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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
KESTREL EQUITY CORPORATION
(Name of small business issuer in its charter)
ARIZONA 86-0869877
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
11166 Burbank Blvd.
North Hollywood, CA 91601
(818) 760-7007
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(Address and telephone number of principal executive offices)
Securities to be registered under Section 12(b) of the Act:
Title of each class Name of each exchange on which
to be so registered each class is to be registered
NONE N/A
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Securities to be registered under Section 12(g) of the Act:
Common Stock
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(Title of class)
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DESCRIPTION OF BUSINESS
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
THIS FORM 10-SB CONTAINS CERTAIN STATEMENTS THAT CONSTITUTE
"FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934 AND SECTION 27A OF THE SECURITIES ACT OF 1933. THE WORDS
"EXPECT", "ESTIMATE", "ANTICIPATE", "INTEND", "BELIEVE" AND SIMILAR EXPRESSIONS
AND VARIATIONS THEREOF ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS. SUCH
STATEMENTS REFLECT THE CURRENT VIEWS OF THE COMPANY REGARDING FUTURE EVENTS AND
ARE SUBJECT TO CERTAIN RISKS, UNCERTAINTIES AND ASSUMPTIONS, INCLUDING THE RISKS
AND UNCERTAINTIES NOTED. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES
MATERIALIZE, OR SHOULD THE UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL
RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED HEREIN AS ANTICIPATED,
BELIEVED, ESTIMATED, EXPECTED OR INTENDED. IN EACH INSTANCE, FORWARD-LOOKING
INFORMATION SHOULD BE CONSIDERED IN LIGHT OF THE ACCOMPANYING MEANINGFUL
CAUTIONARY STATEMENTS HEREIN.
GENERAL
Kestrel Equity Corporation, an Arizona corporation (the "Company" or
"Kestrel") was incorporated in Arizona on December 14, 1993 under its original
name Arizona Taxpros & Insurance Wholesalers, Inc. On September 30, 1997, the
Company filed Articles of Amendment to its Articles of Incorporation changing
the Company's name to Kestrel Equity Corporation. Since its inception in 1993,
the Company has had no active operations. On July 20, 1999, the Board of
Directors approved an Acquisition Agreement and Plan of Reverse Merger, which
was executed by the Company on December 3, 1999, pursuant to which the Company
would acquire Stereo Vision Entertainment, Inc., a Nevada corporation ("Stereo
Vision") by means of a reverse merger whereby Stereo Vision will be merged with
and into the Company (the "Merger"). The Company has obtained the approval of a
majority of the Company's shareholders and intends to file the Articles of
Merger with the State of Arizona on or about December 27, 1999. Pursuant to the
Merger, each share of Stereo Vision common stock outstanding will be exchanged
for 120 shares of the Company's common stock, $.001 par value (the "Common
Stock"). As a result of the Merger, the separate existence of Stereo Vision will
cease and the Company will remain as the surviving corporation. Following the
Merger, the Company plans to amend its Articles of Incorporation to change its
name to Stereo Vision Entertainment, Inc. and to change its state of
incorporation from Arizona to Nevada (the "Reincorporation"). The
Reincorporation will be accomplished through the merger of the Company with and
into a wholly-owned subsidiary which will be formed in the state of Nevada for
the sole purpose of effecting the Reincorporation.
The Company's creative advisors have been entertainment and music
industry innovators, with over 50 years of experience in the motion picture
technology and production business and over 40 years of experience in the global
music industry. Since 1968, several of the Company's creative advisors have been
actively involved in technology development and the production, distribution and
exhibition of high quality 35 mm and 70 mm three-dimensional ("3-D") films,
featurettes, commercials and film shorts. Following the Merger, the Company
intends to implement a competitive and compelling strategy to theatrically
produce and distribute new and existing 3-D feature films and to produce and
distribute a series of live action special events in 3-D via closed circuit
television and Internet-based web-casts. The Company's production capabilities
and expertise will also be extended to serve other ancillary entertainment and
promotional markets. Finally, the Company intends to establish a Internet-based
music portal and record label site where it will distribute motion picture
soundtracks from its 3-D films, as well as other original recordings.
3-D MARKETS
3-D entertainment markets are currently characterized by relatively
short content (one hour or less), and explosive action in color, images, events
or scenery. Prime 3-D markets include music videos, action television
programming, nature documentaries, sports events, promotional material,
merchandising tie-ins, and specialized films for location-based visual
entertainment. The Company believes that with continued technological
development the re-emergence of full-length 3-D movies may reappear in the near
future.
The total potential visual entertainment market for the Company's 3-D
technology is estimated to be $91 billion, and encompasses three distinct
entertainment industries - broadcast and cable television, video software and
motion pictures. In addition, location-based entertainment theaters represent a
profitable and rapidly growing market segment.
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BROADCAST AND CABLE TELEVISION INDUSTRY
Initial 3-D penetration of visual broadcast markets will be focused on
sports events, music videos and special programming. As the mass television
audience acquires 3-D viewers, the Company believes the scope of 3-D programming
will expand. Syndicated 3-D programs, or even dedicated time slots or channels
may be broadcast in 3-D and could facilitate widespread video software and
motion picture opportunities.
Household television penetration in the United States now exceeds 98%
of total households, with nearly 100% being color television sets. Currently,
the television population in the United States exceeds 217 million sets, with
the average household having a television on for over seven hours each day. The
Company believes there is substantial opportunity for enhancing the television
viewing experience with 3-D technology.
VIDEO SOFTWARE INDUSTRY
Video software is an $18 billion retail industry divided almost equally
between sales and rentals. Over 75 million households in the United States have
videocassette recorders. Currently, distribution of 3-D content to the home
entertainment market is nearly non-existent. The distribution of video software
is primarily controlled by specialty video stores, such as Blockbuster
Entertainment. These video specialty stores generate over 80% of total revenue
from video rentals.
MOTION PICTURE INDUSTRY
The motion picture industry generates gross revenues in excess of $13
billion annually (including foreign sales). The business of the motion picture
industry may be broadly divided into two major segments: production, involving
the development, financing and making of motion pictures, and distribution,
involving the promotion and exploitation of completed motion pictures. The
motion picture industry currently represents a smaller 3-D market than either
television or video. The Company believes that this is in part due to the
prohibitive cost associated with producing and exhibiting full-length 3-D
feature films. However, the Company believes that it may become an important
market for 3-D technology licensing. Much of the content of the video software
industry originates from the motion picture industry. The Company believes that
recent technological innovations will result in an increase in the number of 3-D
feature films produced. As content suppliers adopt the 3-D format, the Company
will attempt to actively negotiate licensing agreements with the motion picture
industry.
LOCATION-BASED ENTERTAINMENT THEATERS
The Company believes that there is an increasing worldwide demand for a
variety of out-of-home entertainment options. The Company's goal is to become a
provider of a complete line of services and products to support the design,
development and operation of specialty format theater attractions. These
products will include 3-D film-based software and projectors in the video
simulation, large format and specialty venues attractions.
3-D ENTERTAINMENT PRODUCTS
3-D MOTION PICTURE AND PHOTO OPTICAL PRODUCTS
Traditional true stereo or 3-D production techniques have required the
use of two cameras locked together to produce two strips of film, one for the
right eye and one for the left eye. To project the film two projectors are also
required along with a reflective screen surface for polarized viewing. Because
two cameras and two projectors are required, as well as twice the film, the
expense for both production and exhibition of traditional 3-D films is
significantly greater than for standard two-dimensional ("2-D") formats.
Following the Merger, the Company will have rights and access to
certain patented and proprietary technology, that allow for high-quality 3-D
production at a cost equivalent to 2-D formats. This technology employs a dual
element, single lens technology that can shoot 35mm or 70mm 3-D productions with
one standard camera, as opposed to two synchronized cameras, and allows the
films to be exhibited through a single projector. The system also allows for the
production of 2-D and 3-D products simultaneously. To create the 3-D effect, the
audience uses either polarized glasses or electronic glasses that separate the
left and right eye images. The Company believes that this 3-D system offers
consumers one of the most realistic 3-D experiences available today.
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3-D PRODUCTIONS
Following the Merger, the Company will own the rights, and intends to
begin production on several 3-D feature films. In addition to these productions,
the Company will have license agreements to re-release a slate of existing 3-D
feature films. The Company also intends to provide production capability
services to produce 3-D entertainment products to other independent
organizations including independent production companies, major studios, theme
parks, casinos and corporate markets such as advertising agencies.
EXHIBITION AND DISTRIBUTION NETWORK
It is planned that theatrical releases of 3-D productions will be
achieved using the Company's unique turnkey distribution solution. Stereo Vision
currently owns over 800 3-D projection systems. Unlike other wide screen 3-D
solutions, the exhibition of the Company's 3-D entertainment products will not
require spending millions of dollars on the construction of specialized venues
or on the purchase of specialized projection hardware to view "theme park"
quality 3-D films. By using the Company's system, superior 3-D special effects
can be achieved at a fraction of the costs of competing solutions.
MARKETING, DISTRIBUTION AND PROMOTIONS
The Company's primary function is to facilitate the production and
distribution of its 3-D technology, as well as the establishment of new,
innovative platforms for the presentation of 3-D media.
The Company intends to market its 3-D technology by providing the
industry with the necessary tools to allow for 3-D production and viewing within
the current 2-D infrastructure. This will be accomplished by the following:
(i) Producing and distributing 3-D content for the video, broadcast television
and motion picture industries; (ii) Establishing special theaters for showcasing
3-D content; (iii) Creating a mass audience and mainstream distribution channel;
and (iv) Licensing the technology to the entertainment industry.
The Company also intends to include sponsorship opportunities for its
own original productions, as well as for third parties. Sponsorship activities
will include branding 3-D glasses for live events, and developing custom
corporate 3-D images, campaigns and messages. The Company also intends to offer,
and is capable of delivering, 3-D products in a full spectrum of 3-D formats
which include film, video, DVD, the Internet and print.
ANCILLARY PRODUCTS, MERCHANDISING AND LICENSING
In addition to servicing the proprietary and wholesale promotion
industries, the Company intends to establish a website dedicated to the sale of
3-D related retail products. The website will offer 3-D viewers, slides,
holograms, lenticular images and various types of 3-D glasses for viewing 3-D
content on television or over the Internet.
3-D BROADCASTING
The Company recognizes and has taken action to participate in other
"new" opportunities and markets that can utilize its 3-D technologies. The
Company plans to work with major live event productions to create original live
3-D content that will then be broadcast via satellite and Internet web casts.
The Company believes that broadcasting live events in 3-D is an attractive means
of adding value and perspective. The Company believes that it will have the
ability to offer 3-D broadcast services in the near future.
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MUSIC
The Company intends to establish an Internet music portal/record label
site to distribute both music property it acquires and music sound tracks it
produces for its 3-D and independent feature films. As part of its plan, the
Company recently acquired certain rights to music properties from Mr. Don W.
Johnston, including a 60% interest in the Carl Perkins' recording "Go Cat Go,"
and a 17-song compilation, including recordings by Jimi Hendrix, John Lennon,
George Harrison, Paul McCartney, Ringo Starr, Tom Petty and the Heartbreakers,
Bono, Willie Nelson, Johnny Cash, John Fogerty, Paul Simon, Eric Clapton,
Charlie Daniels, Clarence Clemons, Joe Walsh, Billy Preston and others.
BUSINESS EXPANSION; CAPITAL GROWTH
The Company intends to position itself to evolve into a vertically
integrated, diversified global media entertainment company. The Company intends
to acquire a number of diversified entertainment companies that will allow for
the pursuit of opportunities currently available in the global marketplace. The
Company believes that synergism among its divisions will allow the Company to
effectively compete for its incremental share of the global consumer's
discretionary expenditures. The Company intends to finance its business
expansion and acquisitions through the sale of equity securities.
The ability of the Company to implement its business strategy depends
upon its ability to successfully create, produce, and market entertainment or
products for exhibition in theaters and home markets. The size and quality of
the Company's library of film software titles is a material factor in competing
for sales of the Company's attractions and developing the Company's base of
recurring revenue.
The Company intends to produce and develop specialty films and videos
for its library. While the Company may enter into participation, licensing or
other financial arrangements with third parties in order to minimize its
financial involvement in production, the Company will be subject to substantial
financial risks relating to the video software. The Company expects that it will
typically be required to pay for the production of software during the
production period prior to release but will most likely be unable to recoup
these costs from revenues from exhibition licenses prior to 24 to 36 months
following release.
The Company anticipates generating revenues from several sources,
including, production and distribution of new and existing 3-D feature films and
providing integrated solutions to help organizations broadcast audio, video, 3-D
video, animation, and 3-D animation and music over the Internet.
MANAGEMENT OF GROWTH
In order to maximize potential growth in the Company's market
opportunities, the Company believes that it must expand rapidly and
significantly upon its entrance into the marketplace. This impetus for expansion
will place a significant strain on the Company's management, operational and
financial resources. In order to manage growth, the Company must implement and
continually improve its operational and financial systems, expand operations,
attract and retain superior management and train, manage and expand its employee
base. The Company cannot guarantee that it will effectively manage the rapid
expansion of its operations, that its systems, procedures or controls will
adequately support its operations or that the Company's management will
successfully implement its business plan. If the Company cannot effectively
manage its growth, its business, financial condition and results of operations
could suffer a material adverse effect.
The Company expects that it will require additional equity and/or
credit financing prior to becoming cash self-sufficient. There can be no
assurances that the Company will successfully negotiate or obtain additional
financing, or that it will obtain financing on terms favorable or acceptable to
it. The Company does not have any commitments for additional financing. The
Company's ability to obtain additional capital depends on market conditions, the
global economy and other factors outside its control. If the Company does not
obtain adequate financing or such financing is not available on acceptable
terms, the Company's ability to finance its expansion, develop or enhance
products or services or respond to competitive pressures would be significantly
limited. The Company's failure to secure necessary financing could have a
material adverse effect on its business, prospects, financial condition and
results of operations.
GOVERNMENT REGULATION
The Classification and Rating Administration of the Motion Picture
Association of America, an industry trade association, assigns ratings for
age-group suitability for motion pictures. The Company plans to submit its
pictures for such ratings. Management's current policy is to produce motion
pictures that qualify for a rating no more restrictive than "R."
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INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success depends substantially upon its proprietary
technology. The Company will rely on a combination of patent, trademark,
copyright and trade secret laws, as well as confidentiality agreements, to
protect its proprietary rights. The Company's predecessor maintained a policy of
obtaining patent protection and Stereo Vision currently has the following patent
pending:
PATENTS PENDING: One-High Speed for Above and Below 3-D Cameras
Stereo Vision also has technology in development that has grown out of
previously patented technology held by Stereo Vision or its predecessors. The
Company intends to obtain patent protection for this proprietary technology as
well. The Company can give no assurance that such patents will be granted or
that third parties will not claim infringement with respect to current or future
technology developed by the Company.
Distribution rights to motion pictures are also granted legal
protection under the copyright laws of the United States and most foreign
countries. These copyright laws provide substantial civil and criminal sanctions
for unauthorized duplication and exhibition of motion pictures. Motion pictures,
musical works, sound recordings, artwork, still photography and motion picture
properties are each separate works subject to copyright under most copyright
laws, including the United States Copyright Act of 1976, as amended.
COMPETITION
The Company will compete with a large array of diverse global media
conglomerates, upstart "entertainment, information and commerce" companies, as
well as with a number of smaller, independent production companies. Currently,
no companies have established a substantial presence in the 3-D video software
home market. The competitive environment in this market consists of limited
suppliers of 3-D viewers and content (DVD, CD-ROM, videotape) kits such as
V-REX, VIDMAX, and others. Conversely, competition in the special venue markets
(theatrical) is much more developed. Currently, there are five companies, other
than the Company, that have carved a substantial niche in special venue markets.
They are as follows:
o IMAX - the most formidable presence in both hardware and software
special format entertainment. The fact that IMAX uses a 15
perforation 70 mm system limits its ability to market 3-D content.
As the leading 3-D content hardware and software provider,
however, IMAX is regarded as the Company's foremost competitor in
special venue markets.
o IWERKS - a company that specializes in "ridefilm," an experience
that combines motion simulation with visual immersion and
functions in either a fixed base or portable capacity.
o SHOWSCAN - also specializes in motion simulation entertainment for
specialty theaters. Showscan operates approximately 50 theaters in
19 countries.
o CINEMA RIDE - a minor competitor in specialty theater and motion
simulated entertainment. Cinema Ride technology combines 3-D films
with motion to provide unique on-screen action.
o NEW VISUAL ENTERTAINMENT - is a company that is involved in the
development, design and distribution of software techniques,
videos and theaters for 3-D entertainment. However, this company
has generated minimal revenues to date and is not considered to be
a significant competitor of the Company.
The Company's other current and potential competitors include:
o Fox, Disney, Warner Bros., Universal and others
o Globcast, Vyvx and COMSAT World Systems
o Universal music, EMI, BMG and others
A portion of these companies compete for motion picture projects and
talent and are producing motion pictures that compete for exhibition time at
theaters, on television, and on home video with pictures produced by the
Company. Other companies compete in areas of satellite production and
transmission services and music production, distribution and promotion. In
regards to motion picture production, the Company has positioned itself to
initially target a niche segment of the industry which management believes is
under-serviced. The Company's innovative 3-D technology combined with lower cost
production and exhibition is anticipated to achieve favorable results in
effectively competing and establishing itself in the marketplace. The Company
also intends to use its core competencies in areas of music production and
satellite transmission and production services to diversify and compete in the
global marketplace.
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Many of the Company's competitors have operating histories, larger
customer bases and significantly greater financial, marketing and other
resources. Certain of the Company's competitors have the financial resources to
devote greater resources to marketing and promotional campaigns and devote
substantially more resources to technology development. Increased competition
may result in reduced operating margins.
EMPLOYEES
As of December 15, 1999, the Company employed three full-time
employees. The Company considers its employee relations to be satisfactory at
present.
PLAN OF OPERATION
The following discussion should be read in conjunction with the
Company's audited financial statements.
The current plan of Kestrel Equity Corporation incorporates operational
resources that will make 3-D media a mainstream entertainment form. The Company
plans to reach the mass market by aligning itself with already-established,
branded products and titles for the production, promotion and distribution of
3-D products. The Company's management intends to aggressively evaluate and
pursue production opportunities in order to increase the Company's content
library and maintain a leadership position as the foremost provider of 3-D
products.
As a development stage enterprise, the Company has minimal historical
operations and negative cash flows. In order to satisfy cash requirements for
the Company's production and revenue goals, management must obtain working
capital through either debt or equity financing. For the purpose of general
operations and production needs, the Company anticipates the need for funding of
approximately $7 million over the next 12 months. Such funding may be
accomplished through public financial markets, private offerings of equity or
debt, and joint venture opportunities.
Financial characteristics of the industry include a relatively low cost
of goods sold with substantial operating expenses. Operating expenses are
primarily attributable to content production and are incurred in total prior to
any income realized from the product. Once content is produced, however, it is
an asset that may be distributed through multiple channels repeatedly over time.
As a result of front-end production costs, the Company anticipates a net loss
for fiscal 1999 and fiscal 2000.
The entertainment industry is highly competitive in the production and
distribution of content. Although there can be no assurances of any capital
appreciation or sufficient revenues to produce quarterly dividends, the Company
believes that due to expansion and diversification of programming, an
opportunity exists for the introduction of a new mainstream entertainment
format.
DESCRIPTION OF PROPERTY
The Company's principal executive offices are located at 11166 Burbank
Blvd., North Hollywood, California 91601 and consist of approximately 2,500
square feet leased on a month-to-month basis. The monthly rent for the property
is $1,250. The Company maintains a research and development office and storage
warehouse facility at 3815 Burbank Blvd., Burbank, California 91505 which
consists of approximately 1,000 square feet. This facility is also leased on a
month-to-month basis for the monthly rent of $900. The Company also leases on a
month to month basis various storage facilities for its equipment inventory that
consists of approximately 1,500 square feet of additional space at a monthly
rent of $1,500. The Company also shares office space with the Law Firm of
Phillips, Haskett & Ingwalson in San Diego, California. The Company does not pay
rent for the use of this space. The Company also rents housing in Studio City,
California for use by its out-of-town officers, directors and employees. The
monthly rent paid for this corporate housing is $4,000.
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DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
MANAGEMENT
The following table sets forth the names, ages, and positions of the
executive management team of the Company:
<TABLE>
<CAPTION>
Name Position Age
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<S> <C> <C>
Frederick C. Phillips President, Secretary, Treasurer and Director 54
Dr. Dale A. Rorabaugh Chairman of the Board-Nominee 55
John Kookootsedes President and Chief Executive Officer-Nominee 39
Lawrence P. Kallett Executive Vice President, Secretary, Treasurer
and Director- Nominee 41
Lance Putnam Director-Nominee 47
</TABLE>
FREDERICK C. PHILLIPS- PRESIDENT, SECRETARY, TREASURER AND DIRECTOR. Mr.
Phillips has served as the sole officer and director of the Company since May
1999. Mr. Phillips is a partner and practicing attorney with the San Diego based
law firm of Phillips, Hasket and Ingwalson. Mr. Phillips will resign from all
positions with the Company upon completion of the Merger. He obtained his B.A.
from Northwestern University and his J.D. from Stanford University.
DR. DALE A. RORABAUGH - CHAIRMAN OF THE BOARD-NOMINEE. Upon the effective date
of the Merger, Dr. Rorabaugh will be appointed Chairman of the Board of
Directors of the Company . Dr. Rorabaugh currently serves as Chairman of the
Board of Dicon, Inc., a technology-based company involved in the research and
development for the use of microprocessor equipment in the optical industry. Dr.
Rorabaugh also serves as Chairman of the Board of VisionSite.com, an Internet
vision care company and Lumalite, a technology-based company involved in the
design and implementation of curing lights for the dental and medical industry.
Dr. Rorabaugh earned a Bachelor of Science in Physiological Optics and a Doctor
of Optometry degree from the University of California, Berkeley.
JOHN KOOKOOTSEDES - PRESIDENT AND CHIEF EXECUTIVE OFFICER-NOMINEE. Upon the
effective date of the Merger, Mr. Kookootsedes will be appointed President and
Chief Executive Officer of the Company. From 1995 to 1999, Mr. Kookootsedes
served as President and Chief Executive Officer of the Chanteclair Restaurant
Group. From 1992 to 1995, Mr. Kookootsedes served as President and Chief
Executive Officer of Willis Corroon Corporation. Mr. Kookootsedes earned a
Bachelor of Science Degree in Business Administration from Ohio State
University.
LAWRENCE P. KALLETT - EXECUTIVE VICE PRESIDENT, SECRETARY, TREASURER AND
DIRECTOR-NOMINEE. Upon the effective date of the Merger, Mr. Kallett will be
appointed Executive Vice President, Secretary, Treasurer and Director of the
Company. From 1994 to 1998, Mr. Kallett served as Vice President of Hidden Port
Inc., a real estate investment and development company based in Baja California,
Mexico.
LANCE PUTNAM -DIRECTOR-NOMINEE. Upon the effective date of the Merger, Mr.
Putnam will be appointed to the Board of Directors of the Company. From 1995 to
1999, Mr. Putnam served as President of L. Putnam Investments, a personal
investment company. Prior thereto, Mr. Putnam served as President of Isla de
Uni, Inc., an export company based in Mexico, from 1994 to 1998. Mr. Putnam
obtained a B.A. in Political Science from the University of California, Santa
Barbara. He also studied Economics and International Business at the Universidad
de Catolica in Santiago, Chile.
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DEPENDENCE ON KEY MANAGEMENT
The Company's performance depends substantially on the continued
services and performance of its senior management and other key personnel. The
Company's performance also depends on its ability to retain and motivate its
other qualified officers and key employees.
REMUNERATION OF DIRECTORS AND OFFICERS
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation
of the named executive officers for each of the Company's last three (3) fiscal
years ended December 31.
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
NAME AND PRINCIPAL POSITION FISCAL
- --------------------------- YEAR SALARY
---- ------
<S> <C> <C>
Jennifer Worden, President and Director (1) 1998 $0
1997 $0
Daniel L. Hodges, President, Secretary, Treasurer and Director(2) 1997 $0
John C. Stevenson, President and Director(3) 1997 $0
1996 $0
</TABLE>
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(1) Ms. Worden resigned as President and Director of the Company in May 1999.
(2) Mr. Hodges resigned as President of the Company in October 1997 and
resigned as Secretary, Treasurer and Director of the Company in May 1999.
(3) Mr. Stevenson resigned as President and Director of the Company in August
1997.
DIRECTOR COMPENSATION
Directors of the Company do not receive cash compensation for their
services as directors or members of committees of the Board of Directors, but
are reimbursed for their reasonable expenses incurred in connection with
attending meetings of the Board of Directors or management committees.
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SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth information as of the date hereof with
respect to the beneficial ownership of the Company's voting securities by (i)
each person known by the Company to own beneficially 5% or more of its voting
securities, (ii) each director and officer, or nominee for director or officer,
of the Company, and (iii) all directors and officers, and nominees for director
or officer, as a group. Unless otherwise indicated, each person listed has sole
voting and investment power over the shares beneficially owned by him or her.
Unless otherwise indicated, the address of each named beneficial owner is the
same as that of the Company's principal executive offices located at 11166
Burbank Blvd., North Hollywood, California 91601.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY PERCENTAGE BENEFICIALLY
NAME AND ADDRESS OF BENEFICIAL OWNER OWNED OWNED (1)
- ------------------------------------ -------------------- -----------------------------
<S> <C> <C>
Frederick C. Phillips 44,550 *
John Kookootsedes 0 *
Dale A. Rorabaugh 218,400 4.2%
Lance Putnam 0 *
Lawrence P. Kallett 849,149 16.3%
John Honour 2,502,851 48.1%
Don W. Johnston 1,000,000 19.2%
All Directors and Officers as a Group (5 Persons) 1,112,099 21.4%
- --------------------
</TABLE>
* Represents less than one percent (1%) of the outstanding shares of Common
Stock.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3
under the Securities Exchange Act of 1934. Pursuant to the rules of the
Securities and Exchange Commission, shares of Common Stock that each named
person and group has the right to acquire within 60 days from the date
hereof pursuant to options, warrants, conversion privileges or other
rights, are deemed outstanding for purposes of computing shares
beneficially owned by and the percentage ownership of each such person and
group. However, such shares are not deemed outstanding for purposes of
computing the shares beneficially owned by or percentage ownership of any
other person or group.
INTEREST OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
On September 25, 1999, pursuant to the terms of an asset exchange
agreement, the Company acquired certain assets from John Honour, a principal
shareholder of the Company. Pursuant to the terms of the asset exchange
agreement, the Company issued a convertible promissory note in the aggregate
principal amount of Four Hundred Thousand Dollars ($400,000) in exchange for the
assets (the "Note"). The Note is convertible into Two Hundred Thousand (200,000)
shares of Company Common Stock at an agreed value of $2.00 per share.
In the opinion of the disinterested members of the Company's board of
directors, the above transaction was fair and was made upon terms which were no
less favorable to the Company than would have been obtained if negotiated with
unaffiliated third-parties.
10
<PAGE>
DESCRIPTION OF SECURITIES
COMMON STOCK
The Company's authorized capital stock consists of 100,000,000 shares
of common stock, par value $.001 per share (the "Common Stock"). Holders of
shares of Common Stock are entitled to one vote per share at all meetings of
stockholders. In the event of liquidation, dissolution or winding up of the
Company, holders of the Common Stock will be entitled to receive on a pro rata
basis all assets of the Company remaining after satisfaction of all liabilities
and payment of any preferred liquidation rights. As of December 15, 1999, there
were approximately 5,200,000 shares of Common Stock issued and outstanding.
RESTRICTED STOCK
Of the 5,200,000 shares of Common Stock outstanding, approximately
4,670,000 shares are deemed to be restricted securities under Rule 144 under the
Securities Act of 1933, as amended. In general, under Rule 144, a person (or
persons whose shares are aggregated), including an affiliate of the Company, who
has beneficially owned restricted shares for at least one (1) year is entitled
to sell within any three-month period, a number of shares that does not exceed
one percent (1%) of the then outstanding shares of Common Stock, which will
equal 52,000 shares as of the date hereof. Sales under Rule 144 are also subject
to requirements concerning availability of public information, manner of sale
and notice requirements.
TRANSFER AGENT
The Company's transfer agent is Holladay Stock Transfer, Inc. located
at 2939 North 67th Place, Scottsdale, Arizona 85251.
11
<PAGE>
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS.
Prior to December 2, 1999, there was no trading market for Company's
Common Stock. As of December 2, 1999, the Company's Common Stock has been traded
on the "pink sheets." For the period from December 2, 1999 through December 15,
1999, the price for the Common Stock has ranged from $5.00 to $5.95 per share.
There has been no solicitation of the sale or purchase of the Common Stock and
currently no market-maker quotes a price for the Company's Common Stock.
The Company has never paid a cash dividend on its Common Stock nor does
the Company anticipate paying cash dividends on its Common Stock in the near
future. It is the present policy of the Company not to pay cash dividends on the
Common Stock but to retain earnings, if any, to fund growth and expansion. Any
payment of cash dividends on the Common Stock in the future will be dependent
upon the Company's financial condition, results of operations, current and
anticipated cash requirements, plans for expansion, as well as other factors the
Board of Directors deems relevant.
ITEM 2. LEGAL PROCEEDINGS.
As of the date hereof, the Company is not a party to any material
pending legal proceeding and is not aware of any threatened legal proceeding.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following provides information concerning all sales of securities
within the last three (3) years which were not registered under the Securities
Act of 1933, as amended:
1. On August 15, 1997, in consideration for services rendered, the Company
issued an aggregate of 830,000 shares of restricted Common Stock to the
directors of the Company.
2. On July 20, 1999, pursuant to the terms of an acquisition agreement and
plan of reverse merger, the Company issued an aggregate of 3,000,000
shares of restricted Common Stock to the shareholders of Stereo Vision
Entertainment, Inc. which are currently being held in escrow by the
Company pending completion of the Merger.
3. On September 25, 1999, pursuant to the terms of an asset exchange
agreement, the Company issued a convertible promissory note to John
Honour in the aggregate principal amount of $400,000 ("Note"). The Note
was convertible into 200,000 shares of restricted Common Stock at an
agreed value of $2.00 per share and has since been converted by Mr.
Honour.
4. On October 26, 1999, pursuant to the terms of an asset purchase
agreement, the Company issued a convertible promissory note to Don W.
Johnston in the aggregate principal amount of $4,000,000 (the
"Johnston Note"). The Johnston Note was convertible into 1,000,000
shares of restricted Common Stock at an agreed value of $4.00 per
share and has since been converted by Mr. Johnston.
No underwriter was involved in any of the above issuances of
securities. All of the above securities were issued in reliance upon the
exemptions set forth in Section 4(2) of the Securities Act (including, in
certain instances Regulation D promulgated thereunder) on the basis that they
were issued under circumstances not involving a public offering.
12
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Articles of Incorporation, as amended, do not contain any
provision regarding the indemnification of the Company's officers and directors.
However, the Company's Bylaws do provide that the Company shall, to the fullest
extent not prohibited by the Arizona Business Corporation Act, indemnify its
directors, officers, employees and agents. The indemnification provided in the
Bylaws is expressly deemed to not be exclusive of any other rights to which a
person seeking indemnification may otherwise be entitled. The Company's
indemnification obligation applies where the party to be indemnified acted in
good faith and in a manner such party reasonably believed to be in, or not
opposed to, the best interests of the Company.
13
<PAGE>
PART F/S
FINANCIAL STATEMENTS
<PAGE>
KESTREL EQUITY CORPORATION
(FORMERLY ARIZONA TAXPROS &
INSURANCE WHOLESALERS, INC.)
(A DEVELOPMENT STAGE COMPANY)
-:-
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1998 AND 1997
AND
OCTOBER 31, 1999 (UNAUDITED)
<PAGE>
CONTENTS
Page
----
Independent Auditor's Report...............................................F - 1
Balance Sheets
October 31, 1999 (Unaudited) and
December 31, 1998 and 1997 ..............................................F - 2
Statements of Operations for the
Ten Months Ended October 31, 1999 (Unaudited) and the
Years Ended December 31, 1998 and 1997 .................................F - 3
Statement of Stockholders' Equity for the
Ten Months Ended October 31, 1999 (Unaudited) and the
Years Ended December 31, 1998 and 1997 .................................F - 4
Statements of Cash Flows for the
Ten Months Ended October 31, 1999 (Unaudited) and the
Years Ended December 31, 1998 and 1997 .................................F - 5
Notes to Financial Statements..............................................F - 7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
January 29, 1999
Board of Directors
Kestrel Equity Corporation
(Formerly Arizona Taxpros & Insurance Wholesalers, Inc.)
(A Development Stage Company)
Tucson, Arizona
I have audited the accompanying balance sheets of Kestrel Equity
Corporation, (Formerly Arizona Taxpros & Insurance Wholesalers, Inc.), (a
development stage company) as of December 31, 1998 and 1997 and the related
statements of operations, stockholders' equity, and cash flows for the two years
then ended. These financial statements are the responsibility of the Company's
management. My responsibility is to express an opinion on these financial
statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audits provide a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Kestrel Equity
Corporation, (Formerly Arizona Taxpros & Insurance Wholesalers, Inc.), (a
development stage company) as of December 31, 1998 and 1997 and the results of
its operations and its cash flows for the two years then ended, in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #5 to the
financial statements, the Company has no established source of revenue. This
raises substantial doubt about its ability to continue as a going concern.
Management's plan in regard to these matters are also described in Note #5. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
/s/ Barry L. Friedman
- ---------------------
Certified Public Accountant
F - 1
<PAGE>
<TABLE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
BALANCE SHEETS
--------------
<CAPTION>
(Unaudited) December 31,
October 31, --------------------------------------
1999 1998 1997
----------------- ------------------ ------------------
<S> <C> <C> <C>
Current Assets - Cash $ 4,432 $ - $ -
Investments 233,800 - -
Intangible and Other Assets 4,000,000 - -
----------------- ------------------ ------------------
Total Assets: $ 4,238,232 $ - $ -
================= ================== ==================
Liabilities
Short-term Notes Payable $ 415,793 $ - $ -
Stockholders' Equity:
Common Stock, $.001 Par value
Authorized 100,000,000 shares,
Issued 5,000,000 shares at October 31, 1999
And 1,000,000 shares at December 31,
1998 and 1997 5,000 1,000 1,000
Shares Held in Escrow for Merger (3,000) - -
Additional Paid in Capital 4,000,530 1,530 1,530
Deficit Accumulated During the
Development Stage (180,091) (2,530) (2,530)
----------------- ------------------ ------------------
Total Stockholders' Equity 3,822,439 - -
----------------- ------------------ ------------------
Total Liabilities and
Stockholders' Equity $ 4,238,232 $ - $ -
================= ================== ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
<TABLE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
(Unaudited)
Cumulative
(Unaudited) since
For the Ten inception
Months Ended For the Years Ended of
October 31, December 31, development
1999 1998 1997 stage
----------------- ----------------- ------------------ ------------------
<S> <C> - <C> - <C> <C>
Revenues: $ $ $ - $ -
General & Administrative
Expenses (176,838) - (830) (179,368)
Other Income (Expense)
Interest (723) - - (723)
----------------- ----------------- ------------------ ------------------
Net Loss $ (177,561) $ - $ (830) $ (180,091)
================= ================= ================== ==================
Basic & Diluted loss per share $ (0.18) $ - $ -
================= ================= ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
<TABLE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
<CAPTION>
Deficit
Accumulated
Shares Additional During
Common Stock Held In Paid In Development
Shares Par Value Escrow Capital Stage
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1995
1994 and 1993 - $ - $ - $ - $ -
May 3, 1996 Issuance of Stock
for services and payment of
accounts payable 1,700 1,700 - - -
Net Loss - - - - (1,700)
------------ ------------ ------------ ------------ ------------
Balance at December 31, 1996
As Originally reported 1,700 1,700 - - (1,700)
Retroactive adjustment for 100 to
1 forward stock split and change
In par value to $.001 on August
15, 1997 168,300 (1,530) - 1,530 -
------------ ------------ ------------ ------------ ------------
Restated Balance December 31,
1996 170,000 170 - 1,530 (1,700)
August 15, 1997 issued stock
for services 830,000 830 - - -
Net Loss - - - - (830)
------------ ------------ ------------ ------------ ------------
Balance December 31, 1997 1,000,000 1,000 - 1,530 (2,530)
Net Loss - - - - -
------------ ------------ ------------ ------------ ------------
Balance December 31, 1998 1,000,000 1,000 - 1,530 (2,530)
July 20, 1999 Shares issued and
held in escrow for Merger 3,000,000 3,000 (3,000) - -
October 30, 1999 issue stock in
Exchange for Assets 1,000,000 1,000 3,999,000 -
Net Loss (Unaudited) - - (177,561)
------------ ------------ ------------ ------------ ------------
Balance at October 31, 1999
(Unaudited) 5,000,000 $ 5,000 $ (3,000) $ 4,000,530 $ (180,091)
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
<TABLE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Cumulative
(Unaudited) Since
For the Ten For the Years Ended Inception
Months Ended December 31, of
October 31, ------------------------------- Development
1999 1998 1997 Stage
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
- -------------------------
ACTIVITIES:
- -----------
Net Loss $ (177,561) $ - $ (830) $ (180,091)
Adjustments to reconcile net loss to net
cash used in operating activities:
Issuance of common stock for expenses - - 830 2,530
--------------- --------------- --------------- ---------------
Net Cash Used in operating activities (177,561) - - (177,561)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM INVESTING
- -------------------------
ACTIVITIES:
- -----------
Purchase Investments (233,800) - (233,800)
--------------- --------------- --------------- ---------------
Net cash used in investing activities (233,800) - - (233,800)
--------------- --------------- --------------- ---------------
CASH FLOWS FROM FINANCING
- -------------------------
ACTIVITIES:
- -----------
Proceeds from issuance
of short-term notes 415,793 - 415,793
--------------- --------------- --------------- ---------------
Net Cash Provided by
Financing Activities 415,793 - 415,793
--------------- --------------- --------------- ---------------
Net (Decrease) Increase in
Cash and Cash Equivalents 4,432 - 4,432
Cash and Cash Equivalents
at Beginning of Period - - - -
--------------- --------------- --------------- ---------------
Cash and Cash Equivalents
at End of Period $ 4,432 $ - $ - $ 4,432
=============== =============== =============== ===============
</TABLE>
F - 5
<PAGE>
<TABLE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS (Continued)
------------------------------------
<CAPTION>
<S> <C> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 723 $ - $ - $ -
Income taxes $ - $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF
- --------------------------
NON-CASH INVESTING AND
- ----------------------
FINANCING ACTIVITIES:
- ---------------------
On October 26, 1999 the Company acquired 60% of the Carl Perkins' recording "Go
Cat Go", a 17 song compilation in exchange for a note payable in the amount of
$4,000,000. On October 30, 1999 Mr. Johnston elected to convert the note to
1,000,000 shares of common stock.
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS FOR THE
-------------------------------------
YEARS ENDED DECEMBER 31, 1998 and 1997
--------------------------------------
(References to October 31, 1999 are Unaudited)
----------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
This summary of accounting policies for Kestrel Equity Corporation is
presented to assist in understanding the Company's financial statements. The
accounting policies conform to generally accepted accounting principles and have
been consistently applied in the preparation of the financial statements.
The unaudited financial statements as of October 31, 1999 and for the
ten months then ended reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the ten months. Operating
results for interim periods are not necessarily indicative of the results which
can be expected for full years.
Organization and Basis of Presentation
- --------------------------------------
The Company was incorporated under the laws of the State of Arizona on
December 14, 1993 as Arizona Taxpros & Insurance Wholesalers, Inc. On September
30, 1997, the Company changed it's name to Kestrel Equity Corporation. The
Company as of December 31, 1998 and 1997 is in the development stage, and has
not commenced planned principal operations.
Nature of Business
- ------------------
The Company intends to position itself to evolve into a vertically
integrated, diversified global media entertainment company. The Company intends
to acquire a number of diversified entertainment companies that will allow for
the pursuit of opportunities currently available in the global marketplace.
The Company anticipates generating revenues from several sources,
including, production of new and existing 3-D feature films and providing
integrated solutions to help organizations broadcast audio, video, 3-D video,
animation, and 3-D animation and music over the Internet.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
F - 7
<PAGE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
(References to October 31, 1999 are Unaudited)
----------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Pervasiveness of Estimates
- --------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Loss per Share
- --------------
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
<TABLE>
<CAPTION>
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
For the Ten Months Ended October 31, 1999 (Unaudited)
-----------------------------------------------------
<S> <C> <C> <C>
BASIC LOSS PER SHARE
Loss to common shareholders $ (177,561) 1,003,289 $ (0.18)
================== ================== ==================
For the Year Ended December 31, 1998
------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $ - 1,000,000 $ -
================== ================== ==================
For the Year Ended December 31, 1997
------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $ (830) 486,082 $ -
================== ================== ==================
</TABLE>
The effect of outstanding common stock equivalents would be
anti-dilutive for December 31, 1998 and 1997 and are thus not considered.
F - 8
<PAGE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
(References to October 31, 1999 are Unaudited)
----------------------------------------------
(Continued)
-----------
NOTE 2 - INCOME TAXES
- ---------------------
As of October 31, 1999, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $180,000 that
may be offset against future taxable income through 2017. Current tax laws limit
the amount of loss available to be offset against future taxable income when a
substantial change in ownership occurs. Therefore, the amount available to
offset future taxable income may be limited. Accordingly, the potential tax
benefits of the loss carryforwards are offset by a valuation allowance of the
same amount.
NOTE 3 - DEVELOPMENT STAGE COMPANY
- ----------------------------------
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage.
NOTE 4 - COMMITMENTS
- --------------------
As of December 31, 1998 all activities of the Company have been
conducted by corporate officers from their business offices. Currently, there
are no outstanding debts owed by the company for the use of these facilities and
there are no commitments for future use of the facilities.
NOTE 5 - GOING CONCERN
- ----------------------
The Company's financial statements are prepared using generally
accepted accounting principles applicable to a going concern which contemplates
that realization of assets and liquidation of liabilities in the normal course
of business. However, the Company does not have significant cash or other
material assets, nor does it have an established source of revenues sufficient
to cover its operating costs and to allow it to continue as a going concern. It
is the intent of the Company to seek a merger with an existing, operating
company. Until that time, the stockholders/officers and/or directors have
committed to advancing the operating costs of the Company interest free.
NOTE 6 - SUBSEQUENT EVENTS
- --------------------------
On December 3, 1999 the Company entered into an acquisition agreement
and plan of reverse merger with Stereo Vision Entertainment, Inc. ("Stereo
Vision"). The merger will be recorded as a reverse purchase. The outstanding
common stock of Stereo Vision will be converted into 3,000,000 shares of the
F - 9
<PAGE>
KESTREL EQUITY CORPORATION
--------------------------
(FORMERLY ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.)
--------------------------------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
----------------------------------------------
(References to October 31, 1999 are Unaudited)
----------------------------------------------
(Continued)
-----------
NOTE 6 - SUBSEQUENT EVENTS (Continued)
- --------------------------------------
common stock of the Company, the surviving corporation. The 3,000,000 shares
have been issued and are being held in escrow pending approval of the merger by
the Company's shareholders at the Company's annual meeting to be held on
December 27, 1999.
NOTE 7 - SHORT-TERM NOTES PAYABLE
- ---------------------------------
Short-Term Notes consist of the following:
$88,000 note payable, due January 19, 2000 with interest at 10%.
$7,493 note payable, due on demand with interest at 10%.
$233,800 note payable due on demand with interest at 10%, convertible into
200,000 shares.
$68,500 note payable is part of the merger - see note 6.
$18,000 notes payable due December 15, 1999 with interest at 10%.
On October 26, 1999 the Company acquired 60% of the Carl Perkins'
recording "Go Cat Go", a 17 song compilation in exchange for a note payable in
the amount of $4,000,000. On October 30, 1999 Mr. Johnston elected to convert
the note to 1,000,000 shares of common stock.
F - 10
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
INDEPENDENT AUDITOR'S REPORT
JUNE 30, 1999
AND
OCTOBER 31, 1999 (UNAUDITED)
<PAGE>
CONTENTS
Page
----
Independent Auditor's Report...............................................F - 1
Balance Sheets
October 31, 1999 (Unaudited) and
June 30, 1999 ...........................................................F - 2
Statements of Operations for the
Four Months Ended October 31, 1999 (Unaudited) and the
Period May 5, 1999 (inception) to June 30, 1999 ........................F - 3
Statement of Stockholders' Equity for the
Four Months Ended October 31, 1999 (Unaudited) and the
Period May 5, 1999 (inception) to June 30, 1999 ........................F - 4
Statements of Cash Flows for the
Four Months Ended October 31, 1999 (Unaudited) and the
Period May 5, 1999 (inception) to June 30, 1999 ........................F - 5
Notes to Financial Statements..............................................F - 7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
Stereo Vision Entertainment, Inc.
(A Development Stage Company)
We have audited the accompanying balance sheet of Stereo Vision
Entertainment, Inc. (a development stage company) as of June 30, 1999 and the
related statements of operations, stockholders' equity, and cash flows for the
period May 5, 1999 (inception) to June 30, 1999. 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 the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Stereo Vision
Entertainment, Inc. (a development stage company) as of June 30, 1999 and the
results of its operations and its cash flows for the period May 5,1999
(inception) to June 30, 1999, in conformity with generally accepted accounting
principles.
Respectfully submitted
/s/ Brent Davies
-----------------------------
Certified Public Accountants
Salt Lake City, Utah
December 4, 1999
F - 1
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
BALANCE SHEETS
--------------
<CAPTION>
(Unaudited)
October 31, June 30,
1999 1999
----------------- -----------------
<S> <C> <C>
Current Assets - Cash $ 3,142 $ 7,493
Inventory - 3-D Projects 350,000 -
Fixed Assets:
Office Equipment 13,745 13,745
3-D Projection Units & Lenses 3,306,900 -
Less Accumulated Depreciation (1,145) (229)
Intangible and Other Assets:
Deposits 68,500 -
Intellectual Property 100,000 -
Licensing & Distribution Rights 1,760,000 -
Goodwill and Other Assets 1,120,500 -
----------------- -----------------
Total Assets: $ 6,721,642 $ 21,009
================= =================
Liabilities
Accounts Payable $ 100,686 $ 96,268
Accrued Expenses 15,485 3,718
Short-term Notes Payable 6,947,400 61,000
----------------- -----------------
Total Liabilities 7,063,571 160,986
----------------- -----------------
Stockholders' Equity:
Common Stock, No Par value
Authorized 25,000 shares,
Issued 18,750 shares at October 31,
1999 and at June 30, 1999 5,000 5,000
Deficit Accumulated During the
Development Stage (346,929) (144,977)
----------------- -----------------
Total Stockholders' Equity (341,929) (139,977)
----------------- -----------------
Total Liabilities and
Stockholders' Equity $ 6,721,642 $ 21,009
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF OPERATIONS
------------------------
<CAPTION>
(Unaudited)
Cumulative
(Unaudited) For the Period since
For the Four May 5, 1999 inception
Months Ended (Inception) to of
October 31, June 30, development
1999 1999 stage
----------------- ----------------- -----------------
<S> <C> <C> <C>
Revenues: $ - $ - $ -
Research & Development (161,000) - (161,000)
General & Administrative
Expenses (29,185) (141,259) (170,444)
Other Income (Expense)
Interest (11,767) (3,718) (15,485)
----------------- ----------------- -----------------
Net Loss $ (201,952) $ (144,977) $ (346,929)
================= ================= =================
Basic & Diluted loss per share $ (10.77) $ (7.73)
================= =================
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
<CAPTION>
Deficit
Accumulated
During
Common Stock Development
Shares Value Stage
----------- ------------ ---------------
<S> <C> <C> <C>
May 5, 1999 Issuance of Stock
for services and payment of
accounts payable 18,750 $ 5,000 $ -
Net Loss - - (144,977)
----------- ------------ ---------------
Balance at June 30, 1999 18,750 5,000 (144,977)
Net Loss (Unaudited) - - (201,952)
----------- ------------ ---------------
Balance at October 31, 1999
(Unaudited) 18,750 $ 5,000 $ (346,929)
=========== ============ ===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Cumulative
(Unaudited) For the Period Since
For the Four May 5, 1999 Inception
Months Ended (inception) to of
October 31, June 30, Development
1999 1999 Stage
----------------- ----------------- -----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
- -------------------------
ACTIVITIES:
- -----------
Net Loss $ (201,952) $ (144,977) $ (346,929)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 916 229 1,145
Issuance of common stock for expenses - 5,000 5,000
Change in operating assets and liabilities:
Accounts Payable 4,418 96,268 100,686
Accrued Expenses 11,767 3,718 15,485
----------------- ----------------- -----------------
Net Cash Used in operating activities (184,851) (39,762) (224,613)
----------------- ----------------- -----------------
CASH FLOWS FROM INVESTING
- -------------------------
ACTIVITIES:
- -----------
Purchase of equipment (3,306,900) (13,745) (3,320,645)
Purchase of Inventory - 3-D Projects (350,000) - (350,000)
Purchase Goodwill & Other Assets (3,049,000) - (3,049,000)
----------------- ----------------- -----------------
Net cash used in investing activities (6,705,900) (13,745) (6,719,645)
----------------- ----------------- -----------------
CASH FLOWS FROM FINANCING
- -------------------------
ACTIVITIES:
- -----------
Proceeds from issuance
of short-term notes 6,886,400 61,000 6,947,400
----------------- ----------------- -----------------
Net Cash Provided by
Financing Activities 6,886,400 61,000 6,947,400
----------------- ----------------- -----------------
Net (Decrease) Increase in
Cash and Cash Equivalents (4,351) 7,493 3,142
Cash and Cash Equivalents
at Beginning of Period 7,493 - -
----------------- ----------------- -----------------
Cash and Cash Equivalents
at End of Period $ 3,142 $ 7,493 $ 3,142
================= ================= =================
</TABLE>
F - 5
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS (Continued)
------------------------------------
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ - $ - $ -
Income taxes $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF
- --------------------------
NON-CASH INVESTING AND
- ----------------------
FINANCING ACTIVITIES: None
- ---------------------
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30,
--------------------------------------------------
1999 (References to October 31, 1999 are Unaudited)
---------------------------------------------------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
This summary of accounting policies for Stereo Vision Entertainment,
Inc. is presented to assist in understanding the Company's financial statements.
The accounting policies conform to generally accepted accounting principles and
have been consistently applied in the preparation of the financial statements.
The unaudited financial statements as of October 31, 1999 and for the
four months then ended reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the four months. Operating
results for interim periods are not necessarily indicative of the results which
can be expected for full years.
Organization and Basis of Presentation
- --------------------------------------
The Company was incorporated under the laws of the State of Nevada on
May 5, 1999. The Company as of June 30, 1999 is in the development stage, and
has not commenced planned principal operations.
Nature of Business
- ------------------
The Company intends to position itself to evolve into a vertically
integrated, diversified global media entertainment company. The Company intends
to acquire a number of diversified entertainment companies that will allow for
the pursuit of opportunities currently available in the global marketplace.
The Company anticipates generating revenues from several sources,
including, production of new and existing 3-D feature films and providing
integrated solutions to help organizations broadcast audio, video, 3-D video,
animation, and 3-D animation and music over the Internet.
Cash and Cash Equivalents
- -------------------------
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
F - 7
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30,
--------------------------------------------------
1999 (References to October 31, 1999 are Unaudited)
---------------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Loss per Share
- --------------
The reconciliations of the numerators and denominators of the basic
loss per share computations are as follows:
<TABLE>
<CAPTION>
Per-Share
Income Shares Amount
------ ------ ------
(Numerator) (Denominator)
For the Four Months ended October 31, 1999 (Unaudited)
------------------------------------------------------
<S> <C> <C> <C>
BASIC LOSS PER SHARE
Loss to common shareholders $ (201,952) 18,750 $ (10.77)
================== =================== ==================
Period May 5, 1999 (inception) to June 30, 1999
-----------------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $ (144,748) 18,750 $ (7.73)
================== =================== ==================
</TABLE>
The effect of outstanding common stock equivalents would be
anti-dilutive for June 30, 1999 and are thus not considered.
Pervasiveness of Estimates
- --------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles required management to make estimates and
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 amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Property and Equipment
- ----------------------
Property and equipment are stated at cost. Depreciation is provided for
in amounts sufficient to relate the cost of depreciable assets to operations
over their estimated service lives, principally on a straight-line basis from 3
to 5 years.
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
F - 8
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30,
--------------------------------------------------
1999 (References to October 31, 1999 are Unaudited)
---------------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Property and Equipment (continued)
- ----------------------------------
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their useful lives.
Inventory - 3-D Projects
- ------------------------
Motion picture inventory consists of (a) costs of acquisition of story
rights, (b) pre-production costs, (c) principal photography costs, and (d)
post-production costs. Production costs are accounted for on a film-by-film
basis. Amortization of production costs and other amortizable amounts (including
talent participation compensation) begins with the lease of the film for
exhibition purposes. At October 31, 1999 all film inventories are in process. It
is expected that more than 60% of the costs will be amortized within three years
of the lease of the film.
Amortization of Goodwill and Other Intangible Assets
- ----------------------------------------------------
Intellectual Property has been recorded at their acquisition cost and
are amortized to operations over their estimated useful lives of ten years.
Amortization is computed on the straight-line method.
Goodwill, Licensing & Distribution Rights were created by the excess of
the purchase price over the cost of the acquisitions made in 1999, and are
amortized on a straight-line basis over five years. Costs for maintenance and
customer support are charged to operations when incurred, or when the related
revenue is recognized, whichever occurs first. Management regularly assesses the
carrying amount of intangible assets and where, in their opinion, the value is
less than the carrying amount, the loss is recognized immediately. Unamortized
Licensing & Distribution costs that have been capitalized are reported at net
realizable value.
The company has implemented the provisions of SFAS No. 121, "Accounting
for the impairment of Long-Lived Assets and for Long-Lived Assets Disposed of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles to be held and used by the Company be reviewed for impairment
F - 9
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30,
--------------------------------------------------
1999 (References to October 31, 1999 are Unaudited)
---------------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
- --------------------------------------------------------------------------------
Amortization of Goodwill and Other Intangible Assets (continued)
- ----------------------------------------------------------------
whenever events or changes in circumstances indicate that the carrying amount of
an asset may not be recoverable. If the sum of the expected future cash flows
from the use of the assets and its eventual disposition (undiscounted and
without interest charges) is less than the carrying amount of the asset, an
impairment loss is recognized.
NOTE 2 - INCOME TAXES
- ---------------------
As of June 30, 1999, the Company had a net operating loss carryforward
for income tax reporting purposes of approximately $140,000 that may be offset
against future taxable income through 2014. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
NOTE 3 - DEVELOPMENT STAGE COMPANY
- ----------------------------------
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage.
NOTE 4 - COMMITMENTS
- --------------------
As of June 30, 1999 all activities of the Company have been conducted
by corporate officers from their business offices. Currently, there are no
outstanding debts owed by the company for the use of these facilities and there
are no commitments for future use of the facilities.
NOTE 5 - COMMON STOCK TRANSACTIONS
- ----------------------------------
The Company was initially incorporated to allow for the issuance of up
to 25,000 shares of no par value common stock. At inception, the Company issued
18,750 shares of common stock to its officers and directors for services
performed and payments made on the Company's behalf during its formation. This
transaction was valued at approximately $0.27 per share or an aggregate $5,000.
F - 10
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30,
--------------------------------------------------
1999 (References to October 31, 1999 are Unaudited)
---------------------------------------------------
(Continued)
-----------
NOTE 6 - SHORT-TERM NOTES PAYABLE
- ---------------------------------
Short-Term Notes in the Amount of $61,000 are due December 15, 1999
with interest at 10%.
On December 3, 1999 the unsecured promissory note to Chris and Marjorie
Condon in the amount of $6,787,400 was converted to 6,250 shares of common
stock.
NOTE 7 - SUBSEQUENT EVENTS
- --------------------------
On December 3, 1999 the Company entered into an acquisition agreement
and plan of reverse merger with Kestrel Equity Corporation. By virtue of the
merger, the Company's 25,000 shares will be converted into 3,000,000 shares of
common stock of the surviving corporation. The acquisition will be accounted for
as a purchase transaction. The 3,000,000 shares of common stock have been issued
and are being held in escrow pending approval of the merger by Kestrel Equity
Corporation's stockholders.
F - 11
<PAGE>
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
On December 3, 1999 Kestrel Equity, Inc. ("Kestrel") and Stereo Vision
Entertainment, Inc. ("Stereo Vision") executed the Merger Agreement that
provides for the Merger of Stereo Vision with and into Kestrel. See "The
Merger." The following unaudited pro forma condensed combined financial
statements are based on the October 31, 1999 historical consolidated financial
statements of Kestrel and Stereo Vision contained elsewhere herein, giving
effect to the transaction under the purchase method of accounting, with Stereo
Vision treated as the acquiring entity for financial reporting purposes. The
unaudited pro forma condensed combined balance sheet presenting the financial
position of the Surviving Corporation assumes the purchase occurred as of
October 31, 1999. The unaudited pro forma condensed combined statement of
operations presents the results of operations of the Surviving Corporation,
assuming the merger was completed on January 1, 1999.
The unaudited pro forma condensed combined financial statements have
been prepared by management of Kestrel and Stereo Vision based on the financial
statements included elsewhere herein. The pro forma adjustments include certain
assumptions and preliminary estimates as discussed in the accompanying notes and
are subject to change. These pro forma statements may not be indicative of the
results that actually would have occurred if the combination had been in effect
on the dates indicated or which may be obtained in the future. These pro forma
financial statements should be read in conjunction with the accompanying notes
and the historical financial information of both Kestrel and Stereo Vision
(including the notes thereto) included in this Form 10-SB General Form for
Registration of Securities of Small Business Issuers. See "FINANCIAL
STATEMENTS."
<PAGE>
<TABLE>
UNAUDITED PRO FORMA CONDENSED BALANCE SHEET
-------------------------------------------
October 31, 1999
----------------
<CAPTION>
Stereo
Kestrel Vision Pro Forma
Equity, Entertainment Pro Forma Combined
Inc. Inc. Adjustments Balance
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
ASSETS
- ------
Current Assets $ 4,432 $ 3,142 $ - $ 7,574
Fixed Assets (net) - 3,319,500 - 3,319,500
Investments 233,800 350,000 - 583,800
Intangible and Other Assets 4,000,000 3,049,000 (68,500) A 6,980,500
----------------- ----------------- ----------------- -----------------
Total Assets $ 4,238,232 $ 6,721,642 $ (68,500) $ 10,891,374
================= ================= ================= =================
LIABILITIES AND STOCKHOLDERS'
- -----------------------------
EQUITY
- ------
Accounts Payable & Accrued Expenses - 116,171 - 116,171
Short-term Notes Payable 415,793 6,947,400 (68,500) A
(6,787,400) B 507,293
----------------- ----------------- ----------------- -----------------
Total Liabilities 415,793 7,063,571 (6,855,900) 623,464
----------------- ----------------- ----------------- -----------------
Stockholders' Equity:
Common Stock 2,000 5,000 750 B
(2,750) C 5,000
Additional Paid in Capital 4,000,530 - 6,786,650 B
(177,341) C 10,609,839
Deficit Accumulated During the
Development Stage (180,091) (346,929) 180,091 C (346,929)
----------------- ----------------- ----------------- -----------------
Total Stockholders' Equity (Deficit) 3,822,439 (341,929) 6,787,400 10,267,910
----------------- ----------------- ----------------- -----------------
Total Liabilities and Stockholders' Equity $ 4,238,232 $ 6,721,642 $ (68,500) $ 10,891,374
================= ================= ================= =================
</TABLE>
See accompanying notes to unaudited pro forma condensed
combined financial statements.
<PAGE>
<TABLE>
UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
--------------------------------------------
FOR THE TEN MONTHS ENDED OCTOBER 31, 1999
-----------------------------------------
<CAPTION>
Stereo
Kestrel Vision Pro Forma
Equity, Entertainment Pro Forma Combined
Inc. Inc. Adjustments Balance
----------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Revenues: $ - $ - $ - $ -
Expenses:
Research & Development - 161,000 161,000
General & Administrative 176,838 170,444 347,282
Other Expense - Interest 723 15,485 - 16,208
----------------- ----------------- ----------------- ----------------
Net Loss $ (177,561) $ (346,929) $ - $ (524,490)
================= ================= ================= ================
Loss per share $ (0.09) $ (0.12) $ (0.10)
Weighted average shares outstanding 2,000,000 3,000,000 5,000,000
</TABLE>
See accompanying notes to unaudited pro forma condensed
combined financial statements.
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
--------------------------------------------------------------------
(1) GENERAL
In the merger, Stereo Vision will be merged with and into Kestrel, with the
shares of outstanding Stereo Vision Common Stock converted into an aggregate of
approximately 3,000,000 shares, or approximately 60% of the New Common Stock
outstanding subsequent to the Merger, subject to certain adjustments. As part of
the merger, the name of Kestrel will be changed to Stereo Vision Entertainment,
Inc. Kestrel has not yet performed a detailed evaluation and appraisal of the
fair market value of the net assets sold in order to allocate the purchase price
among the assets sold. For purposes of preparing these pro forma financial
statements, certain assumptions as set forth in the notes to the pro forma
adjustments have been made in allocating the sales price to the net assets sold.
As such, the pro forma adjustments discussed below are subject to change based
on final appraisals and determination of the fair market value of the assets and
liabilities of Kestrel.
(2) FISCAL YEAR ENDS
The unaudited pro forma condensed combined statements of operations for
the ten months ended October 31, 1999, include Kestrel's and Stereo Vision's
operations on a common fiscal year. The financial statements of Stereo Vision
have been conformed to the fiscal year ended December 31, 1999 by including the
operating results of Stereo Vision for the period May 5, 1999 (inception) to
June 30, 1999 and including such results for the four months ended October 31,
1999.
(3) PRO FORMA ADJUSTMENTS
The adjustments to the accompanying unaudited pro forma condensed
combined balance sheet as of October 31, 1999, are described below:
(A) Elimination of intercompany receivable and payable
(B) Adjustment to reflect conversion of $6,787,400 short-term note to
750,000 shares of newly issued shares of New Common Stock pursuant to previously
outstanding stock conversion agreement. The exercise of this conversion has been
reflected due to its connection with the Merger Agreement.
(C) Record merger by converting Stereo Vision Common stock and Kestrel
Stock to newly issued shares of New Common Stock, par value $0.001 per share.
The adjustments to the accompanying unaudited pro forma condensed
combined statements of operations are described below:
There are no anticipated adjustments to the statements of operations as
a result of the merger.
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
2.1 Acquisition Agreement and Plan of Reverse Merger by and between Stereo
Vision Entertainment, Inc. and Kestrel Equity Corporation, dated
December 3, 1999.
3.1 Articles of Incorporation of the Company filed with the State of
Arizona on December 14,1993.
3.2 Articles of Amendment of Articles of Incorporation of the Company filed
with the State of Arizona on June 18, 1997.
3.3 Articles of Amendment of Articles of Incorporation of the Company filed
with the State of Arizona on September 30, 1997.
3.4 Bylaws of the Company.
4.1 Specimen Stock Certificate.
10.1 Asset Exchange Agreement by and between Kestrel Equity Corporation and
John Honour, dated September 25,1999.*
10.2 Asset Purchase Agreement by and between Kestrel Equity Corporation and
Don W. Johnston, dated October 26,1999.*
27.1 Financial Data Schedule
- ------------------
* To be filed by amendment.
ITEM 2. DESCRIPTION OF EXHIBITS
Inapplicable
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the Registrant has caused this registration statement to be signed on its behalf
by the undersigned, thereunto duly authorized.
KESTREL EQUITY CORPORATION
--------------------------
(Registrant)
Date: December 16, 1999
By: /s/ Frederick C. Phillips
-------------------------------
Name: Frederick C. Phillips
Title: President and Director
ACQUISITION AGREEMENT AND PLAN OF REVERSE MERGER
DATED
DECEMBER 3, 1999
BY AND BETWEEN
STEREO VISION ENTERTAINMENT, INC.
A NEVADA CORPORATION,
AND
KESTREL EQUITY CORPORATION
AN ARIZONA CORPORATION
<PAGE>
ACQUISITION AGREEMENT AND PLAN OF REVERSE MERGER
BY AND BETWEEN
STEREO VISION ENTERTAINMENT, INC.
AND
KESTREL EQUITY CORPORATION
TABLE OF CONTENTS
- --------------------------------------------------------------------------------
PAGE
----
ARTICLE 1. DEFINITIONS ......................................................1
1.1 Acquiror .........................................................1
1.2 Acquiror's Common Stock ..........................................1
1.3 Acquiror's Financial Statements ..................................1
1.4 Acquiror's Stock Options .........................................2
1.5 Agreement ........................................................2
1.6 Articles of Merger................................................2
1.7 Closing...........................................................2
1.8 Closing Date......................................................2
1.9 Code..............................................................2
1.10 Commission........................................................2
1.11 Dissenting Shares.................................................2
1.12 Dissenting Stockholder............................................2
1.13 Effective Date....................................................2
1.14 Employee Benefit Plan(s)..........................................2
1.15 Encumbrances......................................................2
1.16 Environmental Law.................................................2
1.17 ERISA ...........................................................3
1.18 Exchange Act......................................................3
1.19 Government Communications.........................................3
1.20 Hazardous Substance(s)............................................3
1.21 Intellectual Property.............................................3
1.22 Licenses..........................................................3
1.23 Material Adverse Effect...........................................3
1.24 Merger............................................................3
1.25 NRS ..............................................................3
1.26 Price Per Share...................................................3
1.27 Proxy Statement...................................................3
1.28 Regulatory Action(s)..............................................3
1.29 Securities Act....................................................4
1.30 Subsidiary........................................................4
1.31 Surviving Corporation.............................................4
1.32 Survivor..........................................................4
1.33 Survivor's Common Stock...........................................4
1.34 Survivor's Financial Statements...................................4
1.35 Tax(es)...........................................................4
1.36 Tax Return(s).....................................................4
1.37 ARS...............................................................4
i
<PAGE>
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
----
ARTICLE 2. THE MERGER........................................................4
2.1 The Merger........................................................5
2.2 Execution of Articles of Merger...................................5
2.3 Effect of the Merger..............................................5
2.4 Certificate of Incorporation......................................5
2.5 Name Change.......................................................5
2.6 Bylaws............................................................5
2.7 Directors.........................................................5
2.8 Officers..........................................................5
2.9 Closing...........................................................6
2.10 Dissenting Shares and Dissenters' Rights
- Survivor's Shareholders ........................................6
2.11 Dissenting Shares and Dissenters' Rights
- Acquiror's Shareholders ........................................6
ARTICLE 3. STATUS OF SURVIVOR SHARES; STATUS
AND CONVERSION OF ACQUIROR SHARES..........................................7
3.1 Survivor's Common Stock ..........................................7
3.2 Acquiror's Common Stock...........................................7
3.3 Fractional Shares ................................................7
3.4 Exchange of Certificates .........................................8
ARTICLE 4. REPRESENTATIONS AND WARRANTIES OF SURVIVOR .......................8
4.1 Organization and Good Standing of Survivor .......................9
4.2 Articles of Incorporation and Bylaws .............................9
4.3 Corporate Minutes ................................................9
4.4 Qualification ....................................................9
4.5 Capitalization of Survivor........................................9
4.6 Ownership of Stock Options of Survivor............................9
4.7 Subsidiaries and Other Affiliates................................10
4.8 Authority........................................................10
4.9 Survivor's Financial Statements..................................10
4.10 Undisclosed Liabilities..........................................11
4.11 Absence of Certain Changes.......................................11
4.12 Assets...........................................................13
4.13 Intellectual Property............................................13
4.14 Tax Matters......................................................14
4.15 Legal and Regulatory Matters.....................................14
4.16 Employees........................................................15
4.17 Non-Assignable Rights............................................15
4.18 Personnel........................................................15
4.19 ERISA............................................................15
4.20 Notes and Accounts Receivable; Inventories.......................16
ii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
----
4.21 Compliance with Environmental Laws ..............................16
4.22 Bank and Brokerage Accounts......................................17
4.23 Contracts........................................................17
4.24 Offer and Sale of Securities.....................................18
4.25 Broker's Fees ...................................................18
4.26 Material Misstatements or Omissions ............................18
4.27 Exhibits ........................................................19
ARTICLE 5. COVENANTS OF SURVIVOR ...........................................19
5.1 Approval of Shareholders ........................................19
5.2 Conduct of Survivor's Business ..................................19
5.3 Access and Information ..........................................19
5.4 Further Efforts ................................................19
5.5 Confidentiality..................................................20
5.6 Financial Information............................................20
5.7 Subsequent Events................................................20
5.8 Public Announcement..............................................20
5.9 No Inconsistent Activities.......................................20
ARTICLE 6. REPRESENTATIONS AND WARRANTIES OF ACQUIROR ......................21
6.1 Organization and Good Standing ..................................21
6.2 Certificate of Incorporation and Bylaws .........................21
6.3 Corporate Minutes................................................21
6.4 Qualification....................................................21
6.5 Capitalization of Acquiror.......................................21
6.6 Ownership of Stock Options of Acquiror...........................22
6.7 Subsidiaries and Other Affiliates................................22
6.8 Authority........................................................22
6.9 Broker's Fees....................................................23
6.10 Proxy Statement..................................................23
6.11 Exhibits.........................................................23
ARTICLE 7. COVENANTS OF ACQUIROR ...........................................23
7.1 Further Efforts .................................................23
7.2 Confidentiality .................................................23
7.3 Public Announcement .............................................23
ARTICLE 8. GENERAL CONDITIONS PRECEDENT ....................................24
8.1 Shareholder Approval ............................................24
8.2 No Injunctions ..................................................24
8.3 No Governmental Proceedings .....................................24
8.4 Governmental Approvals ..........................................24
8.5 Dissenter's Rights of Survivor's Stockholders ...................24
8.6 Dissenter's Rights of Acquiror's Stockholders ...................24
iii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
- --------------------------------------------------------------------------------
PAGE
----
ARTICLE 9. CONDITIONS PRECEDENT TO ACQUIROR'S OBLIGATION
TO CLOSE .................................................................25
9.1 Due Diligence ......................................................25
9.2 Certificate of Survivor ......................................... ..25
9.3 No Material Adverse Effect .........................................25
9.4 Third Party Consents ...............................................25
9.5 Legal Opinion of Survivor's Counsel ................................25
9.6 Certified Resolutions ..............................................25
9.7 Certificate of Shareholder Approval ................................25
9.8 Letters of Resignation..............................................25
9.9 Proceedings Satisfactory to Counsel.................................25
ARTICLE 10. CONDITIONS PRECEDENT TO SURVIVOR'S OBLIGATION
TO CLOSE .................................................................26
10.1 Certificate of Acquiror ............................................26
10.2 Certified Resolutions ..............................................26
10.3 Legal Opinion of Acquiror's Counsel ................................26
ARTICLE 11. SURVIVAL OF REPRESENTATIONS AND
INDEMNIFICATIONS .........................................................26
11.1 Survival of Representations .....................................26
(a) Survivor's Representations .............................26
(b) Acquiror's Representations .............................26
(c) Agreement to Indemnify .................................26
ARTICLE 12. TERMINATION ....................................................27
12.1 Termination ........................................................28
12.2 Effect of Termination ..............................................28
12.3 Waiver of Conditions ...............................................28
12.4 Payment of Expenses ................................................28
ARTICLE 13. GENERAL ........................................................28
13.1 Amendments .........................................................28
13.2 Assignment .........................................................28
13.3 Notices ............................................................28
13.4 Further Assurances .................................................28
13.5 Remedies Not Exclusive..............................................29
13.6 Entire Agreement....................................................29
13.7 Counterparts........................................................30
13.8 Governing Law.......................................................30
13.9 Resolution of Indemnification Disputes..............................30
iv
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ACQUISITION AGREEMENT AND PLAN OF REVERSE MERGER
------------------------------------------------
THIS ACQUISITION AGREEMENT AND PLAN OF REVERSE MERGER (the "Agreement")
is entered into as of December 3, 1999, by and between STEREO VISION
ENTERTAINMENT, INC., a Nevada Corporation (the "Acquiror"), on the one hand,
with its principal place of business located 1412 W. Glenoaks Blvd., Suite D,
Glendale, California 91201, and KESTREL EQUITY CORPORATION, an Arizona
Corporation STEREO VISION ENTERTAINMENT, INC., a Arizona Corporation (the
"Survivor"), with its principal place of business located at 185 West "F"
Street, Seventh Floor, San Diego, California 92101, on the other hand.
WHEREAS, Acquiror is a duly incorporated Nevada corporation with an
authorized capital stock consisting of 25,000 shares of common stock, no par
value per share, of which 25,000 shares are issued and outstanding and options
to purchase an additional 0 shares of common stock are issued and outstanding;
and,
WHEREAS, Survivor is a duly incorporated Arizona corporation with an
authorized capital stock consisting of 100,000,000 shares of common stock,
$.001 par value per share, of which 1,000,000 shares are issued and
outstanding; and
WHEREAS, the respective Boards of Directors of Acquiror and Survivor
have approved the acquisition of Survivor by Acquiror by means of a reverse
merger (the "Merger") of Acquiror with and into Survivor pursuant to the terms
of this Agreement.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and for other good and valuable consideration, the receipt and
sufficiency of which are acknowledged by each signatory hereto, intending to
be legally bound, the parties to this Agreement hereby agree as follows:
ARTICLE 1.
DEFINITIONS
As used in this Agreement, the listed terms shall have the following
meanings:
1.1 "Acquiror" has the meaning specified in the recital paragraphs
contained in the preamble to this Agreement.
1.2 "Acquiror's Common Stock" means the common stock of Acquiror, no
par value per share.
1.3 "Acquiror's Financial Statements" means the audited balance sheets
of Acquiror as of October 31, 1999 (the "Acquiror's Financial Statements").
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1.4 "Acquiror's Stock Options" means all options granted by Acquiror
for the purchase of shares of the capital stock of Acquiror that are outstanding
as of the Closing, including, but not limited to any warrants to purchase shares
of capital stock.
1.5 "Agreement" means this Acquisition Agreement and Plan of Reverse
Merger, including the schedules and exhibits referred to herein.
1.6 "Articles of Merger" refers to the articles of merger to be filed
with the Secretary of State of Arizona and the Secretary of State of Nevada to
evidence the Merger, in the form of Exhibit "1.6" attached hereto.
1.7 "Closing" means the closing of the transactions contemplated in
this Agreement.
1.8 "Closing Date" means the date upon which the Closing occurs.
1.9 "Code" means the Internal Revenue Code of 1986, as amended.
1.10 "Commission" means the United States Securities and Exchange
Commission.
1.11 "Dissenting Shares" means (a) the issued and outstanding shares of
Survivor as to which holders thereof have duly demanded appraisal pursuant to
sections 10-1101 to 10-1106 of the ARS, and (b) the issued and outstanding
shares of Acquiror as to which holders thereof have duly demanded appraisal
pursuant to sections 78.471 to 78.502 of the NRS.
1.12 "Dissenting Stockholder" means a holder of Dissenting Shares.
1.13 "Effective Date" means the date and time the Articles of Merger
are filed with the Secretary of State of the State of Arizona.
1.14 "Employee Benefit Plan(s)" means any `employee benefit plan' as
defined in Section 3(3) of ERISA and any other plan, policy, program, practice
or arrangement providing compensation or other benefits to any current or former
officer or employee of Survivor or any beneficiary or dependent thereof that is
or was maintained by Survivor.
1.15 "Encumbrances" means any mortgage, chattel mortgage, conditional
sales contract, pledge, lien, charge, security interest, encumbrance, option,
lease, license or easement.
1.16 "Environmental Law" means all federal, state, and local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directives, requests, licenses, authorizations,
permits, and agreements issued or signed by any federal, state, or local
government authority, relating to environmental, health, or safety matters,
including but not limited to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980; Clean Water Act of 1977; Clean Air Act;
Resource Conservation and Recovery Act of 1976; Federal Insecticide, Fungicide,
and Rodenticide Act; Toxic Substances Control Act; Emergency Planning and
Community Right-to-Know Act of 1986; Occupational Safety and Health Act of 1970;
and Safe Drinking Water Act, and state and local counterparts to these acts.
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1.17 "ERISA" means the Employee Retirement Income Security Act of 1974,
as amended.
1.18 "Exchange Act" means the Securities and Exchange Act of 1934, as
amended.
1.19 "Government Communications" means all inspection reports,
complaints and other communications received by Survivor from government and
regulatory agencies and authorities.
1.20 "Hazardous Substance(s)" means (a) any substance, the presence of
which requires investigation or remediation under any Environmental Law or under
common law; (b) any dangerous, toxic, explosive, corrosive, flammable,
infectious, radioactive, carcinogenic, mutagenic or otherwise hazardous
substance which is regulated by any Environmental Law; (c) any substance, the
presence of which causes or threatens to cause a nuisance upon property
presently and/or previously owned, leased or otherwise used by Survivor (or
poses or threatens to pose a hazard to the health or safety of persons on or
about the property or adjacent properties); and (d) radon, ureaformaldehyde,
polychlorinated biphenyls, asbestos or asbestos containing materials, petroleum
and petroleum products.
1.21 "Intellectual Property" has the meaning specified in Section 4.13
of this Agreement.
1.22 "Licenses" means all governmental licenses, permits, approvals and
registrations necessary for the ownership of Survivor's properties and the
conduct of its business as currently conducted.
1.23 "Material Adverse Effect" means any material adverse effect on the
business, assets, properties, operations or condition (financial or otherwise)
of Survivor.
1.24 "Merger" has the meaning specified in the recital paragraphs
contained in the preamble to this Agreement.
1.25 "NRS" means Nevada Revised Statutes.
1.26 "Price Per Share" means the closing bid price of the Surviving
Corporation's Common Stock on the Record Date, as such term is defined in the
proxy Statement.
1.27 "Proxy Statement" means that certain Proxy Statement of Survivor,
describing this transaction, among other things.
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1.28 "Regulatory Action(s)" means any material claim, demand, action or
proceeding brought or instigated by any governmental authority in connection
with any Environmental Law (including without limitation civil, criminal and/or
administrative proceedings), whether or not seeking costs, damages, penalties or
expenses.
1.29 "Securities Act" means the Securities Act of 1933, as amended.
1.30 "Subsidiary" means each of Survivor's subsidiaries, if any.
1.31 "Surviving Corporation" means Survivor as the surviving
corporation subsequent to the Merger.
1.32 "Survivor" has the meaning specified in the recital paragraphs
contained is in the preamble to this Agreement.
1.33 "Survivor's Common Stock" means the shares of common stock of
Survivor, $0.001 par value.
1.34 "Survivor's Financial Statements" means the audited balance sheets
of Survivor as of October 31, 1999, the related statements of operations,
stockholders' equity and cash flows for the three years then ended, including
notes thereto (the "Survivor's Financial Statements").
1.35 "Tax(es)" means all taxes, charges, fees, levies or other
assessments of any nature whatsoever, including, without limitation, all net
income, gross income, gross receipts, sales, use, ad valorem, transfer,
franchise, profits, license, withholding, payroll, employment, excise,
estimated, severance, stamp, occupation, property or other taxes, customs,
duties, fees, assessments or charges of any kind whatsoever, together with any
interest and any penalties, additions to tax or additional amounts imposed by
any taxing authority (domestic or foreign) upon the company to which reference
is being made or any affiliate thereof or upon any consolidated, combined or
unitary group of which any such entity is or was a member.
1.36 "Tax Return(s)" means all federal, state, foreign, local and other
tax returns, reports and statements heretofore required to be filed by the
company to which reference is being made or by any consolidated, combined or
unitary group of which such company is or was a member.
1.37 "ARS" means the Arizona Revised Statutes.
ARTICLE 2.
THE MERGER
----------
2.1 THE MERGER. Subject to the terms and conditions hereof, the Merger
shall be consummated in accordance with the ARS and the applicable provisions of
the NRS as promptly as practicable following the satisfaction or waiver of the
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conditions set forth in ARTICLES 7, 9, AND 10. At the Effective Date, subject to
the terms and conditions of this Agreement and in accordance with the laws of
the States of Nevada and Arizona, Acquiror shall be merged with and into
Survivor, whereupon the separate existence of Acquiror shall cease and the
Survivor shall be the Surviving Corporation. The Surviving Corporation shall
continue its corporate existence under the laws of the State of Arizona.
From and after the Effective Date, the Surviving Corporation shall
possess all of the rights, privileges, powers, purposes and franchises of a
public as well as a private nature, and be subject to all restrictions,
disabilities and duties of Acquiror and Survivor, all of the foregoing being in
accordance with the applicable provisions of the ARS.
2.2 EXECUTION OF ARTICLES OF MERGER. Prior to the Closing, Acquiror and
Survivor shall complete and execute the Articles of Merger, in substantially the
form attached hereto as EXHIBIT "1.6", and cause the Articles of Merger to be
delivered to the Secretary of State of the States of Nevada and Arizona for
filing as part of the Closing as provided in Section 78.458 of the NRS and
Section 10-1105 of the ARS. The parties hereto will also execute and deliver
such other documents or certificates as may be required to effect the Merger.
2.3 EFFECT OF THE MERGER. The Merger shall have the effects set forth
in applicable provisions of the ARS and the NRS.
2.4 CERTIFICATE OF INCORPORATION. As of the Effective Date, Acquiror
and Survivor shall complete and execute the Amended and Restated Articles of
Incorporation, in substantially the form attached hereto as EXHIBIT "2.4", and
cause the Amended and Restated Articles of Incorporation to be delivered to the
Secretary of State of the State of Arizona for filing as part of the Closing as
provided in Section 10-1105 of the ARS.
2.5 NAME CHANGE. As of the Effective Date, the name of the Surviving
Corporation will be changed to "STEREO VISION ENTERTAINMENT, INC." pursuant to
the Amended and Restated Articles of Incorporation which will be filed with the
Articles of Merger on the Effective Date.
2.6 BYLAWS. As of the Effective Date, the Bylaws, in the form attached
hereto as EXHIBIT "2.6", will be the Bylaws of the Surviving Corporation.
2.7 DIRECTORS. The directors of Survivor immediately prior to the
Effective Date shall resign in favor of those directors named in the Proxy
Statement and specified on EXHIBIT "2.7", which directors, if elected, shall be
the directors of the Surviving Corporation and will hold office from the
Effective Date until their respective successors are duly elected or appointed
and qualified in the manner provided in the Certificate of Incorporation and
Bylaws of the Surviving Corporation, or as otherwise provided by law.
2.8 OFFICERS. The officers of Survivor immediately prior to the
Effective, Date shall resign in favor of those officers named in the Proxy
Statement and specified on EXHIBIT "2.7", which officers shall be the officers
of the Surviving Corporation and will hold office from the Effective Date until
their respective successors are duly elected or appointed and qualified in the
manner provided in the Certificate of Incorporation and Bylaws of the Surviving
Corporation, or as otherwise provided by law.
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2.9 CLOSING. Unless this Agreement shall have been terminated pursuant
to the provisions of ARTICLE 12, the Closing of the transactions contemplated by
this Agreement shall take place at the offices of Wenthur & Chachas located at
4180 La Jolla Village Drive, Suite 500, La Jolla, California 92037, as soon as
practicable following the satisfaction or waiver of the conditions set forth in
ARTICLES 8, 9 AND 10.
2.10 DISSENTING SHARES AND DISSENTERS' RIGHTS - SURVIVOR'S
SHAREHOLDERS.
(a) Notwithstanding anything in this Agreement to the contrary,
Dissenting Shares shall be entitled to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to Chapter
13 of the ARS; PROVIDED, HOWEVER, that if such holder shall have failed to
perfect or shall have effectively withdrawn or lost his, her or its right to
appraisal and payment under ARS, such holder's shares of Survivor's Common Stock
shall thereupon be deemed to have been converted into, and to have become
exchangeable for, as of the Effective Date, that number of shares calculated
pursuant to Section 3.1 and such shares shall no longer be Dissenting Shares and
shall be canceled and retired.
(b) Survivor shall give Acquiror prompt notice of any demand
received by Survivor for appraisal of issued and outstanding Survivor's Common
Stock, and Acquiror shall have the right to participate in all negotiations and
proceedings with respect to such demand. Survivor agrees that, except with the
prior written consent of Acquiror, or as required under the ARS, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. Each Dissenting Shareholder who, pursuant to the
provisions of Chapter 13 of the ARS, becomes entitled to payment of the value of
shares of Survivor's Common Stock, shall receive payment therefor (but only
after the value therefor shall have been agreed upon or finally determined
pursuant to such provisions). In the event of a legal obligation, after the
Effective Date, to deliver the shares into which the Dissenting Shares would be
converted pursuant to Section 3.1 to any Dissenting Shareholder holding
Survivor's Common Stock who shall have failed to make an effective demand for
appraisal or shall have lost his, her or its status as a Dissenting Shareholder
for any other reason, the Surviving Corporation shall issue and deliver, upon
surrender by such Dissenting Shareholder of his, her or its certificate or
certificates representing shares of issued and outstanding Survivor's Common
Stock, the number of shares in the Surviving Corporation to which such
Dissenting Shareholder is then entitled under Section 3.1 of this Agreement.
2.11 DISSENTING SHARES AND DISSENTERS' RIGHTS - ACQUIROR'S
SHAREHOLDERS.
(a) Notwithstanding anything in this Agreement to the contrary,
Dissenting Shares shall be entitled to receive such consideration as may be
determined to be due with respect to such Dissenting Shares pursuant to NRS
78.471 to 78.502, inclusive; PROVIDED, HOWEVER, that if such holder shall have
failed to perfect or shall have effectively withdrawn or lost his, her or its
right to appraisal and payment under NRS, such holder's shares of Acquiror's
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Common Stock shall thereupon be deemed to have been converted into, and to have
become exchangeable for, as of the Effective Date, that number of shares
calculated pursuant to Section 3.1 and such shares shall no longer be Dissenting
Shares and shall be canceled and retired.
(b) Acquiror shall give Survivor prompt notice of any demand
received by Acquiror for appraisal of issued and outstanding Acquiror's Common
Stock, and Survivor shall have the right to participate in all negotiations and
proceedings with respect to such demand. Acquiror agrees that, except with the
prior written consent of Survivor, or as required under the NRS, it will not
voluntarily make any payment with respect to, or settle or offer to settle, any
such demand for appraisal. Each Dissenting Shareholder who, pursuant to the
provisions of NRS 78.471 to 78.502, becomes entitled to payment of the value of
shares of Acquiror's Common Stock, shall receive payment therefor (but only
after the value therefor shall have been agreed upon or finally determined
pursuant to such provisions). In the event of a legal obligation, after the
Effective Date, to deliver the shares into which the Dissenting Shares would be
converted pursuant to Section 3.1 to any Dissenting Shareholder holding
Acquiror's Common Stock who shall have failed to make an effective demand for
appraisal or shall have lost his, her or its status as a Dissenting Shareholder
for any other reason, the Surviving Corporation shall issue and deliver, upon
surrender by such Dissenting Shareholder of his, her or its certificate or
certificates representing shares of issued and outstanding Acquiror's Common
Stock, the number of shares in the Surviving Corporation to which such
Dissenting Shareholder is then entitled under Section 3.1 of this Agreement.
ARTICLE 3.
STATUS OF SURVIVOR SHARES;
STATUS AND CONVERSION OF ACQUIROR SHARES;
3.1 SURVIVOR'S COMMON STOCK. Immediately prior to the Effective Date
Prior there shall be 1,000,000 shares of Common Stock, $0.001 par value of the
Survivor issued and outstanding.
3.2 ACQUIROR'S COMMON STOCK. Immediately prior to the Effective Date
there shall be 25,000 shares of Common Stock, no par value of the Acquiror
issued and outstanding. By virtue of the Merger and without any action on the
part of the holders thereof, each share of Common Stock of the Acquiror shall be
converted into 120 shares of the common stock of the Surviving Corporation,
which in the aggregate will represent approximately seventy-five percent (75%)
of the post-merger outstanding shares of the common stock of Surviving
Corporation on a fully diluted basis after taking into consideration any
fractional shares for which the holders thereof will receive cash pursuant to
Section 3.3 below. Each current (pre-merger) shareholder of Acquiror shall
receive that number of shares of the Surviving Corporation as are set forth on
EXHIBIT "6.5(a)". Each share of Acquiror's Common Stock held in Acquiror's
treasury, if any, and any authorized but unissued shares, immediately prior to
the Effective Date shall, by virtue of the Merger, be canceled and retired and
cease to exist, without any conversion thereof.
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3.3 FRACTIONAL SHARES. No fractional shares of the Surviving
Corporation's Common Stock shall be issued in connection with the Merger. In
lieu thereof, each holder of Survivor's Common Stock otherwise entitled to a
fraction of a share of the Surviving Corporation's Common Stock shall receive
from Acquiror an amount of cash equal to the product of (A) the Price Per Share
multiplied by (B) the fraction of a share of Surviving Corporation's Common
Stock to which such holder of Survivor's Common Stock would otherwise be
entitled. No such holder shall be entitled to dividends or other rights in
respect of any such fraction.
3.5 EXCHANGE OF CERTIFICATES. From and after the Effective Date, each
holder of an outstanding certificate which immediately prior to the Effective
Date, represented outstanding shares of the Acquiror's Common Stock shall be
entitled to receive in exchange therefor, upon surrender thereof to Holladay
Stock Transfer, Inc., the transfer agent of the Surviving Corporation, whose
address is 2939 North 67th Place, Scottsdale, Arizona, 85251, a certificate or
certificates representing the number of shares of the Surviving Corporation into
which such holder's shares were converted. No holder of a certificate or
certificates which immediately prior to the Effective Date represented shares of
the Acquiror's Common Stock shall be entitled to receive any dividend or other
distribution from the Surviving Corporation until surrender of such holder's
certificate or certificates for a certificate or certificates representing
shares of the Surviving Corporation's Common Stock. Upon such surrender, there
shall be paid to the holder the amount of any dividends or other distributions
(without interest) which theretofore became payable, but which were not paid by
reason of the foregoing, with respect to the number of shares of the Surviving
Corporation's Common Stock represented by the certificates issued upon such
surrender. After the Effective Date, there shall be no further registration of
transfers of the Acquiror's Common Stock. If, after the Effective Date,
certificates representing the Acquiror's Common Stock are presented to the
Surviving Corporation, they shall be canceled and exchanged for a certificate
representing the number of shares of the Surviving Corporation into which such
pre-merger shares in the Acquiror were converted. From and after the Effective
Date, the Surviving Corporation shall, however, be entitled to treat
certificates for shares of the Acquiror's Common Stock which have not yet been
surrendered for exchange as evidencing solely the right to receive the number of
shares of the Surviving Corporation into which such pre-merger shares in the
Acquiror are to be converted, as represented by such certificates,
notwithstanding any failure to surrender such certificates in exchange therefor.
If any certificate for shares of the Surviving Corporation's Common Stock is to
be issued in a name other than that in which the certificate for shares of the
Acquiror's Common Stock surrendered in exchange therefor is registered, it shall
be a condition of such issuance that the person requesting such issuance shall
pay any transfer or other tax required by reason of the issuance of certificates
for such shares of Surviving Corporation's Common Stock in a name other than
that of the registered holder of the certificate surrendered, or shall establish
to the satisfaction of the Surviving Corporation or its agent that such tax has
been paid or is not applicable.
ARTICLE 4.
REPRESENTATIONS AND WARRANTIES OF SURVIVOR
------------------------------------------
Survivor represents and warrants to Acquiror as follows:
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4.1 ORGANIZATION AND GOOD STANDING OF SURVIVOR; NON-REPORTING PUBLICLY
TRADED STATUS. Survivor and each of the Subsidiaries, if any, is a corporation
duly organized, validly existing and in good standing under the laws of its
respective jurisdiction of incorporation or organization, and each has all
requisite corporate power and authority, and is entitled to carry on its
business as now being conducted and to own, lease and operate its properties.
Survivor and each Subsidiary is duly organized and in good standing as a foreign
corporation authorized to do business in each jurisdiction where the nature of
the business and activities conducted by Survivor and each Subsidiary requires
such qualification.
The Common Stock of the Survivor is currently listed on the Over the
Counter Pink Sheets under the symbol "KSEQ". The Survivior is a non-reporting
public company. It is NOT SUBJECT to the filing and reporting requirements of
the Securities Exchange Act of 1934 and as such DOES NOT FILE any period or
annual reports with the Securities and Exchange Commission.
4.2 ARTICLES OF INCORPORATION AND BYLAWS. Survivor has delivered to
Acquiror true, correct and complete copies of its Articles of Incorporation
(certified by the Secretary of State of Arizona) and Bylaws (certified by its
corporate secretary) together with all amendments to each through the date
hereof. Both the Articles of Incorporation and the Bylaws are in full force and
effect. Copies are attached hereto as EXHIBIT "4.2(a)" AND "4.2(b)",
respectively.
4.3 CORPORATE MINUTES. Survivor has made available to Acquiror true,
correct and complete copies of its minute books, stock certificate books and
corporate records; such books and records reflect all issuances of equity and
debt securities of Survivor or rights to acquire any such securities, and
contain true and complete records of all meetings and consents in lieu of
meetings of Survivor's Board of Directors (and any committees thereof) and
shareholders.
4.4 QUALIFICATION. Survivor is qualified to do business and is in good
standing in each jurisdiction where the character or location of property owned
and leased, the employment of personnel or the nature of the business and
activities conducted by Survivor, requires such qualification, licensing or
domestication. Survivor does not file franchise, income or other tax returns in
any jurisdiction based upon the ownership or use of property therein or the
derivation of income therefrom.
4.5 CAPITALIZATION OF SURVIVOR. As of the date of this Agreement, the
authorized capital stock of Survivor consists of: 100,000,000 shares of
Survivor's Common Stock, of which 1,000,000 shares are issued and outstanding
and no shares of which are held in Survivor's treasury. All issued and
outstanding shares of Common Stock of Survivor have been duly authorized and are
validly issued, fully paid and non-assessable and are not subject to, nor were
any issued in violation of its Articles of Incorporation. There are not
presently and, as of the Closing, there will not be any outstanding securities
of Survivor or options, warrants, subscriptions, convertible debentures or other
rights, commitments or any other similar agreements for the purchase of any
securities of Survivor. Survivor is not a party to, nor has knowledge that any
of its shareholders are parties to, any voting trust agreements or other
contracts, agreements or arrangements restricting voting rights or
transferability with respect to the outstanding Common Stock of Survivor.
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4.6 OWNERSHIP OF STOCK OPTIONS OF SURVIVOR. There are not presently
and, as of the Closing, there will not be any outstanding securities of Survivor
or options, warrants, subscriptions, convertible debentures or other rights,
commitments or any other similar agreements for the purchase of any securities
of Survivor.
4.7 SUBSIDIARIES AND OTHER AFFILIATES. Survivor does not have any
subsidiaries, and, does not own, either directly or indirectly, any interest or
investment, whether debt or equity (other than an interest as a creditor holding
a trade account receivable), or any obligation, option or right to acquire any
interest, direct or indirect, in any other corporation or other entity.
4.8 AUTHORITY.
(a) Survivor has the necessary corporate power and authority to
enter into and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated herein
by Survivor have been duly authorized by the Board of Directors of Survivor in
accordance with applicable law. After the requisite approval of the shareholders
of Survivor is obtained, no further action will be necessary on the part of
Survivor to make this Agreement valid and binding upon Survivor in accordance
with its terms. This Agreement has been duly and validly authorized, executed
and delivered by Survivor and this Agreement (assuming due authorization,
execution and delivery by the other parties hereto) constitutes the legal, valid
and binding obligation of Survivor, enforceable in accordance with its terms
(except as such enforcement may be limited by applicable bankruptcy, insolvency,
moratorium or similar laws affecting the rights of creditors generally or by
general principles of equity). Neither the execution, delivery or performance of
this Agreement by Survivor, nor the consummation of the transactions
contemplated hereby, nor compliance by Survivor with the terms and provisions of
this Agreement, or the Articles of Merger will result in a violation or breach
of any term or provision of Survivor's Articles of Incorporation or Bylaws, or
of any statute, rule or regulation applicable to Survivor, or its businesses,
properties, assets or personnel, nor conflict with or constitute a violation or
breach of, or a default under (or an event which, with the passage of time or
the giving of notice, or both, would constitute a default under), nor give any
party a right to accelerate the due date of any indebtedness or obligation
under, any indenture, mortgage, deed of trust, contract or agreement to which
Survivor is a party or to which its properties or assets are subject, or any
instrument, judgment, decree, writ, or other restriction to which Survivor is a
party or by which Survivor or its businesses, properties, assets or personnel
are bound.
(b) Except for (i) filing the Articles of Merger with the
Secretary of State of Arizona, (ii) obtaining the consent of its shareholders,
and (iii) obtaining any necessary third-party consents which will been obtained
prior to the Closing, Survivor is not required to submit any notice, report or
other filing with any federal, state or local governmental authority in
connection with the execution or delivery or performance by Survivor of this
Agreement or the consummation of the transactions contemplated herein.
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4.9 SURVIVOR'S FINANCIAL STATEMENTS. Survivor has delivered to Acquiror
true, complete and correct copies of Survivor's Financial Statements. Except as
set forth on EXHIBIT "4.9", Survivor's Financial Statements (i) present fairly
the financial condition of Survivor at such dates and the results of its
operations, changes in shareholders' equity and cash flows for the periods
therein specified, and (ii) have been prepared from the books and records of
Survivor in accordance with generally accepted accounting principles,
consistently applied and maintained throughout the periods indicated, except as
otherwise stated or referred to in such Survivor's Financial Statements.
4.10 NO UNDISCLOSED LIABILITIES. Survivor does not have any direct or
indirect indebtedness, liability, loss or obligation, accrued, absolute or
contingent whether or not of a kind required by generally accepted accounting
principles to be set forth on a balance sheet (the "Survivor Liabilities").
4.11 ABSENCE OF CERTAIN CHANGES. Except as set forth on EXHIBIT "4.11"
since October 31, 1999, Survivor has conducted its business only in the ordinary
course and consistent with prior practice, and Survivor has not:
(a) discharged or satisfied any lien, charge or encumbrance other
than those then required to be discharged or satisfied, or paid any obligation
or liability, absolute, accrued, contingent or otherwise, whether due or to
become due, other than current liabilities shown on Survivor's Financial
Statements and current liabilities incurred since October 31, 1999, in the
ordinary course of business and consistent with prior practice;
(b) declared or made any payment of any dividend, or made any
other distribution upon or in respect of any of its shares of capital stock, or
purchased, retired or redeemed any of the shares of its capital stock or any
other securities, including any warrants or options to purchase any capital
stock, or obligated itself to do any of the foregoing;
(c) mortgaged, pledged or subjected (or permitted to be subjected)
to lien, charge, security interest or any other encumbrance or restriction any
of its property, business or assets, tangible or intangible;
(d) sold, transferred, leased to others or otherwise disposed of
any of its assets (other than inventory sold in the ordinary course of business
and consistent with prior practice) or canceled or compromised any debt or
claim, or waived or released any claim or right of substantial value;
(e) terminated or received any notice of termination of any
contract, lease or other agreement or suffered any damage, destruction or loss
(whether or not covered by insurance) which, individually or in the aggregate,
has had or might have a Material Adverse Effect;
(f) encountered any labor union organizing activity, had any
actual or threatened employee strikes, work stoppages, slowdowns or lockouts, or
had any material change in its relations with its employees, agents,
distributors, formulators, customers or suppliers;
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(g) transferred or granted any rights under, or entered into any
settlement regarding the breach or infringement of, or entered into any
agreement or commitment relating to, any license, patent, copyright, trademark,
trade name, permit, consent, approval, invention, product registration or
similar rights, domestic or foreign, or modified any existing rights with
respect thereto;
(h) adopted, entered into or amended any Employee Benefit Plan or
made any change in the actuarial methods or assumptions used in funding or
determining benefit equivalencies thereunder, made any change in the rate of
compensation, commission, bonus, deferred compensation arrangement or other
direct or indirect remuneration payable, or paid or agreed or orally promised to
pay, conditionally or otherwise, any bonus (cash or non-cash), extra
compensation, deferred compensation arrangement or severance or vacation pay, to
any shareholder, director, officer, employee, salesman or distributor of
Survivor or any Subsidiary or hired or entered into any employment agreement or
arrangement with any person;
(i) issued or sold any shares of its capital stock or other
securities, or issued, granted or sold any options, rights or warrants with
respect thereto, or acquired any capital stock or other securities of any
corporation, business or entity, or any interest in any business enterprise or
otherwise made any loan or advance to or investment in any person, entity, firm
or corporation, except for short-term investments in cash and cash equivalents
made in the ordinary course of business and consistent with prior practice;
(j) made any capital expenditures or capital additions or
betterments or commitments therefor in excess of $1,000 individually or $2,000
in the aggregate;
(k) instituted, settled or agreed to settle, or suffered any
adverse determination in, any litigation, action or proceeding before any court
or governmental body (domestic or foreign) relating to Survivor or its
businesses, assets or properties.
(1) made any change in the type, nature, composition or quality of
the inventory of its products in its warehouse or delivered to its distributors
or customers except in the ordinary course of business and consistent with prior
practice, failed to replenish such inventory in a normal and customary manner
consistent with its prior practice and prudent business practices prevailing in
the industry or made any purchase commitment with any supplier, distributor or
customer in excess of the normal, ordinary and usual requirements of its
business or at any price in excess of the then current market price, or upon
terms and conditions more onerous than those usual and customary in the
industry, accepted any contract for performance of services or orders from any
customer under conditions relating to price, terms of payment, time of delivery
or performance or like matters differing from the conditions regularly and
usually specified on acceptance of contract or orders for similar services or
merchandise from customers who are similarly situated, or made any change in its
selling, pricing, advertising or personnel practices, inconsistent with its
prior practices and prudent business practices prevailing in the industry;
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(m) revalued any of its assets or written off as uncollectible any
notes or accounts receivable, except write-downs and write-offs in the ordinary
course of business, none of which, individually or in the aggregate, is material
to Survivor or its businesses;
(n) entered into any agreement or made any commitment to take any
of the actions described in paragraphs (a) through (m) above; or
(o) experienced any Material Adverse Effect.
4.12 ASSETS.
(a) Survivor has good and marketable title to, or a valid
leasehold interest in, or other legal right to use, all of the properties and
assets owned or used in its business or purports to own, except inventory sold
after October 31, 1999, in the ordinary course of business. None of such assets
or properties are subject to any Encumbrance, except (i) liens and encumbrances
and leases incurred or made in the ordinary course of business which are not
substantial in character, amount or extent and do not materially impair the
usefulness of such properties and assets in the conduct of the business of
Survivor; (ii) liens for taxes, assessments or other governmental charges or
levies which are either not yet delinquent or are being contested in good faith
and by appropriate proceedings, can be paid without penalty and which do not
materially impair the usefulness of such properties and assets in the conduct of
the business of Survivor; and (iii) as reflected on Survivor's Financial
Statements.
(b) Survivor has previously delivered to Acquiror a complete list,
which is true and correct in all material respects, of all machinery, tools,
equipment, motor vehicles, rolling stock and other tangible personal property
owned, leased or used by Survivor, except for items having a cost less than $500
and which are not required to be capitalized in accordance with generally
accepted accounting principles.
(c) Survivor does not currently own, lease or use any real
property because either (i) all such property has been previously transferred to
third parties or, (ii) with respect to any real estate lease, it has expired
pursuant to its terms with no additional liability to Survivor.
4.13 INTELLECTUAL PROPERTY. EXHIBIT "4.13" sets forth all patents,
trademarks, service marks, trade names, copyrights and franchises, all
applications for any of the foregoing, if any, and all permits, grants and
licenses or other rights running to or from Survivor relating to any of the
foregoing that are material to the business of Survivor, as applicable
(collectively, the "Intellectual Property"). Survivor owns, or is licensed to,
or otherwise has, the right to use the Intellectual Property that is required
for the conduct of the business of Survivor. To the best of Survivor's
knowledge, Survivor is not in violation of, or infringing upon, any patent,
trademark, service mark, trade name, copyright or franchise of any third party,
and no claims have been asserted, nor is there any litigation pending or
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threatened claiming such infringement. Survivor has not licensed or encumbered
any of its Intellectual Property to any third party, nor have any other
distribution rights been granted by Survivor to a third party. Survivor has not
entered into any other agreements whereby Survivor has been appointed as a
distributor or licensee of any products, patents or trademarks owned by a third
party. Survivor has not entered into any agreement which restricts or affects
the use of any Intellectual Property. Survivor is not in breach of any
agreement, nor have any claims with respect to any agreement been asserted nor
is there any litigation pending or threatened claiming any such breach, nor have
any claims been asserted that any of the terms and conditions of such agreements
violate the laws of any jurisdiction or treaty. Survivor owns or has licensed
from third parties, and has the right to use, any and all necessary Intellectual
Property in order to conduct its business in all material respects as currently
conducted and has used reasonable efforts to protect its rights in and to
maintain the secrecy of its trade secrets and other proprietary rights and
information.
4.14 TAX MATTERS. Survivor and each other corporation (or a
predecessor) that has at any time been a member of a consolidated, combined or
unitary group of which Survivor is or was a member, including all Subsidiaries
(the 'Tax Affiliates') have timely and correctly filed or caused to be filed all
Tax Returns. All Taxes payable in respect of such Tax Returns have been or will
be by Closing paid in full. Survivor and the Tax Affiliates have no current
extensions for the filing of any Tax Returns. Adequate provisions have been made
for the payment of all accrued and unpaid Taxes as of the date thereof, whether
or not then due and payable and whether or not disputed, except as may be set
forth in explanatory notes thereto. The Tax Returns of or relating to Survivor
and the Tax Affiliates have not been examined (nor are they currently in the
process of being examined), by the Internal Revenue Service or any other tax
authority for any of the past six (6) years, and such Tax Returns constitute a
complete and accurate representation of the Tax liabilities of Survivor, the Tax
Affiliates and any combined, consolidated or unitary group of which Survivor is
or was a member.
4.15 LEGAL AND REGULATORY MATTERS.
(a) there is no criminal or civil claim, suit, action,
arbitration, governmental investigation or other proceeding, nor any order,
decree or judgment pending or in effect, or threatened by, against or relating
to Survivor, any Subsidiary, any officer or director of Survivor, or any of
their properties, or the transactions contemplated hereby;
(b) there are no judgments, decrees or orders enjoining Survivor
or any Subsidiary in respect of, or the effect of which is to prohibit any
business practice or the acquisition of any property or the conduct of any
aspect of the business of Survivor or any Subsidiary;
(c) Survivor and each Subsidiary has complied and is complying
with all laws, ordinances, treaties and governmental rules, orders and
regulations applicable to it or its proper-ties, assets, personnel or business,
non-compliance with which could have a Material Adverse Effect;
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(d) Survivor and each Subsidiary has obtained all Licenses
necessary for the ownership of its properties and the conduct of their
respective businesses as currently conducted, and all such Licenses are
currently in full force and effect; and
(e) Survivor has provided Acquiror with access to all Government
Communications and has delivered to Acquiror a true and complete copy of all
Government Communications received by Survivor or any Subsidiary since the
incorporation of Survivor or any Subsidiary, as applicable.
4.16 EMPLOYEES.
(a) Survivor has not been nor is it a party to any collective
bargaining agreements with respect to any of its employees or with respect to
any contract or agreement with a labor union or any local or subdivision
thereof, nor has it been charged with any unresolved unfair labor practices, nor
is there any present union organizing activity among any of its employees. There
are no material controversies, claims, suits, actions or proceedings pending or
threatened between Survivor and its respective employees. Survivor has complied
in all material respects with all laws and regulations relating to the
employment of labor, including and without limitation any provisions thereof
relating to wages, hours, employment practices, terms and conditions of
employment, collective bargaining, equal opportunity or similar laws and the
payment of social security and similar taxes, and is not liable for, any arrears
of wages or any taxes or penalties for failure to comply with any of the
foregoing.
(b) Survivor has no existing pension, stock option, bonus,
deferred compensation, profit-sharing or other plans with respect to its
employees in a fashion which results in any continuing liability with respect to
the Surviving Corporation.
4.17 NON-ASSIGNABLE RIGHTS. Neither the execution, delivery or
performance of this Agreement by Survivor nor the consummation of the
transactions contemplated hereby will (a) conflict with or result in a breach or
termination of, or prevent Survivor from realizing the benefits otherwise
obtainable by Survivor under, any permits or property interests of Survivor or
any contract, agreement, arrangement or commitment of Survivor or (b) require
the affirmative consent or approval of any third party (other than Survivor's
Shareholders as contemplated by Section 8.1 hereof).
4.18 PERSONNEL.
(a) Survivor has separately delivered to Acquiror the names and
addresses of all directors, officers and employees of Survivor, indicating (i)
the positions within Survivor held by each such person and (ii) the current
annual salary rates for each such person and the amounts payable as bonus or
other compensation for each such person.
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(b) Survivor has separately delivered to Acquiror a description of
all severance or other benefits that would be payable to any employee of
Survivor if his or her employment were terminated.
(c) The names and addresses of all officers, directors and
employees of Survivor furnished to Acquiror prior to the date of this Agreement,
are still current and accurately reflect the status of the officers, directors
and employees of the Survivor as of the date hereof.
4.19 ERISA. Survivor does not maintain or make contributions to and has
not at any time in the past maintained or made contributions to any Employee
Benefit Plan that is subject to the minimum funding standards of ERISA, or any
similar applicable law or regulation (domestic or foreign). Survivor does not
maintain or make contributions to and has not at any time in the past maintained
or made contributions to any multi-employer plan subject to the terms of the
Multi-Employer Pension Plan Amendment Act of 1980. Survivor does not have any
affiliates for purposes of ERISA.
4.20 NOTES AND ACCOUNTS RECEIVABLE; INVENTORIES.
(a) All notes and accounts receivable of Survivor reflected on the
Survivor's Balance Sheet as of October 31, 1999, have been collected or are
collectible in the amounts shown when due without offset or counterclaim in the
aggregate face amount thereof net of any reserves therefor reflected thereon and
all such accounts receivable shall have arisen only from bona fide transactions
in the ordinary course of business. The notes and accounts receivable of
Survivor which have arisen since October 31, 1999, have been collected or are
collectible when due without offset or counterclaim in the aggregate face amount
thereof, except to the extent of the normal reserves for accounts receivable
computed as a percentage of sales consistent with prior practice and generally
accepted accounting principles consistently applied and all such accounts
receivable shall have arisen only from bona fide transactions in the ordinary
course of business.
(b) Based on Survivor's best estimates and past experience and
consistent with its prevailing practices and policies (which practices and
policies are in accordance with generally accepted accounting principles), the
inventories shown on Survivor's Balance Sheet as of October 31, 1999, consist of
items of a quality and quantity usable or saleable in the normal course of its
business and in conformity with all applicable laws and regulations, and the
value of all obsolete materials or materials of below standard quality have been
written down to realizable market value or reserves which, in the aggregate, are
adequate have been provided therefor; and the value at which the inventories are
reflected on Survivor's Balance Sheet as of October 31, 1999, reflects its
normal inventory valuation policy of stating inventories at the lower of cost
(on a first-in, first-out basis) or fair market value. All inventories acquired
by Survivor since October 31, 1999, consist of items of a quality and quantity
usable or saleable in the normal course of its business and are in conformity
with all applicable laws and regulations.
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4.21 COMPLIANCE WITH ENVIRONMENTAL LAW.
(a) Survivor and all its operations are and have been in
compliance with all Environmental Laws as currently in effect;
(b) Neither Survivor nor any of its or predecessors used, released
or disposed of any Hazardous Substance in any manner that could reasonably be
expected to result in material liability;
(c) None of the property ever owned, leased or operated by
Survivor is contaminated by any Hazardous Substance;
(d) None of the property ever owned, leased or operated by
Survivor is affected by any condition that could reasonably be expected to
result in liability under any Environmental Law as currently in effect; and
(e) There is and has been no condition, activity or event
respecting Survivor or any of the properties ever owned, leased or operated by
any of them that could reasonably be expected to subject Survivor to any
material liability under any Environmental Law as currently in effect.
4.22 BANK AND BROKERAGE ACCOUNTS. EXHIBIT "4.22" lists (a) the names
and addresses of all banks and brokerage firms in which Survivor has accounts
or safe deposit boxes, lock boxes, vaults and the account numbers relating
thereto, (b) the name of each person authorized to draw on any such account or
have access to any such boxes or vaults and (c) the names of all persons, if
any, holding tax or other powers of attorney from Survivor and a summary of
the terms thereof.
4.23 CONTRACTS.
(a) Survivor is not a party to any:
(i) contract, agreement or commitment for the employment or
retention of, or collective bargaining, severance or termination agreement with,
any of its directors, officers, employees, consultants or agents or groups of
employees;
(ii) profit sharing, thrift, bonus, incentive, deferred plan
compensation, stock option, stock purchase, severance pay, pension, retirement,
hospitalization, insurance or other employee benefit plan,and agreement or
arrangement;
(iii) agreement or arrangement for the sale of any of its
assets, property or rights outside the ordinary course of business consistent
with prior practice (other than this Agreement);
(iv) contract that contains any provisions requiring Survivor
to indemnify or act as a indemnitor, guarantor, surety, co-signer, co-maker or
endorser for any other person or entity including, without limitation, any
contract which request the indemnification of such party to which Survivor or
its respective personnel provide services;
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(v) agreement restricting Survivor from conducting business
anywhere in the world;
(vi) agreement, note, debenture, loan, mortgage, to indenture
or other obligation for or relating to borrowed money or commitments for
obtaining borrowed money;
(vii) contract, lease or commitment which involves the future
payment by or to it of more than $1,000, with the exception of the commitment of
Survivor under the Letter Agreement;
(viii) letter of credit or power of attorney;
(ix) joint venture contract or similar arrangement or to
agreement which is likely to involve future payments by it; or
(x) personal service, licensing, distributor, supplier,
dealer, franchise, advertising, sales or manufacturer's representative, agency
or other similar contract, arrangement or commitment; or
(xi) agreement to which any shareholder, officer or director
of Survivor or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act), is
presently a party, including, without limitation, any agreement or other
arrangement providing for the furnishing of services by, rental of real or
personal property from, or otherwise requiring payments to, any such person or
entity.
(b) All agreements, contracts, plans, instruments, arrangements
and commitments to which the Survivor is a party to, is valid and binding,
enforceable in accordance with their respective terms and in full force and
effect, and the continuation, validity and effectiveness of such items will in
no way be affected by the consummation of the transactions contemplated by this
Agreement. Neither Survivor or any other party thereto, is in breach of any
provision of or in default under any term of any such agreement, and there
exists no condition or event which after lapse of time or notice (or both) would
constitute any such breach or default or result in any right to accelerate or
loss of rights. True and complete copies of all such agreements, contracts,
plans, instruments, arrangements and commitments have been delivered to
Acquiror.
4.24 OFFER AND SALE OF SECURITIES. (a) All shares of capital stock of
Survivor, (b) all interests in any properties, and (c) all interests in any
trust or partnership with which Survivor has been affiliated, have been offered
and sold in compliance with all applicable federal and state laws, rules and
regulations.
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4.25 BROKER'S FEES. There are no other broker's or finder's fees or
obligations due to persons engaged by Survivor or any of its employees, officers
or directors in connection with the transactions contemplated by this Agreement,
except for fees and expenses of its counsel and accountants.
4.26 MATERIAL MISSTATEMENTS OR OMISSIONS. The statements,
representations and warranties of Survivor contained in this Agreement
(including the schedules hereto), in the Proxy Statement and in each document,
statement, certificate or exhibit furnished or to be furnished by or on behalf
of Survivor pursuant hereto, or in connection with the transactions contemplated
hereby, taken together, do not contain and will not contain any untrue statement
of a material fact and do not or will not omit to state a material fact
necessary to make the statements or facts contained herein or therein, in light
of the circumstances made, not misleading.
4.27 EXHIBITS. If any fact or matter is disclosed by Survivor on any
Exhibit to this Agreement, it shall be deemed disclosed for purposes of all
representations contained herein.
ARTICLE 5.
COVENANTS OF SURVIVOR
---------------------
Survivor hereby covenants and agrees as follows:
5.1 APPROVAL OF SHAREHOLDERS. As promptly as is practicable following
the execution of this Agreement, Survivor shall submit this Agreement to its
shareholders and duly call and give notice of a meeting for the purpose of
voting on the adoption and approval of this Agreement and the consummation of
the transactions contemplated hereby. The Board of Directors of Survivor shall
recommend adoption and approval of this Agreement and the consummation of the
transaction contemplated hereby.
5.2 CONDUCT OF SURVIVOR'S BUSINESS. From and after the date of this
Agreement to and including the Effective Date, Survivor shall (a) not enter into
any agreement or make any commitment to take any of the actions set forth in
Section 4.11 (a) THROUGH (o), inclusive, of this Agreement; (b) not become a
party to commit to enter into any of the types of contracts, agreements,
arrangements or commitments set forth in Section 4.23 of this Agreement, (c) not
amend, terminate or change in any material respect any contract and will not
knowingly do any act or omit to do any act, or permit an act or omission to act,
that will cause it to breach any such contract; and (d) not amend its
Certificate of Incorporation or Bylaws.
5.3 ACCESS AND INFORMATION. Subject to the terms of the Confidentiality
Agreement, Survivor will grant unrestricted access to Acquiror and its legal
counsel, accountants and other representatives, during reasonable working hours
throughout the period from the date hereof to the Closing and upon reasonable
prior notice, to all of Survivor's properties, books, contracts, commitments and
records, and will furnish Acquiror during such period with access to key
Survivor employees and to all such information concerning the affairs of
Survivor as Acquiror reasonably requests, including copies and/or extracts of
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pertinent records, documents and contracts. Survivor will cause its accountants
to furnish to Acquiror during such period any and all of their statements,
working papers and other records and data as Acquiror reasonably may request. No
investigation by Acquiror or its counsel, accountants and other representatives
as contemplated by this Section 5.3 shall affect any representation or warranty
given by Survivor under this Agreement.
5.4 FURTHER EFFORTS.
(a) Survivor agrees to use diligent effort and take all actions
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the Merger and
the other transactions contemplated hereby in accordance with the terms of this
Agreement. In case at any time any further action is necessary or desirable to
carry out the purposes of this Agreement, Survivor will use diligent efforts to
effectuate all such action.
(b) As soon as reasonably practicable after the date hereof, and in
any event on or prior to the Closing Date, Survivor will use diligent efforts to
obtain the consents of all necessary governmental entities and other persons to
the Merger and the continued operation by Survivor of its business, properties,
assets, leaseholds, licenses, contracts and agreements.
5.5 CONFIDENTIALITY. In the event of the termination of this Agreement,
Survivor and its representatives shall keep all information with respect to
Acquiror which has been disclosed to Survivor pursuant to this Agreement
confidential in accordance with the terms of the Letter Agreement and shall
promptly return to Acquiror all written information provided to Survivor by
Acquiror.
5.6 FINANCIAL INFORMATION. From and after the date hereof and until the
Closing, Survivor will deliver to Acquiror as soon as practicable and in any
event within thirty (30) days after the end of each quarter, a copy of
Survivor's unaudited internal financial statements.
5.7 SUBSEQUENT EVENTS. Survivor shall promptly, and in any event prior
to the Closing, advise Acquiror in writing of the occurrence of any material
event or the existence of any state of facts which would render any
representation or warranty of Survivor hereunder inaccurate or which would
preclude satisfaction of any condition contained in ARTICLE 7 or ARTICLE 9 of
this Agreement; provided, that no such notification shall affect any such
representation, warranty or condition.
5.8 PUBLIC ANNOUNCEMENT. Except as provided below, so long as this
Agreement is in effect, Survivor shall not, and shall not cause its affiliates
and representatives to issue or cause the publication of any press release or
any other public announcement (including, without limitation, disclosure to
employees) with respect to the Merger or any other transaction contemplated by
this Agreement without the prior review and written consent of Acquiror.
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5.9 NO INCONSISTENT ACTIVITIES. For a period of one hundred twenty
(120) days after the date of this Agreement, neither Survivor nor any of their
respective directors, officers, employees, representatives or agents shall,
directly or indirectly, solicit or initiate discussions or negotiations with, or
provide any information to, any corporation, partnership, person or other entity
or group (other than Acquiror or an officer or authorized representative of
Acquiror) concerning any tender offer, merger, sale of substantial assets, sale
of shares of capital stock or similar transaction involving Survivor (any such
transaction being referred to herein as an "Acquisition Transaction"), or
participate in any negotiation regarding any Acquisition Transaction or
otherwise cooperate in any way with or encourage any effort or attempt by any
other person to effectuate an Acquisition Transaction. Survivor will promptly
communicate to Acquiror the terms of any proposal they may receive from any
other party in respect of any Acquisition Transaction.
ARTICLE 6.
REPRESENTATIONS AND WARRANTIES OF ACQUIROR
------------------------------------------
Acquiror hereby represents and warrants to Survivor as follows:
6.1 ORGANIZATION AND GOOD STANDING. Acquiror is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Nevada and has all requisite corporate power and authority and is entitled to
carry on its business as now being conducted and to own, lease and operate its
properties. Acquiror is duly organized and in good standing as a foreign
corporation authorized to do business in each jurisdiction where the nature of
the business and activities conducted by Acquiror requires such qualification.
6.2 CERTIFICATE OF INCORPORATION AND BYLAWS. Acquiror has delivered to
Survivor true, correct and complete copies of its Certificate of Incorporation
(certified by the Secretary of State of Nevada) and Bylaws (certified by its
corporate secretary) together with all amendments to each through the date
hereof. Both the Certificate of Incorporation and the Bylaws are in full force
and effect. Copies are attached hereto as EXHIBIT "6.2(a)" and EXHIBIT "6.2(b)",
respectively.
6.3 CORPORATE MINUTES. Acquiror has made available to Survivor true,
correct and complete copies of its minute books, stock certificate books and
corporate records; such books and records reflect all issuances of equity and
debt securities of Survivor or rights to acquire any such securities, and
contain true and complete records of all meetings and consents in lieu of
meetings of Acquiror's Board of Directors (and any committees thereof) and
shareholders.
6.4 QUALIFICATION. Acquiror is qualified to do business and is in good
standing in each jurisdiction where the character or location of property owned
and leased, the employment of personnel or the nature of the business and
activities conducted by Acquiror, as the case may be, requires such
qualification, licensing or domestication. Acquiror does not file franchise,
income or other tax returns in any jurisdiction based upon the ownership or use
of property therein or the derivation of income therefrom.
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6.5 CAPITALIZATION OF ACQUIROR. As of the date of this Agreement, the
authorized capital stock of Acquiror consists of 25,000 shares of Acquiror's
Common Stock, no par value each, of which 25,000 shares are issued and
outstanding. There are no issued or outstanding options, warrants or other
instruments entitling anyone to acquire any additional shares of common stock of
Acquiror. No shares are held in Acquiror's treasury. As of the date of this
Agreement and as of the Closing Date, the stockholders specified on EXHIBIT
"6.5", hold all of the issued and outstanding Common Stock of Acquiror. All
issued and outstanding shares of Acquiror's Common Stock have been duly
authorized and are validly issued, fully paid and nonassessable. The rights,
powers, preferences and relative participating, optional or other special
rights, qualifications, limitations or restrictions applicable to Acquiror's
Common Stock are as set forth in Acquiror's Certificate of Incorporation. There
are not presently and as of the Closing, there will not be any outstanding
options, warrants, subscriptions, convertible debentures or other rights,
commitments or any other similar agreements for the purchase of any securities
of Acquiror. Acquiror is not a party to, nor has knowledge that any of its
shareholders are parties to, any voting trust agreements or other contracts,
agreements or arrangements restricting voting rights or transferability with
respect to the outstanding Common Stock of Acquiror.
6.6 OWNERSHIP OF STOCK OPTIONS OF ACQUIROR. As of the date of this
Agreement and as of the Closing Date, there are not and there will not be any
outstanding options, warrants, subscriptions, convertible debentures or other
rights, commitments or any other similar agreements for the purchase of any
securities of Acquiror.
6.7 SUBSIDIARIES AND OTHER AFFILIATES. Acquiror does not have any
subsidiaries, and does not own, either directly or indirectly, any interest or
investment, whether debt or equity (other than an interest as a creditor holding
a trade account receivable), or any obligation, option or right to acquire any
interest, direct or indirect, in any other corporation or other entity (other
than hereunder).
6.8 AUTHORITY.
(a) Acquiror has the necessary corporate power and authority to
enter into and deliver this Agreement, to perform its obligations hereunder and
to consummate the transactions contemplated hereby. The execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby
by Acquiror have been duly authorized by the Board of Directors of Acquiror in
accordance with applicable law (see EXHIBIT "6.8"). After the requisite approval
of the stockholders of Acquiror is obtained, no further action will be necessary
on the part of Acquiror to make this Agreement valid and binding upon Acquiror
in accordance with its terms. This Agreement has been duly and validly
authorized, executed and delivered by Acquiror and this Agreement (assuming due
authorization, execution and delivery by the other parties hereto) constitutes
the legal, valid and binding obligation of Acquiror, enforceable in accordance
with its terms (except as such enforcement may be limited by applicable
bankruptcy, insolvency, moratorium or similar laws affecting the rights of
creditors generally or by general principles of the equity). Neither the
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execution, delivery or performance of this Agreement by Acquiror, nor the
consummation of the transactions contemplated hereby, nor compliance by Acquiror
with the terms and provisions of this Agreement, or the Articles of Merger will
result in a violation or breach of any term or provision of Acquiror's
Certificate of Incorporation or Bylaws, or of any statute, rule or regulation
applicable to Acquiror or its businesses, properties, assets or personnel, nor
conflict with or constitute a violation or breach of, or a default under (or an
event which, with the passage of time or the giving of notice, or both, would
constitute a default under), nor give any party a right to accelerate the due
date of any indebtedness or obligation under, any indenture, mortgage, deed of
trust, contract or agreement to which Acquiror is a party or to which its
properties or assets are subject, or any instrument, judgment, decree, writ, or
other restriction to which Acquiror is a party or by which Acquiror or its
businesses, properties, assets or personnel are bound.
(b) Except for (i) filing the Articles of Merger with the
Secretary of State of Nevada, (ii) obtaining the consent of its stockholders,
and (iii) obtaining any necessary third party consents, Acquiror is not required
to submit any notice, report or other filing with any federal, state or local
governmental authority in connection with the execution or delivery or
performance by Acquiror of this Agreement or the consummation of the
transactions contemplated herein.
6.9 BROKER'S FEES. There are no broker's or finder's fees or
obligations due to persons engaged by Acquiror or any of its employees,
officers, or directors in connection with the transactions contemplated by this
Agreement, except for the fees and expenses of its counsel and accountants.
6.10 PROXY STATEMENT. The statements and disclosures concerning
Acquirer included in the Proxy Statement shall be deemed to be further
disclosures hereunder and shall be incorporated into this Agreement and the
attached Schedules, where applicable.
6.11 EXHIBITS. If any fact or matter is disclosed by Acquiror on any
Exhibit to this Agreement, it shall be deemed disclosed for purposes of all
representations contained herein.
ARTICLE 7.
COVENANTS OF ACQUIROR
---------------------
Acquiror hereby covenants and agrees as follows:
7.1 FURTHER EFFORTS. Acquiror agrees to use diligent efforts to take,
or cause to be taken, all actions and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Merger and the other transactions contemplated
hereby in accordance with the terms of this Agreement. In case at any time any
further action is necessary or desirable to carry out the purposes of this
Agreement, Acquiror will use diligent efforts to effectuate all such action.
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7.2 CONFIDENTIALITY. In the event of the termination of this Agreement,
Acquiror and its representatives shall keep all information with respect to
Survivor which has been disclosed to Acquiror pursuant to this Agreement
confidential in accordance with the terms of the Letter Agreement and shall
promptly return to Survivor all written information provided to Acquiror.
7.3 PUBLIC ANNOUNCEMENT. So long as this Agreement is in effect,
Acquiror shall not, and shall cause its affiliates and representatives not to,
issue or cause the publication of any press release or any other public
announcement (including, without limitation, disclosure to employees) with
respect to the Merger or any other transaction contemplated by this Agreement
without the prior review, and consultation with, Survivor with respect to such
press release or other public announcement.
ARTICLE 8.
GENERAL CONDITIONS PRECEDENT
----------------------------
The obligations of each party hereto to consummate the Merger and the
other transactions contemplated by this Agreement shall be subject to
fulfillment on or prior to the Closing of each of the following conditions:
8.1 SHAREHOLDER APPROVAL. The shareholders of Survivor and the
shareholders of Acquiror shall have duly adopted and approved this Agreement and
the transactions contemplated hereby in accordance with the applicable
provisions of the NRS and the ARS, other applicable law and Survivor's
Certificate of Incorporation and Bylaws.
8.2 NO INJUNCTIONS. No injunction or restraining or other order issued
by a court of competent jurisdiction which prohibits the consummation of the
transactions contemplated by this Agreement shall be in effect (each party
agreeing to use diligent efforts to have any such injunction or order lifted),
and no governmental action or proceeding shall have been commenced or threatened
in writing seeking any injunction or restraining or other order that seeks to
prohibit, restrain, invalidate or set aside consummation of the transactions
contemplated by this Agreement.
8.3 NO GOVERNMENTAL PROCEEDINGS. No action will have been taken, and no
statute, rule or regulation will have been enacted, by any state or federal
government agency that would render the consummation of the Merger illegal.
8.4 GOVERNMENTAL APPROVALS. All governmental filings or approvals
required in connection with the consummation of the transactions contemplated by
this Agreement shall have been made or received.
8.5 DISSENTER'S RIGHTS OF SURVIVOR'S STOCKHOLDERS. Holders of no
greater than twenty percent (20%) of the outstanding shares of common stock of
Survivor shall elect to assert dissenter's rights under applicable provisions of
the ARS.
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8.6 DISSENTER'S RIGHTS OF ACQUIROR'S STOCKHOLDERS. Holders of no
greater than twenty percent (20%) of the outstanding shares of common stock of
Acquiror shall elect to assert dissenter's rights under applicable provisions of
the NRS.
ARTICLE 9.
CONDITIONS PRECEDENT TO ACQUIROR'S
OBLIGATION TO CLOSE
The obligation of Acquiror to consummate the transactions contemplated
by this Agreement is subject to the fulfillment at or prior to the Closing of
each of the following conditions (unless waived pursuant to Section 12.3
hereof):
9.1 DUE DILIGENCE. Acquiror shall have completed and approved its due
diligence review of the business affairs and operations of Survivor, as
determined in its sole and absolute discretion.
9.2 CERTIFICATE OF SURVIVOR. The representations and warranties of
Survivor under ARTICLE 4., shall have been true in all material respects when
made and shall be true in all material respects as of the Closing with the same
effect as though made at such time, except for changes occurring or arising
after the date of this Agreement (a) in carrying out the transactions
contemplated herein or (b) approved in writing by Acquiror. At the Closing,
Survivor shall have delivered a certificate in the forms attached hereto as
EXHIBITS "9.2(a)" AND EXHIBIT "9.2(b)", signed by Survivor's President and
Secretary dated as of the Effective Date, certifying that Survivor shall have
performed all obligations and complied with all covenants and conditions
required by this Agreement to be performed or complied with by it at or prior to
the Closing.
9.3 NO MATERIAL ADVERSE EFFECT. Since October 31, 1999, Survivor shall
not have experienced any Material Adverse Effect.
9.4 THIRD PARTY CONSENTS. All necessary consents of the third parties
shall have been obtained.
9.5 LEGAL OPINION OF SURVIVOR'S COUNSEL. Acquiror shall have received
an opinion, dated as of the Closing Date of Wenthur & Chachas, counsel for
Survivor, to the effect set forth on EXHIBIT "9.5" hereto.
9.6 CERTIFIED RESOLUTIONS. Survivor shall have delivered to Acquiror
true and complete copies of the resolutions of its respective Board of Directors
and the shareholders of Survivor pursuant to which the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby were
duly and validly authorized, adopted and approved, certified by Survivor's
Secretary to be in full force and effect as of the Closing Date.
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9.7 CERTIFICATE OF SHAREHOLDER APPROVAL. Survivor shall have delivered
to Acquiror a Certificate of Shareholder Approval in the form of EXHIBIT "9.7"
attached hereto, executed by Survivor's President and Secretary and certifying
to Acquiror (a) that shareholders of Survivor approved the Merger; (b) the date
of such shareholder vote regarding the Merger and the final tally for, against
and any abstentions; (c) that, to the best knowledge of Survivor's President and
Secretary, such vote of the shareholders of Survivor was conducted in
conformance with all of the requirements of the ARS.
9.8 LETTERS OF RESIGNATION. Acquiror shall have received letters of
resignation addressed to Survivor from all members of the Board of Directors of
Survivor and all executive officers of Survivor, which resignations shall be
effective as of the Closing.
9.9 PROCEEDINGS SATISFACTORY TO COUNSEL. All proceedings taken by
Survivor and all instruments executed and delivered by Survivor on or prior to
the Closing Date in connection with the transactions contemplated herein shall
be reasonably satisfactory in form and substance to counsel for Acquiror.
ARTICLE 10.
CONDITIONS PRECEDENT TO SURVIVOR'S
OBLIGATION TO CLOSE
The obligation of Survivor to consummate the Merger and the other
transactions contemplated by this Agreement is subject to the fulfillment at or
prior to the Closing of each of the following conditions (unless waived pursuant
to Section 12.3 hereof):
10.1 CERTIFICATE OF ACQUIROR. Acquiror shall have performed all
obligations and complied with all covenants and conditions required by this
Agreement to be performed or complied with by it at or prior to the Closing, and
Acquiror shall have delivered to the Company a certificate of Acquiror in the
form attached hereto as EXHIBIT "10.1", dated the date of the Closing and signed
by the President of Acquiror, to all such effects.
10.2 CERTIFIED RESOLUTIONS. Acquiror shall have delivered to Survivor
true and complete copies of the resolutions of its Board of Directors pursuant
to which the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby were duly and validly authorized, adopted
and approved, certified by Acquiror's Secretary to be in full force and effect
as of the Closing Date.
10.3 LEGAL OPINION OF ACQUIROR'S COUNSEL. Survivor shall have received
an opinion, dated as of the Closing Date of Michael Corrigan of Mulvaney, Kahan
& Barry, counsel for Acquiror, to the effect set forth on EXHIBIT "10.3" hereto.
ARTICLE 11.
SURVIVAL OF REPRESENTATIONS AND INDEMNIFICATIONS
11.1 SURVIVAL OF REPRESENTATIONS.
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(a) SURVIVOR'S REPRESENTATIONS. All representations and warranties
and all covenants of Survivor in this Agreement will remain operative and in
full force and effect, regardless of any investigation made by or on behalf of
the parties to this Agreement until the earlier of the termination of this
Agreement in accordance with its terms or the expiration of the relevant statute
of limitations, and, thereafter, to the extent a claim is made prior to the
expiration with respect to any breach of such representation, warranty or
covenant, until such claim is finally determined or settled, whereupon such
representations, warranties, and covenants will expire (except for covenants
that by their terms survive for a longer period).
(b) ACQUIROR'S REPRESENTATIONS. Acquiror's representations,
warranties and covenants contained in this Agreement will terminate as of the
earlier of the termination of this Agreement in accordance with its terms or the
Closing.
(c) AGREEMENT TO INDEMNIFY. Survivor will indemnify and hold
harmless Acquiror and its respective officers, directors, agents and employees,
and each person, if any, who controls or may control Acquiror within the meaning
of the Securities Act (hereinafter referred to individually as an "Indemnified
Person" and collectively as "Indemnified Persons"), from and against any and all
claims, demands, actions, causes of actions, losses, costs, damages, liabilities
and expenses including, without limitation, reasonable legal fees (hereinafter
referred to as "Damages"), arising out of any misrepresentation or breach of or
default or other action or omission in connection with either.
(i) any of the representations, warranties and covenants given
or made by Survivor in this Agreement, in any exhibit or schedule hereto or any
certificate, document or instrument delivered by or on behalf of Survivor
pursuant hereto;
(ii) any and all actions, suits, claims, or legal,
administrative, arbitration, governmental or other proceedings or investigations
against any Indemnified Person that relate to Survivor in which the principal
event giving rise thereto occurred prior to the Closing Date which result from
or arise out of any action or inaction prior to the Closing Date of Survivor or
any director, officer, employee, agent, representative or subcontractor of
Survivor, except for those that which the Surviving Corporation specifically
assumes in writing; or
(iii) the termination of any pension, stock option, bonus,
deferred pay; compensation, profit-sharing or other plan with respect to
Survivor's employees as referred to in Section 9.6 hereof; or
(iv) any and all actions of any officer or director of
Survivor prior to the Effective Date.
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ARTICLE 12.
TERMINATION
12.1 TERMINATION. This Agreement and the Merger contemplated hereby may
be terminated at any time prior to the Closing, whether before or after approval
of will this Agreement and the Merger by the shareholders of Survivor, as
follows, and in no other manner:
(a) by mutual written consent of the Board of Directors of
Survivor and Acquiror;
(b) by Acquiror or Survivor if any of the conditions set forth in
ARTICLE 8 shall not have been satisfied as of the date of the Closing;
(c) by Acquiror if any of the conditions set forth in ARTICLE 9
shall have not been satisfied as of the date of the Closing;
(d) by Survivor if any of the conditions set forth in ARTICLE 10
shall have not been satisfied as of the date of the Closing; or
(e) by either Acquiror or Survivor if the Closing shall have not
been consummated on or before January 30, 2000.
12.2 EFFECT OF TERMINATION. In the event that this Agreement is
terminated pursuant to Section 12.1 hereof and except as provided below, all
further obligations of the parties hereto under this Agreement shall terminate
without further liability of any party to another, and each party hereto will
pay all their own costs and expenses incident to its negotiation and preparation
of this Agreement and to its performance of and compliance with all agreements
and conditions contained herein or therein on its part to be performed or
complied with, including the fees, expenses and disbursements of its counsel;
provided, that the obligations of Survivor contained in Section 5.5 hereof and
the obligations of Acquiror contained in Section 7.2 hereof shall survive any
such termination; and provided, further, that nothing herein shall relieve any
party of any liability with respect to or arising out of any breach of its
obligations, covenants or agreements hereunder.
12.3 WAIVER OF CONDITIONS. If any of the conditions specified in
ARTICLE 8 hereof has not been satisfied, Acquiror and Survivor may nevertheless
mutually agree to proceed with the transactions contemplated hereby. If any of
the conditions specified in ARTICLE 9 hereof has not been satisfied, Acquiror
may nevertheless at its election proceed with the transactions contemplated
hereby. If any of the conditions specified in ARTICLE 10 hereof has not been
satisfied, Survivor may nevertheless at its election proceed with the
transactions contemplated hereby.
12.4 PAYMENT OF EXPENSES. Except as provided below, Survivor and
Acquiror will pay all of their respective costs and expenses (including fees and
expenses of legal counsel, accountants and financial advisors) incurred by such
party in connection with the transactions contemplated by this Agreement,
regardless of whether the Merger is consummated. All expenses of the proxy
statement and solicitation will be paid by Survivor.
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ARTICLE 13.
GENERAL
13.1 AMENDMENTS. Subject to applicable law, this Agreement, the
Articles of Merger and any exhibit attached hereto or thereto may be amended by
the parties hereto at any time prior to the Effective Date; PROVIDED, HOWEVER,
that any such amendment must be in writing and executed by all parties hereto.
13.2 ASSIGNMENT. The rights under this Agreement shall not be
assignable nor the duties delegable by any party without the written consent of
the other parties; and nothing contained in this Agreement, express or implied,
is intended to confer upon any person or entity, other than the parties hereto
and their successors in interest and permitted assignees, any rights or remedies
under or by reason of this Agreement unless so stated to the contrary.
13.3 NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given when
delivered personally or when mailed, by United States certified or registered
mail, prepaid, to the parties or their assignees at the following addresses (or
at such other address as shall be given in writing):
TO SURVIVOR: Kestrel Equity Corporation
Attn: Fred Phillips
185 West "F" Street
Seventh Floor
San Diego, CA 92101
COPY TO: George G. Chachas, Esq.
Wenthur & Chachas
4180 La Jolla Village Drive
Suite 500
La Jolla, California 92037
TO ACQUIROR: Stereo Vision Entertainment, Inc.
Attn: Victoria Condon-Silliphant
1412 W. Glenoaks Blvd.
Suite D
Glendale, California 91201
COPY TO: Michael Corrigan
Mulvaney, Kahan & Barry
Seventeenth Floor
First national Bank Center
401 West A. Street
San Diego, California 92101
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13.4 FURTHER ASSURANCES. Acquiror, on the one hand, and Survivor, on
the other hand, agree that from time to time after the Closing, at the other's
request and without further consideration, each will execute and deliver such
additional instruments as the other may reasonably request to effectuate the
Merger.
13.5 REMEDIES NOT EXCLUSIVE. No remedy conferred by any of the specific
provisions of this Agreement is intended to be exclusive of any other remedy,
and each and every remedy shall be cumulative and shall be in addition to every
other remedy given hereunder or now or hereafter existing at law or in equity or
by statute or otherwise. The election of any one or more remedies by Acquiror,
by Survivor shall not constitute a waiver of the right to pursue other
applicable remedies.
13.6 ENTIRE AGREEMENT. This Agreement (including all schedules and
exhibits attached hereto and thereto and all documents delivered as provided for
herein and therein) contain the entire agreement among the parties hereto with
respect to the subject matter hereof and the transactions contemplated hereby
and supersedes all prior negotiations, discussions, agreements, and
undertakings, both written and oral, among the parties hereto, with respect to
the subject matter hereof.
13.7 COUNTERPARTS. This Agreement may be executed in one or more
Counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may be
executed by facsimile with original executed copies to be delivered by overnight
mail.
13.8 GOVERNING LAW. This Agreement shall be construed by and enforced
in accordance with the laws of the State of Arizona without giving effect to the
principles of the conflicts of laws.
13.9 RESOLUTION OF INDEMNIFICATION DISPUTES. Any controversy arising
out of the indemnification provisions of ARTICLE 11 of this Agreement or breach
thereof shall be settled by arbitration in San Diego, California, in accordance
with the rules of the American Arbitration Association, and judgment entered
upon the award rendered by arbitrator may be enforced by appropriate judicial
action pursuant to the California Code of Civil Procedure. The arbitration panel
shall consist of one member, which shall be a person agreed to by each party to
dispute within thirty (30) days following notice by one party that desires the
matter to be arbitrated. If the parties are unable within such thirty (30) day
period to agree upon an arbitrator, than the panel shall be one arbitrator
selected by the San Diego Office of the American Arbitration Association, which
arbitrator shall be experienced in commercial law and acquisition transactions
and knowledgeable with respect to the subject matter of the dispute. The losing
party shall bear any fees and expenses of the arbitrator, other tribunal fees
and expense and reasonable attorney's fees of both parties, and the cost of such
witness and other reasonable costs or expenses incurred by him or the prevailing
party. The arbitrator shall render a decision within thirty (30) days following
the close of presentation by the parties to their cases and any rebuttal. The
parties shall agree within thirty (30) days following the selection of the
arbitrator to any prehearing procedures or further procedures necessary for the
arbitration to proceed, including, interrogatories or other discovery, provided,
in any event, each party shall be entitled to discovery in accordance with
California Code of Civil Procedures Section 1283.05.
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IN WITNESS WHEREOF, the parties have duly executed this Agreement on
the date first written above
ACQUIROR:
---------
STEREO VISION ENTERTAINMENT, INC.
A NEVADA CORPORATION
/S/ VICTORIA CONDON-SILLIPHANT
------------------------------
By: Victoria Condon-Silliphant
Its: President
SURVIVOR:
---------
KESTREL EQUITY CORPORATION
AN ARIZONA CORPORATION
/S/ FREDERICK C. PHILLIPS
-------------------------
By: Frederick C. Phillips
Its: President
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TABLE OF EXHIBITS
-----------------
EXHIBIT 1.6: Articles of Merger
EXHIBIT 2.4: Articles of Incorporation of Surviving Corporation
EXHIBIT 2.6: Amended and Restated Bylaws
EXHIBIT 2.7: Officers and Directors of Surviving Corporation
EXHIBIT 4.2(a): Articles of Incorporation - Survivor
EXHIBIT 4.2(b): Bylaws - Survivor
EXHIBIT 4.8: Authorization of Board of Directors - Survivor
EXHIBIT 4.9: Survivor Financial Statements
EXHIBIT 4.11: Absence of Certain Changes - Survivor
EXHIBIT 4.13: Intellectual Property
EXHIBIT 4.22: Banks and Brokerage Accounts
EXHIBIT 6.2(a): Articles of Incorporation - Acquiror
EXHIBIT 6.2(b): Bylaws - Acquiror
EXHIBIT 6.5: Acquiror's issued and outstanding Common Stock
EXHIBIT 6.8: Authorization of Board of Directors - Acquiror
EXHIBIT 9.2(a): Form of Officer's Certificate - Survivor
EXHIBIT 9.5: Opinion of Counsel - Wenthur & Chachas
EXHIBIT 9.7: Form of Certificate of Shareholder Approval - Survivor
EXHIBIT 10.1: Form of Officer's Certificate - Acquiror
EXHIBIT 10.3: Opinion of Counsel of Mulvaney, Kahan & Barry
<PAGE>
EXHIBIT "1.6"
ARTICLES/CERTIFICATE OF MERGER
OF
STEREO VISION ENTERTAINMENT INC.
WITH AND INTO
KESTREL EQUITY CORPORATION
The undersigned corporations do hereby certify that:
1. The name and state of incorporation of each of the constituent
corporations to the merger are as follows:
NAME STATE OF INCORPORATION
---- ----------------------
Stereo Vision Entertainment Inc. Nevada
Kestrel Equity Corporation Arizona
2. An Acquisition Agreement and Plan of Reverse Merger (the "Merger
Agreement") between the parties to the merger has been approved, adopted,
certified, executed and acknowledged by each of the constituent corporations in
accordance with Section 78.458 of the Nevada Revised Statutes and Section
10-1105 of the Arizona Revised Statutes.
3. The number of outstanding shares of common stock of Stereo Vision
Entertainment Inc. was 25,000 and the number of such shares which were entitled
to vote on the Plan was 25,000. The total number of shares which voted for
adoption of the Plan was 25,000 and the total number of shares which voted
against the adoption of the Plan was 0. The number of votes cast for the Plan
was sufficient for approval of the Plan.
4. The number of outstanding shares of common stock of Kestrel Equity
Corporation was 5,200,000 and the number of such shares which were entitled to
vote on the Plan was 2,200,000. The total number of undisputed votes for
adoption of the Plan was _____________ and the total number of undisputed votes
against the adoption of the Plan was _________. The number of votes cast for the
Plan by the only voting group entitled to vote was sufficient for approval of
the Plan.
5. The surviving corporation of the merger is Kestrel Equity
Corporation which will be governed by the laws of the State of Arizona and will
change its name to Stereo Vision Entertainment Inc. pursuant to the Amended and
Restated Articles of Incorporation ATTACHED HERETO which will be filed with the
Arizona Secretary of State concurrently with the filing of these Articles of
Merger.
6. The surviving corporation agrees that it may be served with process
in the State of Nevada in any proceeding for enforcement of any obligations of
any constituent corporation of the State of Nevada, as well as for enforcement
of any obligation of the surviving corporation arising from the merger,
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including any suit or other proceeding to enforce the right of any stockholders
as determined in appraisal proceedings pursuant to the provisions of Section
78.481 of this title, and the surviving corporation hereby irrevocably appoints
the Nevada Secretary of State as its agent to accept service of process in any
such suit or other proceedings and the Nevada Secretary of State is authorized
to mail a copy of such process to the surviving corporation at the surviving
corporation's new principal place of business at 11166 Burbank Blvd., North
Hollywood, CA 91601.
7. The Plan is on file at the new principal place of business of the
surviving corporation, 11166 Burbank Blvd., North Hollywood, CA 91601.
8. A copy of the Plan will be furnished by the surviving corporation,
on request and without cost, to any shareholder or stockholder of either
constituent corporation.
9. These Articles of Merger shall be effective on the date of filing.
STEREO VISION ENTERTAINMENT INC.
A NEVADA CORPORATION
-------------------------------------
By: Victoria Silliphant
Its: President
-------------------------------------
By: Victoria Silliphant
Its: Secretary
KESTREL EQUITY CORPORATION
AN ARIZONA CORPORATION
-------------------------------------
By: Frederick C. Phillips
Its: President
-------------------------------------
By: Frederick C. Phillips
Its: Secretary
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EXHIBIT "2.4"
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
KESTREL EQUITY CORPORATION
FREDERICK C. PHILLIPS hereby certifies that:
1. He is the president and the secretary of Kestrel Equity Corporation,
an Arizona corporation (the "Corporation").
2. The articles of incorporation of this Corporation are amended and
restated in their entirety to read as follows:
ARTICLE I
The name of the corporation is Stereo Vision Entertainment Inc.
ARTICLE II
The period of its duration is perpetual.
ARTICLE III
The purpose or purposes for which the Corporation is organized is to
engage in any lawful acts or activity that, presently or in the future, may
legally be performed by a Corporation organized under the laws of the State of
Arizona.
ARTICLE IV
The aggregate number of shares which the Corporation shall have
authority to issue shall be 100,000,000 common shares, par value $.001 per
share. The board of directors, without shareholder action, may amend the
Corporation's articles of incorporation, in accordance with the Arizona Revised
Statutes, (a) to designate in whole or in part, the preferences, limitations,
and relative rights, within the limits set forth in the Arizona Revised
Statutes, of any class of shares, before the issuance of any shares of that
class, (b) create one or more series within a class of shares, fix the number of
shares of each such series, and designate, in whole or part, the preferences,
limitations, and relative rights of the series, within the limits set forth in
the Arizona Revised Statutes, all before the issuance of any shares of that
series, (c) alter or revoke the preferences, limitations, and relative rights
granted to or imposed upon any wholly unissued class of shares or any wholly
unissued series of any class of shares; or (d) increase or decrease the number
of shares constituting any series, the number of shares of which was originally
fixed by the board of directors, either before or after the issuance of shares
of the series, provided that the number may not be decreased below the number of
shares of the series then outstanding, or increased above the total number of
authorized shares of the applicable class of shares available for designation as
part of the series.
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ARTICLE V
The Corporation shall have a minimum of one (1) and a maximum of seven
(7) directors as shall be set by the Bylaws of the corporation.
ARTICLE VI
A. The Corporation shall have the right to purchase its own shares to
the extent of its unreserved and unrestricted earned surplus and capital surplus
if its Board of Directors adopts a resolution to such effect.
B. The Board of Directors of the Corporation may designate such
committee or committees as it determines in accordance with law to exercise such
authority as the Board of Directors shall delegate in the resolution designating
such committee or committees.
ARTICLE VII
Each person who is or was a director, officer, employee or agent of the
Corporation (including the heirs, executors, administrators or estate of such
person) shall be indemnified by the Corporation against all expenses and
liabilities, including counsel fees reasonably incurred by or imposed upon and
in connection with any proceeding to which the director, officer, employee or
agent may be a party, or in which he or she may become involved by reason of
being or having been an officer, director, employee or agent of the Corporation
or any settlement thereof, regardless of whether a director, officer, employee
or agent, at the time such expenses are incurred, except in such cases wherein
the director, officer, employee or agent is judged guilty of willful misfeasance
or malfeasance, willful misconduct or gross negligence in the performance of any
duty; provided, however, in the event of a settlement, the indemnification
herein shall only apply when the Board of Directors approves such settlement and
reimbursement as being in the best interests of the Corporation. The foregoing
right of indemnification shall be in addition to and not exclusive of all other
rights to which such director, officer, agent or employee may be entitled.
Subject to the limitations set forth above, such indemnification shall be to the
fullest extent permitted by the Utah Revised Business Corporation Act or any
other applicable laws now in effect or as may hereafter be amended. No director
of the Corporation shall be personally liable to the Corporation or its
shareholders for monetary damages for any action taken or failure to take any
action in good faith as an officer, director, employee or agent. The Corporation
may, but shall be under no obligation to, maintain insurance at its expense, to
protect itself or any officer, director, employee or agent against any such
liability as may be covered by the above indemnification, including any costs or
expenses reasonably attributable thereto.
Page 2
<PAGE>
ARTICLE VIII
No person shall be liable to the Corporation for any loss or damage
suffered by it on account of any action or act omitted to be taken by a
director, officer, employee or agent of the Corporation in good faith if such
person (i) exercised or used the same degree of care and skill as a prudent
person would have exercised or used under the same or similar circumstances in
the conduct of his or her own personal affairs, or (ii) took or omitted to take
such action in reliance upon the advice of counsel for the Corporation or other
statements made or information furnished by officers or employees of the
Corporation which he or she had reasonable grounds to believe or upon a
financial statement of the Corporation prepared by an accountant, officer of the
Corporation in charge of its accounting or employees of the Corporation in
charge of its accounts or certified by a public accountant or firm of public
accountants.
3. The foregoing amendment and restatement of the articles of
incorporation has been duly approved by the board of directors.
4. The foregoing amendment and restatement of articles of incorporation
has been duly approved by the required vote of shareholders in accordance with
Section 10-1020 of the Arizona Revised Statutes. Common stock is the only
outstanding stock of the corporation. The total number of outstanding shares of
Common stock of the corporation is __________. The number of votes entitled to
be cast on the amendment is _________ and the number of votes indisputably
represented at the meeting at which the foregoing amendment and restatement of
articles of incorporation was approved was _________________. The total number
of undisputed votes cast for the amendment and restatement was _______________,
which was sufficient for the approval of the amendment and restatement.
We further declare under penalty of perjury under the laws of the State
of Arizona that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: ________________
---------------------------------
By: Frederick C. Phillips
Its: President
---------------------------------
By: Frederick C. Phillips
Its: Secretary
Page 3
<PAGE>
EXHIBIT "2.6"
AMENDED AND RESTATED BYLAWS OF THE SURVIVING CORPORATION
SEE ATTACHED
<PAGE>
EXHIBIT "2.7"
OFFICERS AND DIRECTORS OF SURVIVING CORPORATION
DIRECTORS
---------
NAME POSITION
---- --------
Dale A. Rorabaugh Chairman of the Board, Director
Lawrence Kallett
Lance Putnam
OFFICERS
--------
NAME POSITION
---- --------
John Kookootsedes President
Laurie Valente Secretary and Treasurer
- --------------------------------------------------------------------------------
<PAGE>
EXHIBIT "4.2(a)"
ARTICLES OF INCORPORATION OF
KESTREL EQUITY CORPORATION
SEE ATTACHED
<PAGE>
EXHIBIT "4.2(b)"
BYLAWS OF
KESTREL EQUITY CORPORATION
SEE ATTACHED
<PAGE>
EXHIBIT "4.4"
QUALIFICATION OF
KESTREL EQUITY CORPORATION
Arizona
<PAGE>
EXHIBIT "4.5"
CAPITALIZATION OF
KESTREL EQUITY CORPORATION
1. Issued and Outstanding Stock Options: None
<PAGE>
EXHIBIT "4.8"
AUTHORIZATION OF BOARD OF DIRECTORS
OF
KESTREL EQUITY CORPORATION
SEE ATTACHED
<PAGE>
EXHIBIT "4.9"
CHANGES OR DISCREPANCIES TO
FINANCIAL STATEMENTS
OF KESTREL EQUITY CORPORATION
None
<PAGE>
EXHIBIT "4.11"
CERTAIN CHANGES
OF KESTREL EQUITY CORPORATION
NONE
<PAGE>
EXHIBIT "4.13"
ASSETS - INTELLECTUAL PROPERTY
OF KESTREL EQUITY CORPORATION
NONE
<PAGE>
EXHIBIT "4.22"
BANKS AND BROKERAGE ACCOUNTS
OF KESTREL EQUITY CORPORATION
NONE
<PAGE>
EXHIBIT "6.2(a)"
ARTICLES OF INCORPORATION
OF STEREO VISION ENTERTAINMENT, INC.
SEE ATTACHED
<PAGE>
EXHIBIT "6.2(b)"
BYLAWS
OF STEREO VISION ENTERTAINMENT, INC.
SEE ATTACHED
<PAGE>
EXHIBIT "6.5"
OUTSTANDING COMMON STOCK
OF STEREO VISION ENTERTAINMENT, INC.
SHAREHOLDER SHARES
----------- ------
VICTORIA SILLIPHANT 6000
LAWRENCE KALLETT 6375
JOHN HONOUR 6375
CHRIS AND MARJORIE CONDON, HUSBAND AND WIFE 6250
<PAGE>
EXHIBIT "6.8"
AUTHORIZATION OF BOARD OF DIRECTORS
OF STEREO VISION ENTERTAINMENT, INC.
SEE ATTACHED
<PAGE>
EXHIBIT "9.7"
KESTREL EQUITY CORPORATION
FORM OF CERTIFICATE OF SHAREHOLDER APPROVAL
-------------------------------------------
This certificate is given by Kestrel Equity Corporation ("Kestrel") as
a condition required by Stereo Vision Entertainment, Inc., a Nevada
Corporation ("Stereo Vision") to the closing of that certain Acquisition
Agreement and Plan of Reverse Merger (the "Merger Agreement") entered into on
Deember 3, 1999, by and among Kestrel and Stereo Vision. The undersigned,
Frederick Phillips, acknowledges that he is the President and Secretary of
Kestrel Equity Corporation.
The undersigned hereby certifies, to the best of his knowledge, after
due inquiry, to Stereo Vision as follows:
1. The Shareholders of Kestrel approved the Merger as such term is
defined in the Merger Agreement;
2. The date of such shareholder vote regarding the Merger was
___________________, and the final tally for, against and any abstentions is as
follows:
______________ FOR
______________ AGAINST
______________ ABSTAIN
3. To the best knowledge of Survivor's President and Secretary, such
vote of the shareholders of Survivor was conducted in conformance with all of
the requirements of the Arizona Revised Statutes.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed this 3rd day of December, 1999.
KESTREL EQUITY CORPORATION
An Arizona Corporation
------------------------------
By: Frederick Phillips
Its: President and Secretary
<PAGE>
EXHIBIT "9.2(a)"
KESTREL EQUITY CORPORATION
FORM OF OFFICER'S CERTIFICATE
This Certificate is given by Fred Phillips, the President and Secretary
of Kestrel Equity Corporation, an Arizona Corporation ("Kestrel") as a condition
required by Stereo Vision Entertainment, Inc., a Nevada Corporation ("Stereo
Vision"), prior to the closing of that certain Acquisition Agreement and Plan of
Reverse Merger (the "Merger Agreement") entered into on December 3, 1999, by and
between Kestrel and Stereo Vision. The undersigned certify that as of the date
hereof:
1. All of the representations and warranties of Kestrel set forth in
the Merger Agreement are true, correct and complete.
2. Kestrel has performed all obligations and has complied with all
covenants required to be performed or complied with by Kestrel to this date
under the Merger Agreement.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed this 3rd day of December 1999.
Kestrel Equity Corporation
An Arizona Corporation
----------------------------
By: Fred Phillips
Its: President and Secretary
<PAGE>
EXHIBIT "10.1"
STEREO VISION ENTERTAINMENT, INC.
FORM OF OFFICER'S CERTIFICATE
This Certificate is given by Victoria Silliphant, the President and
Secretary of Stereo Vision Entertainment, Inc., a Nevada Corporation ("Stereo
Vision") as a condition required by Kestrel Equity Corporation, an Arizona
Corporation ("Kestrel"), prior to the closing of that certain Acquisition
Agreement and Plan of Reverse Merger (the "Merger Agreement") entered into on
December 3, 1999, by and between Kestrel and Stereo Vision. The undersigned
certify that as of the date hereof:
1. All of the representations and warranties of Stereo Vision as set
forth in the Merger Agreement are true, correct and complete.
2. Stereo Vision has performed all obligations and has complied with
all covenants required to be performed or complied with by Stereo Vision to this
date under the Merger Agreement.
IN WITNESS WHEREOF, the undersigned has caused this certificate to be
executed this 3rd day of December 1999.
Stereo Vision Entertainment, Inc.
A Nevada Corporation
----------------------------------
By: Victoria Silliphant
Its: President and Secretary
AZ. CORP. COMMISSION
FOR THE STATE OF AZ
DEC 14 11 48 AM '93
/S/ B. MALLORY
12-14-93
EXPEDITED
ARTICLES OF INCORPORATION
OF
ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.
ARTICLE I
NAME: The name of the corporation shall be ARIZONA TAXPROS & INSURANCE
WHOLESALERS, INC.
ARTICLE II
PURPOSE: The purpose for which this corporation is organized is the transaction
of any or all lawful business for which corporations may be incorporated under
the laws of the State of Arizona, as they may be amended from time to time.
ARTICLE III
INITIAL BUSINESS: The corporation initially intends to conduct business in the
accounting, tax, insurance, and financial fields.
Initially, it's principal office will be situated at 3131 N. Country Club, Suite
112, Tucson, AZ. 85716 with it's mailing address the same.
ARTICLE IV
AUTHORIZED CAPITAL: The corporation shall have the authority to issue 1,000,000
shares of common stock, each share to have $ 1 par value.
The shares may be issued for the consideration expressed in dollars, personal
property interests, real property interests, or as otherwise lawfully allowed as
may be fixed from time to time by the Board of Directors, and may be designated
as voting or nonvoting at the time of issuance.
The corporation elects to qualify the common stock offered and issued as
"Section 1244 stock", as such item is defined in the Internal Revenue Code and
Regulations issued thereunder.
ARTICLE V
STATUTORY AGENT: The name and address of the initial Statutory Agent for the
corporation who agrees to accept service of process on behalf of the corporate
entity is:
John C. Stevenson
3443 N. Olsen Ave.
Tucson, AZ. 85719
Page 1 of 2
<PAGE>
ARTICLE VI
BOARD OF DIRECTORS: The initial Board of Directors shall consist of two (2)
Directors. The persons who are to serve as Directors until the first annual
meeting of shareholders or until their successor(s) are elected and qualified
are:
1. John C. Stevenson
2. Raymond C. Miller
The number of persons to serve on the Board of Directors shall be fixed by the
Bylaws, but in no case shall the number be less than one or more than fifteen.
The Directors need not be stockholders of the corporation unless so required by
the Bylaws. The Board of Directors shall be elected by the Stockholders at their
annual meeting to be held on the first day of December each year, or such other
day as the Bylaws may provide, and shall hold office until their successors are
respectively elected and qualified.
The Bylaws shall specify the number of directors necessary to constitute a
quorum. The Board may elect such officers as the Bylaws may, specify, who shall,
subject to the provisions of the Statutes, have such titles and exercise such
duties as the Bylaws may provide. The Board of Directors is expressly authorized
to make, alter, or repeal the Bylaws of this corporation or any article therein.
ARTICLE VII
THE INCORPORATORS: The incorporators of this corporation consist of the
following individuals whose name and address are listed below:
1. John C. Stevenson, 3443 N. Olsen, Tucson, AZ. 85719
2. Raymond C. Miller, 4738 E. Scarlett St., Tucson, AZ. 85711
ARTICLE VIII
The fiscal year of the corporation shall be from January 01 to December 31 of
each year.
IN WITNESS WHEREOF, on behalf of ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.,
we have set our hands this 14th day of December, 1993. The signatures of all the
Incorporators (or their power of attorney) are affixed below:
/s/ John C. Stevenson /s/ Raymond C. Miller 12/14/93
- -------------------------------- --------------------------------
John C. Stevenson Raymond C. Miller
I, John C. Stevenson, having been designated to act as statutory agent, hereby
consent to act in that capacity until removed or resignation is submitted in
accordance with the Arizona Revised Statutes.
/s/ John C. Stevenson
---------------------
Statutory Agent
Page 2 of 2
AZ CORP COMMISSION
FOR THE STATE OF AZ
JUN 18 10 42 AM '97
/S/ B. MALLORY
4-20-97
ARTICLES OF AMENDMENT
OF
ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.
1. The name of the Corporation is Arizona Taxpros & Insurance Wholesalers, Inc.
with its principal place of business at 5151 East Broadway, Suite 690, Tuscon,
Arizona 85711.
2. Attached hereto as Exhibit A is the text of each Amendment adopted.
3. The amendment provides for exchange, reclassification or cancellation of
issued shares. Such Action will be implemented as listed in Exhibit A.
4. The Amendment was adopted the 10th day of June, 1997.
5. The amendment was approved by the shareholders. There are two voting groups
eligible to vote on the amendment. The designation of voting groups entitled to
vote separately on the amendment, the number of votes in each, the number of
votes represented at the meeting at which the amendment was adopted and the
votes cast for and against the amendment were as follows:
The voting groups consisting of 20,000 outstanding shares of Common Stock
are entitled to 20,000 votes. There were 20,000 votes present at the meeting.
The voting group cast 20,000 for and no votes against, approval of the
amendment. The number of votes cast for approval of the amendment was sufficient
for approval by the voting group.
DATED this 18th day of June, 1997.
ARIZONA TAXPROS & INSURANCE
WHOLESALERS, INC.
By: /s/ Frank N. Anjakos
---------------------------------
Frank N. Anjakos, Secretary
By: /s/ Daniel Hodges
---------------------------------
Daniel Hodges, President/Chairman
State of Arizona )
) ss.
County of Pima )
This instrument was acknowledged and executed before me this 18th day of June,
1997, by Daniel L. Hodges and Frank N. Angelos.
/s/ signature My Commission Expires: JUNE 20, 2000
- --------------------------- -------------
Notary Public
[notary seal here]
<PAGE>
EXHIBIT A
PURSUANT to the bylaws of the Corporation, a special meeting of the Board
of Directors, also representing a majority of the Shareholders of the Company,
was held this 10th day of June, 1997 in Tucson, Arizona to discuss and vote upon
the following:
THAT the Company amend its Articles of Incorporation to reflect a change in
the number of authorized common stock shares, and thus the par value of the
shares of common stock of the Company. Article IV should be amended to read:
ARTICLE IV
AUTHORIZED CAPITAL: The Corporation shall have the authority to issue
100,000,000 shares of common stock, each share to have $.001 par value.
The shares may be issued for the consideration expressed in dollars, personal
property interests, real property interests, or as otherwise lawfully allowed,
and as may be fixed from time to time by the Board of Directors, and may be
designated as voting or non-voting at the time of issuance.
The Corporation elects to quality the common stock offered and issued "Section
1244 stock," as such item is defined in the Internal Revenue Code and
Regulations.
Upon a motion duly made and recorded, the resolution described above was passed
upon and the Secretary of the Company directed to file the amended Articles of
Incorporation with the State of Arizona Corporation Commission.
By: /s/ Daniel Hodges
-------------------------------
Daniel Hodges
President/Chairman
AZ CORP COMMISSION
FOR THE STATE OF AZ
SEP 30 10 12 AM '97
/S/ B. MALLORY
10-14-97
ARTICLES OF AMENDMENT
OF
ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.
1. The name of the Corporation is Arizona Taxpros & Insurance Wholesalers, Inc.
2. Attached hereto as Exhibit A is the text of each amendment adopted.
3. [x] The Amendment does not provide for an exchange, reclassification or
cancellation of issued shares.
[ ] Exhibit A contains provisions for implementing the exchange,
reclassification, or cancellation of issued shares provided for therein.
[ ] The Amendment provides for the exchange, reclassification, or
cancellation of issued shares. Such Action will be implemented as follows:
4. The Amendment was adopted the 10th day of September, 1997.
---- ---------
5. [ ] The Amendment was adopted by the [ ] Incorporators [ ] Board of Directors
without shareholder action and shareholder action was not required.
6. [X] The amendment was approved by the shareholders. There is (are) 1 voting
group eligible to vote on the amendment. The designation of voting groups
entitled to vote separately on the amendment, the number of votes in each, the
number of votes represented at the meeting at which the amendment(s) was were
adopted, and the votes cast for and against the amendment(s) were as follows:
The voting groups consisting of 20,000 outstanding shares of Common Stock
------
[class or series] is entitled to 20,000 votes. There were 20,000 votes present
------
at the meeting. The voting group cast 20,000 for and 0 votes against approval of
------ -
the amendment. The number of votes cast for approval of the amendment was
sufficient for approval by the voting group.
The voting groups consisting of ______ outstanding shares of ____________
[class or series] is entitled to ______ votes. There were ______ votes present
at the meeting. The voting group cast ______ votes for and ______ votes against
approval of the amendment. The number of votes cast for approval of the
amendment was sufficient for approval by the voting group.
DATED this 10th day of September, 1997.
Arizona Taxpros & Insurance Wholesalers, Inc.
(NOW) KESTREL EQUITY CORPORATION
By: /s/ Daniel Hodges
---------------------------------
Daniel Hodges President
Name Title
<PAGE>
AMENDMENTS TO THE ARTICLES
OF INCORPORATION OF
ARIZONA TAXPROS & INSURANCE WHOLESALERS, INC.
PURSUANT to the bylaws of the Corporation, a special meeting of the Board of
Directors, also representing a majority of the Shareholders of the Corporation
was held this 10th day of September in Tucson, Arizona to discuss and vote upon
the following Aniendments to the Articles of Incorporation of the Corporation:
THAT the Corporation amend its Articles to reflect a change in the Corporation's
name. Article I should read as follows:
ARTICLE I
NAME: The name of the Corporation shall be Kestrel Equity Corporation.
THAT the Corporation amend its Articles to reflect a change in the number of
authorized common stock shares, and thus the par value of the shares of the
common stock of the Corporation, Article IV should be amended to read as
follows:
ARTICLE IV
AUTHORIZED CAPITAL: The Corporation shall have the authority to issue
100,000,000 shares of common stock, each share to have $.001 par value.
The shares may be issued for consideration expressed to dollars, personal
property. Interests, real property interests, or as otherwise lawfully allowed,
and as may be fixed from time to time by the Board of Directors, and may be
designated as voting or non-voting at the time of issuance.
The Corporation elects to qualify the common stock offered and issued "Section
1244 stock," as such item is defined in the Internal Revenue Code and
Regulations.
UPON MOTION duly made and seconded, the resolution described above was passed
upon and the Secretary of the Corporation was directed to file the Articles of
Incorporation with the State of Arizona Corporation Commission.
By: /s/ Daniel Hodges
--------------------------
Daniel Hodges
President/Chairman
Majority Shareholder
By: /s/ Frank Anjakos
--------------------------
Frank Anjakos
Secretary/Shareholder
BYLAWS
OF
KESTREL EQUITY CORPORATION
(AN ARIZONA CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Arizona shall be in the City of Tucson, State of Arizona.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Arizona as the Board of Directors may from time to time
determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate
Seal-Arizona." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Arizona, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETING.
(a.) The annual meeting of the stockholders of the corporation, for
the purpose of election of directors and for such other business as may lawfully
come before it, shall be held on such date and at such time as may be designated
from time to time by the Board of Directors.
(b.) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (A) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
<PAGE>
of the Board of Directors, (B) otherwise properly brought before the meeting by
or at the direction of the Board of Directors, or (C) otherwise properly brought
before the meeting by a stockholder. For business to be properly brought before
an annual meeting by a stockholder, the stockholder must have given timely
notice thereof in writing to the Secretary of the corporation. To be timely, a
stockholder's notice must be delivered to or mailed and received at the
principal executive offices of the corporation not later than the close of
business on the sixtieth (60th) day nor earlier than the close of business on
the ninetieth (90th) day prior to the first anniversary of the preceding year's
annual meeting; provided, however, that in the event that no annual meeting was
held in the previous year or the date of the annual meeting has been changed by
more than thirty (30) days from the date contemplated at the time of the
previous year's proxy statement, notice by the stockholder to be timely must be
so received not earlier than the close of business on the ninetieth (90th) day
prior to such annual meeting and not later than the close of business on the
later of the sixtieth (60th) day prior to such annual meeting or, in the event
public announcement of the date of such annual meeting is first made by the
corporation fewer than seventy (70) days prior to the date of such annual
meeting, the close of business on the tenth (10th) day following the day on
which public announcement of the date of such meeting is first made by the
corporation. A stockholder's notice to the Secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the stockholder
proposing such business, (iii) the class and number of shares of the corporation
which are beneficially owned by the stockholder, (iv) any material interest of
the stockholder in such business and (v) any other information that is required
to be provided by the stockholder pursuant to Regulation 14A under the
Securities Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as
a proponent to a stockholder proposal. Notwithstanding the foregoing, in order
to include information with respect to a stockholder proposal in the proxy
statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The chairman of the annual meeting shall, if the
facts warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c.) Only persons who are confirmed in accordance with the procedures
set forth in this paragraph (c) shall be eligible for election as directors.
Nominations of persons for election to the Board of Directors of the corporation
may be made at a meeting of stockholders by or at the direction of the Board of
Directors or by any stockholder of the corporation entitled to vote in the
election of directors at the meeting who complies with the notice procedures set
forth in this paragraph (c). Such nominations, other than those made by or at
the direction of the Board of Directors, shall be made pursuant to timely notice
<PAGE>
in writing to the Secretary of the corporation in accordance with the provisions
of paragraph (b) of this Section 5. Such stockholder's notice shall set forth
(i) as to each person, if any, whom the stockholder proposes to nominate for
election or re-election as a director: (A) the name, age, business address and
residence address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation which are
beneficially owned by such person, (D) a description of all arrangements or
understandings between the stockholder and each nominee and any other person or
persons (naming such person or persons) pursuant to which the nominations are to
be made by the stockholder, and (E) any other information relating to such
person that is required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required, in each case pursuant to Regulation 14A
under the 1934 Act (including without limitation such person's written consent
to being named in the proxy statement, if any, as a nominee and to serving as a
director if elected); and (ii) as to such stockholder giving notice, the
information required to be provided pursuant to paragraph (b) of this Section 5.
At the request of the Board of Directors, any person nominated by a stockholder
for election as a director shall furnish to the Secretary of the corporation
that information required to be set forth in the stockholder's notice of
nomination which pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated in accordance with
the procedures set forth in this paragraph (c). The chairman of the meeting
shall, if the facts warrant, determine and declare at the meeting that a
nomination was not made in accordance with the procedures prescribed by these
Bylaws, and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
(d.) For purposes of this Section 5, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service, Associated
Press or comparable national news service or in a document publicly filed by the
corporation with the Securities and Exchange Commission pursuant to Section 13,
14 or 15(d) of the Exchange Act.
SECTION 6. SPECIAL MEETINGS.
(a.) Special meetings of the stockholders of the corporation may be
called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, or (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption), and shall be held at such place, on such date, and at
such time as the Board of Directors, shall determine.
(b.) If a special meeting is called by any person or persons other
than the Board of Directors, the request shall be in writing, specifying the
general nature of the business proposed to be transacted, and shall be delivered
personally or sent by registered mail or by telegraphic or other facsimile
transmission to the Chairman of the Board of Directors, the Chief Executive
Officer, or the Secretary of the corporation. No business may be transacted at
such special meeting otherwise than specified in such notice. The Board of
<PAGE>
Directors shall determine the time and place of such special meeting, which
shall be held not less than thirty-five (35) nor more than one hundred twenty
(120) days after the date of the receipt of the request. Upon determination of
the time and place of the meeting, the officer receiving the request shall cause
notice to be given to the stockholders entitled to vote, in accordance with the
provisions of Section 7 of these Bylaws. If the notice is not given within sixty
(60) days after the receipt of the request, the person or persons requesting the
meeting may set the time and place of the meeting and give the notice. Nothing
contained in this paragraph (b) shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Articles of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Articles of Incorporation, or by these
Bylaws, the presence, in person or by proxy duly authorized, of the holder or
holders of not less than one percent (1%) of the outstanding shares of stock
entitled to vote shall constitute a quorum for the transaction of business. In
the absence of a quorum, any meeting of stockholders may be adjourned, from time
to time, either by the chairman of the meeting or by vote of the holders of a
majority of the shares represented thereat, but no other business shall be
transacted at such meeting. The stockholders present at a duly called or
convened meeting, at which a quorum is present, may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum. Except as otherwise provided by law,
the Articles of Incorporation or these Bylaws, all action taken by the holders
of a majority of the votes cast, excluding abstentions, at any meeting at which
a quorum is present shall be valid and binding upon the corporation; provided,
however, that directors shall be elected by a plurality of the votes of the
shares present in person or represented by proxy at the meeting and entitled to
vote on the election of directors. Where a separate vote by a class or classes
or series is required, except where otherwise provided by the statute or by the
Articles of Incorporation or these Bylaws, a majority of the outstanding shares
of such class or classes or series, present in person or represented by proxy,
shall constitute a quorum entitled to take action with respect to that vote on
that matter and, except where otherwise provided by the statute or by the
Articles of Incorporation or these Bylaws, the affirmative vote of the majority
(plurality, in the case of the election of directors) of the votes cast,
including abstentions, by the holders of shares of such class or classes or
series shall be the act of such class or classes or series.
<PAGE>
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of
stockholders, whether annual or special, may be adjourned from time to time
either by the chairman of the meeting or by the vote of a majority of the shares
casting votes, excluding abstentions. When a meeting is adjourned to another
time or place, notice need not be given of the adjourned meeting if the time and
place thereof are announced at the meeting at which the adjournment is taken. At
the adjourned meeting, the corporation may transact any business which might
have been transacted at the original meeting. If the adjournment is for more
than thirty (30) days or if after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote shall have the right to do so either in person or by an
agent or agents authorized by a proxy granted in accordance with Arizona law. An
agent so appointed need not be a stockholder. No proxy shall be voted after
three (3) years from its date of creation unless the proxy provides for a longer
period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities
having voting power stand of record in the names of two (2) or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in common,
tenants by the entirety, or otherwise, or if two (2) or more persons have the
same fiduciary relationship respecting the same shares, unless the Secretary is
given written notice to the contrary and is furnished with a copy of the
instrument or order appointing them or creating the relationship wherein it is
so provided, their acts with respect to voting shall have the following effect:
(a) if only one (1) votes, his act binds all; (b) if more than one (1) votes,
the act of the majority so voting binds all; (c) if more than one (1) votes, but
the vote is evenly split on any particular matter, each faction may vote the
securities in question proportionally, or may apply to the Arizona Court of
Chancery for relief as provided in the General Corporation Law of Arizona,
Section 217(b). If the instrument filed with the Secretary shows that any such
tenancy is held in unequal interests, a majority or even-split for the purpose
of subsection (c) shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and
make, at least ten (10) days before every meeting of stockholders, a complete
list of the stockholders entitled to vote at said meeting, arranged in
alphabetical order, showing the address of each stockholder and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
<PAGE>
SECTION 13. ACTION WITHOUT MEETING. No action shall be taken by the
stockholders except at an annual or special meeting of stockholders called in
accordance with these Bylaws, or by the written consent of all stockholders.
SECTION 14. ORGANIZATION.
(a.) At every meeting of stockholders, the Chairman of the Board of
Directors, or, if a Chairman has not been appointed or is absent, the President,
or, if the President is absent, a chairman of the meeting chosen by a majority
in interest of the stockholders entitled to vote, present in person or by proxy,
shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary
directed to do so by the President, shall act as secretary of the meeting.
(b.) The Board of Directors of the corporation shall be entitled to
make such rules or regulations for the conduct of meetings of stockholders as it
shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if any, the chairman of the meeting shall
have the right and authority to prescribe such rules, regulations and procedures
and to do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting on matters which are to be voted
on by ballot. Unless and to the extent determined by the Board of Directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND QUALIFICATION. The authorized number of
directors of the corporation shall be not less than one (1) nor more than twelve
(12) as fixed from time to time by resolution of the Board of Directors;
provided that no decrease in the number of directors shall shorten the term of
- --------
any incumbent directors. Directors need not be stockholders unless so required
by the Articles of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
<PAGE>
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Articles of
Incorporation.
SECTION 17. ELECTION AND TERN OF OFFICE OF DIRECTORS. Members of the
Board of Directors shall hold office for the terms specified in the Articles of
Incorporation, as it may be amended from time to time, and until their
successors have been elected as provided in the Articles of Incorporation.
SECTION 18. VACANCIES. Unless otherwise provided in the Articles of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholder vote, be filled
only by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A vacancy
in the Board of Directors shall be deemed to exist under this Bylaw in the case
of the death, removal or resignation of any director.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When one
or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office for the unexpired
portion of the term of the director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL. Subject to the Articles of Incorporation, any
director may be removed by:
(a.) the affirmative vote of the holders of a majority of the
outstanding shares of the Corporation then entitled to vote, with or without
cause; or
(b.) the affirmative and unanimous vote of a majority of the directors
of the Corporation, with the exception of the vote of the directors to be
removed, with or without cause.
<PAGE>
SECTION 21. MEETINGS.
(a.) ANNUAL MEETINGS. The annual meeting of the Board of Directors
shall be held immediately after the annual meeting of stockholders and at the
place where such meeting is held. No notice of an annual meeting of the Board of
Directors shall be necessary and such meeting shall be held for the purpose of
electing officers and transacting such other business as may lawfully come
before it.
(b.) REGULAR MEETINGS. Except as hereinafter otherwise provided,
regular meetings of the Board of Directors shall be held in the office of the
corporation required to be maintained pursuant to Section 2 hereof. Unless
otherwise restricted by the Articles of Incorporation, regular meetings of the
Board of Directors may also be held at any place within or without the state of
Arizona which has been designated by resolution of the Board of Directors or the
written consent of all directors.
(c.) SPECIAL MEETINGS. Unless otherwise restricted by the Articles of
Incorporation, special meetings of the Board of Directors may be held at any
time and place within or without the State of Arizona whenever called by the
Chairman of the Board, the President or any two of the directors.
(d.) TELEPHONE MEETINGS. Any member of the Board of Directors, or of
any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e.) NOTICE OF MEETINGS. Notice of the time and place of all special
meetings of the Board of Directors shall be orally or in writing, by telephone,
facsimile, telegraph or telex, during normal business hours, at least
twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f.) WAIVER OF NOTICE. The transaction of all business at any meeting
of the Board of Directors, or any committee thereof, however called or noticed,
or wherever held, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present and if, either before or after
the meeting, each of the directors not present shall sign a written waiver of
notice. All such waivers shall be filed with the corporate records or made a
part of the minutes of the meeting.
<PAGE>
SECTION 22. QUORUM AND VOTING.
(a.) Unless the Articles of Incorporation requires a greater number
and except with respect to indemnification questions arising under Section 43
hereof, for which a quorum shall be one-third of the exact number of directors
fixed from time to time in accordance with the Articles of Incorporation, a
quorum of the Board of' Directors shall consist of a majority of the exact
number of directors fixed from time to time by the Board of Directors in
accordance with the Articles of Incorporation provided, however at any meeting
whether a quorum be present or otherwise, a majority of the directors present
may adjourn from time to time until the time fixed for the next regular meeting
of the Board of Directors, without notice other than by announcement at the
meeting.
(b.) At each meeting of the Board of Directors at which a quorum is
present, all questions and business shall be determined by the affirmative vote
of a majority of the directors present, unless a different vote be required by
law, the Articles of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Articles of Incorporation or these Bylaws, any action required or permitted to
be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a.) EXECUTIVE COMMITTEE. The Board of Directors may by resolution
passed by a majority of the whole Board of Directors appoint an Executive
Committee to consist of one (1) or more members of the Board of Directors. The
Executive Committee, to the extent permitted by law and provided in the
resolution of the Board of Directors shall have and may exercise all the powers
and authority of the Board of Directors in the management of the business and
affairs of the corporation, including without limitation the power or authority
to declare a dividend, to authorize the issuance of stock and to adopt a
certificate of ownership and merger, and may authorize the seal of the
corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Articles of Incorporation (except that a committee may, to the extent authorized
in the resolution or resolutions providing for the issuance of shares of stock
adopted by the Board of Directors fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
<PAGE>
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), adopting an agreement of
merger or consolidation, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the corporation's property and assets,
recommending to the stockholders a dissolution of the corporation or a
revocation of a dissolution, or amending the bylaws of the corporation.
(b.) OTHER COMMITTEES. The Board of Directors may, by resolution passed
by a majority of the whole Board of Directors, from time to time appoint such
other committees as may be permitted by law. Such other committees appointed by
the Board of Directors shall consist of one (1) or more members of the Board of
Directors and shall have such powers and perform such duties as may be
prescribed by the resolution or resolutions creating such committees, but in no
event shall such committee have the powers denied to the Executive Committee in
these Bylaws.
(c.) TERM. Each member of a committee of the Board of Directors shall
serve a term on the committee coexistent with such member's term on the Board of
Directors. The Board of Directors, subject to the provisions of subsections (a)
or (b) of this Bylaw may at any time increase or decrease the number of members
of a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors 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, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d.) MEETINGS. Unless the Board of Directors shall otherwise provide,
regular meetings of the Executive Committee or any other committee appointed
pursuant to this Section 25 shall be held at such times and places as are
determined by the Board of Directors, or by any such committee, and when notice
thereof has been given to each member of such committee, no further notice of
such regular meetings need be given thereafter. Special meetings of any such
committee may be held at any place which has been determined from time to time
by such committee, and may be called by any director who is a member of such
committee, upon written notice to the members of such committee of the time and
place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of any
committee may be waived in writing at any time before or after the meeting and
will be waived by any director by attendance thereat except when the director
attends such special meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened. A majority of the authorized number of
members of any such committee shall constitute a quorum for the transaction of
business, and the act of a majority of those present at any meeting at which a
quorum is present shall be the act of such committee.
<PAGE>
SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President or if the President is absent, the most senior Vice
President, or, in the absence of any such officer, a chairman of the meeting
chosen by a majority of the directors present, shall preside over the meeting.
The Secretary, or in his absence, an Assistant Secretary directed to do so by
the President shall act as secretary of the meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer, the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Direction. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the officers
of the corporation shall be fixed by or in the manner designated by the Board of
Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a.) GENERAL. All officers shall hold office at the pleasure of the
Board of Directors and until their successors shall have been duly elected and
qualified, unless sooner removed. Any officer elected or appointed by the Board
of Directors may be removed at any time by the Board of Directors. If the office
of any officer becomes vacant for any reason, the vacancy may be filled by the
Board of Directors.
(b.) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the
Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
<PAGE>
(c.) DUTIES OF PRESIDENT. The President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors, unless the
Chairman of the Board of Directors has been appointed and is present. Unless
some other officer has been elected Chief Executive Officer of the corporation,
the President shall be the chief executive officer of the corporation and shall,
subject to the control of the Board of Directors, have general supervision,
direction and control of the business and officers of the corporation. The
President shall perform other duties commonly incident to his office and shall
also perform such other duties and have such other powers as the Board of
Directors shall designate from time to time.
(d.) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and
perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e.) DUTIES OF SECRETARY. The Secretary shall attend all meetings of
the stockholders and of the Board of Directors and shall record all acts and
proceedings thereof in the minute book of the corporation. The Secretary shall
give notice in conformity with these Bylaws of all meetings of the stockholders
and of all meetings of the Board of Directors and any committee thereof
requiring notice. The Secretary shall perform all other duties given him in
these Bylaws and other duties commonly incident to his office and shall also
perform such other duties and have such other powers as the Board of Directors
shall designate from time to time. The President may direct any Assistant
Secretary to assume and perform the duties of the Secretary in the absence or
disability of the Secretary, and each Assistant Secretary shall perform other
duties commonly incident to his office and shall also perform such other duties
and have such other powers as the Board of Directors or the President shall
designate from time to time.
(f.) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep or cause to be kept the books of account of the corporation in a
thorough and proper manner and shall render statements of the financial affairs
of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order of
the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time. The President may direct the Treasurer or any Assistant Treasurer,
or the Controller or any Assistant Controller to assume and perform the duties
of the Chief Financial Officer in the absence or disability of the Chief
Financial Officer, and each Treasurer and Assistant Treasurer and each
Controller and Assistant Controller shall perform other duties commonly incident
to his office and shall also perform such other duties and have such other
powers as the Board of Directors or the President shall designate from time to
time.
<PAGE>
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be necessary to make it effective. Any resignation shall
be without prejudice to the rights, if any, of the corporation under any
contract with the resigning officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING
OF SECURITIES OWNED BY THE CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENT. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
Unless otherwise specifically determined by the Board of Directors or
otherwise required by law, promissory notes, deeds of trust, mortgages and other
evidences of indebtedness of the corporation, and other corporate instruments or
documents requiring the corporate seal, and certificates of shares of stock
owned by the corporation, shall be executed, signed or endorsed by the Chairman
of the Board of Directors, or the President or any Vice President, and by the
Secretary or Treasurer or any Assistant Secretary or Assistant Treasurer. All
other instruments and documents requiring the corporate signature, but not
requiring the corporate seal, may be executed as aforesaid or in such other
manner as may be directed by the Board of Directors.
All checks and drafts drawn on banks or other depositaries on funds to
the credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
<PAGE>
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Articles of Incorporation and applicable law. Every holder of stock in the
corporation shall be entitled to have a certificate signed by or in the name of
the corporation by the Chairman of the Board of Directors, or the President or
any Vice President and by the Treasurer or Assistant Treasurer or the Secretary
or Assistant Secretary, certifying the number of shares owned by him in the
corporation. Any or all of the signatures on the certificate may be facsimiles.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to be
such officer, transfer agent, or registrar before such certificate is issued, it
may be issued with the same effect as if he were such officer, transfer agent,
or registrar at the date of issue. Each certificate shall state upon the face or
back thereof, in full or in summary, all of the powers, designations,
preferences, and rights, and the limitations or restrictions of the shares
authorized to be issued or shall, except as otherwise required by law, set forth
on the face or back a statement that the corporation will furnish without charge
to each stockholder who so requests the powers, designations, preferences and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights. Within a reasonable time after the issuance or
transfer of uncertificated stock, the corporation shall send to the registered
owner thereof a written notice containing the information required to be set
forth or stated on certificates pursuant to this section or otherwise required
by law or with respect to this section a statement that the corporation will
furnish without charge to each stockholder who so requests the powers,
designations, preferences and relative participating, optional or other special
rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the corporation a surety bond in such form and amount as it may direct as
indemnity against any claim that may be made against the corporation with
respect to the certificate alleged to have been lost, stolen, or destroyed.
<PAGE>
SECTION 36. TRANSFERS.
(a.) Transfers of record of shares of stock of the corporation shall be
made only upon its books by the holders thereof, in person or by attorney duly
authorized, and upon the surrender of a properly endorsed certificate or
certificates for a like number of shares.
(b.) The corporation shall have power to enter into and perform any
agreement with any number of stockholders of any one or more classes of stock of
the corporation to restrict the transfer of shares of stock of the corporation
of any one or more classes owned by such stockholders in any manner not
prohibited by the General Corporation Law of Arizona.
SECTION 37. FIXING RECORD DATES.
(a.) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall not be more than sixty (60) nor less than ten (10) days before the date of
such meeting. If no record date is fixed by the Board of Directors, the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the day next preceding the day on which the meeting is held. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
(b.) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such action. If no record date is filed, the record date for
determining stockholders for any such purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Arizona.
<PAGE>
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; provided, however, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other Corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Articles of Incorporation,
if any, may be declared by the Board of Directors pursuant to law at any regular
or special meeting. Dividends may be paid in cash, in property, or in shares of
the capital stock, subject to the provisions of the Articles of Incorporation.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
<PAGE>
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a.) DIRECTORS OFFICERS. The corporation shall indemnify its directors
and officers to the fullest extent not prohibited by the Arizona General
Corporation Law; provided, however, that the corporation may modify the extent
of such indemnification by individual contracts with its directors and officers;
and, provided, further, that the corporation shall not be required to indemnify
any director or officer in connection with any proceeding (or part thereof)
initiated by such person unless (i) such indemnification is expressly required
to be made by law, (ii) the proceeding was authorized by the Board of Directors
of the corporation, (iii) such indemnification is provided by the corporation,
in its sole discretion, pursuant to the powers vested in the corporation under
the Arizona General Corporation Law or (iv) such indemnification is required to
be made under subsection (d).
(b.) EMPLOYEES AND OTHER AGENTS. The corporation shall have power to
indemnify its employees and other agents as set forth in the Arizona General
Corporation Law.
(c.) EXPENSE. The corporation shall advance to any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he is or was a director or officer, of
the corporation, or is or was serving at the request of the corporation as a
director or executive officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding upon receipt of an
undertaking by or on behalf of such person to repay said mounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise.
<PAGE>
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
officer of the corporation (except by reason of the fact that such officer is or
was a director of the corporation in which event this paragraph shall not apply)
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, if a determination is reasonably and promptly made (i) by the
Board of Directors by a majority vote of a quorum consisting of directors who
were not parties to the proceeding, or (ii) if such quorum is not obtainable,
or, even if obtainable, a quorum of disinterested directors so directs, by
independent legal counsel in a written opinion, that the facts known to the
decision-making party at the time such determination is made demonstrate clearly
and convincingly that such person acted in bad faith or in a manner that such
person did not believe to be in or not opposed to the best interests of the
corporation.
(d.) ENFORCEMENT. Without the necessity of entering into an express
contract, all rights to indemnification and advances to directors and officers
under this Bylaw shall be deemed to be contractual rights and be effective to
the same extent and as if provided for in a contract between the corporation and
the director or officer. Any right to indemnification or advances granted by
this Bylaw to a director or officer shall be enforceable by or on behalf of the
person holding such right in any court of competent jurisdiction if (i) the
claim for indemnification or advances is denied, in whole or in part, or (ii) no
disposition of such claim is made within ninety (90) days of request therefor.
The claimant in such enforcement action, if successful in whole or in part,
shall be entitled to be paid also the expense of prosecuting his claim, in
connection with any claim for indemnification, the corporation shall be entitled
to raise as a defense to any such action that the claimant has not met the
standard of conduct that make it permissible under the Arizona General
Corporation Law for the corporation to indemnify the claimant for the amount
claimed. In connection with any claim by an officer of the corporation (except
in any action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that such officer is or was a director of
the corporation) for advances, the corporation shall be entitled to raise a
defense as to any such action clear and convincing evidence that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed in the best interests of the corporation, or with respect to any
criminal action or proceeding that such person acted without reasonable cause to
believe that his conduct was lawful. Neither the failure of the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Arizona
General Corporation Law, nor an actual determination by the corporation
(including its Board of Directors, independent legal counsel or its
stockholders) that the claimant has not met such applicable standard of conduct,
shall be a defense to the action or create a presumption that claimant has not
met the applicable standard of conduct. In any suit brought by a director or
officer to enforce a right to indemnification or to an advancement of expenses
hereunder, the burden of proving that the director or officer is not entitled to
be indemnified, or to such advancement of expenses, under this Article XI or
otherwise shall be on the corporation.
<PAGE>
(e.) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by
this Bylaw shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Articles of
Incorporation, Bylaws, agreement, vote of stockholders or disinterested
directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding office. The corporation is specifically
authorized to enter into individual contracts with any or all of its directors,
officers, employees or agents respecting indemnification and advances, to the
fullest extent not prohibited by the Arizona General Corporation Law.
(f.) SURVIVAL OF RIGHTS. The rights conferred on any person by this
Bylaw shall continue as to a person who has ceased to be a director, officer,
employee or other agent and shall inure to the benefit of the heirs, executors
and administrators of such a person.
(g.) INSURANCE. To the fullest extent permitted by the Arizona General
Corporation Law, the corporation, upon approval by the Board of Directors, may
purchase insurance on behalf of any person required or permitted to be
indemnified pursuant to this Bylaw.
(h.) AMENDMENTS. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
(i.) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and officer to the full
extent not prohibited by any applicable portion of this Bylaw that shall not
have been invalidated, or by any other applicable law.
(j.) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following
definitions shall apply:
(i.) The term "proceeding" shall be broadly construed and shall
include, without limitation, the investigation, preparation,
prosecution, defense, settlement, arbitration and appeal of, and the
giving of testimony in, any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative.
(ii.) The term "expenses" shall be broadly construed and shall include,
without limitation, court costs, attorneys' fees, witness fees, fines,
amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(iii.) The term the "corporation" shall include, in addition to the
resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger
which, if its separate existence had continued, would have had power
and authority to indemnity its directors, officers, and employees or
agents, so that any person who is or was a director, officer, employee
or agent of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer,
employee or agent or another corporation, partnership, joint venture,
trust or other enterprise, shall stand in the same position under the
provisions of this Bylaw with respect to the resulting or surviving
corporation, as he would have with respect to such constituent
corporation if its separate existence had continued.
<PAGE>
(iv.) References to a "director," "executive officer," "officer,"
"employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of
the corporation as, respectively, a director, executive officer,
officer, employee, trustee or agent of another corporation,
partnership, joint venture, trust or other enterprise.
(v.) References to "other enterprises" shall include employee benefit
plans; references to "fines" shall include any excise taxes assessed on
a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service
as a director, officer, employee or agent of the corporation which
imposes duties on, or involves services by, such director, officer,
employee, or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith
and in a manner be reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan shall be
deemed to have acted in a manner "not opposed to the best interests of
the corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a.) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these
Bylaws, notice is required to be given to any stockholder, it shall be given in
writing, timely and duly deposited in the United States mail, postage prepaid,
and addressed to his last known post office address as shown by the stock record
of the corporation or its transfer agent.
(b.) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by facsimile,
telex or telegram, except that such notice other than one which is delivered
personally shall be sent to such address as such director shall have filed in
writing with the Secretary, or, in the absence of such filing, to the last known
post office address of such director.
(c.) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly
authorized and competent employee of the corporation or its transfer agent
appointed with respect to the class of stock affected, specifying the name and
address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
<PAGE>
(d.) TIME NOTICES DEEMED GIVEN. All notices given by mail, as above
provided, shall be deemed to have been deemed as at the time of mailing, and all
notices given by facsimile, telex or telegram shall be deemed to have been given
as of the sending time recorded at time of transmission.
(e.) METHODS OF NOTICE. It shall not be necessary that the same method
of giving notice be employed in respect of all directors, but one permissible
method may be employed in respect of any one or more, and any other permissible
method or methods may be employed in respect of any other or others.
(f.) FAILURE TO RECEIVE NOTICE. The period or limitation of time within
which any stockholder may exercise any option or right, or enjoy any privilege
or benefit, or be required to act, or within which any director may exercise any
power or right, or enjoy any privilege, pursuant to any notice sent him ill the
manner above provided, shall not be affected or extended in any manner by the
failure of such stockholder or such director to receive such notice.
(g.) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever
notice is required to be given, under any provision of law or of the Articles of
Incorporation or bylaws of the corporation, to any person with whom
communication is unlawful, the giving of such notice to such person shall not be
required and there shall be no duty to apply to any governmental authority or
agency for a license or permit to give such notice to such person. Any action or
meeting which shall be taken or held without notice to any such person with whom
communication is unlawful shall have the same force and effect as if such notice
had been duly given. In the event that the action taken by the corporation is
such as to require the filing of a certificate under any provision of the
Arizona General Corporation Law, the certificate shall state, if such is the
fact and if notice is required, that notice was given to all persons entitled to
receive notice except such persons with whom communication is unlawful.
(h.) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is
required to be given, under any provision of law or the Articles of
Incorporation or Bylaws of the corporation, to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two, payments (if sent by first class mail) of dividends or interest on
securities during a twelve-month period, have been mailed addressed to such
person at his address as shown on the records of the corporation and have been
returned undeliverable, the giving of such notice to such person shall not be
required. Any action or meeting which shall be taken or held without notice to
such person shall have the same force and effect as if such notice had been duly
given. If any such person shall deliver to the corporation a written notice
setting forth his then current address, the requirement that notice be given to
such person shall be reinstated. In the event that the action taken by the
corporation is such as to require the filing of a certificate under any
provision of the Arizona General Corporation Law, the certificate need not state
that notice was not given to persons to whom notice was not required to be given
pursuant to this paragraph.
<PAGE>
AMENDMENTS
SECTION 45. AMENDMENTS.
The Board of Directors shall have the power to adopt, amend, or repeal
Bylaws as set forth in the Articles of Incorporation.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance may
be with or without interest and may be unsecured, or secured in such manner as
the Board of Directors shall approve, including, without limitation, a pledge of
shares of stock of the corporation. Nothing in these Bylaws shall be deemed to
deny, limit or restrict the powers of guaranty or warranty of the corporation at
common law or under any statute.
Declared as the Revised By-Laws of Kestrel Equity Corporation, as of the 30th
day of September, 1998.
Signature of Officer: /S/ Daniel L. Hodges
-----------------------
Name of Officer: Daniel L. Hodges
Position of Officer: Secretary and Director
KESTREL
NUMBER EQUITY CORP SHARES
+--------+ +--------+
| | | |
+--------+ +--------+
AUTHORIZED STOCK 100,000,000
CUSIP # 492546 106
THIS CERTIFIES THAT
IS THE RECORD HOLDER OF * SHARES*
transferable on the books of the Corporation in person or duly authorized upon
surrender of this Certificate properly endorsed. This Certificate is not valid
until countersigned by the Transfer Agent and registered by the Registrar.
Witness the facsimile sent of the Corporation and the facsimile signatures
of its duly authorized officers.
Dated:
[KES corporate Holiday Stock Transfer, Inc.
seal here] 2939 North 67th Place
/s/ Jennifer Worder /s/ DH Scottsdale, Arizona 85251
------------------ -------------- By -------------------------
President Secretary Authorized Signature
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