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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-SB/A
AMENDMENT NO. 1
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
STEREO VISION ENTERTAINMENT, INC.
(Name of small business issuer in its charter)
NEVADA 95-4786792
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
10 Universal City Plaza
Suite 2000
Universal City, California 91608
(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
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.001 par value
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(Title of class)
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DESCRIPTION OF BUSINESS
GENERAL
Stereo Vision Entertainment, Inc. (the "Company" or "Stereo Vision")
was originally incorporated in the State of Arizona as Arizona Taxpros &
Insurance Wholesalers, Inc. on December 14, 1993. The Company changed its name
to Kestrel Equity Corporation ("Kestrel") on September 30, 1997. On July 20,
1999, the Company entered into an Acquisition Agreement and Plan of Reverse
Merger with Stereo Vision Entertainment, Inc., a Nevada corporation ("SVE") (the
"Merger"). Pursuant to the Merger, which was not actually consummated until
December 30, 1999, SVE was merged with and into the Company. Each share of SVE
common stock outstanding was exchanged for 120 shares of the Company's common
stock, $.001 par value (the "Common Stock").
On January 31, 2000, the Company changed its state of incorporation
from Arizona to Nevada, and also changed its name to Stereo Vision
Entertainment, Inc., through the merger of Kestrel with and into SVE Merger,
Inc., a Nevada corporation ("Mergerco") (the "Reincorporation"). Mergerco was
formed as a wholly-owned subsidiary of Kestrel for purposes of effecting the
Reincorporation. The merger exchange ratio was one share of Mergerco's common
stock, $.001 par value (the "Common Stock") for each one share of Kestrel common
stock, $.001 par value, outstanding at the effective date of the
Reincorporation.
Since the time of its inception until the effective date of the Merger,
the Company was a development stage company with no active business operations
and no revenues. As such, the Company was considered a "shell" corporation with
a principal purpose of locating and consummating a merger or an acquisition with
a private entity. The business activities of Kestrel prior to the Merger
encompassed administrative and organizational matters and identifying additional
acquisition opportunities for operating companies and intellectual property
assets in the global multi-media industries. Prior to the completion of the
Merger, Kestrel acquired certain intellectual property assets from Mr. Don W.
Johnston as is outlined and reflected in the financial statements included
elsewhere in this registration statement. Upon the consummation of the Merger,
the Company acquired all of the assets of SVE with the intent of continuing
SVE's business and expanding into new areas of the entertainment industry. SVE
was incorporated in the State of Nevada on May 5, 1999 for purposes of acquiring
multi-media/entertainment industry assets and pursuing merger opportunities with
an existing publicly traded company. Mr. Kallett, an officer and director of the
Company, and Mr. Honour, a greater than 10% shareholder of the Company, both
owned common stock in SVE representing an aggregate of 51% of the issued and
outstanding capital stock of SVE. The operations and management of the merged
companies have been integrated following the replacement of the Company's
officers and directors with the officers and directors of Kestrel.
The Company is a development stage company with no current sales and
has realized operating losses of $1,101,192 for the six months ended December
31, 1999 and $144,977 for the period from inception to June 30, 1999. The
Company anticipates generating operating revenues during its next fiscal year as
it becomes operational in its music division.
Christopher Condon, Don W. Johnston and Victoria Condon-Silliphant, the
Company's creative advisors, have been entertainment and music industry
innovators. Mr. Condon has over 50 years of experience in the motion picture
technology and production business and Mr. Johnston has over 40 years of
experience in the global music industry. These creative advisors are providing
assistance to the Company with the creative elements of their business. Since
1968, the Company's key 3-D division 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. By utilizing the expertise of the
Company's creative advisors, the Company intends to implement a 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. Additionally, relying on the over 40
years of experience of Mr. Johnston, the Company intends to establish an
Internet-based music portal and record label site where it will distribute
motion picture soundtracks from its future 3-D and independent films, as well as
other original recordings that it either currently owns or anticipates acquiring
and/or producing in the future.
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BUSINESS - OVERVIEW
Currently, management believes that the Company's core competency is in
the content production of the multi-media entertainment industry. The Company
also intends to acquire additional intellectual property assets. In utilizing
the Company's existing assets, the Company's initial operating activities are
anticipated to encompass the production, marketing and distribution of music
content and the production, distribution, exhibition and technology development
of stereoscopic 3-D films and related 3-D optics. Additionally, the Company will
pursue the re-release of selected 3-D classic films. The Company intends to use
traditional distribution channels for its content and, when available and if
practical, alternative and complimentary distribution channels such as the
Internet.
MUSIC DIVISION
The Company's music division anticipates generating revenues during the
third quarter of 2000. The Company is currently in discussion with a cable
television network regarding the promotion and release of the Carl Perkins "Go
Cat Go" record, a 17-song compilation which includes recordings by Jimi Hendrix,
John Lennon, George Harrison, Paul McCartney, Bono, Willie Nelson, Paul Simon
and Eric Clapton. In the opinion of the Company's management and its creative
advisors, this compilation will generate initial sales of approximately two
million units over the next 12 to 18 months. Net income generated by these sales
is expected to be approximately four to seven dollars per record.
The Company is also pursuing additional opportunities within the global
music industry that may include producing well-known and new artists and
acquiring royalty and publishing rights from established artists.
STEREO VISION ENTERTAINMENT PRODUCTION
The film content production business is very capital intensive and the
Company will need to raise and secure significant equity or debt financing to
implement its production objectives. If the Company receives such financing, it
anticipated producing and/or co-producing 3-D feature length theatrical
productions. Financing for these productions, when possible, will be
accomplished on an "off-balance sheet" basis, or through a major studio joint
venture. Each production will be structured as a stand-alone limited liability
company, thus diminishing the equity dilution impact in the Company. The Company
intends to act as the executive producer of each film project.
SVX "TRU 3-D" THEATER NETWORK
The Company plans to implement its proposed 3-D theater network with
the goal of bringing "theme park quality 3-D" to the local multiplex within the
next 18 months. Using a low-cost, efficient theater modification model, the
Company will provide multiplex theater owners with a turn-key package at a
no-cost or no-risk arrangement to the operator. Additionally, the multiplex
owner will have the ability to continue to exhibit conventional two-dimensional
movies in the converted theater if so desired.
The Company will attempt to establish a branded or co-branded theater
network with an initial opening of 500 theater locations in major markets, both
domestically and in key foreign locations. Initially utilizing the Company's
inventory of 800 projection units, the Company will expand its theater network.
Management anticipates implementing 1,200 domestic locations and 900 foreign
locations within the next three years. In addition to films produced and
co-produced by the Company, the Company intends to generate revenues from the
re-release of selected existing 3-D classics and the distribution of other
marketable existing or newly produced 3-D films. The Company shall build and
position its SVX "Tru 3-D" theater network for transition into the proposed
digital projection systems which are anticipated to be installed in most
theaters within the next three years.
3-D CONTENT INDUSTRY
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.
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The visual entertainment market for the Company's 3-D technology and
content 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.
The content production business is very capital intensive and the
Company expects that it will require additional equity financing to complete the
capitalization of its business plan. The Company can give no assurance that it
will successfully negotiate or obtain additional financing, or that it will
obtain financing on terms favorable or acceptable to it. If the Company does not
obtain adequate financing or such financing is not available on acceptable
terms, the Company's ability to finance its business plan would be significantly
limited.
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.
Because of the interest in 3-D productions shown at theme parks and movie
theatres, the Company believes there is substantial opportunity for enhancing
the television viewing experience with 3-D technology; provided, however, that
technology can be developed that will permit a similar high-quality viewing
experience.
VIDEO SOFTWARE INDUSTRY
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 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.
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3-D ENTERTAINMENT PRODUCTS
The Company intends to update its film distribution licenses with the
owners of five 3-D feature films. Several of those films are considered to be
classics with suitable financing for promotion and distribution. Management
believes that the Company can achieve revenues within the next six months. This
is due to renewed interest by the public in 3-D films currently being shown all
over the world by IMAX Corp., Disney theme parks and others.
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.
As a result of the Merger with SVE, the Company acquired rights and
access to certain proprietary technology, that allow for high-quality 3-D
production at a cost equivalent to 2-D formats. SVE had originally acquired
these assets from the Condon Family Partnership for an aggregate purchase price
of $6,787,400. Mr. Condon, a partner in the selling partnership, is a key
creative advisor to the Company.
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.
3-D PRODUCTIONS
Also as a result of the Merger with SVE, the Company acquired the
rights, and intends to begin production on five 3-D feature films: "Fantastic
Invasion of Planet Earth," "Target New York," "The Creep," "The Stewardesses"
and "Wild Ride." 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. The Company
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.
Management believes that the ownership of the proprietary 3-D equipment
is important to the future success of the Company. Since the Company intends to
produce new 3-D movies, it believes that it will be more profitable for the
Company to rely on its own highly specialized equipment. To the best of
management's knowledge, there is no other suitable source of this type of
equipment. This equipment was developed by one of the Company's key creative
advisors, Chris Condon. Until recently, this technology was patent protected.
Although the patent has since expired, improvements to the technology are
currently subject to trade secret protection.
MARKETING, DISTRIBUTION AND PROMOTIONS
The Company's primary 3-D division 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;
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(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.
MUSIC
The Company intends to establish an Internet music portal/record label
site to distribute both music property it owns, may produce or acquire and music
sound tracks it may produce for its proposed 3-D and independent feature films.
As part of its plan, prior to the Merger Kestrel acquired certain rights to
music properties from Mr. Don W. Johnston for an aggregate purchase price of
$4,000,000, including a 60% interest in the Carl Perkins' recording "Go Cat Go."
This is the initial core asset of the Company that will allow it to become
operational sooner than its 3-D division. Mr. Johnston is a creative advisor to
the Company, as well as a beneficial owner of more than 10% of the Company's
Common Stock. The price of this asset was determined by an independent appraiser
who is a music industry expert.
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 or intellectual
property assets 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 Company can give no assurance that any offering of its
securities will be successful. If the Company is unable to successfully raise
equity financing or alternative financing the Company's ability to fund its
business plan would be significantly limited.
The ability of the Company to implement its business strategy depends
upon its ability to successfully create, produce, and market entertainment
content or ancillary products for traditional real-world distribution channels
including, but not limited to, retailers, radio, television, theaters and home
markets and newly emerging distribution channels such as the Internet. 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 products and base of recurring revenue.
The Company intends to produce and develop specialty films and videos
for its library, as well as acquire additional music assets. 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
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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 and independent
feature films, intellectual property music assets, and also providing integrated
solutions to help organizations broadcast audio, video, 3-D video, animation,
and 3-D animation and music over the Internet. When appropriate, the Company
will attempt to acquire other assets and existing operating global multi-media
entertainment companies with seasoned management teams.
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."
INTELLECTUAL PROPERTY AND PROPRIETARY RIGHTS
The Company's success depends substantially upon its proprietary
technology. This technology includes optical design formulas designed by Mr.
Condon and protected by trade secret law. The type of glass, the exact spacing
and curvatures of the primary dispersing optics and the method of controlling
the exact assembly tolerances using custom-made laboratory testing equipment are
integral parts of this technology which results in optical resolution exceeding
100 lines per million and is fully compatible with the latest 35mm Panavision
and Arriflex motion picture cameras, as well as high definition video cameras.
The 3-D projection optics are fully compatible with all 35-mm motion picture
projectors and are designed for easy installation, even by semi-skilled
personnel. In addition, Mr. Condon has designed and built a 3-D projection unit
compatible with the latest Hughes digital video projectors. This technology will
provide the Company with a competitive advantage because of the enhanced quality
of the 3-D images produced as a result of the Company's trade secrets. 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, SVE, maintained a policy of obtaining patent
protection and, consequently, the Company currently has the following patent
pending:
PATENTS PENDING: One-High Speed for Above and Below 3-D Cameras
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This technology entails the use of brighter optics for 3-D single
camera cinematography, which allows for filming in lower light situations.
The Company also has technology in development that has grown out of
previously patented technology held by SVE and/or its predecessors. The Company
is working on a 3-D camera optical system that has remote wireless convergence
control so that it can be used on the Panaglide and Steadicam. The Company
intends to apply for 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 competes 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. The Company's current and potential
competitors include:
o IMAX, Iwerks, Showscan, Cinema Ride and New Visual
Entertainment
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. 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 production services to
diversify and compete in the global marketplace.
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 February 17, 2000, 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.
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PLAN OF OPERATION - OVERVIEW
The current plan of the Company 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 company, the Company has minimal historical operations, no revenues 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.
Financial characteristics of the film production 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 2000 and fiscal 2001.
The entertainment industry is highly competitive in the production and
distribution of film and music oriented 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.
RESULTS OF OPERATIONS
There were no revenues from sales for the period from inception to
December 31, 1999. The Company has sustained a net loss of approximately $1.1
million for the period ended December 31, 1999, which was due to general and
administrative expenses incurred by the Company.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company has $1,408 in the bank. Management
at present foresees the need to raise about $500,000 in additional capital to
fully enter into the operational phase of its business plan. Such funding may be
accomplished through public financial markets, private offerings of equity or
debt, and joint venture opportunities. The Company's stockholders, officers
and/or directors have committed to advancing the operating costs of the Company
interest free. There can be no assurance that the Company will be successful in
raising additional equity financing, and, thus, be able to satisfy its cash
requirements, which primarily consist of legal and accounting fees at the
present time. The Company will not be able to operate if it does not obtain
equity financing.
DESCRIPTION OF PROPERTY
The Company's principal executive offices are located at 10 Universal
City Plaza, Suite 2000, Universal City, California 91608 and consist of an
executive suite arrangement and use of a conference room leased on a
month-to-month basis. The monthly rent for the property is $350.00. The Company
maintains a research and development office and storage warehouse facility at
3815 Burbank Blvd., Burbank, California 91505 that 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 office
use and use by its out-of-town officers, directors and employees. The monthly
rent paid for this corporate housing is $4,000. The Company is currently
negotiating a three-year lease for a suite located at 10 Universal City Plaza
that is adjacent to Universal Studios in Los Angeles. The suite encompasses
approximately 3,4000 square feet of executive and administrative office space.
The monthly lease obligation would be approximately $9,700.
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DIRECTORS, EXECUTIVE OFFICERS AND KEY ADVISORS
MANAGEMENT
The following table sets forth the names, ages, and positions of the
executive management team of the Company:
Name Position Age
- ---- -------- ---
Dr. Dale A. Rorabaugh Chairman of the Board 55
Lance Putnam President and Director 47
Lawrence P. Kallett Executive Vice President, Secretary, 41
Treasurer and Director
DR. DALE A. RORABAUGH - CHAIRMAN OF THE BOARD. Dr. Rorabaugh has served as
Chairman of the Board of Directors of the Company since January 2000. Since
1995, Dr. Rorabaugh has served 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. In 1999, Dr. Rorabaugh was
also appointed 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.
LAWRENCE P. KALLETT - EXECUTIVE VICE PRESIDENT, SECRETARY, TREASURER AND
DIRECTOR. Mr. Kallett has served as Executive Vice President, Secretary,
Treasurer and Director of the Company since January 2000. 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 - PRESIDENT AND DIRECTOR. Mr. Putnam has served as President and
Director of the Company since January 2000. 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.
SIGNIFICANT EMPLOYEES AND KEY CONSULTANTS
The Company's current key creative advisors are as follows:
DON W. JOHNSTON. Mr. Johnston has served as a creative advisor to the Company
since October 1999. Since 1995, Mr. Johnston has served as president and
director of Bob Johnston Productions.
CHRIS CONDON. Mr. Condon has served as a creative advisor to the Company since
May 1999. Although Mr. Condon has been retired since 1992, he continues to
provide consulting services to various companies regarding 3-D exhibition and
promotion. From 1974 to 1992, he served as chief executive officer of Stereo
Vision International. Mr. Condon graduated, with honors, from the United States
Army Air Force College Training Detachment.
VICTORIA CONDON-SILLIPHANT. Ms. Condon has served as a creative advisor to the
Company since May 1999. From 1985 until the present, she has been employed by
Stereo Visions Systems, a manufacturer of a proprietary line of plastic frames.
From 1975 to 1985, Ms. Condon served as an operations manager of Sierra Pacific
Airlines. Ms. Condon has also served as a consultant to theater operators
regarding 3-D exhibition and promotion. Ms. Condon has attended the California
Institute of the Arts and the Los Angeles Trade Technical College.
10
<PAGE>
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>
FISCAL
NAME AND PRINCIPAL POSITION(1) YEAR SALARY
- ------------------------------ ---- ------
<S> <C> <C>
Frederick C. Phillips (2)
Kestrel Equity Corporation 1999 $0
Stereo Vision Entertainment, Inc. 1999 $0
Jennifer Worden, President and Director (3) 1999 $0
1998 $0
1997 $0
Daniel L. Hodges, President, Secretary, Treasurer and Director(4) 1997 $0
John C. Stevenson, President and Director(5) 1997 $0
1996 $0
</TABLE>
- ----------
(1) Stereo Vision Entertainment, Inc. was incorporated in the State of Nevada
on May 5, 1999.
(2) Mr. Phillips resigned as President and Director of the Company and Kestrel
in January 2000.
(3) Ms. Worden resigned as President and Director of Kestrel in May 1999.
(4) Mr. Hodges resigned as President of Kestrel in October 1997 and resigned as
Secretary, Treasurer and Director of the Company in May 1999.
(5) Mr. Stevenson resigned as President and Director of Kestrel 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.
11
<PAGE>
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>
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 (3 Persons) 1,067,549 20.5%
</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. The assets consisted of 400,000 freely-trading
shares of New Visual Entertainment Inc. common stock. 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.
On October 26, 1999, pursuant to the terms of an asset purchase
agreement, the Company acquired certain assets from Don W. Johnston, a principal
shareholder of and key creative advisor to the Company. The assets consisted of
rights to certain music properties, including a 60% interest in the Carl Perkins
recording "Go Cat Go" and a 17-song compilation. Pursuant to the terms of the
asset purchase agreement, the Company issued a convertible promissory note in
the aggregate principal amount of $4,000,000. This note was converted into
1,000,000 shares of the Company's Common Stock at an agreed value of $4.00 per
share.
In the opinion of the disinterested members of the Company's board of
directors, the above transactions were fair and were made upon terms that were
no less favorable to the Company than would have been obtained if negotiated
with unaffiliated third parties.
12
<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 February 17, 2000, 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.
13
<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" under the trading symbol "SVED." For the period from
December 2, 1999 through February 17, 2000, 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 that were not registered under the Securities
Act of 1933, as amended:
1. On August 15, 1997, in consideration for services rendered, Kestrel
issued an aggregate of 830,000 shares of restricted Common Stock to the
directors of the Company at an agreed value of $0.001 per share.
2. On July 20, 1999, pursuant to the terms of an acquisition agreement and
plan of reverse merger, Kestrel issued an aggregate of 3,000,000 shares
of restricted Common Stock to the shareholders of SVE at an agreed
value of approximately $1.30 per share.
3. On September 25, 1999, pursuant to the terms of an asset exchange
agreement, Kestrel 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, Kestrel 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. These
transactions were exempt from registration pursuant to Section 4(2) of the
Securities Act because all such individuals were believed to be sophisticated
and given sufficient access to all information regarding the Company, Kestrel,
and/ or their predecessors.
14
<PAGE>
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Articles of Incorporation of the Company provide as follows:
"SEVENTH: The personal liability of the directors of the corporation is
hereby eliminated to the fullest extent permitted by the General Corporation Law
of the State of Nevada, as the same may be amended and supplemented.
EIGHTH: The Corporation shall, to the fullest extent permitted by the
General Corporation Law of the State of Nevada, as the same may be amended and
supplemented, indemnify any and all persons whom it shall have power to
indemnify under said Law from and against any and all of the expenses,
liabilities, or other matters referred to in or covered by said Law, and the
indemnification provided for herein shall not be deemed exclusive of any other
rights to which those indemnified may be entitled under any Bylaw, 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 such
office, and shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of such a person."
The Bylaws of the Company provide as follows:
"ARTICLE X
INDEMNIFICATION
Section 10.1 INDEMNIFICATION AND INSURANCE
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director, officer,
employee or agent of the Company as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, whether
the basis of such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while serving as a
director, officer, employee or agent, shall be indemnified and held harmless by
the Company to the fullest extent authorized by the NRS, as the same exists or
may hereafter be amended, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer, employee or
agent and shall inure to the benefit of his or her heirs, executors and
administrators. The right to indemnification conferred in this Section 10.1
shall be a contract right and shall include the right to be paid by the Company
the expenses incurred in defending any such proceeding in advance of its final
disposition; provided, however, that, if the NRS requires the payment of such
expenses incurred by a director or officer in his or her capacity as a director
or officer (and not in any other capacity in which service was or is rendered by
such person while a director officer, including, without limitation, service to
an employee benefit plan) in advance of the final disposition of a proceeding,
shall be made only upon delivery to the Company of an undertaking, by or on
behalf of such director or officer, to repay all amounts so advanced if it shall
ultimately be determined that such director or officer is not entitled to be
indemnified under this Section 10.1 or otherwise.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section 10.1 is not paid in full by the Company within
thirty days after a written claim has been received by the Company, the claimant
may at any time thereafter bring suit against the Company to recover the unpaid
amount of the claim and, if successful in whole or in part, the claimant shall
be entitled to be paid also the expenses of prosecuting such claim. It shall be
a defense to any such action (other than an action brought to enforce a claim
for expenses incurred in defending an proceeding in advance of its final
disposition where the required undertaking, if any, is required, or has been
15
<PAGE>
tendered to the Company that the claimant has not met the standard of conduct
which make it permissible under the NRS for the Company to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall be
on the Company. Neither the failure of the Company (including its Board,
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 or she has met the applicable standard of
conduct set forth in the NRS, nor an actual determination by the Company
(including its Board, 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 the claimant has not met the applicable
standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in advance of its
final disposition conferred in this Section 10.1 shall not be exclusive of any
other right that any person may have or hereafter acquire under any statute,
provision of the Articles of Incorporation, by law, agreement, vote of
stockholder or disinterested directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of the
Company or another corporation, partnership, joint venture, trust or other
enterprise against any such expense, liability or loss, whether or not the
Company would have the power to indemnify such person against such expense,
liability or loss under the NRS.
(e) Witness. To the extent that any director, officer,
employee or agent of the Company or another corporation, partnership, joint
venture, trust or other enterprise is by reason of such position a witness in
any action, suit or proceeding, he or she shall be indemnified against all costs
and expenses actually and reasonably incurred by him or her on his or her behalf
in connection therewith."
16
<PAGE>
PART F/S
FINANCIAL STATEMENTS
17
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
(A DEVELOPMENT STAGE COMPANY)
-:-
INDEPENDENT AUDITOR'S REPORT
DECEMBER 31, 1999
AND
JUNE 30, 1999
<PAGE>
CONTENTS
Page
----
Independent Auditor's Report...............................................F - 1
Balance Sheets
December 31, 1999 and June 30, 1999 .....................................F - 2
Statements of Operations for the
Six Months Ended December 31, 1999 and the
Period May 5, 1999 (inception) to June 30, 1999 ........................F - 3
Statement of Stockholders' Equity for the
Six Months Ended December 31, 1999 and the
Period May 5, 1999 (inception) to June 30, 1999 ........................F - 4
Statements of Cash Flows for the
Six Months Ended December 31, 1999 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 December 31, 1999 and
June 30, 1999 and the related statements of operations, stockholders' equity,
and cash flows for the six months ended December 31, 1999 and 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 December 31, 1999 and
June 30, 1999 and the results of its operations and its cash flows for the six
months ended December 31, 1999 and the period May 5,1999 (inception) to June 30,
1999, in conformity with generally accepted accounting principles.
Respectfully submitted
\s\ Robison, Hill & Co.
-----------------------
Certified Public Accountants
Salt Lake City, Utah
March 11, 2000
F - 1
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
BALANCE SHEETS
--------------
<CAPTION>
December 31, June 30,
1999 1999
------------------- -------------------
<S> <C> <C>
Current Assets:
Cash $ 1,408 $ 7,493
Trading Investments 136,001 -
------------------- -------------------
Total Current Assets 137,409 7,493
------------------- -------------------
Fixed Assets:
Office Equipment 13,745 13,745
3-D Production and Exhibition Equipment 3,306,900 -
Less Accumulated Depreciation (56,718) (229)
------------------- -------------------
Net Fixed Assets 3,263,927 13,516
------------------- -------------------
Intangible and Other Assets:
Investments 3-D Projects 350,000 -
Intellectual Property 100,000 -
Music Master Recording 4,000,000 -
Licensing & Distribution Rights 255,000 -
Less Accumulated Amortization (72,583) -
------------------- -------------------
Net Intangible and Other Assets 4,632,417
------------------- -------------------
Total Assets: $ 8,033,753 $ 21,009
=================== ===================
Liabilities
Accounts Payable $ 49,103 $ 96,268
Accrued Expenses 11,530 3,718
Loans from Shareholders 565,455 -
Short-term Notes Payable 49,000 61,000
------------------ ------------------
Total Current Liabilities 675,088 160,986
------------------ ------------------
Stockholders' Equity:
Common Stock, $.001 Par value
Authorized 100,000,000 shares,
Issued 5,550,000 shares at December 31,
1999 and 1,530,000 shares at June 30, 1999 5,550 1,530
Additional Paid in Capital 8,599,284 3,470
Deficit Accumulated During the
Development Stage (1,246,169) (144,977)
------------------- -------------------
Total Stockholders' Equity 7,358,665 (139,977)
------------------- -------------------
Total Liabilities and
Stockholders' Equity $ 8,033,753 $ 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
For the Period since
For the Six May 5, 1999 inception
Months Ended (Inception) to of
December 31, June 30, development
1999 1999 stage
------------------- ------------------- -------------------
<S> <C> <C> <C>
Revenues: $ - $ - $ -
Research & Development (11,000) - (11,000)
General & Administrative
Expenses (1,082,357) (141,259) (1,223,616)
Other Income (Expense)
Interest (7,812) (3,718) (11,530)
Unrealized Loss on Trading Investments (23) - (23)
------------------- ------------------- -------------------
Net Loss $ (1,101,192) $ (144,977) $ (1,246,169)
=================== =================== ===================
Basic & Diluted loss per share $ (0.41) $ (0.09)
=================== ===================
The accompanying notes are an integral part of these financial statements.
F - 3
</TABLE>
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENT OF STOCKHOLDERS' EQUITY
---------------------------------
<CAPTION>
Deficit
Accumulated
Common Stock Additional During
---------------------------- Paid in Development
Shares Value Capital Stage
--------------- ------------- ----------------- ------------------
<S> <C> <C> <C> <C>
May 5, 1999 Issuance of Stock
for services and payment of
accounts payable 1,530,000 $ 1,530 $ 3,470 $ -
Net Loss - - (144,977)
--------------- ------------- ----------------- ------------------
Balance at June 30, 1999 1,530,000 1,530 3,470 (144,977)
December 2, 1999 Issuance of Stock in
exchange for Assets 1,470,000 1,470 4,010,430 -
December 3, 1999 Issuance of Stock
in connection with merger with
Kestrel Equity Corporation 2,200,000 2,200 3,885,734 -
December 31, 1999 Issuance of Stock
for services 350,000 350 699,650 -
Net Loss - - - (1,101,192)
--------------- ------------- ----------------- ------------------
Balance at December 31, 1999 5,550,000 $ 5,550 $ 8,499,284 $ (1,246,169)
=============== ============= ================= ==================
The accompanying notes are an integral part of these financial statements.
F - 4
</TABLE>
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS
------------------------
<CAPTION>
Cumulative
For the Period Since
For the Six May 5, 1999 Inception
Months Ended (inception) to of
December 31, June 30, Development
1999 1999 Stage
------------------ ------------------- -------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING
- -------------------------
ACTIVITIES:
- -----------
Net Loss $ (1,101,192) $ (144,977) $ (1,246,169)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization 129,072 229 129,301
Issuance of common stock for expenses 700,000 5,000 705,000
Unrealized loss on trading investments 23 23
Cash acquired in merger 332 332
Change in operating assets and liabilities:
Accounts Payable 96,936 96,268 149,788
Accrued Expenses 7,812 3,718 11,530
------------------ ------------------- -------------------
Net Cash Used in operating activities (167,017) (39,762) (250,195)
------------------ ------------------- -------------------
CASH FLOWS FROM INVESTING
- -------------------------
ACTIVITIES:
- -----------
Purchase of equipment - (13,745) (13,745)
Proceeds from sale of investments 16,977 - 16,977
------------------ ------------------- -------------------
Net cash used in investing activities 16,977 (13,745) 3,232
------------------ ------------------- -------------------
CASH FLOWS FROM FINANCING
- -------------------------
ACTIVITIES:
- -----------
Proceeds from loans from shareholders 207,371 - 207,371
Payments of principal on notes payable (20,000) - (20,000)
Proceeds from issuance
of short-term notes - 61,000 61,000
------------------ ------------------- -------------------
Net Cash Provided by
Financing Activities 143,955 61,000 248,371
------------------ ------------------- -------------------
Net (Decrease) Increase in
Cash and Cash Equivalents (6,085) 7,493 1,408
Cash and Cash Equivalents
at Beginning of Period 7,493 - -
------------------ ------------------- -------------------
Accounts Payable 96,936 96,268 149,788
------------------ ------------------- -------------------
Cash and Cash Equivalents
at End of Period $ 1,408 $ 7,493 $ 1,408
================== =================== ===================
The accompanying notes are an integral part of these financial statements.
F - 5
</TABLE>
<PAGE>
<TABLE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
STATEMENTS OF CASH FLOWS (Continued)
------------------------------------
<CAPTION>
Cumulative
For the Period Since
For the Six May 5, 1999 Inception
Months Ended (inception) to of
December 31, June 30, Development
1999 1999 Stage
----------------- ------------------ ------------------
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURE OF CASH
- -------------------------------
FLOW INFORMATION:
- -----------------
Cash paid during the year for:
Interest $ - $ - $ -
----------------- ------------------ ------------------
Income taxes $ - $ - $ -
----------------- ------------------ ------------------
</TABLE>
SUPPLEMENTAL DISCLOSURE OF NON-
- -------------------------------
CASH INVESTING AND FINANCING
- ----------------------------
ACTIVITIES:
- -----------
On December 2, 1999 the Company issued 1,470,000 shares of common stock in
exchange for $350,000 investment in 3-D projects, $255,000 licensing and
distribution rights, $3,306,900 3-D projection units and lenses, and $100,000
patent pending.
On December 3, 1999 in a reverse merger the Company acquired $332 cash,
$153,001trading investments, $4,000,000 60% of master recordings to Go Cat Go,
$100,686 reduction in accounts payable, and $366,084 notes payable in exchange
for 2,200,000 shares of common stock.
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 SIX MONTHS ENDED DECEMBER 31, 1999 AND
----------------------------------------------
THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
---------------------------------------------------
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.
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 December 31, 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 as well as expanding
into other areas of the entertainment industry .
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.
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.
F - 7
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
----------------------------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
-------------------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
(Continued)
- -----------
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.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their useful lives.
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 Six Months ended December 31, 1999 (Unaudited)
------------------------------------------------------
<S> <C> <C> <C>
BASIC LOSS PER SHARE
Loss to common shareholders $ (1,101,192) 2,662,934 $ (0.41)
================== =================== ==================
Period May 5, 1999 (inception) to June 30, 1999
-----------------------------------------------
BASIC LOSS PER SHARE
Loss to common shareholders $ (144,977) 1,530,000 $ (0.09)
================== =================== ==================
</TABLE>
The effect of outstanding common stock equivalents would be
anti-dilutive for December 31, 1999 and June 30, 1999 and are thus not
considered.
F - 8
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
----------------------------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
-------------------------------------------------------
(Continued)
-----------
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
- --------------------------------------------------------------------
(Continued)
- -----------
Intangible Assets
- -----------------
Intangible assets are valued at cost and are being amortized on the
straight-line basis over a period of five years. The initial valuation of
licensing and distribution rights for both the 3-D and music products were
derived from what Management believes to be arms length negotiation.
The Company identifies and records impairment losses on intangible
assets when events and circumstances indicate that such assets might be
impaired. The Company considers factors such as significant changes in the
regulatory or business climate and projected future cash flows from the
respective asset. Impairment losses are measured as the amount by which the
carrying amount of intangible asset exceeds its fair value.
NOTE 2 - INCOME TAXES
- ---------------------
As of December 31, 1999, the Company had a net operating loss
carryforward for income tax reporting purposes of approximately $1,276,000 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 December 31, 1999 some of the activities of the Company have been
conducted by corporate officers from shared office space with the Law Firm of
Phillips, Haskett & Ingwalson in San Diego, California. The Company does not pay
rent or the use of this space. 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.
F - 9
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
----------------------------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
-------------------------------------------------------
(Continued)
-----------
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. As a result of the merger with
Kestrel Equity Corporation the authorized number of shares is 100,000,000 with a
par value of $.001.
On December 3, 1999 the Board of Directors authorized 120 to1 stock
split. As a result of the split, 1,517,250 shares were issued. All references in
the accompanying financial statements to the number of common shares and
per-share amounts for 1999 have been restated to reflect the stock split.
At inception, the Company issued 1,530,000 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 $0.003 per share or an aggregate approximate $5,000.
On December 3, 1999 the Company issued 1,470,000 common shares for the
acquisition of 3-D projects, equipment, licensing and distribution rights valued
$4,011,900 or approximately $2.73 per share.
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 issued 2,200,000 shares of common stock of the surviving
corporation and acquired assets valued at $3,887,934 or $1.77 per share.
On December 31, 1999 the Company issued 350,000 shares to various
employees and consultants for services rendered valued at $2.00 per share.
NOTE 6 - SHORT-TERM NOTES PAYABLE
- ---------------------------------
Short-Term Notes on December 31, 1999 and June 30, 1999 in the Amounts
of $49,000 and $61,000 respectively, are due on demand with interest at 10%.
NOTE 7 - LOANS FROM SHAREHOLDERS
- --------------------------------
The loans are payable to various shareholders, are unsecured with
interest at 10% and have no fixed terms of repayment.
F - 10
<PAGE>
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(A Development Stage Company)
-----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND
----------------------------------------------
FOR THE PERIOD MAY 5, 1999 (INCEPTION) TO JUNE 30, 1999
-------------------------------------------------------
(Continued)
-----------
NOTE 7 - RENT EXPENSE
- ---------------------
The Company has entered into lease agreements for various office,
storage and warehouse facilities. The rental agreements are on a month to month
basis with total rent of $6,750 per month. For the six months ended December 31,
1999 and the period May 5, 1999 (inception) to June 30, 1999 the rental payments
were $13,500 and $3,630 respectively. The Company is currently negotiating a
three-year lease for a suite in Universal City Plaza that is adjacent to
Universal Studios in Los Angeles. The monthly lease obligation would be
approximately $9,700.
F - 11
<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. (incorporated by reference to Form 10-SB filed with
the SEC on December 17, 1999)
2.2 Agreement and Plan of Merger by and between Kestrel Equity Corporation
and SVE Merger, Inc. dated January 10, 2000.
3.1 Articles of Incorporation of Kestrel Equity Corporation filed with the
State of Arizona on December 14, 1993. (incorporated by reference to
Form 10-SB filed with the SEC on December 17, 1999)
3.2 Articles of Amendment of Articles of Incorporation of Kestrel Equity
Corporation filed with the State of Arizona on June 18, 1997.
(incorporated by reference to Form 10-SB filed with the SEC on December
17, 1999)
3.3 Articles of Amendment of Articles of Incorporation of Kestrel Equity
Corporation filed with the State of Arizona on September 30, 1997.
(incorporated by reference to Form 10-SB filed with the SEC on December
17, 1999)
3.4 Bylaws of the Kestrel Equity Corporation. (incorporated by reference to
Form 10-SB filed with the SEC on December 17, 1999)
3.5 Articles of Incorporation of SVE Merger, Inc. filed with the State of
Nevada on December 23, 1999.
3.6 Bylaws of SVE Merger, Inc.
4.1 Specimen Stock Certificate of Kestrel Equity Corporation. (incorporated
by reference to Form 10-SB filed with the SEC on December 17, 1999)
4.2 Specimen Stock Certificate of SVE Merger, Inc.
10.1 Stock Purchase 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.
STEREO VISION ENTERTAINMENT, INC.
---------------------------------
(Registrant)
Date: April 20, 2000
By:/s/ Lance Putnam
- -------------------
Name: Lance Putnam
Title: President and Director
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER ("Agreement") dated January 10, 2000,
is entered into between Kestrel Equity Corporation, an Arizona corporation
("Kestrel"), and SVE Merger, Inc., a Nevada corporation ("SVE"). Kestrel and SVE
are hereinafter collectively referred to as the "Constituent Corporations."
RECITALS
A. Kestrel is a corporation duly organized and existing under the laws
of the State of Arizona.
B. SVE is a corporation duly organized and existing under the laws of
the State of Nevada for the sole purpose of effecting the reincorporation of
Kestrel in Nevada in a tax-free reorganization pursuant to Section 368(a)(1)(F)
of the Internal Revenue Code;
C. On the date of this Agreement, Kestrel has authority to issue
100,000,000 shares of common stock, $.001 par value per share ("Kestrel Common
Stock"), of which 5,200,000 shares are issued and outstanding;
D. On the date of this Agreement, SVE has the authority to issue
100,000,000 shares of common stock, $.001 par value per share ("SVE Common
Stock"), of which 1 share is issued and outstanding and owned by Kestrel;
E. The Boards of Directors of Kestrel and SVE have determined that it
is advisable and in the best interest of their respective corporations that
Kestrel merge with and into SVE upon the terms and subject to the conditions set
forth in this Agreement for the purpose of effecting the change of the state of
incorporation of Kestrel from Arizona to Nevada;
F. The respective Boards of Directors of Kestrel and SVE have, by
resolutions duly adopted by Unanimous Written Consent, approved this Agreement;
and
G. Kestrel has approved this Agreement as the sole stockholder of SVE
and the majority of the shareholders of Kestrel have approved this Agreement at
the Kestrel annual meeting held on December 27, 1999.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Kestrel and SVE hereby agree as follows:
<PAGE>
1. MERGER. Kestrel shall be merged with and into SVE (the "Merger"),
and SVE shall be the surviving corporation (hereinafter sometimes referred to as
the "Surviving Corporation"). The Merger shall become effective upon the date
and at the time of filing of an appropriate certificate of merger, providing for
the Merger, with the Secretary of State of the State of Nevada (the "Effective
Time"). A Certificate of Merger shall also be filed with the Secretary of State
of the State of Arizona.
2. GOVERNING DOCUMENTS. The Articles of Incorporation of SVE, as in
effect immediately prior to the Effective Time, shall be the Articles of
Incorporation of the Surviving Corporation as thereafter amended in accordance
with the provisions thereof and applicable laws. The bylaws of SVE, as in effect
immediately prior to the Effective Time, shall be the bylaws of the Surviving
Corporation, without change or amendment until thereafter amended in accordance
with the provisions thereof, the provisions of the Articles of Incorporation of
the Surviving Corporation and applicable laws.
3. SUCCESSION. At the Effective Time, the separate corporate existence
of Kestrel shall cease, and SVE shall possess all the rights, privileges, powers
and franchises both of a public as well as of a private nature, and shall be
subject to all the restrictions, liabilities and duties of each of the
Constituent Corporations; and all singular rights, privileges, powers and
franchises of each of the Constituent Corporations, shall be vested in the
Surviving Corporation and all property, rights, privileges, powers and
franchises, and all and every other interest, shall be transferred to and vested
in the Surviving Corporation, and the title to any real estate vested by deed or
otherwise in either of such Constituent Corporations shall not revert or be in
any way impaired by reason of the Merger, but all rights of creditors and all
liens upon any property of Kestrel shall be preserved unimpaired. To the extent
permitted by law, any claim existing or action or proceeding pending by or
against either of the Constituent Corporations may be prosecuted as if the
Merger had not taken place. All debts, liabilities and duties of the respective
Constituent Corporations shall thenceforth attach to the Surviving Corporation
and may be enforced against it to the same extent as if such debts, liabilities
and duties had been incurred or contracted by it. All corporate acts, plans,
policies, agreements, arrangements, approvals and authorizations of Kestrel, its
shareholders, Board of Directors and committees thereof, officers and agents
which were valid and effective immediately prior to the Effective Time, shall be
taken for all purposes as the acts, plans, policies, agreements, arrangements,
approvals and authorizations of the Surviving Corporation and shall be as
effective and binding thereon as the same were with respect to Kestrel. The
employees and agents of Kestrel shall become the employees and agents of the
Surviving Corporation and continue to be entitled to the same rights and
benefits which they enjoyed as employees and agents of Kestrel, subject to the
same limitations with respect thereto. The requirements of any plans or
agreements of Kestrel involving the issuance or purchase by Kestrel of certain
shares of its capital stock shall be satisfied by the issuance or purchase of a
like number of shares of the Surviving Corporation.
4. DIRECTORS AND OFFICERS. The directors and officers of Kestrel at the
Effective Time shall be and become directors and officers, holding the same
titles and positions, of the Surviving Corporation at the Effective Time, and
after the Effective Time shall serve in accordance with the bylaws of the
Surviving Corporation.
5. FURTHER ASSURANCES. From time to time, as and when required by the
Surviving Corporation or by its successors or assigns, there shall be executed
and delivered on behalf of Kestrel such deeds and other instruments, and there
shall be taken or caused to be taken by it all such further and other actions,
2
<PAGE>
as shall be appropriate, advisable or necessary in order to vest, perfect or
confirm, of record or otherwise, in the Surviving Corporation the title to and
possession of all property, interests, assets, rights, privileges, immunities,
powers, franchises and authority of Kestrel, and otherwise to carry out the
purposes of this Agreement, and the officers and directors of the Surviving
Corporation are fully authorized in the name and on behalf of Kestrel or
otherwise, to take any and all such action and to execute and deliver any and
all such deeds and other instruments.
6. CONVERSION OF SHARES. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) each share of Kestrel Common Stock outstanding
immediately prior to the Effective Time shall be
changed and converted into one (1) fully paid and
non-assessable share of SVE Common Stock; and
(b) the one (1) share of SVE Common Stock presently
issued and outstanding in the name of Kestrel shall
be canceled and retired and resume the status of
authorized and unissued shares of SVE Common Stock,
and no shares of SVE Common Stock or other securities
of SVE shall be issued in respect thereof.
7. WARRANTS. Each warrant to purchase shares of Kestrel Common Stock
which is outstanding at the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
become a warrant to purchase shares of SVE Common Stock upon the terms and
subject to the conditions and adjustments as set forth in such warrant and in
the resolutions authorizing such warrants, as in effect immediately prior to the
Effective Time. The same number of shares of SVE Common Stock shall be reserved
for purposes of the warrants as is equal to the number of shares of Kestrel
Common Stock so reserved as of the Effective Time.
8. OPTIONS. Each option to purchase shares of Kestrel Common Stock
which is outstanding at the Effective Time shall, by virtue of the Merger and
without any action on the part of the holder hereof, be converted into and
become an option to purchase shares of SVE Common Stock upon the terms and
subject to the same conditions and adjustments as in effect in such option
immediately prior to the Effective Time. The same number of share of SVE Common
Stock shall be reserved for purposes of the options as is equal to the number of
shares of Kestrel Common Stock so reserved as of the Effective Time.
9. OTHER EMPLOYEE BENEFIT PLANS. At the Effective Time, the obligations
of Kestrel under or with respect to every plan, trust, program and benefit then
in effect or administered by Kestrel on behalf or for the benefit of the
officers and employees of Kestrel, including plans, trusts, programs and
benefits administered by Kestrel in which subsidiaries of Kestrel, their
officers and employees currently are permitted to participate (the "Employee
Benefit Plans"), shall become the lawful obligations of SVE and shall be
implemented and administered in the same manner and without interruption until
the same are amended or otherwise lawfully altered or terminated. Effective at
the Effective Time, SVE hereby expressly adopts and assumes all obligations of
Kestrel under and with respect to all Employee Benefit Plans.
3
<PAGE>
10. STOCK CERTIFICATES. At and after the Effective Time, all of the
outstanding certificates which, immediately prior to the Effective Time,
represented shares of Kestrel Common Stock shall be deemed for all purposes to
evidence ownership of, and to represent, as the case may be, shares of SVE
Common Stock into which shares of Kestrel Common Stock, formerly represented by
such certificates, have been converted as herein provided.
11. NAME CHANGE. At the Effective Time, Surviving Corporation shall
file with the Nevada Secretary of State Articles of Amendment to its Articles of
Incorporation to change the name of the corporation to Stereo Vision
Entertainment, Inc.
12. AMENDMENT. Subject to applicable law, this Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein; provided, however, that no such amendment, modification or supplement
not adopted and approved by the shareholders of Kestrel and SVE shall affect the
rights of the shareholders of either or both such corporations in a manner which
is materially adverse to the shareholders of either or both such corporations.
13. ABANDONMENT. At any time prior to the Effective Time, this
Agreement may be terminated and the Merger may be abandoned by the Boards of
Directors of either Kestrel or SVE , notwithstanding approval of this Agreement
by the sole stockholder of SVE or by the shareholders of Kestrel, or both, if in
the opinion of such Boards of Directors, the Merger is for any reason
inadvisable.
14. BINDING EFFECT. This Agreement shall be binding upon and shall
inure to the benefit of the parties and their respective successors and assigns;
provided, however, that this Agreement may not be assigned to any party without
the prior written consent of the other party hereto.
IN WITNESS WHEREOF, Kestrel and SVE have caused this Agreement to be
signed by their respective duly authorized officers as of the date first above
written.
KESTREL EQUITY CORPORATION
an Arizona corporation
By:/S/ Lance Putnam
------------------------
Lance Putnam, President
SVE MERGER, INC.
a Nevada corporation
By:/S/ Lance Putnam
------------------------
Lance Putnam, President
4
SECRETARY OF STATE
[SEAL OF THE STATE OF NEVADA]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that SVE Merger, Inc. did on December 23, 1999 file in this
office the original Articles of Incorporation; that said Articles are now on
file and of record in the office of the Secretary of State of the State of
Nevada, and further, that said Articles contain all the provisions required by
the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the Great Seal of State, at
my office, in Carson City, Nevada, on December
27, 1999.
/s/ Dean Heller
[GREAT SEAL OF THE STATE
OF NEVADA HERE] Secretary of State
By /s/ signature
Certification Clerk
<PAGE>
FILED # C33130-9
DEC 23 1999
IN THE OFFICE OF
/S/ DEAN HELLER
DEAN HELLER SECRETARY OF STATE
ARTICLES OF INCORPORATION
SVE MERGER, INC.
The person hereinafter named as incorporator, for the purpose of
establishing a corporation, under the provisions and subject to the
requirements of Title 7, Chapter 78 of Nevada Revised Statutes, and the acts
amendatory thereof, and hereinafier sometimes referred to as the General
Corporation Law of the State of Nevada, does hereby adopt and make the
following Articles of lncorporation:
FIRST: The name of the corporation (the "Corporation") is SVE
Merger, Inc.
SECOND: The name of the Corporation's resident agent in the State
of Nevada is Paracorp, Inc., and the street address of the said resident
agent where process may be served on the Corporation is 318 Carson Street,
Suite 208, Carson City 89701. The mailing address and the street address of
the said resident agent are identical.
THIRD: The number of shares the corporation is authorized to issue
is 100,000,000, all of which are of a par value of $.OOl each. All of said
shares are of one class and are designated as Common Stock.
FOURTH: The number of members constituting the first Board of
Directors of the Corporation is one; and the name and the post office box
or street address, either residence or business, of said member is as
follows:
NAME ADDRESS
---- -------
Lawrewx Kallet 11166 Burbank Blvd.
North Hollywood, CA 91601
The number of directors of the Corporation may be increased or
decreased in the manner provided in the Bylaws of the corporation provided,
that the number of directors shall never be less than one. In the
interim between elections of directors by stockholders entitled to vote, all
vacancies, including vacancies caused by an increase in the number of
directors and including vacancies resulting from the removal of directors by
the stockholders entitled to vote which are not filled by said stockholders,
may be filled by the remaining directors, though less than a quorum.
<PAGE>
FIFTH: The name and the post office box or street address, either
residence or business, or the incorporator signing these Articles of
Incorporation are as follows:
NAME ADDRESS
---- -------
Angela Ip Jeffers, Shaff & Falk, LLP
18881 Von Karman, Suite 1400
Irvine, CA 92612
SIXTH: The Corporation shall have perpetual existence.
SEVENTH: The personal liability of the directors of the corporation
is hereby eliminated to the fullest extent permitted by the General
Corporation Law of the State of Nevada, as the same may be amended and
supplemented.
EIGHTH: The Corporation shall, to the fullest extent permitted by
the General Corporation Law of the State of Nevada, as the same may be
amended and supplemented, indemnify any and all persons whom it shall have
power to indemnify under said Law from and against any and all of the
expenses, liabilities, or other matters referred to in or covered by said
Law, and the indemnification provided for herein shall not be deemed
exc1usive of any other rights to which those indemnified may be entitled
under any Bylaw, 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 such office, and shall continue as to a
person who has ceased to be a director, officer, employee, or agent and
shall inure to the benefit of the heirs, executors, and administrators of
such a person.
NINTH: The nature of the business of the corporation and the objects
or the purposes to be transacted, promoted, or carried on by it is to engage
in any lawful activity for which a Corporation may be organized under the
General Corporation Law of Nevada.
TENTH: The corporation reserves the right to amend, alter, change,
or repeal any provision contained in these Articles of lncorporation in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned person does hereby execute these
Articles of Incorporation on December 23, 1999.
/s/ Angela Ip
-----------------------------
Angela Ip, Incorporator
BYLAWS
OF
SVE MERGER, INC.
(a Nevada Corporation)
ARTICLE I
OFFICES
Section 1.1 REGISTERED OFFICE
The registered office of SVE Merger, Inc. (the "Company") in the State
of Nevada shall be located at the principal place of business in that state of
the Company or individual acting as the Company's registered agent in the State
of Nevada.
Section 1.2 PRINCIPAL EXECUTIVE OFFICE
The principal executive office of the Company for the transaction of
the business of the Company shall be at such place as may be established by the
Board of Directors (the "Board"). The Board is granted full power and authority
to change said principal executive office from one location to another.
Section 1.3 OTHER OFFICES
The Company may have other offices, either within or without the State
of Nevada, at such place or places as the Board from time to time may designate
or the business of the Company may require.
ARTICLE II
MEETING OF STOCKHOLDERS
Section 2.1 DATE, TIME AND PLACE
Meetings of stockholders of the Company shall be held on such date and
at such time and place, either within or without the State of Nevada, as shall
be designated by the Board and stated in the written notice of the meeting or in
a duly executed written waiver of notice of the meeting.
Section 2.2 ANNUAL MEETINGS
Annual meetings of stockholders for the election of directors to the
Board and for the transaction of such other business as may be stated in the
written notice of the meeting or as may properly come before the meeting shall
be held on such date and at such time and place, either within or without the
State of Nevada, as shall be designated by the Board and stated in the written
notice of the meeting or in a duly executed written waiver of notice of the
meeting.
1
<PAGE>
Section 2.3 SPECIAL MEETINGS
Special meetings of stockholders for any purpose or purposes, unless
otherwise prescribed by the Nevada Revised Statutes ("NRS"), the Articles of
Incorporation or these Bylaws, may be called by the Board or the President.
Special meetings of stockholders shall be called by the Board or the Secretary
at the written request of one or more stockholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes of
shares of the capital stock of the Company issued and outstanding and entitled
to vote at such meeting. Such written request shall state the purpose or
purposes for which the special meeting is called. The place, date and time of a
special meeting shall be fixed by the Board or the officer calling the meeting
and shall be stated in the written notice of such meeting, which notice shall
state the purpose or purposes stated in the written notice of meeting and
matters germane thereto.
Section 2.4 NOTICE OF MEETINGS
Written notice of the place, date and time of, a meeting of
stockholders shall be given to each stockholder of record entitled to vote at
such meeting, in the manner prescribed by Section 2.6 of these Bylaws, not less
than ten (10) nor more than sixty (60) days prior to the date of the meeting.
Notice of meetings shall be in writing and signed by the President or Vice
President, or the Secretary or an Assistant Secretary, or by such other persons
as the Board shall designate.
Section 2.5 STOCKHOLDER LIST
The Secretary or other officer in charge of the stock ledger of the
Company shall prepare and make, at least ten (10) days prior to a meeting of
stockholders, a complete list of stockholders entitled to vote at the meeting,
arranged in alphabetical order, and showing the address of each stockholder and
the number of shares of stock of the Company registered in the name of each
stockholder. Such list shall be open to examination by 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 so specified, at the place where the meeting is to be
held. The list also shall be produced and kept at the place and time of the
meeting during the whole time thereof, and may be inspected by any stockholder
who is present.
Section 2.6 VOTING RIGHTS
In order that the Company may determine the stockholders entitled to
notice of, and to vote at, a meeting of stockholders or at any adjournment(s)
thereof or to express consent or dissent to corporate action in writing without
a meeting, the Board may fix a record date in the manner prescribed by Section
2.9 of these Bylaws. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for such
stockholder by proxy in the manner prescribed by Section 2.7 of these Bylaws.
Except as specifically provided otherwise by the NRS, the Articles of
Incorporation, or these Bylaws, each holder of capital stock entitled to vote at
a meeting of stockholders or to express consent or dissent to corporate action
in writing without a meeting shall be entitled to one vote for each share of
such stock registered in such stockholder's name on the books and records of the
Company as of the record date.
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Section 2.7 PROXIES
Each proxy shall be in writing and shall be executed by the stockholder
giving the proxy or by such stockholder's duly authorized officer, director,
employee or agent by causing the signatures of the stockholder to be applied to
the writing by any reasonable manner, including facsimiles. No proxy is valid
after the expiration of six months from the date of its creation, unless it is
coupled with an interest, or unless it specifies a duration, which may not
exceed seven (7) years, shall be voted or acted upon after three (3) years from
its date, unless the proxy expressly provides for a longer period. Unless and
until voted, every proxy shall be revocable at the pleasure of the person who
executed it or of his or her legal representative or assigns, except in those
cases where an irrevocable proxy permitted by the NRS shall have been given.
Section 2.8 QUORUM AND ADJOURNMENT(S) OF MEETINGS
Except as specifically provided otherwise by the NRS, the Articles of
Incorporation, or these Bylaws, a majority of the aggregate number of shares of
each class of capital stock issued and outstanding and entitled to vote, present
in person or represented by proxy, shall constitute a quorum for the transaction
of business at a meeting of stockholders. If such majority shall not be present
in person or represented by proxy at a meeting of stockholders, the stockholders
entitled to vote thereat, present in person or represented by proxy, shall have
the power to adjourn the meeting from time to time until holders of the
requisite number of shares of stock entitled to vote at the meeting shall be
present in person or represented by proxy. When a meeting of stockholders is
adjourned to another place, date or time, notice need not be given of the
adjourned meeting if the place, date, and time of such adjourned meeting are
announced at the meeting at which the adjournment is taken. At any such
adjourned meeting at which a quorum shall be present in person or represented by
proxy, stockholders may transact any business that might have been transacted at
the meeting as originally noticed, but only those stockholders entitled to vote
at the meeting as originally noticed shall be entitled to vote at any
adjournment(s) thereof. 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. Stockholders may participate in a meeting by
means of a telephone conference call or similar method of communication by which
all persons participating in the meeting can hear each other.
Section 2.9 REQUIRED VOTE
Except as specifically provided otherwise by the NRS, the Articles of
Incorporation, or these Bylaws, the affirmative vote of a majority of the shares
of each class of capital stock present in person or represented by proxy at a
meeting of stockholders at which a quorum is present and entitled to vote on the
subject matter (including, but not limited to, the election of directors to the
Board) shall be the act of the stockholders with respect to the matter voted
upon.
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Section 2.10 ACTION WITHOUT MEETING
Notwithstanding contrary provisions of these Bylaws covering notices
and meetings, any action required or permitted to be taken at an annual or
special meeting of stockholders may be taken by stockholders without a meeting,
without prior notice, and without a vote if a consent in writing, setting forth
the action so taken, shall be signed by a majority of the holders of shares of
capital stock issued and outstanding and entitled to vote on the subject matter,
except that if a different proportion of voting power is required for such an
action at a meeting, then that proportion of written consents is required. The
written consents shall be filed with the minutes of the proceedings.
ARTICLE III
DIRECTORS
Section 3.1 BOARD OF DIRECTORS
The business and affairs of the Company shall be managed by, or under
the direction of, a Board of Directors. The Board may exercise all such powers
of the Corporation and do all such lawful acts and things on its behalf as are
not by the NRS, the Articles of Incorporation or these Bylaws directed or
required to be exercised or done by stockholders.
Section 3.2 NUMBER, ELECTION AND TENURE
Except as otherwise provided by law, in no event shall the total number
of directors which shall constitute the whole Board be less than one (1) or more
than five(5). The exact number of directors shall be three (3) until changed,
within the limits specified above, by a bylaw amending this Section 3.2, duly
adopted by the Board or by the stockholders. Except as provided otherwise in
these Bylaws, directors shall be elected at the annual meeting of stockholders.
Each director shall hold office until the annual meeting of stockholders next
succeeding his or her election or appointment and until his or her successor is
elected and qualified or until his or her earlier resignation or removal.
Section 3.3 RESIGNATION AND REMOVAL
Any director or member of a committee of the board may resign at any
time upon written notice to the Board, the Chairman of the Board, or the
President. Unless specified otherwise in the notice, such resignation shall take
effect upon receipt of the notice by the Board, the Chairman of the Board, or
the President. The acceptance of a resignation shall not be necessary to make it
effective. Any director may be removed, either with or without cause.
Section 3.4 VACANCIES AND NEWLY CREATED DIRECTORSHIPS
Vacancies occurring for any reason and newly-created directorships
resulting from an increase in the authorized number of directors which shall
constitute the whole Board, as fixed pursuant to Section 3.2 of these Bylaws,
shall be filled by the election of a new director or directors by a majority of
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the remaining members of the Board, although such majority is less than a
quorum, or by a plurality of votes cast at a special meeting of stockholders
called for such purpose. Any director so chosen shall hold office until the
annual meeting of stockholders next succeeding his or her election or
appointment and until his or her successor shall be elected and qualified, or
until his or her earlier resignation or removal.
ARTICLE IV
MEETINGS OF THE BOARD OF DIRECTORS
Section 4.1 DATE, TIME AND PLACE
Meetings of the Board shall be held on such date and at such time and
place, either within or without the state of Nevada, as shall be determined by
the Board pursuant to these Bylaws.
Section 4.2 ANNUAL MEETINGS
After the annual meeting of stockholders, the newly-elected Board may
hold a meeting, on such date and at such time and place as shall be determined
by the Board, for the purpose of organization, election of officers and such
other business that may properly come before the meeting. Such meeting may be
held without notice.
Section 4.3 REGULAR MEETINGS
Regular meetings of the Board may be held without notice on such date
and at such time and place as shall be determined from time to time by the
Board.
Section 4.4 SPECIAL MEETINGS
Special meetings of the Board may be held at any time upon the call of
the Chairman of the Board, the President or the Secretary by means of oral,
telephonic, written facsimile or other similar notice, duly given, delivered,
sent or mailed to each director at least 48 hours prior to the special meeting,
in the manner prescribed by Section 6.1 of these Bylaws. Special meetings of the
Board may be held at any time without notice if all of the directors are present
or if those directors not present waive notice of the meeting in writing either
before or after the date of the meeting.
Section 4.5 QUORUM
A majority of the whole Board as fixed pursuant to Section 3.2 of these
Bylaws shall constitute a quorum for the transaction of business at a meeting of
the Board. If a quorum shall not be present at a meeting of the Board, the
directors present thereat may adjourn the meeting from time to time, without
notice other than announcement at the meeting, until a quorum shall be present.
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Section 4.6 REQUIRED VOTE
Except a specifically provided otherwise by the NRS, the affirmative
vote of a majority of the directors present at a meeting of the Board at which a
quorum is present shall be the act of the Board with respect to the matter voted
upon.
Section 4.7 ACTION WITHOUT MEETING
Any action required or permitted to be taken at a meeting of the Board,
or committee thereof, may be taken by directors without a meeting if all of the
members of the Board, or committee thereof, consent thereto in writing and such
writing is filed with the minutes of proceedings of the Board, or committee
thereof.
Section 4.8 TELEPHONE MEETING
Members of the Board, or any committee thereof, may participate in a
meeting of the Board, or committee thereof, by means of a telephone conference
or similar method of communication by which all of the members participating in
the meeting can hear each other. Participation by members of the Board, or
committee thereof, by such means shall constitute presence in person of such
members at such meeting.
ARTICLE V
COMMITTEES OF THE BOARD OF DIRECTORS
Section 5.1 DESIGNATION AND POWERS
The Board may designate one or more committees from time to time in its
discretion, by resolution passed by the affirmative vote of a majority of the
whole Board as fixed pursuant to Section 3.2 of these Bylaws. Each committee
shall consist of one or more of the directors on the Board and the Board may
appoint other persons who are not directors to serve on committees. The Board
may designate one or more directors as alternate members or any committee who
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members constitute a quorum. may unanimously appoint another member of the Board
to act at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the Board, shall
have and may exercise all of the powers and authority of the Board in the
management of the business and affairs of the Company and may authorize the
corporate seal of the Company 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 or these bylaws, adopting an agreement of merger or
consolidation, recommending to stockholders the sale, lease, or exchange of
substantially all of the Company's assets, or recommending to stockholders a
dissolution of the Company, a revocation of a dissolution or the filing of a
petition in bankruptcy; and, unless the resolution of the Board expressly so
provides, no such committee shall have the power or authority to declare a
dividend or to authorize the issuance of stock of the Company or any class or
series of stock. Each committee shall keep regular minutes of its meetings and
shall report the same to the Board when requested to do so.
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ARTICLE VI
NOTICES
Section 6.1 DELIVERY OF NOTICE
Notices to stockholders and, except as permitted below, to directors on
the board shall be in writing and may be delivered by mail or messenger. Notice
by mail shall be deemed to be given at the time when such notice is deposited in
a United States post office or letter box, enclosed in postpaid sealed wrapper,
and addressed to a stockholder or director at his respective address appearing
on the books and records of the Company, unless such stockholder or director
shall have filed with the Secretary a written request that notices intended for
such stockholder or director be mailed or delivered to some other address, in
which case the notice shall be mailed to or delivered at the address designated
in such request. Notice by messenger shall be deemed to be given when such
notice is delivered to the address of a stockholder or director as specified
above. Notices to directors also may be given orally in person or by telephone,
or by telex, overnight courier or facsimile transmission (promptly confirmed in
writing) or other similar means, or by leaving the notice at the residence or
usual place of business of a director. Notice by oral communication, telex,
overnight courier or facsimile transmission (properly confirmed in writing) or
other similar means shall be deemed to be given upon such dispatch of such
notice. Notice by messenger shall be deemed to be given when such notice is
delivered to a director's residence or usual place of business. Notices,
requests, and other communications required or permitted to be given or
communicated to the Company by the Articles of Incorporation, these Bylaws, or
any other agreement shall be in writing and may be delivered by messenger,
United States mail, telex, overnight courier or facsimile transmission (promptly
confirmed in writing) or other similar means. Notice to the Company shall be
deemed to be given upon actual receipt of such notice by the Company.
Section 6.2 WAIVER OF NOTICE
Whenever notice is required to be given by the NRS, the Articles of
Incorporation, or these Bylaws, a written waiver of notice signed by the person
entitled thereto, whether before or after the time stated in the notice, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when a person 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. Neither the business to be transacted at, or the purpose of, any
regular or special meeting of stockholders, the Board, or committee of the Board
need be specified in any written waiver of notice.
ARTICLE VII
OFFICERS
Section 7.1 OFFICERS
At its annual meeting, or at such other meeting as it may determine, or
by unanimous written consent of the directors without meeting, the Board shall
elect such officers as the Board from time to time may designate or the business
of the Company may require. The Company shall have a President, a Secretary and
a Treasurer. The Chairman of the Board shall be selected from among the
directors on the Board, but no other executive officer need be a member of the
Board. Any number of offices may be held by the same person.
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Section 7.2 OTHER OFFICERS AND AGENTS
The Board also may elect such other officers and agents as the Board
from time to time may determine to be advisable. Such officers and agents shall
serve for such terms, exercise such powers, and perform such duties as shall be
specified from time to time by the Board.
Section 7.3 TENURE, RESIGNATION, REMOVAL AND VACANCIES
Each officer of the Company shall hold his office until his or her
successor is elected and qualified, or until his or her earlier resignation or
removal; provided, that if the term of office of any officer elected pursuant to
Section 7.2 of these Bylaws shall have been fixed by the Bylaws or determined by
the Board or other governing body, such person shall cease to hold office no
later than the date of expiration of such term, regardless of whether any other
person shall have been elected or appointed to succeed such person. Each officer
shall hold his or her office until his or her successor is elected and qualified
or until his or her earlier resignation or removal. Any officer elected by the
Board may be removed at any time, with or without cause, by the Board; provided,
that any such removal shall be without prejudice to the rights, if any, of the
officer so employed under any employment contract or other agreement with the
Company. Any officer may resign at any time upon written notice to the Board,
the Chairman of the Board or the President. Unless specified otherwise in the
notice, such resignation shall take effect upon receipt of the notice by the
Board, the Chairman of the Board or the President. The acceptance of the
resignation shall not be necessary to make it effective. Any vacancy occurring
in any office of the Company by death, resignation, removal or otherwise shall
be filled by the Board and such successor or successors shall hold office for
such term as may be specified by the Board.
Section 7.4 AUTHORITY AND DUTIES
All officers and agents, as between themselves and the Company, shall
have such authority and perform such duties in the management of the Company as
may be provided in these Bylaws and as generally pertain or are necessarily
incidental to the particular office or agency. In addition to the powers and
duties hereinafter specifically prescribed for certain officers of the Company,
the Board from to time may impose or confer any or all of the duties and powers
hereinafter specifically prescribed for any officer upon any other officer or
officers. The Board may give general authority to any officer to affix the
corporate seal of the Company and to attest the affixing by his or her
signature.
Section 7.5 THE CHAIRMAN OF THE BOARD
The Chairman of the Board, shall, if present, preside at meetings of
the Board and exercise and perform such other powers and duties as may from time
to time be assigned by the Board of Directors or as may be prescribed by these
Bylaws. If there is no President, then the Chairman of the Board shall also be
the chief executive officer of the Company and shall have the powers and duties
prescribed in Section 7.6 of these Bylaws.
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Section 7.6 THE PRESIDENT
The president shall be the Chief Executive Officer of the Company and,
subject to the control of the Board, shall have general and active supervision
of the business and affairs of the Company, shall sign certificates, contracts
and other instruments of the Company as authorized, and shall perform all such
other duties as are properly required of him by the Board of Directors or by the
Chairman of the Board.
Section 7.7 THE VICE PRESIDENT(S)
The several Vice Presidents shall perform the duties and have the
powers as may, from time to time, be assigned to them by the Board or the
President or the Chairman of the Board.
Section 7.8 THE TREASURER
The Treasurer shall have the care and custody of all the funds of the
Company and shall deposit the same in such banks or other depositories as the
Board, or any officer or officers thereunder duly authorized by the Board,
shall, from time to time, direct or approve. He shall keep a full and accurate
account of all monies received and paid on account of the Company, and shall
render a statement of his accounts whenever the Board shall require. He shall
perform all other necessary acts and duties in connection with the
administration of the financial affairs of the Company, and shall generally
perform all the duties usually appertaining to the affairs of the treasurer of a
corporation. When required by the Board, he shall give bonds for the faithful
discharge of his duties in such sums and with such sureties as the Board shall
approve. In the absence or disability of the Treasurer, the person designated by
the President or Chairman of the Board shall perform his duties.
Section 7.9 THE SECRETARY
The Secretary shall attend to the giving of notice of all meetings of
stockholders and of the Board and committees thereof, and shall keep minutes of
all proceedings at meetings of the stockholders, of the Board and of all
meetings of such other committees of the Board as shall designate him to serve.
The Secretary shall have charge of the corporate seal and shall have authority
to attest any and all instruments or writings to which the same may be affixed.
He shall keep and account for all books, documents, papers and records of the
Company, except those for which some other officer or agent is properly
accountable. He shall generally perform all the duties usually appertaining to
the office of secretary of a corporation. In the absence or disability of the
Secretary, the person designated by the President or the Chairman of the Board
shall perform his duties.
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Section 7.10 THE ASSISTANT SECRETARY(IES)
The Assistant Secretary, if any be so appointed by the Board, or if
there be more than one, the Assistant Secretaries, shall perform such duties as
may be specifically assigned to them from time to time by the Board, the
Chairman of the Board or the President. In case of the absence or disability of
the Secretary, and if the Board, the Chairman of the Board or the President has
so authorized, the Assistant Secretary, or if there be more than one Assistant
Secretary, such Assistant Secretary as the Board, or the President shall
designate, shall perform the duties of the office of the Secretary.
ARTICLE VIII
CERTIFICATES OF STOCK
Section 8.1 FORM AND SIGNATURE
The stock certificates representing the stock of the Company shall be
in such form or forms not inconsistent with the NRS, the Articles of
Incorporation and these Bylaws as the Board shall approve from time to time.
Stock certificates shall be numbered, the certificates for the shares of stock
to be numbered consecutively, and shall be entered in the books and records of
the Company as such certificates are issued. No certificate shall be issued for
any share until the consideration therefor has been fully paid. Stock
certificates shall exhibit the holder's name, certify the class and series of
stock and the number of shares in such class and series of stock owned by the
holder, and shall be signed (a) by the Chairman of the Board, or any Vice
Chairman of the Board, or the President, or a Vice President, and (b) by the
Treasurer, or Assistant Treasurer, or the Secretary, or any Assistant Secretary.
Any or all of the signatures on a stock certificate may be facsimiles. In case
any officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be such officer,
transfer agent or registrar before such certificate is issued, such certificate
may be issued by the Company with the same effect as if he or she were such
officer, transfer agent or registrar on the date of issuance.
Section 8.2 LOST, STOLEN OR DESTROYED CERTIFICATES
The President may direct that a new stock certificate be issued in
place of any certificate theretofore issued by the Company which is alleged to
have been lost, stolen, or destroyed, upon the making of an affidavit of that
fact by the person, or his or her legal representative, claiming the certificate
of stock to be lost, stolen or destroyed. When authorizing such issuance of a
new certificate, the President, in his discretion and as a condition precedent
to the issuance thereof, may require the owner of the lost, stolen or destroyed
certificate, or his or her legal representative, to advertise the same in such
manner as the President shall require and/or to give the Company a bond in such
sum as the President shall direct as indemnity against any claim that may be
made against the Company, any transfer agent or any registrar on account of the
alleged loss, theft, or destruction of any such certificate or the issuance of
such new certificate.
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Section 8.3 REGISTRATION OF TRANSFER
Shares of common stock of the Company shall be transferrable only upon
the Company's transfer by the holders thereof in person or by their duly
authorized attorneys or legal representatives, and upon such transfer the old
certificates shall be surrendered to the Company by the delivery thereof to the
person in charge of the stock and transfer books and ledgers of the Company, or
to such other person as the Board may designate. Upon surrender to the Company
of a certificate for shares, duly endorsed or accompanied by proper evidence of
succession, assignment, or authority to transfer, the Company shall issue a new
certificate to the person entitled thereto, cancel the older certificate and
record the transaction on its books and records.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 RECORD DATE
In order that the Company may determine the stockholders entitled to
notice of, and to vote at, a meeting of stockholders, or to express consent or
dissent to corporate action in writing without meeting, or entitled to receive
payment of any dividend or other distribution or allotment of any rights, or
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 may
fix, in advance, a record date which shall not be more than sixty (60) nor less
than ten (10) days prior to the date of such meeting nor more than sixty (60)
days prior to any other action. A determination of stockholders of record
entitled to notice of, and to vote at, a meeting of stockholders shall apply to
any adjournment(s) of such meeting; provided, however, that the Board may, in
its discretion, and shall if otherwise requires by these Bylaws fix a new record
date for the adjourned meeting.
Section 9.2 REGISTERED STOCKHOLDERS
Except as specifically provided otherwise by the NRS, the Company shall
be entitled to recognize the exclusive right of a person registered on its books
and records as the owner of shares of stock of the Company to receive dividends
and to vote as such owner, shall be entitled to hold such person liable for
calls and assessments, and shall not be bound to recognize any equitable or
other claim to, or interest in, such stock on the part of any other person,
whether or not the Company shall have express or other notice thereof.
Section 9.3 DIVIDENDS
The Board shall declare and pay dividends ratably, share for share, on
the Company's capital stock in all sums so declared, out of funds legally
available therefor.
Section 9.4 DIVIDEND DECLARATIONS
Dividends on the capital stock of the Company may be declared
quarterly, semiannually or annually as the Board may from time to time, in its
discretion, determine.
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Section 9.5 CHECKS AND NOTES
All checks and drafts on the bank accounts of the Company, all bills of
exchange and promissory notes of the Company, and all acceptances, obligations,
and other instruments for the payment of money drawn, signed, or accepted by the
Company shall be signed or accepted, as the case may be, by such officer or
officers, agent or agents, and in such manner as shall be thereunto authorized
from time to time by the Board or by officers of the Company designated by the
Board to make such authorization.
Section 9.6 FISCAL YEAR
The fiscal year of the Company shall commence on July 1 and end on June
30 of each year, unless otherwise fixed by resolution of the Board.
Section 9.7 CORPORATE SEAL
The Company may adopt a corporate seal as authorized by the Board. The
use of a seal or stamp by the Company on any corporate documents is not
necessary; such use or nonuse shall not in any way affect the legality of the
document.
Section 9.8 VOTING OF SECURITIES OF OTHER ISSUERS
In the event that the Company shall own and/or have power to vote any
securities (including, but not limited to, shares of stock) of any other issuer,
such securities shall be voted by the Chairman of the Board as provided in
Section 7.5 of these Bylaws, or by such other person or persons, to such extent,
and in such manner as may be determined by the Board. If the Company shall be a
general partner in any partnership, the acts of the Company in such capacity may
be approved by the Board and taken by the officers as may be authorized or
determined by the Board from time to time.
Section 9.9 TRANSFER AGENTS
The Board may make such rules and regulations as it may deem expedient
concerning the issuance, transfer, and registration of securities (including,
but not limited to, stock) of the Company. The Board may appoint one or more
transfer agents and/or one or more registrars and may require all stock
certificates and other certificates evidencing securities of the Company to bear
the signature of either or both.
Section 9.10 BOOKS AND RECORDS
Except as specifically provided otherwise by the NRS, the books and
records of the Company may be kept at such place or places, either within or
without the State of Nevada, as may be designed by the Board.
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ARTICLE X
INDEMNIFICATION
Section 10.1 INDEMNIFICATION AND INSURANCE
(a) Right to Indemnification. Each person who was or is made a
party or is threatened to be made a party to or is involved in any
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), by reason of the fact that
he or she, or a person of whom he or she is the legal representative,
is or was a director, officer, employee or agent of the Company as a
director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including
service with respect to employee benefit plans, whether the basis of
such proceeding is alleged action in an official capacity as a
director, officer, employee or agent or in any other capacity while
serving as a director, officer, employee or agent, shall be indemnified
and held harmless by the Company to the fullest extent authorized by
the NRS, as the same exists or may hereafter be amended, against all
costs, charges, expenses, liabilities and losses (including attorneys'
fees, judgments, fines, ERISA excise taxes or penalties and amounts
paid or to be paid in settlement) reasonably incurred or suffered by
such person in connection therewith and such indemnification shall
continue as to a person who has ceased to be a director, officer,
employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators. The right to indemnification conferred in
this Section 10.1 shall be a contract right and shall include the right
to be paid by the Company the expenses incurred in defending any such
proceeding in advance of its final disposition; provided, however,
that, if the NRS requires the payment of such expenses incurred by a
director or officer in his or her capacity as a director or officer
(and not in any other capacity in which service was or is rendered by
such person while a director officer, including, without limitation,
service to an employee benefit plan) in advance of the final
disposition of a proceeding, shall be made only upon delivery to the
Company of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined
that such director or officer is not entitled to be indemnified under
this Section 10.1 or otherwise.
(b) Right of Claimant to Bring Suit. If a claim under
paragraph (a) of this Section 10.1 is not paid in full by the Company
within thirty days after a written claim has been received by the
Company, the claimant may at any time thereafter bring suit against the
Company to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the
expenses of prosecuting such claim. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses
incurred in defending an proceeding in advance of its final disposition
where the required undertaking, if any, is required, or has been
tendered to the Company that the claimant has not met the standard of
conduct which make it permissible under the NRS for the Company to
indemnify the claimant for the amount claimed, but the burden of
proving such defense shall be on the Company. Neither the failure of
the Company (including its Board, 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
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circumstances because he or she has met the applicable standard of
conduct set forth in the NRS, nor an actual determination by the
Company (including its Board, 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
the claimant has not met the applicable standard of conduct.
(c) Non-Exclusivity of Rights. The right to indemnification
and the payment of expenses incurred in defending a proceeding in
advance of its final disposition conferred in this Section 10.1 shall
not be exclusive of any other right which any person may have or
hereafter acquire under any statute, provision of the Articles of
Incorporation. by law, agreement, vote of stockholder or disinterested
directors or otherwise.
(d) Insurance. The Company may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent
of the Company or another corporation, partnership, joint venture,
trust or other enterprise against any such expense, liability or loss,
whether or not the Company would have the power to indemnify such
person against such expense, liability or loss under the NRS.
(e) Witness. To the extent that any director, officer,
employee or agent of the Company or another corporation, partnership,
joint venture, trust or other enterprise is by reason of such position
a witness in any action, suit or proceeding, he or she shall be
indemnified against all costs and expenses actually and reasonably
incurred by him or her on his or her behalf in connection therewith.
ARTICLE XI
AMENDMENTS TO THESE BYLAWS
Section 11.1 BY THE STOCKHOLDERS
These Bylaws may be amended or repealed in whole or in part and new
Bylaws may be adopted by the affirmative vote of a majority of the aggregate
number of shares issued and outstanding and entitled to vote on the matter,
present in person or represented by proxy at a meeting of stockholders provided
that notice thereof is stated in the written notice of the meeting.
Section 11.2 BY THE BOARD OF DIRECTORS
These Bylaws may be amended or repealed in whole or in part and new
Bylaws may be adopted by a majority of the Board at any regular or special
meeting of the Board.
14
<PAGE>
CERTIFICATE OF SECRETARY
OF
SVE MERGER, INC.
(a Nevada Corporation)
I hereby certify that I am the duly elected and acting Secretary of SVE
Merger, Inc., a Nevada corporation and the foregoing Bylaws, comprising of 15
pages, constitute the Bylaws of said Company as duly adopted by the Board of
Directors as of December 23, 1999.
/S/ Lawrence Kallett
---------------------------
Lawrence Kallett, Secretary
15
NUMBER SHARES
+----------+ +----------+
| | | |
+----------+ +----------+
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
SVE MERGER, INC.
TOTAL AUTHORIZED ISSUE
100,000,000 SHARES PAR VALUE $.001 EACH
COMMON STOCK
This is to Certify that ________________________________________ is the owner of
_________________________________________________________________ fully paid and
non-assessable shares of the above Corporation transferable only on the books of
the Corporation by the holder hereof in person or by duly authorized Attorney
upon surrender of this Certificate properly endorsed.
WITNESS, the seal of the Corporation and the signatures of its duly authorized
officers.
DATED
_______________________ _______________________
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is entered into on
this 30th day of August 1999, by and between Kestrel Equity Corporation, an
Arizona corporation ("Buyer") and John Honour, an individual resident in the
State of California (the "Seller").
RECITALS
WHEREAS, the Seller is the owner of Four Hundred Thousand (400,000)
unrestricted shares of common stock (the "Shares") of New Visual Entertainment,
Inc. ("NVE"); and
WHEREAS, the Seller desires to sell to the Purchaser, and the Purchaser
desires to purchase from the Seller, the Shares pursuant to the terms of this
Agreement.
NOW, THEREFORE, in exchange for good and valuable consideration, and in
consideration of the covenants and conditions hereafter set forth, the parties
hereto agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 PURCHASE. Upon the terms and subject to the conditions contained
herein, on the Closing Date (as defined below), Honour will sell, assign,
transfer and convey to Purchaser, and Purchaser will purchase from the Seller,
all of the Seller's rights, title and interest in and to the Shares.
1.2 PURCHASE PRICE. Upon the terms and subject to the conditions
contained herein, the price to be paid for the Shares shall be equal to Four
Hundred Thousand Dollars ($400,000) payable in the form of a convertible
promissory note, the form of which is attached hereto as Exhibit A (the "Note").
2. CLOSING.
2.1 CLOSING DATE. The closing of the transactions contemplated by this
Agreement (the "Closing") shall take place at 10:00 a.m. on September 25, 1999
(the "Closing Date"). The Closing will be held at the offices of the Purchaser.
The Closing may be held at such other date, time and place as the parties may
mutually agree.
2.2 DELIVERIES AT CLOSING.
(a) At the Closing, the Seller shall deliver or cause to be
delivered to the Purchaser the stock certificates representing the Shares and
executed stock powers duly endorsed.
(b) At the Closing, the Purchaser shall deliver or cause to be
delivered to the Seller the Note.
<PAGE>
3. REPRESENTATIONS OF THE SELLER. As of the date hereof, the Seller represents
and warrants to the Purchaser as follows:
3.1 TITLE TO SHARES. The Shares are owned by the Seller free and clear
of any and all liens, claims, encumbrances, equities, options, claims, charges
and restrictions.
3.2 AUTHORITY. The Seller has full legal right, power and capacity to
enter into, execute, deliver and perform this Agreement. This Agreement has been
duly executed and delivered and constitutes the legal, valid and binding
obligation of the Seller and is enforceable with respect to the Seller in
accordance with its terms.
4. REPRESENTATIONS OF THE PURCHASER. As of the date hereof, the Purchaser
represents and warrants to the Seller as follows:
4.1 ORGANIZATION AND GOOD STANDING. The Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Arizona, and has all requisite power and authority and all licenses, permits and
authorizations necessary to own or lease its properties and to carry on its
business as it is now being conducted. The Company is duly qualified and in good
standing in each of the jurisdictions in which it is required by the nature of
its business so to qualify, and where failure so to qualify might have a
material adverse effect upon the business of the Company or impair the ability
of the Company to consummate the transactions contemplated herein.
4.2 AUTHORITY TO PERFORM AGREEMENT. The Purchaser has the requisite
corporate power to enter into this Agreement and to carry out its obligations
hereunder. The execution and delivery of this Agreement, the payments provided
for herein, and the consummation of the transactions contemplated hereby, have
been duly authorized by the Purchaser's board of directors, and no other
corporate proceeding on the part of the Purchaser is necessary to authorize the
Purchaser's officers to perform this Agreement and the transactions contemplated
herein.
5. CONDITIONS TO THE OBLIGATIONS OF THE PARTIES. The respective obligations of
the parties hereto to consummate the transactions contemplated hereby shall be
subject to the fulfillment, at or prior to the Closing, of the following
conditions:
5.1 OBLIGATIONS OF THE BUYER AT CLOSING. The obligation of the Buyer
hereunder to consummate the transactions contemplated by this Agreement are
expressly subject to the satisfaction of each of the further conditions set
forth below, any or all of which may be waived by the Buyer in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by the Buyer of any other condition or of any of its
rights or remedies, at law or in equity, if the Seller shall be in default or
breach of any of its representations, warranties or covenants hereunder:
<PAGE>
(a) The Seller shall have performed the agreements and
covenants required to be performed by the Seller under this Agreement
prior to the Closing, and the representations and warranties of the
Seller contained herein shall be true in all material respects on and
as of the Closing Date as if made on and as of such date.
(b) The Seller shall have delivered the stock certificate(s)
representing the Shares.
5.2 OBLIGATIONS OF THE SELLER AT CLOSING. The obligation of the Seller
hereunder to consummate the transactions contemplated by this Agreement is
expressly subject to the satisfaction of each of the further conditions set
forth below, any or all of which may be waived by the Seller in whole or in part
without prior notice; provided, however, that no such waiver of a condition
shall constitute a waiver by the Seller of any other condition or of any of its
rights or remedies, at law or in equity, if the Buyer shall be in default or
breach of any of its representations, warranties or covenants hereunder:
(a) The Buyer shall have performed the agreements and
covenants required to be performed by the Buyer under this Agreement
prior to the Closing, and the representations and warranties of the
Buyer contained herein shall be true in all material respects on and as
of the Closing Date as if made on and as of such date.
(b) The Buyer shall deliver the Note.
6. MISCELLANEOUS.
6.1 GOVERNING LAW. The Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.2 HEADINGS. The headings are solely for the convenience of reference,
and shall not affect the interpretation of this Agreement.
6.3 ARBITRATION. Any and all disputes, controversies, and claims
arising out of or relating to the Agreement, or concerning the rights of any one
or more parties hereto, shall be settled and determined by arbitration before a
single arbitrator in Orange County, California, in accordance with the then
existing rules of the American Arbitration Association. The arbitrator's award
shall be entered within six (6) months after filing a demand for arbitration and
shall be final and binding upon all parties, and judgment thereon may be entered
in any court of the State of California, any other state court, U.S. Federal
Court or any court of the territory for the enforcement thereof. The service of
any notice, process, motion, or other document in connection with an arbitration
award hereunder may be effectuated by either personal service or by certified or
registered mail, return receipt requested.
6.4 SEVERABILITY. The parties acknowledge that if any provision of the
Agreement is declared void, or unenforceable by judicial, administrative, or
other governmental authority in any jurisdiction, the remaining provisions of
the Agreement shall not thereby be nullified but shall remain in full force and
effect. Any provision that is deemed by a court of competent jurisdiction to be
null and void will be excluded from the Agreement without affecting the overall
validity of the Agreement.
<PAGE>
6.5 FURTHER ASSURANCES. If at any time after Closing, any further
action is necessary or desirable to carry out the purposes of this Agreement,
Purchaser and Seller will take such further action (including the execution and
delivery of such further instruments and documents) as the other party to this
Agreement reasonably may request.
6.6 ENTIRE AGREEMENT. This Agreement evidences the complete
understanding and agreement of the parties hereto with respect to its subject
matter and supersedes and merges any prior understandings or agreements.
6.7 AMENDMENTS. This Agreement may not be modified except by a writing
subscribed to by both parties.
6.8 WAIVER. No waiver of any breach of any of the covenants or
provisions contained in this Agreement will be construed as a waiver of any
subsequent breach of the same or any other covenant or provisions.
6.9 SUCCESSORS AND ASSIGNS. This Agreement shall inure to the benefit
of, and be binding upon, the successors and assigns of the parties hereto.
6.10 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Stock Purchase
Agreement to be duly executed, all as of date first above written.
"Seller"
/S/ John Honour
---------------
JOHN HONOUR
"Buyer"
KESTREL EQUITY CORPORATION
By: ___________________
Name:__________________
Its:___________________
<PAGE>
EXHIBIT A
CONVERTIBLE PROMISSORY NOTE
---------------------------
THE SECURITIES REPRESENTED BY THIS NOTE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR THE LAWS OF ANY
STATE. THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION HEREOF MAY BE
PLEDGED, HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED ONLY IF
REGISTERED AND QUALIFIED PURSUANT TO THE RELEVANT PROVISIONS OF FEDERAL AND
STATE SECURITIES LAWS OR IF MAKER IS PROVIDED AN OPINION OF COUNSEL, WHICH
OPINION IS SATISFACTORY IN FORM AND SUBSTANCE TO MAKER, TO THE EFFECT THAT SUCH
REGISTRATION AND QUALIFICATION IS NOT REQUIRED.
$400,000 September 25, 1999
FOR VALUE RECEIVED, Kestrel Equity Corporation, an Arizona corporation
("Maker"), promises to pay to John Honour, an individual ("Holder"), at the
offices of the Maker, the principal sum of Four Hundred Thousand Dollars
($400,000), plus interest thereon from the date hereof until paid on the terms
set forth below; PROVIDED, HOWEVER, that in the event this Note is converted
into Common Stock (as defined herein) as provided herein, any obligation of
Maker with respect to payment of such amount, other than any interest accrued
but unpaid thereon, shall be terminated. Reference is made to that certain Stock
Purchase Agreement made and effective as of September 25, 1999 among Maker and
Holder (the "Agreement"), which is incorporated herein by reference; unless
otherwise defined herein, terms with initial letters capitalized shall have
their respective meanings as assigned in the Agreement; and, in the event of any
inconsistencies between this Note and the terms of the Agreement, the terms of
the Agreement shall govern.
1. MATURITY DATE. The unpaid principal balance of this Note and all
accrued but unpaid interest shall be due and payable on September 25, 2001,
unless this Note is earlier converted or paid in accordance with the terms
hereof.
2. INTEREST. The unpaid principal balance outstanding under this Note
shall bear interest at the rate of eight percent (8%) per annum.
3. PAYMENTS. Payments of interest only shall be payable on the last day
of each month, commencing October 31, 1999.
4. DEFAULT; ACCELERATION. The entire sum of unpaid principal and any
accrued but unpaid interest hereunder shall become immediately due and payable
without further notice, demand or presentment, at Holder's option, upon the
occurrence at any time of any of the following events of default:
4.1 Default in the payment of any installment of principal or
interest when due should such default not be cured within thirty (30) days after
written notice thereof is delivered to Maker at its last known address; or
4.2 An assignment by Maker of substantially all of its assets
for the benefit of creditors; or
4.3 The adjudication of Maker as a bankrupt (in involuntary or
voluntary proceedings); or
4.4 The filing by Maker of a petition under the Federal
Bankruptcy Act or any comparable state law for a reorganization, arrangement or
other judicial protection upon insolvency.
The foregoing option to accelerate the indebtedness evidenced hereby
may be exercised by Holder at any time after the occurrence of any of the events
of default. The failure to exercise said option upon the occurrence of one or
more of such events of default shall not prevent its exercise upon the
reoccurrence of such an event of default or upon the occurrence of any other
event of default.
5. CONVERSION.
5.1 OPTIONAL CONVERSION. All or any portion of the unpaid
principal balance outstanding under this Note may be converted into fully paid
and non-assessable shares of Maker's common stock, $.001 par value per share
(the "Common Stock") at any time during the term of this Note at the option of
Holder. The number of shares of Common Stock into which this Note is to be
converted shall be determined by dividing said unpaid principal balance by Two
Dollars ($2.00) (the "Conversion Price"), subject to adjustment as provided in
Section 7 below, with any accrued but unpaid interest paid in cash at the time
of conversion.
5.2 NOTICE OF CONVERSION. If Holder desires to convert the
Note, Holder shall provide written notice to Maker at the principal offices of
Maker, notifying Maker of the requested conversion to be effected. Within ten
(10) days of receipt of such notice, Maker shall respond to Holder's request in
writing, specifying the number of shares of Common Stock to be issued upon
conversion, the amount of accrued interest to be paid in cash and the date on
which such conversion will occur and calling upon such Holder to surrender to
Maker, in the manner and at the place designated, this Note. Such response by
Maker shall be delivered to Holder at the address last shown on the records of
Maker for Holder or given by Holder to Maker for the purpose of notice.
5.3 MECHANICS AND EFFECT OF CONVERSION. No fractional shares
of Common Stock shall be issued upon conversion of this Note. In lieu of issuing
any fractional shares to Holder upon the conversion of this Note, Maker shall
pay to Holder the amount of outstanding principal that is not so converted. Upon
the conversion of this Note, Holder shall surrender this Note, duly endorsed, at
the principal office of Maker. Upon conversion of this Note, Maker shall be
forever released from all its obligations and liabilities under this Note.
<PAGE>
5.4 DELIVERY OF STOCK CERTIFICATES. As promptly as practicable
after the conversion of this Note, Maker at its expense will cause to be issued
and delivered to Holder a certificate or certificates for the number of full
shares of Common Stock issuable upon such conversion (bearing such legends as
are required by applicable state and federal securities laws in the opinion of
counsel to Maker), together with a check payable to Holder for any cash amounts
payable for any accrued but unpaid interest and fractional shares as described
above. In the event only a portion of this Note is converted, Maker shall, at
the time of delivery of the stock certificate or certificates, deliver to Holder
a new Note evidencing the remaining unpaid principal balance of this Note, which
Note shall in all other respects be identical with this Note.
6. MAKER RIGHT TO PREPAY NOTE. Subject to the earlier conversion of
this Note pursuant to Section 5 above, all or any portion of the unpaid
principal balance outstanding under this Note may be prepaid at any time during
the term of this Note at the option of Maker. In the event Maker elects to
prepay this Note, notice of such election shall be given to Holder not less than
sixty (60) days prior to the date of prepayment. Each such notice shall state
the amount of principal to be paid in cash, the date on which such prepayment
will occur and the place at which Holder is to surrender this Note to Maker.
Such notice by Maker shall be delivered to Holder at the address last shown on
the records of Maker for Holder or given by Holder to Maker for the purpose of
notice. In the event only a portion of this Note is prepaid, Maker shall, at the
time of prepayment and receipt of this Note, deliver to Holder a new Note
evidencing the remaining unpaid principal balance of this Note, which Note shall
in all other respects be identical with this Note.
7. ADJUSTMENTS. The Conversion Price and the number of shares into
which this Note may be converted are subject to adjustment from time to time as
follows:
7.1 RECLASSIFICATIONS, ETC. If Maker, at any time while this
Note, or any portion thereof, remains outstanding and unexpired by
reclassification of securities or otherwise, shall change any of the securities
as to which conversion rights under this Note exist into the same or a different
number of securities or any other class or classes, this Note shall thereafter
represent the right to acquire such number and kinds of securities that were
subject to the conversion rights under this Note immediately prior to such
reclassification or other change and the Conversion Price therefor shall be
appropriately adjusted.
7.2 SPLIT, SUBDIVISION OR COMBINATION OF SHARES. If Maker, at
any time with this Note, or any portion thereof, remains outstanding and
unexpired shall split, subdivide or combine the securities as to which
conversion rights under this Note exist into a different number of securities of
the same class, then (i) in the case of a split or subdivision, the Conversion
Price for such securities shall be proportionately decreased and the securities
issuable upon conversion of this Note shall be proportionately increased, and
(ii) in the case of a combination, the Conversion Price for such securities
shall be proportionately increased and the securities issuable upon conversion
of this Note shall be proportionately decreased.
8. INVESTMENT REPRESENTATIONS. Holder acknowledges that this Note and
the Common Stock issuable upon the conversion of this Note (i) constitute
"securities" under federal and applicable state securities laws, (ii) will be
unregistered as such, and (iii) are being transferred in reliance upon
exemptions from registration based, in part, upon Holder's representations
contained herein. Holder is acquiring such securities for its own account and
not with a view to, or for sale in connection with, any distribution thereof.
<PAGE>
9. NO ASSIGNMENT. Neither Maker nor Holder shall be entitled to assign,
pledge, transfer or otherwise convey the benefits or burdens of this Note
without the prior written consent of the other, except that any entity acquiring
all or substantially all of the assets or stock of Maker shall automatically
acquire the burdens of this Note, however, Maker shall not be released from its
obligations hereunder.
10. NO STOCKHOLDER RIGHTS. Prior to the conversion hereof, nothing
contained in this Note shall be construed as conferring upon Holder or any other
person the right to vote or to consent or to receive notice as a stockholder in
respect of meetings of stockholders for the election of directors of Maker or
any other matters or any rights whatsoever as a stockholder of Maker.
11. APPLICABLE LAW. This Note and the rights and obligations of the
parties hereunder shall be construed under, and governed by, the laws of the
State of California without giving effect to conflict of laws provisions.
12. ATTORNEYS' FEES. In the event of any suit, action or arbitration to
enforce any of the terms or provisions of this Note, the prevailing party shall
be entitled to its reasonable attorneys' fees and costs. The foregoing
entitlement shall also include attorneys' fees and costs of the prevailing party
on any appeal of a judgment and for any action to enforce a judgment.
Kestrel Equity Corporation,
an Arizona corporation
By:________________________
Name:______________________
Its:_______________________
<TABLE> <S> <C>
<ARTICLE> 5
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<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-START> JUL-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,408
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
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<CURRENT-ASSETS> 137,409
<PP&E> 3,263,927
<DEPRECIATION> 0
<TOTAL-ASSETS> 8,033,753
<CURRENT-LIABILITIES> 675,088
<BONDS> 0
0
0
<COMMON> 5,550
<OTHER-SE> (7,353,115)
<TOTAL-LIABILITY-AND-EQUITY> 8,033,753
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 1,082,357
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<INTEREST-EXPENSE> 7,812
<INCOME-PRETAX> (1,101,192)
<INCOME-TAX> 0
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<EPS-BASIC> (0.41)
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