, and no amendment, modification or
repeal of this Article 6 shall have the effect of limiting or denying any such
rights with respect to actions taken or proceedings arising prior to any such
amendment, modification or repeal.
6.6 ADVANCE PAYMENT. The right to indemnification conferred in this
Article 6 may include the right to be paid or reimbursed by the Corporation the
reasonable expenses incurred by a person of the type entitled to be indemnified
under Section 6.1 who was, is or is threatened to be made a named defendant or
respondent in a proceeding in advance of the final disposition of the proceeding
and without any determination as to the person's ultimate entitlement to
indemnification; provided, however, that the payment of such expenses incurred
by any such person in advance of the final disposition of a proceeding, shall be
made only (a) upon delivery to the Corporation of a written affirmation by such
director or officer of his or her good faith belief that he or she has met the
standard of conduct necessary for indemnification under Section 6.2, (b)
delivery of a written undertaking, by or on behalf of such person, to repay all
amounts so advanced if it shall ultimately be determined that such indemnified
person is not entitled to be indemnified under this Article 6 or otherwise, and
(c) a determination that the facts then known to those making the determination
would not preclude indemnification under this Article 6.
BYLAWS - Page 9
<PAGE>
6.7 INDEMNIFICATION OF OFFICERS, EMPLOYEES, FIDUCIARIES AND AGENTS.
The Corporation, by adoption of a resolution of the Board of Directors, may (but
shall not be required to) indemnify and advance expenses to an officer,
employee, fiduciary or agent of the Corporation to the same extent and subject
to the same conditions under which it may indemnify and advance expenses to
directors under this Article 6; and, the Corporation may (but shall not be
required to) indemnify and advance expenses to an officer, employee, fiduciary
or agent of the Corporation who is not a director, to a greater extent, if not
inconsistent with public policy.
6.8 APPEARANCE AS A WITNESS. Notwithstanding any other provision of
this Article 6, the Corporation may pay or reimburse expenses incurred by a
director or officer in connection with his or her appearance as a witness or
other participation in a proceeding at a time when he or she is not a named
defendant or respondent in the proceeding.
6.9 NONEXCLUSIVITY OF RIGHTS. The right to indemnification and the
advancement and payment of expenses conferred in this Article 6 shall not be
exclusive of any other right which a director or officer or other person
indemnified pursuant to Section 6.3 may have or hereafter acquire under any law
(common or statutory), provision of the Articles of Incorporation or these
Bylaws, agreement, vote of shareholders or disinterested directors or otherwise.
6.10 INSURANCE. The Corporation may purchase and maintain insurance
and, to the extent permitted by the Act, similar arrangements, at its expense to
protect itself and any person who is or was serving as a director, officer,
employee, fiduciary or agent of the Corporation or is or was serving at the
request of the Corporation as a director, officer, partner, trustee, employee,
fiduciary or agent of another foreign or domestic corporation or other person or
of an employee benefit plan against any expense, liability or loss, whether or
not the Corporation would have the power to indemnify such person against such
expense, liability or loss under this Article 6.
6.11 SAVINGS CLAUSE. If this Article 6 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify and hold harmless each director,
officer or any other person indemnified pursuant to this Article 6 as to costs,
charges and expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement with respect to any action, suit or proceeding, whether
civil, criminal, administrative or investigative to the full extent permitted by
any applicable portion of this Article 6 that shall not have been invalidated
and to the fullest extent permitted by applicable law.
7. CERTIFICATES REPRESENTING SHARES
7.1 CERTIFICATES. The shares of the Corporation shall be represented
by certificates signed by the President or a Vice President and the Secretary or
an Assistant Secretary of the Corporation, and may be sealed with the seal of
the Corporation or a facsimile thereof. The signatures of the President or Vice
President and the Secretary or Assistant Secretary upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent, or
registered by a registrar, other than the Corporation itself or an employee of
the Corporation. The certificates shall be consecutively numbered and shall be
entered in the books of the Corporation as they are issued. Each certificate
shall state on the face thereof the name of the Corporation and that it is
organized under the laws of Utah, the holder's name, the number and class of
shares, and the par value of such shares or a statement that such shares are
without par value.
7.2 PAYMENT, ISSUANCE.
(a) The Board of Directors may authorize the issuance of
shares for consideration consisting of any tangible or intangible
property or benefit to the Corporation, including cash, promissory
notes, services performed, contracts or arrangements for services to be
performed, or other securities of the Corporation. The terms and
conditions of any tangible or intangible property or benefit to be
provided in the future to the Corporation, including contracts or
arrangements for services to be performed, shall be set forth in
writing. However, the failure to set forth the terms and conditions in
writing does not affect the validity of the issuance of any shares
issued for any consideration, or their status as fully paid and
nonassessable shares.
BYLAWS - Page 10
<PAGE>
(b) Before the Corporation issues shares, the Board of
Directors must determine that the consideration received or to be
received for the shares to be issued is adequate. The Board of
Directors' determination regarding the adequacy of consideration for
the issuance of shares is conclusive for the purpose of determining
whether the shares are validly issued, fully paid, and nonassessable.
7.3 LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of Directors
may direct a new certificate to be issued in place of any certificate
theretofore issued by the Corporation alleged to have been lost, stolen or
destroyed upon the making of an affidavit of that fact by the person claiming
the certificate to be lost, stolen or destroyed. When authorizing such issue of
a new certificate, the Board of Directors may, in its discretion and as a
condition precedent to the issuance thereof, prescribe such terms and conditions
as it deems expedient and may require such indemnities as it deems adequate to
protect the Corporation from any claim that may be made against it with respect
to any such certificate alleged to have been lost or destroyed.
7.4 REGISTRATION OF TRANSFER. Shares of stock shall be transferable
only on the books of the Corporation by the holder thereof in person or by his
duly authorized attorney. Upon surrender to the Corporation or the transfer
agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, a new certificate shall be issued to the person entitled thereto and
the old certificate canceled and the transaction recorded upon the books of the
Corporation.
7.5 REGISTERED OWNER. The Corporation shall be entitled to recognize
the exclusive right of a person registered on its books as of the record date as
the owner of shares to receive dividends or other distributions, and to vote as
such owner, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as otherwise provided
by the laws of the State of Utah. The person in whose name the shares are or
were registered in the stock transfer books of the Corporation as of the record
date shall be deemed to be the owner of the shares registered in his name at
that time. Neither the Corporation nor any of its officers, Directors, or agents
shall be under any liability for making such a distribution to a person in whose
name shares were registered in the stock transfer books as of the record date or
to the heirs, successors, or assigns of the person, even though the person, or
his heirs, successors, or assigns, may not possess a certificate for shares.
8. DIVIDENDS
8.1 DECLARATION AND PAYMENT. Subject to the Act and the Articles of
Incorporation, dividends may be declared by the Board of Directors, in its
discretion, at any regular or special meeting, pursuant to law and may be paid
in cash, in property or in the Corporation's own shares.
8.2 RESERVES. Before payment of any dividend, the Board of Directors,
by resolution, may create a reserve or reserves out of the Corporation's surplus
or designate or allocate any part or all of such surplus in any manner for any
proper purpose or purposes, and may increase, create, or abolish any such
reserve, desgination, or allocation in the same manner.
9. GENERAL PROVISION
9.1 FISCAL YEAR. The fiscal year of the Corporation shall be fixed by
resolution of the Board of Directors.
9.2 SEAL. The corporate seal shall be in such form as may be prescribed
by the Board of Directors. The seal may be used by causing it or a facsimile
thereof to be impressed or affixed or in any manner reproduced.
9.3 MINUTES. The Corporation shall keep correct and complete books and
records of account and shall keep minutes of the proceedings of its shareholders
and Board of Directors, and shall keep at its registered office or principal
place of business, or at the office of its transfer agent or registrar, a record
of its shareholders, giving names and addresses of all shareholders and the
number and class of the shares held by each.
BYLAWS - Page 11
<PAGE>
9.4 AMENDMENT. The power to amend or repeal these Bylaws and adopt
new Bylaws shall be reserved exclusively to the Board of Directors unless these
Bylaws, the Corporation's Articles of Incorporation, or the Act reserve the
power to make such an amendment exclusively to the shareholders. These Bylaws
may be altered, amended or repealed and new Bylaws may be adopted by the Board
of Directors, at any meeting of the Board of Directors at which a quorum is
present, provided notice of the proposed alteration, amendment, or repeal is
contained in the notice of the meeting.
9.5 NOTICE. Any notice to Directors or shareholders shall be in
writing and shall be delivered personally or mailed to the Directors or
shareholders at their respective addresses appearing on the books of the
Corporation. Notice by mail shall be deemed to be given at the time when the
same shall be deposited in the United States mail, postage prepaid. Notice to
Directors may also be given by facsimile transmittal. Whenever any notice is
required to be given under the provisions of applicable statutes or of the
Articles of Incorporation or of these Bylaws, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of such notice.
BYLAWS - Page 12
NUMBER SHARES
[ ] [ ]
NV NEW VISUAL ENTERTAINMENT, INC.
SEE REVERSE FOR
CERTAIN RESTRICTIONS
INCORPORATED UNDER THE LASW OF THE STATE OF UTAH
NASDAQ: NVXE COMMON STOCK CUSIP 649099 10 8
THIS CERTIFIES THAT:
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF COMMON STOCK $.001 PAR VALUE EACH OF
=======================NEW VISUAL ENTERTAINMENT, INC.===========================
transferable on the books of the Corporation in person or by attorney upon
surrender of this Certificate duly endorsed or assigned. This certificate and
the shares represented hereby are subject to the laws of the State of Utah, and
to the Certificate of Incorporation and By-laws of the Corporation, as now or
hereafter amended. This certificate is not valid until countersigned by the
Transfer Agent.
Witness the facsimile seal of the Corporation and the facsimile signatures
of its duly authorized officers.
DATED: COUNTERSIGNED
OLDE MONMOUTH STOCK TRANSFER CO., INC.
77 MEMORIAL PARKWAY, SUITE 101,
ATLANTIC HIGHLANDS, NJ 07716
By: TRANSFER AGENT
---------------
Authorized Officer
[SEAL OF NEW VISUAL ENTERTAINMENT, INC.]
--------------------- --------------------
Secretary President
<PAGE>
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations.
<TABLE>
<S> <C> <C>
TEN COM - as tenants in common UNIF GIFT MIN ACT - ________Custodian_______
(Cust) (Minor)
under Uniform Gifts to Minors
TEN ENT - as tenants by the entireties Act _____________________
(State)
JT TEN - as joint tenants with right of
of survivorship and not as
tenants in common
</TABLE>
Additional abbreviation may also be used though not in above list.
For Value Received, ____________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
- ---------------------------------------
- ---------------------------------------
________________________________________________________________________________
Please print or typewrite name and address including postal zip code of assignee
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Shares of the stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________________
Attorney to transfer the said stock on the books of the within named Corporation
with full power of substitution in the premises.
Dated __________________________
________________________________________________________________________________
NOTICE: THE SIGNATURE TO THIS ASSIGNMENT MUST CORRESPOND WITH THE NAME AS
WRITTEN UPON THE FACE OF THE CERTIFICATE IN EVERY PARTICULAR WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER.
THE SIGNATURE TO THE ASSIGNMENT OR THE SUBSCRIPTION FORM MUST CORRESPOND TO THE
NAME AS WRITTEN UPON THE FACE OF THIS CERTIFICATE IN EVERY PARTICULAR, WITHOUT
ALTERATION OR ENLARGEMENT OR ANY CHANGE WHATSOEVER, AND MUST BE GUARANTEED BY A
COMMERCIAL BANK OR TRUST COMPANY OR A MEMBER FIRM OF A NATIONAL OR REGIONAL OR
OTHER RECOGNIZED STOCK EXCHANGE IN CONFORMANCE WITH A SIGNATURE GUARANTEE
MEDALLION PROGRAM.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> OCT-31-1999
<PERIOD-START> NOV-01-1998
<PERIOD-END> OCT-31-1999
<CASH> 62,872
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 94,294
<PP&E> 102,530
<DEPRECIATION> 0
<TOTAL-ASSETS> 335,264
<CURRENT-LIABILITIES> 420,699
<BONDS> 0
0
0
<COMMON> 68,896
<OTHER-SE> (214,331)
<TOTAL-LIABILITY-AND-EQUITY> 335,264
<SALES> 129,845
<TOTAL-REVENUES> 129,845
<CGS> 81,159
<TOTAL-COSTS> 2,174,360
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (2,044,515)
<INCOME-TAX> 0
<INCOME-CONTINUING> (2,044,515)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,044,515)
<EPS-BASIC> (.03)
<EPS-DILUTED> (.03)
</TABLE>
