U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form for Registration of Securities
of Small Business Issuers
Under Section 12(b) or (g) of
the Securities Exchange Act of 1934
STEARMAN ENTERPRISES, INC.
(Name of Small Business Issuer)
Delaware 13-4082876
(State or Other Jurisdiction of I.R.S. Employer Identification Number
Incorporation or Organization)
c/o Herbert Maxwell
1501 Broadway, Suite 1807, New York, New York 10036
(Address of Principal Executive Offices including Zip Code)
(212) 768-2383
(Issuer's Telephone Number)
Securities to be Registered Under Section 12(b) of the Act: None
Securities to be Registered Under Section 12(g) of the Act:
Common Stock, $.0001 Par Value
(Title of Class)
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TABLE OF CONTENTS
PART 1
ITEM 1. DESCRIPTION OF BUSINESS............................................. 3
History and Organization............................................ 3
Proposed Business................................................... 3
Risk Factors........................................................ 4
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OR PLAN OF OPERATION................................................ 10
General Business Plan............................................... 10
Structure of Acquisition............................................ 12
No Dividend......................................................... 14
Employees........................................................... 14
Competition......................................................... 14
Liquidity and Capital Resources..................................... 14
ITEM 3. DESCRIPTION OF PROPERTY............................................. 15
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT............................................... 15
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTER
AND CONTROL PERSONS................................................. 16
ITEM 6. EXECUTIVE COMPENSATION.............................................. 18
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS...................... 18
ITEM 8. DESCRIPTION OF SECURITIES........................................... 18
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS.............................. 20
ITEM 2. LEGAL PROCEEDINGS................................................... 21
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS......................................................... 21
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES............................. 21
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS........................... 21
PART F/S
FINANCIAL STATEMENTS......................................................... 22
PART III
ITEMS 1&2 INDEX TO AND DESCRIPTION OF EXHIBITS............................... 30
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PART I
ITEM 1. DESCRIPTION OF BUSINESS.
History And Organization
Stearman Enterprises, Inc. (the "Company") was organized under the laws of
the State of Delaware on March 13, 1992. The Company was organized for the
purposes of creating a corporate vehicle to locate and acquire an operating
business entity which management believes is a suitable acquisition candidate (a
"target company").
The Company will not restrict its search for a target company to any
specific business, industry or geographical location. The Company does not
currently engage in any business activities that provide any cash flow. The
costs of identifying, investigating, and analyzing business combinations will be
paid with money in the Company's treasury or loaned by management.
Although the Company was under no obligation to do so, it has voluntarily
filed this registration statement because it believes that it can better
facilitate its business goals if it were a "reporting issuer" under the
Securities Exchange Act of 1934 (the "Exchange Act").
The Company may be characterized as a "blind pool" company.
Proposed Business
The Company will seek to locate and acquire a target company which in the
opinion of the Company's management (sometimes referred to as the "Management")
offers long term growth potential. The Company will not restrict its search to
any specific business, industry or geographical location. The Company may seek
to acquire a target company which has just commenced operations, or which works
to avail itself of the benefits of being a "reporting issuer" in order to
facilitate capital formation to expand into new products or markets.
There are certain perceived benefits to being a "reporting issuer" with a
class of publicly-traded securities. These are commonly thought to include the
following:
* the ability to use registered securities to make acquisitions of
assets or businesses;
* increased visibility in the financial community;
* the facilitation of borrowing from financial institutions;
* improved trading efficiency;
* shareholder liquidity;
* greater ease in subsequently raising capital;
* compensation of key employees through stock options;
* enhanced corporate image;
* a presence in the United States capital market.
A target company, if any, which may be interested in a business combination
with the Company may include the following:
* a company for which a primary purpose of becoming public is the use of
its securities for the acquisition of assets or businesses;
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* a company which is unable to find an underwriter of its securities or
is unable to find an underwriter of securities on terms acceptable to
it;
* a company which wishes to become public with less dilution of its
common stock than would occur upon an underwriting;
* a company which believes that it will be able obtain investment
capital on more favorable terms after it has become public;
* a foreign company which may wish an initial entry into the United
States securities market;
* a special situation company, such as a company seeking a public market
to satisfy redemption requirements under a qualified Employee Stock
Option Plan;
* a company seeking one or more of the other perceived benefits of
becoming a public company.
There are no assurances that the Company will be able to effect an
acquisition of a target company. In addition, at this time, no details can be
provided as to an acquisition or as to the nature of the target company.
Risk Factors
The Company's business is subject to numerous risk factors, including the
following:
Anticipated Change in Control and Management.
Upon the successful completion of the acquisition of a target company, the
Company anticipates that it will have to issue to the target company or its
shareholders some authorized but unissued common stock which, when issued will
comprise a majority of the Company's then issued and outstanding shares of
common stock. Therefore, the Company anticipates that upon the closing of the
acquisition of a target company, the Company will no longer be controlled by the
current shareholders. In addition, existing management and directors may resign.
The Company cannot give any assurance that the experience or qualifications of
new management, as it relates to either the operation of the Company's
activities or to the operation of the business, assets or property being
acquired, will be adequate for such purposes.
Conflict of Interest - Management's Fiduciary Duties.
A conflict of interest may arise between Management's personal financial
benefit and management's fiduciary duty to shareholders.
The Company's director and officer, is or may become, in his individual
capacity, officer, director, controlling shareholder and/or partner of other
entities engaged in a variety of businesses. Mr. Maxwell is engaged in other
business activities. Accordingly, the amount of time he will devote to the
Company's business will only be about 5 to 10 hours per month. There exists
potential conflicts of interest including allocation of time between the Company
and its representative's other business interests.
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Experience of Management; Consultants.
Although Management has general business experience, it has limited
experience in effecting business combinations and may not have any significant
experience in acquiring or operating certain business interests that the Company
might choose to acquire. Management does not have, nor does it presently intend
to enter into, any contracts or agreements with any consultants or advisors with
respect to its proposed business activities. Consequently, Management has not
established the criteria that will be used to hire independent consultants
regarding their experience, the services to be provided, the term of service,
etc., and no assurance can be made that the Company will be able to obtain such
assistance on acceptable terms.
Potential Future Rule 144 Sales.
Of the 100,000,000 shares of the Company's Common Stock authorized, there
are presently 1,623,000 shares issued and outstanding; all are "restricted
securities" as that term is defined under the Securities Act of 1933, as amended
(the "Securities Act"), and in the future may be sold in compliance with Rule
144 of the Act, or pursuant to a Registration Statement filed under the Act.
Rule 144 provides, in essence, that a person holding restricted securities for a
period of 1 year may sell those securities in unsolicited brokerage transactions
or in transactions with a market maker, in an amount equal to 1% of our
outstanding common stock every 3 months. Additionally, Rule 144 requires that an
issuer of securities make available adequate current public information with
respect to the issuer. Such information deemed available if the issuer satisfies
the reporting requirements of Sections 13 or 15(d) of the Exchange Act and of
Rule 15c2-11 thereunder. Rule 144 also permits, under certain circumstances, a
sale of shares by a person who is not an affiliate of ours and who has satisfied
a 2 year holding period without any quantity limitation and whether or not there
is adequate current public information available. Investors should be aware that
sales under Rule 144, or pursuant to a registration statement filed under the
Securities Act, may have a depressive effect on the market price of our common
stock in any market that may develop for such shares.
Possible Issuance of Additional Shares.
The Company's Certificate of Incorporation, authorizes the issuance of
100,000,000 shares of common stock. The Company's Board of Directors has the
power to issue any or all of such additional shares without stockholder approval
for such consideration as it determines. Management presently anticipates that
it may choose to issue a substantial but as yet undetermined amount of the
Company's shares in connection with the acquisition of a target business.
Risks of Leverage.
There are currently no limitations relating to the Company's ability to
borrow funds to increase the amount of capital available to it to effect a
business combination or otherwise finance the operations of any acquired
business. The amount and nature of any borrowings by the Company will depend on
numerous factors, including the Company's capital requirements, the Company's
perceived ability to meet debt services on any such borrowings, and
then-prevailing conditions in the financial markets as well as general economic
conditions. There can be no assurance that debt financing, if required or
otherwise sought, will be available on terms deemed to be commercially
acceptable and in the best interest of the Company. The Company's inability to
borrow funds required to effect or facilitate a business combination, or to
provide funds for an additional infusion of capital into an
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acquired business, may have a material adverse affect on the Company's financial
condition and future prospects.
Additionally, to the extent that debt financing ultimately proves to be
available, any borrowings may subject the Company to various risks traditionally
associated with incurring of indebtedness, including:
if the Company's operating revenues after the acquisition were to be
insufficient to pay debt service, there would be a risk of default and
foreclosure on our assets.
if a loan agreement containing covenants is breached without a waiver or
renegotiation of the terms of that covenant, then the lender could have the
right to accelerate the payment of the indebtedness even if the Company has
made all principal and interest payments when due.
if the interest rate on a loan fluctuated or the loan was payable on
demand, the Company would bear the risk of variations in the interest rate
or demand for payment.
if the terms of a loan did not provide for amortization prior to maturity
of the full amount borrowed and the "balloon" payment could not be
refinanced at maturity on acceptable terms, we might be required to seek
additional financing and, to the extent that additional financing is not
available on acceptable terms, to liquidate the Company's assets.
Possible Need for Additional Financing.
The Company cannot ascertain with any degree of certainty the capital
requirements for a particular acquired business inasmuch as the Company has not
yet identified any acquisition candidates. If the target company requires
additional financing, such additional financing (which, among other forms, could
be derived from the public or private offering of securities or from the
acquisition of debt through conventional bank financing), may not be available,
due to, among other things, the target company not having sufficient:
o credit or operating history;
o income stream;
o profit level;
o asset base eligible to be collateralized; or
o market for its securities.
Since no specific business has been targeted for acquisition, it is not
possible to predict the specific reasons why conventional private or public
financing or conventional bank financing might not become available. Although
there are no agreements between the Company and any of its officers and/or
directors pursuant to which we may borrow and such officers and/or directors are
obligated to lend the Company monies, there are no restrictions on our right to
borrow money from officers and directors. No stockholder approval is required in
connection with any such loan.
Penny Stock Rules.
Under Rule 15g-9, a broker or dealer may not sell a "penny stock" (as
defined in Rule 3a51- 1) to or effect the purchase of a penny stock by any
person unless:
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(1) such sale or purchase is exempt from Rule 15g-9; or
(2) prior to the transaction the broker or dealer has (a) approved the
person's account for transaction in penny stocks in accordance with
Rule 15g-9 and (b) received from the person a written agreement to the
transaction setting forth the identity and quantity of the penny stock
to be purchased.
The United States Securities and Exchange Commission (the "Commission")
adopted regulations that generally define a penny stock to be any equity
security other than a security excluded from such definition by Rule 3a51-1.
Such exemptions include, but are not limited to (a) an equity security issued by
an issuer that has (i) net tangible assets of at least $2,000,000, if such
issuer has been in continuous operations for at least three years; (ii) net
tangible assets of at least $5,000,000, if such issuer has been in continuous
operation for less than three years; or (iii) average revenue of at least
$6,000,000 for the preceding three years; (b) except for purposes of Section
7(b) of the Exchange Act and Rule 419, any security that has a price of $5.00 or
more; and (c) a security that is authorized or approved for authorization upon
notice of issuance for quotation on the National Association of Securities
Dealers ("NASD") Automated Quotation System ("NASDAQ").
It is likely that the Company's common stock will be subject to the
regulations on penny stocks; consequently, the market liquidity for our common
stock may be adversely affected by such regulations. This, in turn, will affect
shareholders ability to sell their shares following the completion of an
acquisition.
There is no current trading market for shares of the Company's common stock
(the "Shares") and there can be no assurance that a trading market will develop,
or, if such a trading market does develop, that it will be sustained. The
Shares, to the extent that a market develops for the Shares at all, will likely
appear in what is customarily known as the "pink sheets" or on the NASD
over-the-counter Bulletin Board (the "OTCBB"), which may limit the marketability
and liquidity of the Shares. A trading market will develop, if at all, only
after the acquisition of a target company.
To date, neither the Company nor anyone acting on behalf of the Company has
taken any affirmative steps to request or encourage any broker/dealer to act as
a market maker for our common stock. The Company has had no discussions or
understandings, with any "market makers" regarding the participation of any such
market maker in the future trading market, if any, in the Company's common
stock. Management expects that discussions in this area will ultimately be
initiated by the management in office after completion of the acquisition of a
target company.
Risks Associated with Operations in Foreign Countries.
The Company's business plan is to seek to acquire a target company.
Management's discretion is unrestricted, and the Company may participate in any
business whatsoever that may in the opinion of Management meet the Company's
business objectives. The Company may acquire a business outside the United
States. The Company has not limited the scope of its search to a particular
region or country. Accordingly, if the Company acquires a business located, or
operating in a foreign jurisdiction, the Company's operations may be adversely
affected to the extent of the existence of unstable economic, social and/or
political conditions in such foreign regions and countries.
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No Operating History or Revenue and Minimal Assets.
The Company has had no operating history nor any revenues or earnings from
operations. The Company has no significant assets or financial resources. The
Company will, in all likelihood, sustain operating expenses without
corresponding revenues, at least until the consummation of a business
combination. This may result in the Company incurring a net operating loss which
will increase continuously until the Company can consummate a business
combination with a target company. There is no assurance that the Company can
identify such a target company and consummate such a business combination.
Speculative Nature of the Company's Proposed Operations.
The success of the Company's proposed plan of operation will depend to a
great extent on the operations, financial condition and management of the
identified target company. While Management will prefer business combinations
with entities having established operating histories, there can be no assurance
that the Company will be successful in locating candidates meeting such
criteria. In the event the Company completes a business combination, of which
there can be no assurance, the success of the Company's operations will be
dependent upon management of the target company and numerous other factors
beyond the Company's control.
Scarcity of and Competition for Business Opportunities and Combinations.
The Company is and will continue to be an insignificant participant in the
business of seeking mergers with and acquisitions of business entities. A large
number of established and well-financed entities, including venture capital
firms, are active in mergers and acquisitions of companies which may be merger
or acquisition target candidates for the Company. Nearly all such entities have
significantly greater financial resources, technical expertise and managerial
capabilities than the Company and, consequently, the Company will be at a
competitive disadvantage in identifying possible business opportunities and
successfully completing a business combination. Moreover, the Company will also
compete with numerous other small public companies in seeking merger or
acquisition candidates.
No Agreement for Acquisition of a Target Company Combination.
The Company has no current arrangement, agreement or understanding with
respect to engaging in a merger with or acquisition of a specific business
entity. There can be no assurance that the Company will be successful in
identifying and evaluating suitable business opportunities or in concluding a
business combination. Management has not identified any particular industry or
specific business within an industry for evaluation by the Company. There is no
assurance that the Company will be able to negotiate a business combination on
terms favorable to the Company. The Company has not established a specific
length of operating history or a specified level of earnings, assets, net worth
or other criteria which it will require a target company to have achieved, or
without which the Company would not consider a business combination with such
business entity. Accordingly, the Company may enter into a business combination
with a business entity having no significant operating history, losses, limited
or no potential for immediate earnings, limited assets, negative net worth or
other negative characteristics.
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Reporting Requirements May Delay or Preclude Acquisition.
Section 13 of the Exchange Act requires companies subject thereto to
provide certain information about significant acquisitions including certified
financial statements for the company acquired covering one or two years,
depending on the relative size of the acquisition. The time and additional costs
that may be incurred by some target companies to prepare such financial
statements may significantly delay or essentially preclude consummation of an
otherwise desirable acquisition by the Company. Acquisition prospects that do
not have or are unable to obtain the required audited statements may not be
appropriate for acquisition so long as the reporting requirements of the
Exchange Act are applicable.
Lack of Market Research or Marketing Organization.
The Company has neither conducted, nor have others made available to it,
market research indicating that demand exists for the transactions contemplated
by the Company. Even in the event demand exists for a merger or acquisition of
the type contemplated by the Company, there is no assurance the Company will be
successful in completing any such business combination.
Lack of Diversification.
The Company's proposed operations, even if successful, will in all
likelihood result in the Company engaging in a business combination with only
one business entity. Consequently, the Company's activities will be limited to
those engaged in by the business entity which the Company merges with or
acquires. The Company's inability to diversify its activities into a number of
areas may subject the Company to economic fluctuations within a particular
business or industry and therefore increase the risks associated with the
Company's operations.
Regulation under Investment Company Act.
Although the Company will be subject to regulation under the Exchange Act,
Management believes that the Company will not be subject to regulation under the
Investment Company Act of 1940, insofar as the Company will not be engaged in
the business of investing or trading in securities. In the event the Company
engages in business combinations which result in the Company holding passive
investment interests in a number of entities, the Company could be subject to
regulation under the Investment Company Act of 1940. In such event, the Company
would be required to register as an investment company and could be expected to
incur significant registration and compliance costs. The Company has obtained no
formal determination from the Securities and Exchange Commission as to the
status of the Company under the Investment Company Act of 1940 and,
consequently, any violation of such Act could subject the Company to material
adverse consequences.
Probable Change In Control and Management.
A business combination involving the issuance of the Company's common stock
will, in all likelihood, result in shareholders of a target company obtaining a
controlling interest in the Company. Any such business combination may require
shareholders of the Company to sell or transfer all or a portion of the
Company's common stock held by them. The resulting change in control of the
Company will likely result in removal of the present officer and director of the
Company and a corresponding reduction in or elimination of his participation in
the future affairs of the Company.
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Taxation.
Federal and state tax consequences will, in all likelihood, be major
considerations in any business combination the Company may undertake. Currently,
such transactions may be structured so as to result in tax-free treatment to
both companies, pursuant to various federal and state tax provisions. The
Company intends to structure any business combination so as to minimize the
federal and state tax consequences to both the Company and the target company;
however, there can be no assurance that such business combination will meet the
statutory requirements of a tax-free reorganization or that the parties will
obtain the intended tax-free treatment upon a transfer of stock or assets. A
non-qualifying reorganization could result in the imposition of both federal and
state taxes which may have an adverse effect on both parties to the transaction.
Year 2000 Risks.
Many existing computer programs use only two digits to identify a year in
such program's date field. These programs were designed and developed without
consideration of the impact of the change in the century for which four digits
will be required to accurately report the date. If not corrected, many computer
applications could fail or create erroneous results by or following the year
2000 ("Year 2000 Problem"). Many of the computer programs containing such date
language problems have not been corrected by the companies or governments
operating such programs. It is impossible to predict what computer programs will
be affected, the impact any such computer disruption will have on other
industries or commerce or the severity or duration of a computer disruption.
The Company does not have operations and does not maintain computer
systems. Before the Company enters into any business combination, it may inquire
as to the status of any target company's Year 2000 Problem, the steps such
target company has taken or intends to take to correct any such problem and the
probable impact on such target company of any computer disruption. However,
there can be no assurance that the Company will not acquire a target company
that has an uncorrected Year 2000 Problem or that any planned Year 2000 Problem
corrections will be sufficient. The extent of the Year 2000 Problem of a target
company may be impossible to ascertain and any impact on the Company will likely
be impossible to predict.
ITEM 2. MANAGEMENT'S DISCUSSION ANALYSIS OR PLAN OF OPERATION
General Business Plan
The Company's purpose is to seek, investigate and, if such investigation
warrants, acquire a target company which desires to seek the perceived
advantages of a corporation which has a class of securities registered under the
Exchange Act.
Management anticipates seeking out a target company through solicitation.
Such solicitation may include newspaper or magazine advertisements, mailings and
other distributions to law firms, accounting firms, investment bankers,
financial advisors and similar persons, the use of one or more World Wide Web
sites and similar methods. No estimate can be made as to the number of persons
who will be contacted or solicited. Management may engage in such solicitation
directly or may employ one or more other entities to conduct or assist in such
solicitation. Management and its affiliates will pay referral fees to
consultants and others who refer target businesses for mergers into
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public companies in which Management and its affiliates have an interest.
Payments are made if a business combination occurs, and may consist of cash or a
portion of the stock in the Company retained by Management and its affiliates,
or both.
The Company will not restrict its search to any specific business,
industry, or geographical location and the Company may participate in a business
venture of virtually any kind or nature. Management anticipates that it will be
able to participate in only one potential business venture because the Company
has nominal assets and limited financial resources. Please refer to "PART
F/S-"FINANCIAL STATEMENTS." This lack of diversification should be considered a
substantial risk to the shareholders of the Company because it will not permit
the Company to offset potential losses from one venture against gains from
another.
The Company may seek a business opportunity with entities which have
recently commenced operations, or which wish to utilize the public marketplace
in order to raise additional capital to expand into new products or markets, to
develop a new product or service, or for other corporate purposes. The Company
may acquire assets and establish wholly-owned subsidiaries in various businesses
or acquire existing businesses as subsidiaries.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and extremely risky. Management believes
(but has not conducted any research to confirm) that there are business entities
seeking the perceived benefits of a publicly registered corporation. Such
perceived benefits may include facilitating or improving the terms on which
additional equity financing may be sought, providing liquidity for incentive
stock options or similar benefits to key employees, increasing the opportunity
to use securities for acquisitions, providing liquidity for shareholders and
other factors. Business opportunities may be available in many different
industries and at various stages of development, all of which will make the task
of comparative investigation and analysis of such business opportunities
difficult and complex.
The Company has, and will continue to have, no capital with which to
provide the owners of business entities with any cash or other assets. However,
Management believes the Company will be able to offer owners of acquisition
candidates the opportunity to acquire a controlling ownership interest in a
public company without incurring the cost and time required to conduct an
initial public offering. Management has not conducted market research and is not
aware of statistical data to support the perceived benefits of a merger or
acquisition transaction for the owners of a business entity.
The analysis of new business opportunities will be undertaken by, or under
the supervision of, the officer and director of the Company, who is not a
professional business analyst. In analyzing prospective business opportunities,
Management may consider such matters as the available technical, financial and
managerial resources; working capital and other financial requirements; history
of operations, if any; prospects for the future; nature of present and expected
competition; the quality and experience of management services which may be
available and the depth of that management; the potential for further research,
development, or exploration; specific risk factors not now foreseeable but which
then may be anticipated to impact the proposed activities of the Company; the
potential for growth or expansion; the potential for profit; the perceived
public recognition or acceptance of products, services, or trades; name
identification; and other relevant factors.
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This discussion of the proposed criteria is not meant to be restrictive of
the Company's virtually unlimited discretion to search for and enter into
potential business opportunities.
The Exchange Act requires that any merger or acquisition candidate comply
with certain reporting requirements, which include providing audited financial
statements to be included in the reporting filings made under the Exchange Act.
The Company will not acquire or merge with any company for which audited
financial statements cannot be obtained at or within a reasonable period of time
after the closing of the proposed transaction.
The Company may enter into a business combination with a business entity
that desires to establish a public trading market for its shares. A target
company may attempt to avoid what it deems to be adverse consequences of
undertaking its own public offering by seeking a business combination with the
Company. Such consequences may include, but are not limited to, time delays of
the registration process, significant expenses to be incurred in such an
offering, loss of voting control to public shareholders or the inability to
obtain an underwriter or to obtain an underwriter on satisfactory terms.
The Company will not restrict its search for any specific kind of business
entities, but may acquire a venture which is in its preliminary or development
stage, which is already in operation, or in essentially any stage of its
business life. It is impossible to predict at this time the status of any
business in which the Company may become engaged, in that such business may need
to seek additional capital, may desire to have its shares publicly traded, or
may seek other perceived advantages which the Company may offer.
Management of the Company, which in all likelihood will be inexperienced in
matters relating to the business of a target company, will rely upon its own
efforts in accomplishing the business purposes of the Company. Outside
consultants or advisors may be utilized by the Company to assist in the search
for qualified target companies. If the Company does retain such an outside
consultant or advisor, any cash fee earned by such person will need to be
assumed by the target company, as the Company has limited cash assets with which
to pay such obligation. No such consultant or advisor has been retained.
Following a business combination the Company may benefit from the services
of others in regard to accounting, legal services, underwriting and corporate
public relations. If requested by a target company, management may recommend one
or more underwriters, financial advisors, accountants, public relations firms or
other consultants to provide such services.
A potential target company may have an agreement with a consultant or
advisor providing that services of the consultant or advisor be continued after
any business combination. Additionally, a target company may be presented to the
Company only on the condition that the services of a consultant or advisor be
continued after a merger or acquisition. Such preexisting agreements of target
companies for the continuation of the services of attorneys, accountants,
advisors or consultants could be a factor in the selection of a target company.
Structure of Acquisition
In implementing a structure for a particular business acquisition, the
Company may become a party to a merger, consolidation, reorganization, joint
venture, or licensing agreement with a target
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company. It may also acquire stock or assets of a target company. Upon
consummation of an acquisition, it is likely that the present management and
shareholders of the Company will no longer be in control of the Company. In
addition, it is likely that the Company's officer and director will, as part of
the terms of the acquisition transaction, resign and be replaced by one or more
new officers and directors.
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under applicable
federal and state securities laws. In some circumstances, however, as a
negotiated element of its transaction, the Company may agree to register all or
a part of such securities immediately after the transaction is consummated or at
specified times thereafter. If such registration occurs, of which there can be
no assurance, it will be undertaken by the surviving entity after the Company
has entered into an agreement for a business combination or has consummated a
business combination and the Company is no longer considered a blank check
company. The issuance of additional securities and their potential sale into any
trading market which may develop in the Company's securities may depress the
market value of the Company's securities in the future if such a market
develops, of which there is no assurance.
While the terms of a business transaction to which the Company may be a
party cannot be predicted, it is expected that the parties to the business
transaction will desire to avoid the creation of a taxable event and thereby
structure the acquisition in a "tax-free" reorganization under Sections 351 or
368 of the Internal Revenue Code of 1986, as amended (the "Code").
With respect to any merger or acquisition negotiations with a target
company, Management expects to focus on the percentage of the Company which
target company shareholders would acquire in exchange for their shareholdings in
the target company. Depending upon, among other things, the target company's
assets and liabilities, the Company's shareholders will in all likelihood hold a
substantially lesser percentage ownership interest in the Company following any
merger with or acquisition of a target company. The percentage of ownership may
be subject to significant reduction in the event the Company acquires a target
company with substantial assets. Any merger or acquisition effected by the
Company can be expected to have a significant dilutive effect on the percentage
of shares held by the Company's shareholders at such time.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require certain
representations and warranties of the parties thereto, will specify certain
events of default, will detail the terms of closing and the conditions which
must be satisfied by the parties prior to and after such closing and will
include miscellaneous other terms.
The Company will not acquire or merge with any entity which cannot provide
audited financial statements at or within a reasonable period of time after
closing of the proposed transaction. The Company will be subject to all of the
reporting requirements included in the Exchange Act. Included in these
requirements is the Company's duty to file audited financial statements as part
of or within 60 days following the filing of its Form 8-K with the Securities
and Exchange Commission upon consummation of a merger or acquisition, as well as
the Company's audited financial statements included in its annual report on Form
10-K (or 10-KSB, as applicable). If such audited financial statements are not
available at closing, or within time parameters necessary to insure the
Company's compliance with the requirements of the Exchange Act, or if the
audited financial statements provided do not conform to the representations made
by the target company, the closing documents may
13
<PAGE>
provide that the proposed transaction will be voidable at the discretion of the
present management of the Company.
No Dividends
The Company has not paid any dividends on its common stock; nor does the
Company intend to declare and pay dividends prior to the consummation of an
acquisition. The payment of dividends after any acquisition will be within the
discretion of the Company's then Board of Directors.
Employees
The Company presently has no employees. The Company has one officer and
director. Mr. Maxwell is engaged in other business activities, and the amount of
time he will devote to the Company's business will only be between 5 and 10
hours per month. Upon completion of the public offering, it is anticipated that
Management will devote such time to our affairs each month as may be necessary
to carry on our business plans.
Competition
The Company will remain an insignificant participant among the firms which
engage in the acquisition of business opportunities. There are many established
venture capital and financial concerns which have significantly greater
financial and personnel resources and technical expertise than the Company. In
view of the Company's combined extremely limited financial resources and limited
management availability, the Company will continue to be at a significant
competitive disadvantage compared to the Company's competitors.
Liquidity And Capital Resources
The Company has limited working capital and a deficit. The ability of
the Company to continue as a going concern is dependent upon its ability to
obtain adequate financing to reach profitably levels of operation. It is not
possible to predict whether financing efforts will be successful or if the
Company will attain profitable levels of operations. Mr. Maxwell has agreed to
loan the Company, on an as needed basis, up to $10,000 through December 31,
2000. The Company anticipates that such amount will be (a) sufficient for
payment of the Company's operating expenses through December 31, 2000 and (b)
repaid upon completion of the acquisition of a target business.
On May 13, 1997, the Company issued a 5% Convertible Debenture in the
amount of $500US due May 13, 2003 in partial settlement of outstanding legal
fees due to Sierchio & Albert, P.C., a law firm which provided legal advice and
services. The debenture bore interest at 5% per annum payable on the maturity
date. The principal and accrued and unpaid interest thereon (collectively, the
"Debenture Indebtedness") were convertible in whole or in part into shares of
the Company's common stock on the basis of 1 share for every $0.0005U.S. of
debt. In order to effectuate the conversion privilege, the holder was required
to give the Company 75 days prior written notice if the Holder of the Debentures
desired to convert all or a portion of the Debenture Indebtedness conversion
privilege. Such written notice was to specify the amount of Debenture
Indebtedness to be converted. If less then the entire amount of the then
outstanding indebtedness represented by the debenture was to be converted, the
aforesaid notice procedures were to be again be followed with respect to any
future conversions. The debenture could be redeemed at any time by the Company
14
<PAGE>
after May 13, 2002 on written notice to the Holder; provided however, if the
Company had received a Notice of Conversion it would be required to honor such
notice.
On August 1, 1999 Messrs. Joseph Sierchio and Stephen Albert each delivered
a Notice of Conversion to the Company exercising their conversion rights. The
conversion was given effect on October 15, 1999, and resulted in the issuance of
554,000 shares of the Company's Common Stock to each of Messrs. Sierchio and
Albert in settlement of a total of $554 of Debenture Indebtedness.
ITEM 3. DESCRIPTION OF PROPERTY
The Company has no properties and at this time has no agreements to acquire
any properties. The Company is presently using as a mailing address, at no cost,
the office of its president Herbert Maxwell, 1501 Broadway, Suite 1807, New
York, New York 10036. Such arrangement is expected to continue until completion
of the acquisition of a target company. See "Part I-Item 7. Certain
Relationships and Related Transactions."
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth each person known by the Company to be the
beneficial owner of five percent or more of the Company's Common Stock, all
directors individually and all directors and officers of the Company as a group.
Except as noted, each person has sole voting and investment power with respect
to the shares shown.
================================================================================
NAME AND ADDRESS OF SHARES OF COMMON APPROXIMATE
BENEFICIAL STOCK BENEFICIALLY PERCENTAGE
OWNER OWNED OWNED
- --------------------------------------------------------------------------------
Herbert Maxwell 15,000 *
1501 Broadway, Suite 1807
New York, New York 10036
- --------------------------------------------------------------------------------
Joseph Sierchio 554,000 34%
150 East 58th Street, 25th Floor
New York, New York 10155
- --------------------------------------------------------------------------------
Stephen Albert 554,000 34%
2635 Merrick Avenue
Merrick, New York 11566
- --------------------------------------------------------------------------------
Michael Seifert 126,000 7.8%
4480 Ross Crescent
West Vancouver, BC V7W 1B2 Canada
- --------------------------------------------------------------------------------
Colin Watt 126,000 7.8%
570 Foss Drive
Port Moody, BC Canada
- --------------------------------------------------------------------------------
David Patterson 124,000 7.6%
4340 Ross Crescent
West Vancouver, BC Canada
- --------------------------------------------------------------------------------
Officers and Directors as a Group
(1 person) 15,000 *
================================================================================
* Less than 1%.
15
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
Set forth below is the name of each of the directors and officers of the
Company, all positions and offices with the Company held, the period during
which such person has ever served as such, and the business experience during at
least the last five years:
Name Age Positions and Offices Held
---- --- --------------------------
Herbert Maxwell 76 President and Director (Since August 1999)
There are no agreements or understandings for the officer or director to
resign at the request of another person and the above-named officer and director
is not acting on behalf of nor will act at the direction of any other person.
Herbert Maxwell became sole officer and director of the Company on August
1, 1999 following the resignation of Michael L. Seifert.* Mr. Maxwell has been
an independent businessman for the past five years and has been a consultant for
troubled companies and a principal in investment groups for the past two
decades. Mr. Maxwell has also served as a director and officer (and was a
principal stockholder) of four publicly held companies, which although not
engaged in blank check offerings nevertheless consummated acquisitions of the
type described in this Prospectus. These include:
(1) Zachary Ventures, Inc. was organized in December, 1993. It conducted
an offering pursuant to Rule 419 which offering was concluded in
March, 1994. Zachary Ventures, Inc. did not effect a Business
Combination pursuant to Rule 419 and in June, 1996 returned the
deposited proceeds to the investors as required by such Rule. Zachary
Ventures has been dissolved and is no longer in business.
(2) C.S. Primo Corp. was organized in 1986 initially as an inactive
publicly held corporation pursuing a business acquisition. Mr. Maxwell
became a principal stockholder and a director of C.S. Primo Corp. on
or about June 3, 1988. On or about March 4, 1991, C.S. Primo Corp.
acquired approximately 98% of the issued and outstanding common stock
of Dynasty World Express, Inc. in exchange for approximately 90% of
C.S. Primo Corp.'s common stock; since then, C.S. Primo Corp. has
changed its name to Phoenix Information Systems Corp. and its common
stock trades on the over-the-counter market. Mr. Maxwell served as a
director from June, 1988 to March, 1991.
(3) Lewis Resources, Inc. was organized in 1987, initially through a stock
dividend distribution, as an inactive publicly held corporation
pursuing a business acquisition. Mr. Maxwell was one of the initial
stockholders and directors of Lewis Resources, Inc. On September 28,
1993, Lewis Resources, Inc. acquired from Lema Investments Ltd. all of
the outstanding shares of Gallium Arsenide Industries Ltd., a
development stage Israeli company. Since then, Lewis Resources, Inc.
has changed its name to Israel Semiconductor Corporation and its
- --------
* Mr. Seifert served as the Company's sole director and officer from
inception to August 1, 1999.
16
<PAGE>
common stock trades on the over-the-counter market. Mr. Maxwell served
as a director from its formation through September, 1993.
(4) Lewison Enterprises Inc. was organized in 1988 initially, through a
stock dividend distribution, as an inactive publicly held corporation
pursuing a business acquisition. Mr. Maxwell was one of the initial
stockholders and directors of Lewison Enterprises Inc. In July, 1993
the Lewison Enterprises Inc. issued 8,000,000 shares of common stock
to the stockholders of Omega Development Corp. ("Omega") in exchange
for all of the issued and outstanding shares of common stock of Omega.
Since then, Lewison Enterprises Inc. has changed its name to Omega
Development, Inc. To date, no trading market has developed for shares
of its common stock. Mr. Maxwell has been a director since its
formation.
Except for Omega Development, Inc., Mr. Maxwell is no longer a principal
stockholder, director or officer of any of the foregoing corporations. Except as
set forth above, Mr. Maxwell does not presently serve as a director of any
public company. He is an active investor and writes a newsletter on the New York
theater.
Conflicts of Interest.
The Company's officer and director and expects to organize other companies
of a similar nature and with a similar purpose as the Company. Consequently,
there are potential inherent conflicts of interest in acting as an officer and
director of the Company. Insofar as the officer and director is engaged in other
business activities, he will devote only a minor amount of time to the Company's
affairs. The Company does not have a right of first refusal pertaining to
opportunities that come to Management's attention insofar as such opportunities
may relate to the Company's proposed business operations.
A conflict may arise in the event that another blank check and/or blind
pool company (a "blind pool company") with which Management is affiliated is
formed and actively seeks a target company. It is anticipated that target
companies will be located for the Company and other blind pool companies in
chronological order of the date of formation of such blind pool companies or by
lot. However, any blank check companies that may be formed may differ from the
Company in certain items such as place of incorporation, number of shares and
shareholders, working capital, types of authorized securities, or other items.
It may be that a target company may be more suitable for or may prefer a certain
blind pool company formed after the Company. In such case, a business
combination might be negotiated on behalf of the more suitable or preferred
blind pool company regardless of date of formation or choice by lot. Mr. Maxwell
will be responsible for seeking, evaluating, negotiating and consummating a
business combination with a target company which may result in terms providing
benefits to Mr. Maxwell.
The Company may agree to pay finder's fees, as appropriate and allowed, to
unaffiliated persons who may bring a target company to the Company where that
reference results in a business combination. No finder's fee of any kind will be
paid by the Company to Management or promoters of the Company or to their
affiliates. No loans of any type have, or will be, made by the Company to
Management or promoters of the Company or to any of their associates or
affiliates.
Management has not adopted policies involving possible conflicts of
interest.
17
<PAGE>
There are no binding guidelines or procedures for resolving potential
conflicts of interest. Failure by Management to resolve conflicts of interest in
favor of the Company could result in liability of Management to the Company.
However, any attempt by shareholders to enforce a liability of Management to the
Company would most likely be prohibitively expensive and time consuming.
Investment Company Act of 1940.
Although the Company will be subject to regulation under the Securities Act
and the Exchange Act, Management believes that the Company will not be subject
to regulation under the Investment Company Act of 1940 insofar as the Company
will not be engaged in the business of investing or trading in securities. In
the event the Company engages in business combinations which result in the
Company holding passive investment interests in a number of entities, the
Company could be subject to regulation under the Investment Company Act of 1940.
In such event, the Company would be required to register as an investment
company and could be expected to incur significant registration and compliance
costs. The Company has not obtained a formal determination from the Commission
as to the status of the Company under the Investment Company Act of 1940. Any
violation of such Investment Company Act would subject the Company to material
adverse consequences.
ITEM 6. EXECUTIVE COMPENSATION.
The Company's sole officer and director does not receive any compensation
for his services rendered to the Company, has not received such compensation in
the past, and is not accruing any compensation pursuant to any agreement with
the Company. Prior to August 1, 1999, Mr. Michael Seifert served, without
compensation, as the Company's sole officer and director.
No retirement, pension, profit sharing, stock option or insurance programs
or other similar programs have been adopted by the Company for the benefit of
its employees.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Company has no properties and at this time has no agreements to acquire
any properties. The Company is presently using as its office the office of its
president, Herbert Maxwell, located at 1501 Broadway, Suite 1807, New York, New
York 10036, at no cost. Such arrangement is expected to continue until
completion of the acquisition of a target company.
ITEM 8. DESCRIPTION OF SECURITIES.
On May 18, 1999, the Company effected a 2,000 for 1 stock split and amended
its Certificate of Incorporation increasing the number of its authorized shares
to 20,000,000, and changing the par value to $.01 per share. On October 8, 1999,
the Company amended its Certificate of Incorporation to change the par value of
its shares of common stock to $.0001 per share. On October 20, 1999 the Company
amended it Certificate of Incorporation increasing its authorized shares to
100,000,000.
The Company is currently authorized to issue 100,000,000 shares of common
stock, $.0001 par value per share, of which 1,623,000 shares were issued and
outstanding as of the date of this Registration Statement. Each outstanding
share of common stock entitles the holder to one vote, either in person or by
proxy, on all matters that may be voted upon by the owners thereof at meetings
of the shareholders.
18
<PAGE>
The holders of common stock (i) have equal rights to dividends from funds
legally available therefor, when, as and if declared by the Board of Directors
of the Company; (ii) are entitled to share ratably in all of the assets of the
Company available for distribution to holders of common stock upon liquidation,
dissolution or winding up of the affairs of the Company; (iii) do not have
preemptive, subscription or conversion rights, and (iv) are entitled to one
non-cumulative vote per share on all matters on which shareholders may vote at
all meetings of shareholders.
Reports to Stockholders.
The Company intends to furnish its shareholders with annual reports
containing audited financial statements as soon as practicable after the end of
each fiscal year. Our fiscal year ends on July 31. In addition, we intend to
issue unaudited interim reports and financial statements on a quarterly basis.
Dividends.
The Company has not declared any dividends since inception, and has no
present intention of paying any cash dividends on its common stock in the
foreseeable future. The payment by the Company of dividends, if any, in the
future, rests within the discretion of our Board of Directors and will depend,
among other things, upon our earnings, capital requirements and financial
condition, as well as other relevant factors.
19
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS.
There is no trading market for the Company's common stock at present and
there has been no trading market to date. There is no assurance that a trading
market will ever develop or, if such a market does develop, that it will
continue. If a trading market develops, if at all, it will develop only after
the acquisition of a target company.
The National Securities Market Improvement Act of 1996 limited the
authority of states to impose restrictions upon sales of securities made
pursuant to Sections 4(1) and 4(3) of the Securities Act, of companies which
file reports under Sections 13 or 15(d) of the Exchange Act. The Company files
such reports. As a result, sales of the Company's common stock in the secondary
trading market by the holders thereof may be made pursuant to Section 4(1)of the
Securities Act (sales other than by an issuer, underwriter or broker).
The Commission has adopted Rule 15g-9 which establishes the definition of a
"penny stock," for purposes relevant to the Company, as any equity security that
has a market price of less than $5.00 per share or with an exercise price of
less than $5.00 per share, subject to certain exceptions. For any transaction
involving a penny stock, unless exempt, the rules require: (i) that a broker or
dealer approve a person's account for transactions in penny stocks and (ii) the
broker or dealer receive from the investor a written agreement to the
transaction, setting forth the identity and quantity of the penny stock to be
purchased. In order to approve a person's account for transactions in penny
stocks, the broker or dealer must (i) obtain financial information and
investment experience and objectives of the person; and (ii) make a reasonable
determination that the transactions in penny stocks are suitable for that person
and that person has sufficient knowledge and experience in financial matters to
be capable of evaluating the risks of transactions in penny stocks. The broker
or dealer must also deliver, prior to any transaction in a penny stock, a
disclosure schedule prepared by the Commission relating to the penny stock
market, which, in highlight form, (i) sets forth the basis on which the broker
or dealer made the suitability determination and (ii) that the broker or dealer
received a signed, written agreement from the investor prior to the transaction.
Disclosure also has to be made about the risks of investing in penny stocks in
both public offerings and in secondary trading, and about commissions payable to
both the broker-dealer and the registered representative, current quotations for
the securities and the rights and remedies available to an investor in cases of
fraud in penny stock transactions. Finally, monthly statements have to be sent
disclosing recent price information for the penny stock held in the account and
information on the limited market in penny stocks.
If, after a merger or acquisition, the Company does not meet the
qualifications for listing on the Nasdaq Stock Market Inc.'s SmallCap Market
("NASDAQ-SCM"), the Company's securities may be traded on the OTCBB. The OTCBB
market differs from national and regional stock exchanges in that it (1) is not
sited in a single location but operates through communication of bids, offers
and confirmations between broker-dealers and (2) securities admitted to
quotation are offered by one or more broker-dealers rather than the "specialist"
common to stock exchanges. The Company may seek to have its securities quoted on
the OTCBB or may offer its securities in what are commonly referred to as the
"pink sheets" of the National Quotation Bureau, Inc.
20
<PAGE>
In order to qualify for listing on the NASDAQ-SCM, a company must have at
least (i) net tangible assets of $4,000,000 or market capitalization of
$50,000,000 or net income for two of the last three years of $750,000; (ii)
public float of 1,000,000 shares with a market value of $5,000,000; (iii) a bid
price of $4.00; (iv) three market makers; (v) 300 shareholders and (vi) an
operating history of one year or, if less than one year, $50,000,000 in market
capitalization. For continued listing on the Nasdaq SmallCap Market, a company
must have at least (i) net tangible assets of $2,000,000 or market
capitalization of $35,000,000 or net income for two of the last three years of
$500,000; (ii) a public float of 500,000 shares with a market value of
$1,000,000; (iii) a bid price of $1.00; (iv) two market makers; and (v) 300
shareholders.
If the Company is unable initially to satisfy the requirements for
quotation on the NASDAQ-SCM or becomes unable to satisfy the requirements for
continued quotation thereon, and trading, if any, is conducted in the OTCBB, a
shareholder may find it more difficult to dispose of, or to obtain accurate
quotations as to the market value of, the Company's securities.
Dividends. The Company has not paid any dividends to date, and has no plans
to do so in the immediate future.
ITEM 2. LEGAL PROCEEDINGS.
There is no litigation pending or threatened by or against the Company.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company has not changed accountants since its formation and there are
no disagreements with the findings of its accountants.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
Within the last 3 years the Company has sold securities which were not
registered as follows:
(1) 15,000 shares of common stock to Mr. Herbert Maxwell; and
(2) A convertible debenture in the principal amount of $500 to Sierchio &
Albert, P.C., in payment of legal services and advice. Messrs. Sierchio and
Albert exercised their conversion rights on August 1, 1999 and were each
issued 554,000 shares of the Company's common stock on October 15, 1999.
The Company believes that all of these securities were issued in
transactions except from the registration requirements of the Securities Act by
virtue of Section 4(2) thereof.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware
provides that a Delaware corporation has the power, under specified
circumstances, to indemnify its directors, officers, employees and agents,
against expenses incurred in any action, suit or proceeding. The Certificate of
Incorporation and the By-laws of the Company provide for indemnification of
directors and officers to the fullest extent permitted by the General
Corporation Law of the State of Delaware.
21
<PAGE>
The General Corporation Law of the State of Delaware provides that a
certificate of incorporation may contain a provision eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of fiduciary duty as a director provided that such provision
shall not eliminate or limit the liability of a director (i) for any breach of
the director's duty of loyalty to the corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 (relating to liability for
unauthorized acquisitions or redemptions of, or dividends on, capital stock) of
the General Corporation Law of the State of Delaware, or (iv) for any
transaction from which the director derived an improper personal benefit. The
Company's Certificate of Incorporation contains such a provision.
INSOFAR AS INDEMNIFICATION FOR LIABILITIES ARISING UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, MAY BE PERMITTED TO DIRECTORS, OFFICERS OR PERSONS
CONTROLLING THE COMPANY PURSUANT TO THE FOREGOING PROVISIONS, IT IS THE OPINION
OF THE SECURITIES AND EXCHANGE COMMISSION THAT SUCH INDEMNIFICATION IS AGAINST
PUBLIC POLICY AS EXPRESSED IN THE ACT AND IS THEREFORE UNENFORCEABLE.
PART F/S
FINANCIAL STATEMENTS
Index
Page
----
Auditors Report Dated April 12, 1999..........................................23
Audited Balance Sheets as at July 31, 1999 and 1998...........................24
Audited Statement of Loss for the year ended July 31, 1999, 1998 and 1997.....25
Audited Statement of Cash Flow for the Year Ended July 31, 1999, 1998
and 1997....................................................................26
Statement of Shareholder Equity (Deficit) for the years ended July 31, 1999,
July 31, 1998 and July 31, 1997.............................................27
Notes to Financial Statements.................................................28
22
<PAGE>
Russell & Co.
AUDITORS' REPORT TO THE DIRECTORS OF:
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
We have audited the balance sheet of Stearman Enterprises Ltd. as at July 31,
1999, and July 31, 1998 and the statements of loss and shareholders' equity
(deficit) and cash flows for the years ended July 31, 1999, July 31, 1998 and
July 31, 1997. 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 audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform an audit to obtain reasonable
assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Company as at July 31, 1999 and July 31,
1998 and the results of its operations and its cash flows for the years ended
July 31, 1999, July 31, 1998 and July 31, 1997 in accordance with accounting
principles generally accepted in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company's negative working capital and deficit raises
substantial doubt about its ability to continue as a going concern. The
financial statements do not contain any adjustments that might result from the
outcome of this uncertainty.
/s/ Russell & Co.
Chartered Accountant
West Vancouver, B.C.
Canada.
August 12, 1999
415 Gordon Ave., West Vancouver, B.C., V7T 1P4
Telephone: (604) 913-0405 - Fax: (604) 913-0406
23
<PAGE>
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
Balance Sheet
as at July 31, 1999 and July 31, 1998
(U.S. DOLLARS)
1999 1998
Assets
Current assets
Cash and bank $ 300 $ --
----- -----
-- --
Incorporation costs 403 403
----- -----
Total Assets $ 703 $ 403
===== =====
Liabilities
Current liabilities
Accounts payable $ 357 $ 153
Accrued interest 55 30
Convertible Debenture 500 500
----- -----
Total Liabilities 912 683
----- -----
Shareholders' equity (deficit)
Share Capital
Authorized:
20,000,000 common shares with a par value of $.01 each
Issued and outstanding
515,000 common shares with a par value of $0.01
at July 31, 1999 and 250 at July 31, 1998 550 250
----- -----
550 250
Accumulated Deficit (759) (530)
----- -----
(209) (280)
----- -----
$ 703 $ 403
===== =====
CONTINUING OPERATIONS (NOTE 1)
24
<PAGE>
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
Statement of Loss
For the year ended July 31, 1999,
year ended July 31, 1998 and the year ended July 31, 1997
(U.S. DOLLARS)
1999 1998 1997
--------- --------- ---------
Expenses
Legal $ -- $ -- $ 500
Interest and bank charges 25 25 5
Filing fees 204 -- --
--------- --------- ---------
Net earnings (loss) for the period $ (229) $ (25) $ (505)
========= ========= =========
Basic and diluted loss per share $ (0.0005) $ (0.1000) $ (2.0200)
--------- --------- ---------
Weighted average shares Outstanding 500,411 250 250
--------- --------- ---------
25
<PAGE>
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
Statement of Cash Flow
For the year ended July 31, 1999,
year ended July 31, 1998 and the year ended July 31, 1997
(U.S. DOLLARS)
1999 1998 1997
Cash provided by (used in)
Operations
Net Loss for period $(229) $ (25) $(505)
----- ----- -----
(229) (25) (505)
Net change in non-cash working
capital balances
Accounts payable 204 -- --
Accrued interest 25 25 5
Convertible Debenture -- -- 500
----- ----- -----
Net cash used in operating activities -- -- --
Financing
Issuance of capital stock 300 -- --
----- ----- -----
Net cash generated by financing activities 300 -- --
----- ----- -----
Change in cash for period 300 -- --
----- ----- -----
Cash, beginning of period -- -- --
----- ----- -----
Cash, end of period $ 300 $-- $--
===== ===== =====
26
<PAGE>
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
Statement of Shareholders' Equity (Deficit)
Year ended July 31, 1999, and year ended July 31, 1998 and July 31, 1997
(U.S. DOLLARS)
<TABLE>
<CAPTION>
Common Shares Total
Accumulated Shareholders'
Shares Amount (Deficit) Equity (Deficit)
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance July 31, 1996 250 $250 -- $ 250
Net Loss -- -- (505) (505)
- ---------------------------------------------------------------------------------------------
Balance at July 31, 1997 250 250 (505) (255)
Net Loss -- -- (25) (25)
- ---------------------------------------------------------------------------------------------
Balance at July 31, 1998 250 250 (530) (280)
Stock split 499,750 -- -- --
Private placement 15,000 300 -- 300
Net Loss -- -- (229) (229)
- ---------------------------------------------------------------------------------------------
Balance at July 31, 1999 515,000 $550 $ (759) $ (209)
=============================================================================================
</TABLE>
27
<PAGE>
STEARMAN ENTERPRISES LTD.
(A Delaware Corporation)
(A development stage company)
Notes to Financial Statements
Year ended July 31, 1999
(U.S. DOLLARS)
1. Continuing operations
Stearman Enterprises Ltd. was incorporated on March 13, 1992 in the state
of Delaware, U.S.A.
The Company has negative working capital and a deficit. The ability for the
Company to continue as a going concern is dependent upon its ability to
obtain adequate financing to reach profitable levels of operations. It is
not possible to predict whether financing efforts will be successful or if
the Company will attain profitable levels of operations.
2. Summary of significant accounting policies
These financial statements have been prepared in accordance with generally
accepted accounting principles in the United States and reflect the
following significant accounting principles:
a. Estimates and assumptions
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amount of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
b. Earnings (loss) per common share
In February, 1997, the Financial Accounting Standards Board issued
Statement No. 128, Earnings Per Share (SFAS 128), which established
new standards for computing and presenting earnings per share
effective for fiscal years ending after December 15, 1997. With SFAS
128, primary earnings per share is replaced by basic earnings per
share, which is computed by dividing income available to common
shareholders by the weighted average number of shares outstanding for
the period. In addition, SFAS 128 requires the presentation of diluted
earnings per share, which includes the potential dilution that could
occur if dilutive securities were exercised or converted into common
stock. The computation of diluted EPS does not assume the conversion
or exercise of securities if their effect is anti-dilutive. Common
equivalent shares consist of the common shares issuable upon the
conversion of the convertible loan notes and special warrants (using
the if-converted method) and incremental shares issuable upon the
exercise of stock options and share purchase warrants ( using the
treasury stock method).
c. Cash and cash equivalents
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Cash and cash equivalents consist of cash on hand, deposits in banks
and highly liquid investments with an original maturity of three
months or less.
3. Convertible debenture
On May 13, 1997 the Company issued a 5% Convertible Debenture in the amount
of $500U.S. due May 13, 2002 in full settlement of outstanding legal fees.
The debenture principle bears interest at 5% per annum and the accrued
interest and the principle shall be convertible, in part or in whole on the
basis of 1 share for every $1.00U.S. ($0.0005 post forward split) of debt,
at the holder's option by giving the Company a Notice of Conversion within
75 days prior to the conversion date. As at July 31, 1997, none of the debt
had been converted.
4. Share Capital
On May 4, 1999, the Company amended its certificate of incorporation by
subdividing the authorized capital stock of the corporation so that each
share shall be subdivided into two thousand shares. The certificate of
incorporation was further amended by increasing the authorized capital
stock of the corporation by 18,000,000 with a par value of $0.01 each.
5. Related party transactions
At July 31, 1999, members of Maitland & Company, Canadian legal counsel
owned 125,000 shares of the Company's common stock.
6. Income taxes
The Company has net operating losses which may give rise to future tax
benefits of approximately $229, $25 and $505 as of July 31, 1999, July 31,
1998 and July 31, 1997 respectively. To the extent not used, net operating
loss carryforwards expire in varying amounts beginning in the year 2012.
Income taxes are accounted for in accordance with Statement of Financial
Accounting Standards No.109 (SFAS 109). Under this method, deferred income
taxes are determined based on differences between the tax basis of assets
and liabilities and their financial reporting amounts at each year end, and
are measured based on enacted tax rates and laws that will be in effect
when the differences are expected to reverse. Valuation allowances are
established, when necessary, to reduce deferred tax assets to the amount
expected to be realized. No provision for income taxes is included in the
statement due to its immaterial amount.
29
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PART III
ITEM 1&2 INDEX TO AND DESCRIPTION OF EXHIBITS
Exhibit
2(1) Certificate of Incorporation
2(2) Certificate for Renewal and Revival of Certificate of Incorporation
2(3) Certificate of Amendment to the Certificate of Incorporation
2(4) Certificate of Amendment to the Certificate of Incorporation
2(5) Certificate of Correction of Certificate of Amendment and Certificate of
Amendment of the Certificate of Incorporation
2(6) By-laws
30
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form 10SB and has duly caused this
Registration Statement to be signed on its behalf by the undersigned hereunto
duly authorized in the City of New York, on the 21st day of October, 1999.
STEARMAN ENTERPRISES, INC.
(Registrant)
By: /s/ Herbert Maxwell
---------------------------------------
Herbert Maxwell, President and Director
31
<PAGE>
STEARMAN ENTERPRISES, INC.
Registration Statement and Form 10SB
Exhibits
Exhibits Page
- -------- ----
2(1) Certificate of Incorporation
2(2) Certificate for Renewal and Revival of Certificate of Incorporation
2(3) Certificate of Amendment to the Certificate of Incorporation
2(4) Certificate of Amendment to the Certificate of Incorporation
2(5) Certificate of Correction of Certificate of Amendment and Certificate
of Amendment of the Certificate of Incorporation
2(6) By-laws
32
CERTIFICATE OF INCORPORATION
OF
92099 HOLDING CORPORATION
FIRST: The name of the Corporation is 92099 HOLDING CORPORATION
SECOND: The address of its registered office in Delaware is Corporation Trust
Center, 1209 Orange Street, in the City of Wilmington, County of New
Castle.
The name of its registered agent at such address is Corporation Trust
Company.
THIRD: The purpose of the corporation is to engage in any lawful activity or
activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of capital stock which the corporation
shall have authority to issue is 1,000 shares of common stock, without
par value.
FIFTH: The name and address of the incorporator is Laurel J. Langford,
700-625 Howe Street, Vancouver, British Columbia, Canada.
SIXTH: In addition to the powers conferred under the General Corporation Law,
the board of directors shall have power to adopt, amend, or repeal the
by-laws of the corporation.
SEVENTH: Subject to any contrary provision of the General Corporation Law, the
books of the corporation may be kept at such place or places, within
or without the State of Delaware, as may be designated from time to
time by the board of directors or in the by-laws of the corporation.
EIGHTH: The election of directors need not be by written ballot unless the
by-laws of the corporation shall so provide.
NINTH: The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by law, and all rights conferred
herein upon stockholders and directors are granted subject to this
reservation.
TENTH: No director shall have any personal liability to the corporation or
its stockholders for any monetary damages for breach of fiduciary duty
as a director, except that this Article shall not eliminate or limit
the liability of each director (i) for any breach of such directors'
duty of loyalty to the corporation or its stockholders, (ii) for acts
or omissions not is good faith or which involve intentional misconduct
or a knowing violation of law, (iii) under Section 174 of the Delaware
General Corporation Law, or (iv) for any transaction from which such
director derived an improper personal benefit. This Article shall not
eliminate or limit the liability of such director for any act or
omission occurring prior to the date when this Article becomes
effective.
I, the Undersigned, being the Incorporator hereinbefore named, do make this
Certificate for the purpose of forming a corporation pursuant to the General
Corporation Law of the State of Delaware; and intending that this be an
acknowledgment within the meaning of Section 103 of the General Corporation Law,
have executed this document on March 13, 1992.
/s/ Laurel J. Langford
- --------------------------------------------
Laurel J. Langford, Incorporator
33
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION
92099 Holding Corporation, a corporation organized under the laws of
Delaware, the Certificate of Incorporation of which was filed in the office of
the Secretary of State on March 13, 1992 and thereafter voided for non-payment
of taxes, now desiring to procure a revival of its Certificate of Incorporation,
hereby certifies as follows:
1. The name of the corporation is 92099 Holding Corporation.
2. Its registered office in the State of Delaware is located at Corporation
Trust Center, 1209 Orange Street, City of Wilmington, County of New Castle and
the name of its registered agent at such address is The Corporation Trust
Company.
3. The date when revival of the Certificate of Incorporation of this
corporation is to commence is February 28, 1994, same being prior to the date
the Certificate of Incorporation became void. Revival of this Certificate of
Incorporation is to be perpetual.
4. This corporation was duly organized under the laws of Delaware and
carried on the business authorized by its Certificate of Incorporation on March
1, 1994, at which time its Certificate of Incorporation became inoperative and
void for non-payment of taxes and this Certificate for Renewal and Revival is
filed by authority of the duly elected directors of the corporation with the
laws of Delaware.
IN WITNESS WHEREOF, said 92099 Holding Corporation in compliance with
Section 312 of Title 8 of the Delaware Code has caused this Certificate to be
signed by Michael L. Seifert, its last and acting Secretary, this 17th day of
March 1999.
By: /s/ Michael L. Seifert
-------------------------------------
34
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
92099 HOLDING CORPORATION, corporation organized and existing under and by
virtue of the General Corporate law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation by the unanimous written
consent of its members, filed with the minutes of the Board, adopted resolutions
proposing and declaring advisable the following amendments to the Certificate of
Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of 92099 HOLDING CORPORATION be
amended by changing the First Article thereof so that, as amended, the said
Article shall be and read as follows:
FIRST: The name of the Corporation is Stearman Enterprises, Inc.
RESOLVED, that the Certificate of Incorporation of 92099 HOLDING CORPORATION be
amended by changing the Fourth Article thereof so that, as amended, the said
Article shall be and read as follows:
FOURTH: The total number of shares of capital stock which the corporation
shall have authority to issue is 20,000,000 shares of common stock
with a par value of .01.
SECOND: That in lieu of a meeting and vote of stockholders, the stockholders
have given unanimous written consent to said amendments in accordance with the
provisions of Section 228 of the General Corporation Law of the State of
Delaware.
THIRD: That the aforesaid amendments were duly adopted in accordance with the
applicable provisions of Sections 242 and 228 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, said 92099 HOLDING CORPORATION has caused this certificate
to be signed by Michael L. Seifert, its Director and President, this 4th day of
May, 1999.
92099 HOLDING CORPORATION
By: /s/ Michael L. Seifert
-----------------------
Director and President
35
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STEARMAN ENTERPRISES, INC.
It is hereby certified that:
1. The name of the corporation (herein referred to as the "corporation")
is:
STEARMAN ENTERPRISES, INC.
2. The corporation's Certificate of Incorporation was filed with the Office
of the Secretary of State on March 13, 1992. A Certificate of Amendment of the
Certificate of Incorporation was filed with the Office of the Secretary of State
on May 18, 1999 changing the name of the corporation from 92099 Holding
Corporation to Stearman Enterprises, Inc.
3. The Certificate of Incorporation of the corporation is hereby amended by
striking out Article FOURTH thereof and by substituting in lieu of said Article
the following new Article:
"FOURTH: The total number of shares of capital stock which the corporation
shall have authority to issue is 20,000,000 shares of common stock, $.0001 par
value per share."
4. The amendment of the Certificate of Incorporation herein certified was
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware. Written consent has been given in
accordance with Section 228(d) of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
corporation, has hereunto signed his name and affirms that the statements made
herein are true under the penalties of perjury, this 8th day of October, 1999.
STEARMAN ENTERPRISES, INC.
BY: /s/ Herbert Maxwell
-----------------------
Herbert Maxwell
President
36
CERTIFICATE OF CORRECTION OF
CERTIFICATE OF AMENDMENT
AND
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION
OF
STEARMAN ENTERPRISES, INC.
1. The present name of the corporation (herein referred to as the "corporation")
is:
STEARMAN ENTERPRISES, INC.
2. The corporation's Certificate of Incorporation was filed with the Office of
the Secretary of State on March 13, 1992 and a Certificate of Amendment of the
Certificate of Incorporation was filed with the Office of the Secretary of State
on May 18, 1999 changing the name of the corporation from 92099 Holding
Corporation to Stearman Enterprises, Inc.
3. The aforementioned Certificate of Amendment also amended Article FOURTH of
the Certificate of Incorporation by increasing the number of shares of common
stock which the corporation is authorized to issue and changing the par value of
the common stock. The Certificate of Amendment was defective as it did not set
forth the requisite provisions to effect a conversion and split of the
outstanding shares of the corporation's common stock.
4. Article FOURTH of the Certificate of Incorporation is therefore hereby
deleted and amended to hereafter provide as follows:
"FOURTH: (1) The total number of shares of capital stock which the
corporation shall have authority to issue is 100,000,000 shares of common
stock, $.0001 par value per share.
(2) Upon the amendments herein certified becoming effective and
without further action on the part of the corporation or its stockholders,
each of the shares of common stock issued and outstanding as of May 18,
1999 shall be automatically converted and split into 2,000 shares of common
stock. Upon the amendments herein certified becoming effective, each
certificate representing shares of common stock issued and outstanding as
of May 18, 1999 shall be deemed to represent a number of shares of common
stock equal to the number of shares of common stock formerly represented by
such certificate multiplied by 2,000 and such shares shall be deemed duly
authorized, validly issued, fully paid and non-assessable; and the holder
of record of each such certificate shall be entitled to receive a new
certificate, upon the surrender of the existing certificate, representing a
number of shares of common stock equal to the number of shares of common
stock formerly represented by such certificate multiplied by 2,000."
5. The amendment of the Certificate of Incorporation herein certified was duly
adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the State of Delaware. Written consent has been given in
accordance with Section 228(d) of the General Corporation Law of the State of
Delaware.
37
<PAGE>
IN WITNESS WHEREOF, the undersigned, being an authorized officer of the
corporation, has hereunto signed his name and affirms that the statements made
herein are true under the penalties of perjury, this 20th day of October, 1999.
STEARMAN ENTERPRISES, INC.
BY: /s/ Herbert Maxwell
-----------------------
Herbert Maxwell
President
38
BY-LAWS
OF
STEARMAN ENTERPRISES, INC.
1. MEETINGS OF STOCKHOLDERS.
1.1 Annual Meeting. The annual meeting of stock-holders shall be held on
the first business day of the third week of September in each year, or as soon
thereafter as practicable, and shall be held at a place and time determined by
the board of directors (the "Board").
1.2 Special Meetings. Special meetings of the stockholders may be called by
resolution of the Board or the president and shall be called by the president or
secretary upon the written request (stating the purpose or purposes of the
meeting) of a majority of the directors then in office or of the holders of a
majority of the outstanding shares entitled to vote. Only business related to
the purposes set forth in the notice of the meeting may be transacted at a
special meeting.
1.3 Place and Time of Meetings. Meetings of the stockholders may be held in
or outside Delaware at the place and time specified by the Board or the officers
or stockholders requesting the meeting.
1.4 Notice of Meetings; Waiver of Notice. Written notice of each meeting of
stockholders shall be given to each stockholder entitled to vote at the meeting,
except that (a) it shall not be necessary to give notice to any stockholder who
submits a signed waiver of notice before or after the meeting, and (b) no notice
of an adjourned meeting need be given, except when required under section 1.5
below or by law. Each notice of a meeting shall be given, personally or by mail,
not fewer than 10 nor more than 60 days before the meeting and shall state the
time and place of the meeting, and, unless it is the annual meeting, shall state
at whose direction or request the meeting is called and the purposes for which
it is called. If mailed, notice shall be considered given when mailed to a
stockholder at his address on the corporation's
39
<PAGE>
records. The attendance of any stockholder at a meeting, without protesting at
the beginning of the meeting that the meeting is not lawfully called or
convened, shall constitute a waiver of notice by him.
1.5 Quorum. At any meeting of stockholders, the presence in person or by
proxy of the holders of a majority of the shares entitled to vote shall
constitute a quorum for the transaction of any business. In the absence of a
quorum, a majority in voting interest of those present or, if no stockholders
are present, any officer entitled to preside at or to act as secretary of the
meeting, may adjourn the meeting until a quorum is present. At any adjourned
meeting at which a quorum is present, any action may be taken that might have
been taken at the meeting as originally called. No notice of an adjourned
meeting need be given, if the time and place are announced at the meeting at
which the adjournment is taken, except that, if adjournment is for more than 30
days or if, after the adjournment, a new record date is fixed for the meeting,
notice of the adjourned meeting shall be given pursuant to section 1.4.
1.6 Voting; Proxies. Each stockholder of record shall be entitled to one
vote for each share registered in his name. Corporate action to be taken by
stockholder vote, other than the election of directors, shall be authorized by a
majority of the votes cast at a meeting of stockholders, except as otherwise
provided by law or by section 1.8. Directors shall be elected in the manner
provided in section 2.1. Voting need not be by ballot, unless requested by a
majority of the stockholders entitled to vote at the meeting or ordered by the
chairman of the meeting. Each stockholder entitled to vote at any meeting of
stockholders or to express consent to or dissent from corporate action in
writing without a meeting may authorize another person to act for him by proxy.
No proxy shall be valid after three years from its date, unless it provides
otherwise.
1.7 List of Stockholders. Not fewer than 10 days prior to the date of any
meeting of stockholders, the secretary of the corporation shall prepare a
complete list of stockholders entitled to vote at the meeting, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in his name. For a period of not fewer than 10 days prior to
the meeting, the list shall be
40
<PAGE>
available during ordinary business hours for inspection by any stockholder for
any purpose germane to the meeting. During this period, the list shall be kept
either (a) at a place within the city where the meeting is to be held, if that
place shall have been specified in the notice of the meeting, or (b) if not so
specified, at the place where the meeting is to be held. The list shall also be
available for inspection by stockholders at the time and place of the meeting.
1.8 Action by Consent Without a Meeting. Any action required or permitted
to be taken at any meeting of stockholders may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not fewer than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voting. Prompt notice of the taking of any such action shall be
given to those stockholders who did not consent in writing.
2. BOARD OF DIRECTORS.
2.1 Number, Qualification, Election and Term of Directors. The business of
the corporation shall be managed by the entire Board, which initially shall
consist of one directors. The number of directors may be changed by resolution
of a majority of the Board or by the stockholders, but no decrease may shorten
the term of any incumbent director. Directors shall be elected at each annual
meeting of stockholders by a plurality of the votes cast and shall hold office
until the next annual meeting of stockholders and until the election and
qualification of their respective successors, subject to the provisions of
section 2.9. As used in these by-laws, the term "entire Board" means the total
number of directors the corporation would have, if there were no vacancies on
the Board.
2.2 Quorum and Manner of Acting. A majority of the entire Board shall
constitute a quorum for the transaction of business at any meeting, except as
provided in section 2.10. Action of the Board shall be authorized by the vote of
the majority of the directors present at the time of the vote, if there is a
quorum,
41
<PAGE>
unless otherwise provided by law or these by-laws. In the absence of a quorum, a
majority of the directors present may adjourn any meeting from time to time
until a quorum is present.
2.3 Place of Meetings. Meetings of the Board may be held in or outside
Delaware.
2.4 Annual and Regular Meetings. Annual meetings of the Board, for the
election of officers and consideration of other matters, shall be held either
(a) without notice immediately after the annual meeting of stockholders and at
the same place, or (b) as soon as practicable after the annual meeting of
stockholders, on notice as provided in section 2.6. Regular meetings of the
Board may be held without notice at such times and places as the Board
determines. If the day fixed for a regular meeting is a legal holiday, the
meeting shall be held on the next business day.
2.5 Special Meetings. Special meetings of the Board may be called by the
president or by a majority of the directors.
2.6 Notice of Meetings; Waiver of Notice. Notice of the time and place of
each special meeting of the Board, and of each annual meeting not held
immediately after the annual meeting of stockholders and at the same place,
shall be given to each director by mailing it to him at his residence or usual
place of business at least three days before the meeting, or by delivering or
telephoning or telegraphing it to him at least two days before the meeting.
Notice of a special meeting also shall state the purpose or purposes for which
the meeting is called. Notice need not be given to any director who submits a
signed waiver of notice before or after the meeting or who attends the meeting
without protesting at the beginning of the meeting the transaction of any
business because the meeting was not lawfully called or convened. Notice of any
adjourned meeting need not be given, other than by announcement at the meeting
at which the adjournment is taken.
2.7 Board or Committee Action Without a Meeting. Any action required or
permitted to be taken by the Board or by any committee of the Board may be taken
without a meeting, if all the members of the
42
<PAGE>
Board or the committee consent in writing to the adoption of a resolution
authorizing the action. The resolution and the written consents by the members
of the Board or the committee shall be filed with the minutes of the proceedings
of the Board or the committee.
2.8 Participation in Board or Committee Meetings by Conference Telephone.
Any or all members of the Board or any committee of the Board may participate in
a meeting of the Board or the committee by means of a conference telephone or
similar communications equipment allowing all persons participating in the
meeting to hear each other at the same time. Participation by such means shall
constitute presence in person at the meeting.
2.9 Resignation and Removal of Directors. Any director may resign at any
time by delivering his resignation in writing to the president or secretary of
the corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any or all of the directors may be removed at
any time, either with or without cause, by vote of the stockholders.
2.10 Vacancies. Any vacancy in the Board, including one created by an
increase in the number of directors, may be filled for the unexpired term by a
majority vote of the remaining directors, though less than a quorum.
2.11 Compensation. Directors shall receive such compensation as the Board
determines, together with reimbursement of their reasonable expenses in
connection with the performance of their duties. A director also may be paid for
serving the corporation or its affiliates or subsidiaries in other capacities.
3. COMMITTEES.
3.1 Executive Committee. The Board, by resolution adopted by a majority of
the entire Board, may designate an executive committee of one or more directors,
which shall have all the powers and authority of the Board, except as otherwise
provided in the resolution, section 141(c) of the General
43
<PAGE>
Corporation Law of Delaware or any other applicable law. The members of the
executive committee shall serve at the pleasure of the Board. All action of the
executive committee shall be reported to the Board at its next meeting.
3.2 Other Committees. The Board, by resolution adopted by a majority of the
entire Board, may designate other committees of one or more directors, which
shall serve at the Board's pleasure and have such powers and duties as the Board
determines.
3.3 Rules Applicable to Committees. The Board may designate one or more
directors as alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. In case of the absence or
disqualification of any member of a committee, the member or members present at
a meeting of the committee and not disqualified, whether or not a quorum, may
unanimously appoint another director to act at the meeting in place of the
absent or disqualified member. All action of a committee shall be reported to
the Board at its next meeting. Each committee shall adopt rules of procedure and
shall meet as provided by those rules or by resolutions of the Board.
4. OFFICERS.
4.1 Number; Security. The executive officers of the corporation shall be
the president, one or more vice presidents (including an executive vice
president, if the Board so determines), a secretary and a treasurer. Any two or
more offices may be held by the same person. The board may require any officer,
agent or employee to give security for the faithful performance of his duties.
4.2 Election; Term of Office. The executive officers of the corporation
shall be elected annually by the Board, and each such officer shall hold office
until the next annual meeting of the Board and until the election of his
successor, subject to the provisions of section 4.4.
4.3 Subordinate Officers. The Board may appoint subordinate officers
(including assistant secretaries and assistant treasurers), agents or employees,
each of whom shall hold office for such period and
44
<PAGE>
have such powers and duties as the Board determines. The Board may delegate to
any executive officer or committee the power to appoint and define the powers
and duties of any subordinate officers, agents or employees.
4.4 Resignation and Removal of Officers. Any officer may resign at any time
by delivering his resignation in writing to the president or secretary of the
corporation, to take effect at the time specified in the resignation; the
acceptance of a resignation, unless required by its terms, shall not be
necessary to make it effective. Any officer elected or appointed by the Board or
appointed by an executive officer or by a committee may be removed by the Board
either with or without cause, and in the case of an officer appointed by an
executive officer or by a committee, by the officer or committee that appointed
him or by the president.
4.5 Vacancies. A vacancy in any office may be filled for the unexpired term
in the manner prescribed in sections 4.2 and 4.3 for election or appointment to
the office.
4.6 The President. The president shall be the chief executive officer of
the corporation. Subject to the control of the Board, he shall have general
supervision over the business of the corporation and shall have such other
powers and duties as presidents of corporations usually have or as the Board
assigns to him.
4.7 Vice President. Each vice president shall have such powers and duties
as the Board or the president assigns to him.
4.8 The Treasurer. The treasurer shall be the chief financial officer of
the corporation and shall be in charge of the corporation's books and accounts.
Subject to the control of the Board, he shall have such other powers and duties
as the Board or the president assigns to him.
4.9 The Secretary. The secretary shall be the secretary of, and keep the
minutes of, all meetings of the Board and the stockholders, shall be responsible
for giving notice of all meetings of stockholders and the
45
<PAGE>
Board, and shall keep the seal and, when authorized by the Board, apply it to
any instrument requiring it. Subject to the control of the Board, he shall have
such powers and duties as the Board or the president assigns to him. In the
absence of the secretary from any meeting, the minutes shall be kept by the
person appointed for that purpose by the presiding officer.
4.10 Salaries. The Board may fix the officers' salaries, if any, or it may
authorize the president to fix the salary of any other officer.
5. SHARES.
5.1 Certificates. The corporation's shares shall be represented by
certificates in the form approved by the Board. Each certificate shall be signed
by the president or a vice president, and by the secretary or an assistant
secretary or the treasurer or an assistant treasurer, and shall be sealed with
the corporation's seal or a facsimile of the seal. Any or all of the signatures
on the certificate may be a facsimile.
5.2 Transfers. Shares shall be transferable only on the corporation's
books, upon surrender of the certificate for the shares, properly endorsed. The
Board may require satisfactory surety before issuing a new certificate to
replace a certificate claimed to have been lost or destroyed.
5.3 Determination of Stockholders of Record. The Board may fix, in advance,
a date as the record date for the determination of stockholders entitled to
notice of or to vote at any meeting of the stockholders, or to express consent
to or dissent from any proposal without a meeting, or to receive payment of any
dividend or the allotment of any rights, or for the purpose of any other action.
The record date may not be more than 60 or fewer than 10 days before the date of
the meeting or more than 60 days before any other action.
6. INDEMNIFICATION AND INSURANCE.
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6.1 Right to Indemnification. Each person who was or is a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative (a
"proceeding"), by reason of the fact that he, or a person of whom he is the
legal representative, is or was a director or officer of the corporation or is
or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to employee benefit
plans, whether the basis of such proceeding is alleged action or inaction in an
official capacity or in any other capacity while serving as director, officer,
employee or agent, shall be indemnified and held harmless by the corporation to
the fullest extent permitted by the General Corporation Law of Delaware, as
amended from time to time, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and that indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his heirs, executors and administrators;
provided, however, that, except as provided in section 6.2, the corporation
shall indemnify any such person seeking indemnification in connection with a
proceeding (or part thereof) initiated by that person, only if that proceeding
(or part thereof) was authorized by the Board. The right to indemnification
conferred in these by-laws shall be a contract right and shall include the right
to be paid by the corporation the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however, that, if the
General Corporation Law of Delaware, as amended from time to time, requires, the
payment of such expenses incurred by a director or officer in his capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by that person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance of the final
disposition of a proceeding shall be made only upon delivery to the corporation
of an undertaking, by or on behalf of such director or officer, to repay all
amounts so advanced, if it shall ultimately be determined that such director or
officer is not entitled to be indemnified under these by-laws or otherwise. The
corporation may, by action of its
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Board, provide indemnification to employees and agents of the corporation with
the same scope and effect as the foregoing indemnification of directors and
officers.
6.2 Right of Claimant to Bring Suit. If a claim under section 6.1 is not
paid in full by the corporation within 30 days after a written claim has been
received by the corporation, the claimant may at any time thereafter bring suit
against the corporation to recover the unpaid amount of the claim and, if
successful in whole or in part, the claimant also shall be entitled to be paid
the expense of prosecuting that claim. It shall be a defense to any such action
(other than an action brought to enforce a claim for expenses incurred in
defending any proceeding in advance of its final disposition, where the required
undertaking, if any, is required and has been tendered to the corporation) that
the claimant has failed to meet a standard of conduct that makes it permissible
under Delaware law for the corporation to indemnify the claimant for the amount
claimed. Neither the failure of the corporation (including its Board, its
independent legal counsel or its stockholders) to have made a determination
prior to the commencement of such action that indemnification of the claimant is
permissible in the circumstances because he has met that standard of conduct,
nor an actual determination by the corporation (including its Board, its
independent counsel or its stockholders) that the claimant has not met that
standard of conduct, shall be a defense to the action or create a presumption
that the claimant has failed to meet that standard of conduct.
6.3 Non-Exclusivity of Rights. The right to indemnification and the payment
of expenses incurred in defending a proceeding in advance of its final
disposition conferred in this section 6 shall not be exclusive of any other
right any person may have or hereafter acquire under any statute, provision of
the certificate of incorporation, by-law, agreement, vote of stockholders or
disinterested directors or otherwise.
6.4 Insurance. The corporation may maintain insurance, at its expense, to
protect itself and any director, officer, employee or agent of the corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the corporation
would have the power to indemnify such person against that expense, liability or
loss under Delaware law.
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6.5 Expenses as a Witness. To the extent any director, officer, employee or
agent of the corporation is by reason of such position, or a position with
another entity at the request of the corporation, a witness in any action, suit
or proceeding, he shall be indemnified against all costs and expenses actually
and reasonably incurred by him or on his behalf in connection therewith.
6.6 Indemnity Agreements. The corporation may enter into agreement with any
director, officer, employee or agent of the corporation providing for
indemnification to the fullest extent permitted by Delaware law.
7. MISCELLANEOUS.
7.1 Seal. The Board shall adopt a corporate seal, which shall be in the
form of a circle and shall bear the corporation's name and the year and state in
which it was incorporated.
7.2 Fiscal Year. The Board may determine the corporation's fiscal year.
Until changed by the Board, the last day of the corporation's fiscal year shall
be July 31.
7.3 Voting of Shares in Other Corporations. Shares in other corporations
held by the corporation may be represented and voted by an officer of this
corporation or by a proxy or proxies appointed by one of them. The Board may,
however, appoint some other person to vote the shares.
7.4 Amendments. By-laws may be amended, repealed or adopted by the
stockholders.
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