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SCHEDULE 14C INFORMATION
INFORMATION STATEMENT PURSUANT TO SECTION 14(c)
OF THE SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ___)
Check the appropriate box:
[ ] Preliminary Information Statement
[ ] Confidential, For Use of the Commission Only (as Permitted by Rule
14c-5(d)(2))
[X] Definitive Information Statement
SHANECY, INC.
-----------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Payment of Filing Fee (Check the appropriate box):
[x] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14c-5(g) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $.001 per share
(2) Aggregate number of securities to which transaction
applies:________________________
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was
determined):_______________________
(4) Proposed maximum aggregate value of transaction:__________________
(5) Total fee paid:_____________________
[ ] Fee paid previously with preliminary materials.
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[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the form or schedule and the date of its filing.
(1) Amount Previously Paid:_________________________________
(2) Form, Schedule or Registration Statement No.:___________
(3) Filing Party:___________________________________________
(4) Date Filed:_____________________________________________
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SHANECY, INC.
9777 Wilshire Boulevard
Beverly Hills, CA 90212
----------------------
April 26, 2000
Dear Stockholder:
We are delivering the enclosed information statement to you for three
reasons. First, the Board of Directors of Shanecy, Inc., a Delaware corporation
(the "Company"), has unanimously adopted, as of January 18, 2000, a resolution
to amend and restate the Company's Certificate of Incorporation (the
"Amendment") to, among other things:
o effect a change of corporate name from Shanecy, Inc. to Inc.ubator
Capital, Inc. ("Inc.ubator");
o increase the number of authorized shares of capital stock from
20,000,000 to 175,000,000 shares, including 150,000,000 shares of
common stock and 25,000,000 shares of preferred stock;
o authorize the issuance of "blank check" preferred stock by the Board
of Directors and a series of preferred stock identified as the Series
A Preferred Stock;
o eliminate cumulative voting;
o opt out of coverage under Section 203 of the Delaware General
Corporation Law; and
o classify the Board of Directors into three classes.
Second, the Board of Directors has also approved the Shanecy, Inc. 1999
Stock Option Plan ("Stock Option Plan"), providing for the issuance of options
to acquire up to 15,000,000 shares of the Company's common stock. Third, as of
November 19, 1999, the Board of Directors ratified the acquisition of CASA@
Home.com, Inc. and Eikos Acquisition Limited from entities affiliated with both
of the then existing directors (the "Acquisitions"). Each of the Amendment, the
Acquisitions and the Stock Option Plan have been approved or ratified pursuant
to written consent of holders of at least a majority of the issued and
outstanding common stock of the Company. The purpose of the enclosed information
statement is to apprise you of such stockholder actions.
The Amendment, the Acquisitions, and the 1999 Stock Option Plan were
adopted or undertaken in connection with the Company's previously disclosed
change in business direction to, among other things, facilitate additional
financing by the Company and the issuance of employee stock options. The
Amendment will become effective on approximately May 17, 2000, the date on which
the Company expects to file the Amendment with the Delaware Secretary of State.
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The information statement will first be mailed to stockholders on or
about April 26, 2000.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND US A PROXY.
---
Sincerely,
HARRY J. WEITZEL
Chairman and Chief Executive Officer
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INFORMATION STATEMENT
FOR
SHANECY, INC.
9777 Wilshire Boulevard
Beverly Hills, CA 90212
---------------------------
THIS INFORMATION STATEMENT IS BEING PROVIDED TO STOCKHOLDERS TO INFORM THEM OF
STOCKHOLDER ACTIONS TAKEN BY THE WRITTEN CONSENT OF MAJORITY STOCKHOLDERS.
WE ARE NOT ASKING YOU FOR A PROXY AND YOU ARE REQUESTED NOT TO SEND A PROXY.
Reasons for Information Statement
The Board of Directors of Shanecy, Inc., a Delaware corporation (the
"Company"), adopted:
(1) As of January 18, 2000, resolutions approving an amendment and
restatement of the Company's Certificate of Incorporation (the
"Amendment").
(2) As of November 12, 1999, a resolution adopting the Shanecy, Inc. 1999
Stock Option Plan ("Stock Option Plan"); and
(3) As of November 19, 1999 and February 1, 2000, resolutions approving
the Company's acquisitions of Eikos Acquisition Limited and
[email protected], Inc. (the "Acquisitions").
The holders of greater than a majority of the outstanding stock of the
Company, who collectively own approximately 52% of the Company's outstanding
common stock, $.001 par value, approved each of these matters as of April 24,
2000. The purpose of this information statement is to apprise stockholders of
these board and stockholder actions. This information statement is first being
mailed on or about April 26, 2000 to all stockholders of record as of April 24,
2000.
Among other things, the Amendment provides for a change in the
Company's name to Inc.ubator Capital, Inc. and an increase in the number of
authorized shares of capital stock. The Amendment will become effective on
approximately May 17, 2000 when the Company files the Amendment with the
Secretary of State of Delaware. Under federal securities laws, the Company
cannot file the Amendment until at least 20 days after the mailing of this
information statement. A copy of the full text of the Amendment is attached to
this information statement as Annex A.
The Amendment was approved in accordance with the Delaware General
Corporation Law which provides that the written consent of the holders of
outstanding shares of voting
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capital stock, having not less than the minimum number of votes which would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted, may be substituted for such a
special meeting. Pursuant to Delaware law, a majority of the outstanding shares
of voting capital stock entitled to vote thereon is required in order to amend
and restate the Company's Certificate of Incorporation. In order to eliminate
the costs and management time involved in holding a special meeting of
stockholders and in order to effect the Amendment as early as possible in order
to accomplish the purposes of the Company as described in this information
statement, the Board of Directors of the Company voted to approve the Amendment
by written consent of greater than a majority of the outstanding common stock of
the Company.
The Company obtained stockholder approval of the Acquisitions pursuant
to Delaware law because there were no disinterested directors at the time the
Board of Directors approved the Acquisitions.
The Company will pay all costs associated with the distribution of this
information statement, including the costs of printing and mailing. The Company
will reimburse brokerage firms and other custodians, nominees and fiduciaries
for reasonable expenses incurred by them in sending this information statement
to the beneficial owners of the Company's common stock.
The securities that would have been entitled to vote if a meeting was
required to be held to effect the Amendment, to ratify the Acquisitions, and to
adopt the Stock Option Plan consist of shares of common stock of the Company par
value $.001 per share. Each share of common stock is entitled to one vote. The
number of outstanding shares of common stock at the close of business on the
date hereof, the record date for determining stockholders who would have been
entitled to notice of and to vote on the proposed Amendment and the Stock Option
Plan, is 17,655,000.
The Company effected a two-for-one stock split in the in the form of a
100% stock dividend paid as of December 30, 1999. Unless the context otherwise
requires, stock data shown in this information statement reflects the stock
split.
Dissenters Rights
The Delaware General Corporation Law does not provide for dissenters
rights in connection with the Amendment, the adoption of the Stock Option Plan
or the ratification of the Acquisitions.
The Amendment
The Amendment includes several substantive changes from the Company's
existing Certificate of Incorporation. These include:
o a change in name from Shanecy, Inc. to Inc.ubator Capital, Inc.
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o an increase in the number of authorized shares of capital stock from
20,000,000 shares to 175,000,000, including 150,000,000 shares of
common stock and 25,000,000 shares of preferred stock
o the authorization of "blank check" preferred stock and a series of
preferred stock identified as the Series A Preferred Stock
o the elimination of cumulative voting for the election of directors
o the classification of the Board of Directors into three classes
o an election to not be governed by Section 203 of the Delaware General
Corporation Law
Purposes of the Amendment
Change in Business Strategy and Company Name. As previously disclosed
by the Company, the Board of Directors has determined to pursue a new direction
for the business of the Company. This new direction includes a plan to
concentrate on businesses that use the Internet to provide products, services
and information to the moderate income consumer market. The Company believes
that this market has been largely underserved by the Internet. The Company will
change its name to Inc.ubator Capital, Inc. to better identify this new business
strategy.
Change in Authorized Shares. The Company presently has 20,000,000
shares of common stock authorized, of which 17,655,000 were issued and
outstanding as of the date of this information statement. The Company requires
an increase in its capital stock, because the number of shares of stock
presently authorized is insufficient to satisfy the Company's obligations
undertaken in recently disclosed transactions to issue certain stock, stock
options and convertible preferred stock.
In particular, in connection with the Company's acquisition of Eikos
Acquisition Limited, the Company agreed with the seller, Thesseus International
Asset Fund NV ("Thesseus"), that the Company would issue to Thesseus 8,500,000
shares of convertible preferred stock. Pursuant to such agreement, subject to
certain anti-dilution adjustment provisions, each share of preferred stock to be
issued shall be initially convertible into two shares of common stock.
Inc.ubator has also agreed, in connection with the acquisition of Brunswick
Capital Partners, Inc. (now eCard Solutions, Inc.) and InfoBase Direct Marketing
Services, Inc., to deliver 2,000,000 shares of common stock to Thesseus upon the
filing of the Amendment. Further, the Company has agreed to grant options to
purchase an aggregate of 10,500,000 shares of its common stock to its officers
and directors in consideration for their agreements to serve in their respective
capacities for the Company. Such options will be issued under the Stock Option
Plan discussed below. Finally, the Company granted warrants to acquire up to
550,000 shares of
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common stock in connection with the engagement of certain investor relations
firms.
In addition to the need for increasing the Company's authorized shares
arising to satisfy existing agreements as discussed above, the Company
anticipates that it will need additional authorized shares in order to effect
its new business strategy. In particular, the Board of Directors may determine
to issue shares of the Company's stock (i) to raise additional capital, through
public or private offerings, as needed to implement the Company's business plan,
(ii) to compensate directors, officers, employees, and consultants, (iii) to
effect stock splits or stock dividends, and/or (iv) as consideration for the
Company's acquisition of interests in other Internet businesses consistent with
its new business strategy. The increase in the authorized number of shares of
common stock will provide the Company greater flexibility and enable it to take
advantage of favorable opportunities in which the issuance of common stock might
be appropriate without the expense and delay of a special stockholders meeting.
As part of its effort to implement its new business strategy, the
Company intends to conduct a private offering, solely to accredited investors,
of up to 500,000 Units, each consisting of one share of common stock and a
warrant to acquire four shares of common stock. Such an offering will be
conducted through a private placement memorandum prepared by the Company and no
offer to sell common stock is being made hereby. The price and other terms of
the offering by the Company have not yet been determined.
The increase in the authorized common stock may facilitate certain
anti-takeover devices that may be advantageous to management if management
attempts to prevent or delay a change of control. Employing such devices may
adversely impact stockholders who desire a change in management or who desire to
participate in a tender offer or other sale transaction involving the Company.
By use of anti-takeover devices, the Board may thwart a merger or tender offer
even though stockholders might be offered a substantial premium over the then
current market price of the common stock. At the present time, the Company is
not aware of any contemplated mergers, tender offers or other plans by a third
party to attempt to effect a change in control of the Company. While the
Amendment may have anti-takeover ramifications, the Board of Directors believes
that financial flexibility offered by the Amendment outweighs any disadvantages.
Authorization of Blank Check Preferred Stock. The Amendment will grant
the Board of Directors the power to authorize the issuance of one or more series
of preferred stock, and to fix by resolution or resolutions providing for the
issue of each such series the voting powers, designations, preferences, and
relative, participating, optional, redemption, conversion, exchange or other
special rights, qualifications, limitations or restrictions of such series, and
the number of shares in each series, to the full extent now or hereafter
permitted by law. While there is no present intention to issue any shares of
preferred stock other than the Series A Preferred Stock, the Company believes
that having preferred stock available will provide greater flexibility for
financing of the Company's activities in the future. It is possible that the
issuance of preferred stock at some point in the future could have a dilutive
effect on the common stock if, for example, such preferred stock were to have
convertible features. In addition, the Company could issue preferred stock for
other corporate purposes, such as to implement joint ventures or to make
acquisitions, although no issuances for such purposes are presently
contemplated. The Board of
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Directors will be able to specify the precise characteristics of each series of
the preferred stock to be issued, depending on the current market conditions and
the nature of specific transactions.
Elimination of Cumulative Voting. The Company's certificate of
incorporation and bylaws currently allow for cumulative voting in the election
of directors. Under cumulative voting each stockholder is entitled to a number
of votes equal to the number of shares held multiplied by the number of
directors to be elected. The stockholder may cast all such votes for a single
director, or may distribute them among the total number of candidates to be
voted for or any number of them. The Amendment would eliminate cumulative voting
as permitted by the Delaware General Corporation Law. The elimination of
cumulative voting will make it more difficult for minority stockholders to
obtain representation on the Board of Directors, since holders of a majority of
the Company's voting stock will be able to elect all of the Company's directors.
The Company believes that precluding cumulative voting is prevalent
among other public companies, including those with which the Company will be
competing.
Classification of Board of Directors. The Amendment provides for the
division of the Company's Board of Directors into three classes as equal in size
as possible. Generally, directors will serve three year terms (other than the
initial directors in the first two classes, who will serve for one year and two
years, respectively) and, therefore, only directors in one of the three classes
will be up for election in any particular year. The Board of Directors will be
empowered to fill any vacancy that results in the Board of Directors, with such
substitute director serving until the next annual meeting of stockholders (or
special meeting called for the purpose of electing directors).
Election Regarding Section 203. The Amendment includes an election by
the Company to not be covered by Section 203 of the Delaware General Corporation
Law, which prohibits a publicly held Delaware corporation from engaging in a
"business combination" with an "interested stockholder" for a period of three
years after the date of the transaction in which the person became an
"interested stockholder," unless the business combination is approved in a
prescribed manner. A "business combination" includes certain mergers, asset
sales, and other transactions resulting in a financial benefit to the
"interested stockholder." Subject to certain exceptions, an "interested
stockholder" is a person who, together with affiliates and associates, owns, or
within the past three years did own, 15% of the corporation's voting stock.
Principal Effects of the Amendment
The principal effects of the Amendment are as described above in the
discussion of the purposes of the Amendment. The increase in authorized capital
stock will permit the Company to issue more shares, which will have a dilutive
effect on the percentage ownership interest of existing stockholders. The
elimination of cumulative voting will prevent a minority investor from
cumulating its votes in the election of directors and will therefore result in
the holders of the majority of the Company's voting stock being able to elect
the entire Board of Directors. Classification of the Board of Directors will
have the effect of making it more time consuming to
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replace the entire Board. The election to opt out of coverage by Section 203 of
the Delaware General Corporation Law will make it easier for an interested
shareholder to gain control of the Company.
The Amendment authorizes 25,000,000 shares of preferred stock. The
8,500,000 shares of Series A Preferred A Stock to be issued will have rights,
preferences and privileges that are superior to those of the common stock. See
"Authorization and Issuance of Series A Preferred Stock" in this information
statement below. The remaining 16,500,000 shares of preferred stock may be
issued by resolution of the Board of Directors in addition to the Series A
Preferred Stock. These remaining authorized shares constitute what is commonly
known as "blank check" preferred stock. Pursuant to the Amendment, additional
preferred stock may be issued in one or more series. All shares of any one
series of preferred stock will be identical except as to the date of issue and
dates from which dividends on shares of the series issued on different dates
will cumulate, if cumulative.
The existence of authorized and unissued preferred stock may enable the
Board of Directors to render more difficult or discourage an attempt to obtain
control of the Company by means of a merger, tender offer, proxy contest or
otherwise. In the due exercise of its fiduciary obligations, the Board of
Directors could, for example, cause shares of preferred stock to be issued
without stockholder approval in one or more private offerings or other
transactions that might dilute the voting or other rights of a proposed acquiror
or create a substantial voting block in institutional or other hands that might
undertake to support the position of the incumbent Board of Directors.
Stock Option Plan
Adoption of Option Plan. The Board of Directors and stockholders
holding a majority of the outstanding common stock of the Company have also
adopted the Stock Option Plan, which provides for the issuance of options to
acquire up to 15,000,000 shares (as adjusted for the Company's recent stock
split) of the Company's common stock. The purpose of Stock Option Plan is
provide additional financial incentive to officers, directors, key employees and
important consultants of the Company (and its present or future subsidiary
corporations). This incentive is created by encouraging recipients of options to
invest in shares of the Company's common stock and thereby acquire a proprietary
interest in the Company and an increased personal interest in its continued
success and progress. The Board of Directors of the Company believes that the
Stock Option Plan will promote continuity of management, and personal interest
in the welfare of the Company by those who are primarily responsible for its
long-term growth and financial success. Approximately eight persons are eligible
to receive options under the Stock Option Plan as of the date of this
information statement.
Summary of Certain Aspects of the Stock Option Plan. The following
summary of certain aspects of the Stock Option Plan is qualified in its entirety
by reference to the full text of the Stock Option Plan which is set forth as
Annex B to this information statement.
Certain of the options issued under the Stock Option Plan may
constitute incentive stock
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options within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"). The remainder of the options issued under the Stock
Option Plan will constitute nonqualified stock options.
The Stock Option Plan will be administered by the Board of Directors or
by an option committee ("Committee") appointed by the Board of Directors. The
committee shall consist of not less than two and not more than five directors
each of whom at the time they exercise discretion in administering the Stock
Option Plan shall be a disinterested person pursuant to Rule 16b-3 under the
Securities Exchange Act of 1934, as amended. The Company's Board of Directors
chooses which directors will serve on the Committee. Subject to the express
provisions of the Stock Option Plan, the Committee has authority to interpret
the Stock Option Plan and make all other determinations necessary or advisable
for the administration of the Stock Option Plan.
The Committee has authority, subject to the express provisions of the
Stock Option Plan, to select individuals to participate in the Stock Option
Plan, and to determine the number of shares subject to each option, the time at
which the option is to be granted, the type of option, the option period, the
option price, and the manner in which the options become exercisable, and to
adopt other provisions as it deems necessary or desirable.
The Stock Option Plan provides for the grant of options representing up
to an aggregate of 15,000,000 shares of common stock, subject to adjustment as
discussed below. If an option granted under the Stock Option Plan expires, is
canceled, or terminates unexercised as to any share of common stock subject
thereto, or if shares of common stock are used to satisfy the Company's
withholding tax obligations, such shares will again be available for purposes of
the Stock Option Plan. Shares which may be issued under the Stock Option Plan
may be authorized but unissued shares, or shares acquired by the Company and
held in its treasury. The aggregate fair market value of common stock with
respect to which any incentive stock options are exercisable for the first time
by an optionee during any calendar year under the Stock Option Plan or any other
such plan of the Company shall not exceed $100,000. Grants of nonqualified stock
options are not subject to this limitation. In the event of any change in the
outstanding shares of common stock of the Company by reason of any stock
dividend or split, reorganization or recapitalization, merger, dissolution,
combination or exchange of shares or other similar corporate change, the number
of shares of stock subject to the Stock Option Plan and the aggregate number of
shares in outstanding option agreements shall be equitably adjusted by the
Committee.
The option price per share of common stock will be fixed by the
Committee, but the option price for incentive stock options will not be less
than 100% of the fair market value on the date the option is granted. The
Committee will determine the expiration date of each option, but, in the case of
an incentive stock option, such expiration date will not be later than ten years
after the date of grant. No option shall be assignable or transferable by an
optionee except by will or the laws of descent and may be exercised during the
life of the optionee only by the optionee, except that the Committee may
determine the extent and manner in which optionees may designate a beneficiary
to exercise the option after the optionee's death or transfer any option.
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An option may be exercised in full or in part by delivery to the
Company at its principal office of a written notice of exercise specifying the
number of shares with respect to which the option is being exercised. A notice
of exercise will be accompanied by full payment of the option price of the
shares being purchased (a) in cash or its equivalent; (b) with the consent of
the Committee, shares of common stock of the Company; or (c) with the consent of
the Committee, any combination of (a) and (b).
The Board of Directors may amend, suspend, or terminate the Stock
Option Plan at any time. Termination of the Stock Option Plan will not affect
the rights of optionees under options previously granted to them. All unexpired
options will continue until, by their own terms and conditions, they lapse or
terminate. No incentive stock options may be granted after the tenth (10th)
anniversary of the effective date of the Stock Option Plan.
An optionee has no rights as a shareholder with respect to any shares
subject to any option until the date the option has been exercised, the shares
have been fully paid, and a stock certificate has been issued.
Issuance of Stock Options under 1999 Plan. The Company has previously
agreed to grant, pursuant to the Stock Option Plan, options to purchase an
aggregate of 10,500,000 shares of its common stock to its officers and directors
in consideration for their respective agreements to serve the Company. With the
exception of certain options issued to George Pilallis and the options grant to
non-employee directors, all options granted to executive officers are intended
to qualify as incentive stock options as described in Section 422 of the Code.
Except for the options granted for Mr. Pilallis and Nicholas Wise, the options
granted will terminate on the sooner of five years after the date of issuance or
90 days after the optionee ceases to be affiliated with the Company. The
following table sets forth the name of each optionee, the number of shares
underlying the options granted to him, and the per share exercise price of the
stock options:
Number of
Underlying
Name of Optionee Shares Exercise Price Dollar Value (2)
- -------------------------------------------------------------------------------
Harry J. Weitzel 2,000,000 $0.045 $13,910,000
Jason W. Galanis 2,000,000 $0.045 $13,910,000
Kevin Washington 2,000,000 $0.045 $13,910,000
Leighton Bloom 2,000,000 $0.045 $13,910,000
Rory Knight 400,000 $0.04 $ 2,784,000
Michael Bodnar 100,000 $0.04 $ 696,000
George C. Pilallis 1,000,000 $2.00 $ 5,000,000
Nicholas Wise 1,000,000 $2.00 $ 5,000,000
Executive Group 9,100,000 $61,336,000
Non-Executive Officer
Director Group 1,400,000 $ 7,784,000
- ------------------
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(1) Reflects two-for-one stock split effective on December 30, 1999.
(2) Dollar value is an estimate of the dollar value of the option assuming
a market price of $7.00 per share. The shares subject to the options
shown far exceed the number of shares in the public float as of the
date hereof and equal approximately 60% of the issued and outstanding
shares as of such date, on an undiluted basis. The closing sale price
per share of the Company's common stock on April 5, 2000, was $7.00.
The actual price on the date of exercise may be higher or lower.
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Federal Income Tax Consequences of the 1999 Stock Option Plan
THE FOLLOWING INFORMATION IS NOT INTENDED TO BE A COMPLETE DISCUSSION
OF THE FEDERAL INCOME TAX CONSEQUENCES OF PARTICIPATION IN THE STOCK OPTION PLAN
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE INTERNAL REVENUE CODE OF
1986, AS AMENDED, AND THE REGULATIONS ADOPTED PURSUANT THERETO. THE PROVISIONS
OF THE INTERNAL REVENUE CODE DESCRIBED IN THIS SECTION INCLUDE CURRENT TAX LAW
ONLY AND DO NOT REFLECT ANY PROPOSALS TO REVISE CURRENT TAX LAW.
Incentive Stock Options. Generally, under the Internal Revenue Code, an
optionee will not realize taxable income by reason of the grant or the exercise
of an Incentive Stock Option (see, however, discussion of Alternative Minimum
Tax below) granted pursuant to the 1999 Stock Option Plan. If an optionee
exercises an Incentive Stock Option and does not dispose of the shares until the
later of (i) two years from the date the option was granted and (ii) one year
from the date of exercise, the entire gain, if any, realized upon disposition of
such shares will be taxable to the optionee as long-term capital gain, and the
Company will not be entitled to any deduction. If an optionee disposes of the
shares within the period of two years from the date of grant or one year from
the date of exercise (a "disqualifying disposition"), the optionee generally
will realize ordinary income in the year of disposition and the Company will
receive a corresponding deduction, in an amount equal to the excess of (1) the
lesser of (a) the amount, if any, realized on the disposition and (b) the fair
market value of the shares on the date the option was exercised over (2) the
option price. Any additional gain realized on the disposition will be long-term
or short-term capital gain and any loss will be long-term or short-term capital
loss. The optionee will be considered to have disposed of a share if he sells,
exchanges, makes a gift of or transfers legal title to the share (except
transfers, among others, by pledge, on death or to a spouse). If the disposition
is by sale or exchange, the optionee's tax basis will equal the amount paid for
the share plus any ordinary income realized as a result of the disqualifying
disposition.
The exercise of an Incentive Stock Option may subject the optionee to
the alternative minimum tax. The amount by which the fair market value of the
shares purchased at the time of the exercise exceeds the option exercise price
is an adjustment for purposes of computing the so-called alternative minimum
tax. In the event of a disqualifying disposition of the shares in the same
taxable year as exercise of the Incentive Stock Option, no adjustment is then
required for purposes of the alternative minimum tax, but regular income tax, as
described above, may result from such disqualifying disposition.
An optionee who surrenders shares as payment of the exercise price of
his Incentive Stock Option generally will not recognize gain or loss on his
surrender of such shares. The surrender of shares previously acquired upon
exercise of an Incentive Stock Option in payment of the exercise price of
another Incentive Stock Option, is, however, a "disposition" of such stock. If
the incentive stock option holding period requirements described above have not
been satisfied with respect to such stock, such disposition will be a
disqualifying disposition that may cause the optionee to recognize ordinary
income as discussed above.
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Under the Internal Revenue Code, all of the shares received by an
optionee upon exercise of an Incentive Stock Option by surrendering shares will
be subject to the incentive stock option holding period requirements. Of those
shares, a number of shares (the "Exchange Shares") equal to the number of shares
surrendered by the optionee will have the same tax basis for capital gains
purposes (increased by any ordinary income recognized as a result of a
disqualifying disposition of the surrendered shares if they were incentive stock
option shares) and the same capital gains holding period as the shares
surrendered. For purposes of determining ordinary income upon a subsequent
disqualifying disposition of the Exchange Shares, the amount paid for such
shares will be deemed to be the fair market value of the shares surrendered. The
balance of the shares received by the optionee will have a tax basis (and a
deemed purchase price) of zero and a capital gains holding period beginning on
the date of exercise. The Incentive Stock Option holding period for all shares
will be the same as if the option had been exercised for cash.
Non-Qualified Stock Options. Generally, there will be no federal income
tax consequences to either the optionee or the Company on the grant of
Non-Qualified Stock Options pursuant to the 1999 Stock Option Plan. On the
exercise of a Non-Qualified Stock Option, the optionee has taxable ordinary
income equal to the excess of the fair market value of the shares acquired on
the exercise date over the option price of the shares. The Company will be
entitled to a federal income tax deduction (subject to the limitations contained
in Section 162(m)) in an amount equal to such excess, provided that the Company
complies with applicable reporting rules.
Upon the sale of stock acquired by exercise of a Non-Qualified Stock
Option, optionees will realize long-term or short-term capital gain or loss
depending upon their holding period for such stock. Capital losses are
deductible only to the extent of capital gains for the year plus $3,000 for
individuals.
An optionee who surrenders shares in payment of the exercise price of a
Non-Qualified Stock Option will not recognize gain or loss with respect to the
shares so delivered unless such shares were acquired pursuant to the exercise of
an Incentive Stock Option and the delivery of such shares is a disqualifying
disposition. See "Incentive Stock Options." The optionee will recognize ordinary
income on the exercise of the Non-Qualified Stock Option as described above. Of
the shares received in such an exchange, that number of shares equal to the
number of shares surrendered have the same tax basis and capital gains holding
period as the shares surrendered. The balance of shares received will have a tax
basis equal to their fair market value on the date of exercise and the capital
gains holding period will begin on the date of exercise.
In the event of a permitted transfer by gift of a Non-Qualified Stock
Option, the transferor will remain taxable on the ordinary income realized as
and when such Non-Qualified Stock Option is exercised by the transferee. All
other tax consequences described above will be applicable to the transferee of
the Non-Qualified Stock Option. A permitted transfer by gift of a Non-Qualified
Stock Option may result in federal transfer taxes (gift tax) to the transferor
at such time as the option is transferred, as well as such later time or times
as the Non-Qualified Stock Option vests, if not fully vested on the date of the
initial transfer.
15
<PAGE>
Limitation on the Company's Deduction. Section 162(m) of the Internal
Revenue Code will generally limit to $1,000,000 the Company's federal income tax
deduction for compensation paid in any year to its chief executive officer and
its four highest paid executive officers, to the extent that such compensation
is not "performance based." Under Treasury regulations, a stock option will, in
general, qualify as "performance based" compensation if it (i) has an exercise
price of not less than the fair market value of the underlying stock on the date
of grant, (ii) is granted under a plan that limits the number of shares for
which options may be granted to an employee during a specified period, which
plan is approved by a majority of the stockholders entitled to vote thereon, and
(iii) is granted and administered by a compensation committee consisting solely
of at least two outside directors (as defined in Section 162(m)). If a stock
option to an executive referred to above is not "performance based", the amount
that would otherwise be deductible by the Company in respect of such stock
option will be disallowed to the extent that the executive's aggregate
non-performance based compensation paid in the relevant year exceeds $1,000,000.
Authorization and Issuance of Series A Preferred Stock
As discussed above, in connection with the Company's acquisition of
Eikos Acquisition Limited, the Company agreed with the seller, Thesseus, that
the Company would issue to Thesseus 8,500,000 shares of convertible preferred
stock. The Amendment will authorize the issuance of 8,500,000 shares of
convertible preferred stock, all of which will initially be issuable to
Thesseus. Thesseus has sold its interest in such stock to Jason W. Galanis and
Kevin L. Washington and it is, therefore, anticipated that such shares will be
issued to these individuals at the direction of Thesseus.
The following brief summary of the rights, privileges and preferences
of the Series A Preferred Stock is qualified in all respects by reference to the
complete terms set forth in the Series A Preferred Stock designations set forth
at Annex A attached to this information statement.
Dividends. The holders of the Series A Preferred Stock shall be
entitled to receive cumulative annual dividends, at the rate of 6.5% per annum
on the liquidation preference amount described below, payable in preference and
priority to any payment of any dividend on common stock or any other shares of
capital stock of the Company other than the Series A Preferred Stock. After
payment of the preferential dividend to the holders of the Series A Preferred
Stock, any further dividends will be paid pro rata to the holders of the Series
A Preferred Stock and the common stock on an as-converted basis. The Series A
Preferred Stock also will be entitled to receive any non-cash dividends declared
by the Board on an as-converted basis.
Liquidation, Dissolution or Winding Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of shares of Series A Preferred Stock then outstanding shall be entitled
to be paid out of the assets of the Company available for distribution to its
stockholders before any payment shall be made to the holders of
16
<PAGE>
junior stock, an amount equal to the Series A liquidation preference of $0.7756
per share of Series A Preferred Stock (subject to adjustment in certain cases).
Notwithstanding the foregoing, any holder of Series A Preferred Stock may elect
to receive, in lieu of the Series A liquidation preference, the amount such
holder would have received had the Series A Preferred Stock been converted to
common stock immediately prior to such payment.
Voting. Each holder of outstanding shares of Series A Preferred Stock
shall be entitled to the number of votes equal to the number of whole shares of
common stock into which the shares of Series A Preferred Stock held by such
holder are convertible (as adjusted from time to time), at each meeting of
stockholders of the Company (and written actions of stockholders in lieu of
meetings) with respect to any and all matters presented to the stockholders of
the Company for their action or consideration. Except as provided by law or as
provided below, holders of Series A Preferred Stock and of any other outstanding
series of Preferred Stock shall vote together with the holders of common stock
as a single class. Certain actions by the Company shall require the written
consent or affirmative vote of the holders of at least a majority of the then
outstanding shares of Series A Preferred Stock voting separately as a class,
such as:
(a) sell, convey or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of;
(b) alter or change the rights, preferences of privileges of
the Shares so as to affect adversely affect such Shares;
(c) increase or decrease (other than by redemption or
conversion) the total number of authorized Shares;
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security (i) having a preference over, or being on a parity with,
the Shares with respect to dividends or upon liquidation, or (ii) having rights
similar to any of the rights of the Shares under this Section 6;
(e) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any Shares or Common Shares,
provided, however, that this restriction shall not apply to the repurchase of
Common Shares from employees, officers, directors, consultants or other persons
performing services for the Company or any subsidiary pursuant to agreements
under which the Company has the option to repurchase such Shares at "cost" (as
defined in any such agreements) upon the occurrence of certain events, such as
the termination of employment;
(f) amend the Company's Articles of Incorporation or bylaws;
or
(g) change the authorized number of directors of the Company.
17
<PAGE>
Optional Conversion. Each share of Series A Preferred Stock shall,
subject to adjustment, be convertible, at the option of the holder thereof, two
shares of Common Stock. The conversion ratio is subject to adjustment in
connection with mergers, consolidations, stock splits and combinations, certain
dilutive issuance of securities by the Company and other events.
No Sinking Fund. There shall be no sinking fund for the payment of
dividends, or liquidation preferences on the Series A Preferred Stock or the
redemption of any shares thereof.
Ratification of Acquisitions
At the time that the Board of Directors approved the Acquisitions,
Jason W. Galanis and Kevin Washington were the only members of the Board and
both were interested parties to the Acquisitions. Jason Galanis, Kevin
Washington and Harry Weitzel were, prior to their resignation effective April
10, 2000, each directors of the entity from which the Company acquired Eikos
Acquisition Limited. Jason Galanis and Kevin Washington are each principals in
the entity from which the Company acquired CASA@ Home.com, Inc. Because both
members of the Board of Directors were interested parties to the Acquisitions at
the time they were approved, the Company obtained, as of February 1, 2000, the
written consent of stockholders holding at least a majority of the issued and
outstanding common stock approving and ratifying the Acquisitions in accordance
with the Delaware General Corporation Law.
Compensation of Executive Officers
The Company's entire management team has only recently been installed
as part of the Company's change in business stratregy discussed herein. No
member of the Company's previous management team remains employed by the Company
and, in any case, such members were not paid any compensation by the Company.
For this reason, the Company has concluded that the compensation of the prior
management team is no longer material to investors.
The annual salaries of the current executive officers of the Company
are as follows:
Executive Title Annual Salary
- -------------------- --------------------- -------------
Harry J. Weitzel Chairman and Chief $240,000 (1)
Executive Officer
Jason W. Galanis President and Chief $240,000 (1)
Operating Officer
Kevin Washington Executive Vice President $240,000 (1)
Leighton A. Bloom Chief Technology Officer $240,000 (1)
Michael Bodnar Treasurer, Chief
Financial Officer and $ 75,000 (1)
Corporate Secretary
George C. Pilallis Executive Vice President $150,000 (2)
- ------------------
(1) Officers indicated have voluntarily agreed to defer payment of their salary
temporarily until such time as the Company's cash flow and other financial
resources enable it to make such payments.
(2) Mr. Pilallis' salary is paid entirely by the Company's subsidiary CASA@
Home.com, Inc.
18
<PAGE>
Stock Option Grants. For information on options to be granted to
executive officers, see the discussion under the heading "Stock Option Plan"
above.
Employment Agreements. The Company anticipates that it will enter into
employment agreements with each of its executive officers identified herein.
While the terms of such agreements have not yet been negotiated and cannot be
determined with certainty at this time, the Company anticipates that each of the
agreements will provide for an initial three (3) year term, with automatic
renewals for one year each, subject to the right of either party to terminate
prior to the renewal. Each employment agreement will provide for base salary, an
entitlement to an annual bonus in an amount determined by the Board of
Directors, participation in the Company's insurance and employee welfare plans
from time to time in effect, and reimbursement of business related expenses
incurred by the executive. Each such employment agreement may provide that it
will terminate early if the executive dies, becomes disabled or is dismissed for
"cause," which generally would include conviction for any felony, fraud or
embezzlement or willful or malicious misconduct. Each employment agreement may
contain provisions that will entitle the executive to severance payments if he
is terminated without cause or following a change in control. The Company
proposes to include an agreement by each executive to maintain the
confidentiality of the Company's proprietary information and covenant not to
compete with the Company during the term of the Agreement and for a period of 18
months thereafter.
Compensation of Directors
The Company has not historically compensated members of its Board of
Directors for their roles as such. As discussed under the heading "Stock Option
Plan" above, the Company issued stock options to certain directors which will be
exercisable immediately upon effectiveness of the Amendment. The Board of
Directors may determine to pay fees to members of the Board in the future,
although the amount and timing of payment of such fees has not yet been
determined. The Company will also enter into a consulting agreement with one of
its directors, Nicholas Wise, whereby that director will receive fees in his
capacity as consultant. The amount of such consulting fees has not yet been
agreed upon.
Security Ownership of Certain Beneficial Owners and Management
As previously disclosed by the Company, on November 11, 1999, the two
former directors of the Company, Ann Myers and Jill Wright, appointed Jason W.
Galanis and Kevin Washington to replace them on the Board of Directors and then
resigned from the Board.
19
<PAGE>
The following sets forth certain information with respect to the
beneficial ownership of shares of the Company's common stock held by directors,
executive officers and persons known to management of the Company to own more
than 5% of the outstanding common stock of the Company as of April 1, 2000.
Inc.ubator has determined beneficial ownership in accordance with the
rules of the SEC which include voting or investment power with respect to
shares. Unless otherwise indicated, the persons named in the table have sole
voting and investment power with respect to the number of shares beneficially
owned by them. The number of shares of outstanding common stock used in
calculating percentage ownership for each listed person includes the shares of
common stock underlying preferred stock, options or warrants held by the person
and exercisable within 60 days after the date hereof, but excludes shares of
common stock underlying preferred stock, options or warrants held by any other
person. Jason Galanis and Derek Galanis are brothers and Kevin Washington and
Kyle Washington are brothers. All addresses for the officers and directors are
c/o Inc.ubator Capital, Inc., 9777 Wilshire Boulevard, Beverly Hills, CA 90212.
The table below indicates with respect to each current holder of Inc.ubator's
outstanding securities (i) the number securities owned, (ii) the aggregate
amount paid by such security holder for such securities and (iii) the percentage
of the outstanding common stock owned by such holder.
<TABLE>
<CAPTION>
Number of Shares and
Name and Address Nature of Beneficial
of Beneficial Owner Ownership Percent of Class
--------------------- ---------------------- ----------------
<S> <C> <C> <C>
Thesseus International Asset Fund NV ............... 2,000,000 (1)(2) 11.3%
Zeelandia Office Park,
16 Kaya W.F.G. (Jombi)
Mensing, Curacao,
Netherlands Antilles
Harry J. Weitzel.................................... 2,000,000 (3) 10.2%
Jason W. Galanis.................................... 19,000,000 (2)(3) 51.8%
Kevin L. Washington................................. 19,000,000 (2)(3) 51.8%
Michael Bodnar...................................... 100,000 (4) 0.56%
Dr. Rory F. Knight.................................. 400,000 (5) 2.0%
Leighton Bloom...................................... 2,000,000 (3) 9.2%
George C. Pilallis.................................. 1,000,000 (6) 4.8%
Nicholas Wise ...................................... 1,000,000 (6) 4.8%
Officers and directors as a group (eight persons) 25,500,000 56.5%
Derek M. Galanis ...................................
6353 El Camino Real, Suite J
Carlsbad, CA 92009 1,640,000 9.3%
Kyle Washington.....................................
10 Pemberton Avenue
North Vancouver, BC V7P2R1 1,640,000 9.3%
</TABLE>
20
<PAGE>
- -------------------------
(1) In connection with its sale of interests in eCard Solutions, Inc. (formerly
Brunswick Capital Partners) and InfoBase Direct Marketing Services, Inc. to
the Company, Thesseus acquired the right to receive 2,000,000 shares of
common stock upon effectiveness of the Amendment. Jason W. Galanis is a one
fourth beneficiary of a family trust that owns 90,867 shares of Series C
Preferred Stock and 2,970,640 shares of common stock of Thesseus. Harry
Weitzel, Rory Knight and Jason Galanis were previously directors of
Thesseus but each resigned effective April 10, 2000. None of these
individuals has voting or investment power over the shares of Thesseus.
(2) Thesseus had a contractual right to receive 8.5 million shares of Series A
Preferred Stock of Inc.ubator. Each share of Series A Preferred Stock will
be initially convertible into two shares of common stock. The Series A
Preferred Stock cannot be issued until the Amendment is filed. Thesseus
granted to Messrs. Washington and Galanis an option to purchase this stock
for an exercise price of $6.69 million. The option was exercised on
December 31, 1999 and these two shareholders share voting and investment
power over the related securities.
(3) Represents 2,000,000 shares underlying options to be become exercisable
when the Company files the Amendment.
(4) Represents 100,000 shares underlying options to be become exercisable when
the Company files the Amendment.
(5) Represents 400,000 shares underlying options to be become exercisable when
the Company files the Amendment.
(6) Represents 1,000,000 shares underlying options to be become exercisable
when the Company files the Amendment.
Market for Common Stock and Related Stockholder Matters
There is limited trading market for the Company's securities. The
Company's common stock is traded over the counter through the OTC Electronic
Bulletin Board sponsored by the National Association of Securities Dealers
(NASD). The trading symbol for the common stock is "SECY" although the Company
intends to change its symbol after its name changes. The OTC Electronic Bulletin
Board is a network of security dealers who buy and sell stock. The dealers are
connected by a computer network which provides information on current "bid " and
"ask" prices as well as trading volume data.
As of April 21, 2000, the Company had 568 shareholders of record. This
number does not include stockholders who hold the Company's common stock in
nominee accounts with broker-dealer firms or depository institutions. Including
the shares held in nominee accounts or depository institutions, the Company
believes it has in excess of 650 beneficial owners of its common stock.
21
<PAGE>
The Company has never paid regular cash dividends. The Company does not
anticipate paying any dividends in the foreseeable future, as it is anticipated
that the Company will expend any cash that it may generate in the development of
its business. The Company has no current plans to register any of its securities
under the Securities Act of 1933, as amended, for sale by security holders.
There is no ongoing public offering of equity and there is no proposed public
offering of equity. As discussed above, the Company intends to sell common stock
in a private placement in the near future.
There is no historical price data for sales of the Company's common
stock for periods preceding November, 1999, because there was no trading market
for the common stock. For the fiscal quarter ended December 31, 1999, the high
and low closing sales prices were $4.061 and $2.00, respectively . The high and
low sales prices for the fiscal quarter end March 31, 2000 were $13.50 and
$3.75, respectively. The closing price per share as of April 5, 2000 was $7.00.
Interests of Certain Persons In Matters Acted Upon
As disclosed above, several of the Company's directors and executive
officers will benefit from adoption of the Stock Option Plan because they have
received option grants thereunder. Since management as a group will, directly
and indirectly through affiliates and associates, be able to influence the
voting of a majority of the Company's outstanding shares, this group will
benefit from the Amendment's elimination of cumulative voting, and will be able
to influence the election of the entire board of directors. The shares of Series
A Preferred Stock being authorized by the Amendment are to be issued to Kevin
Washington and Jason Galanis. Jason Galanis, Kevin Washington and Harry Weitzel
were directors (until April 10, 2000) of the entity which sold Eikos
Acquisitions Limited to the Company and Jason Galanis and Kevin Washington are
principals of the entity that sold [email protected], Inc. to the Company. Finally,
the creation of a classified board of directors and the authorization of blank
check preferred stock may have the effect of discouraging hostile takeover
attempts and therefore makes it more difficult to displace the Company's current
management.
Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure
Effective January 11, 2000, the Company determined not to renew its
engagement with the accounting firm of Barry Friedman, P.C. and appointed KPMG
LLP as its independent auditors. There were no disagreements on any matter of
accounting principles or practices, financial statement presentation or
disclosure, or auditing scope or procedures with the Company's prior
accountants. The independent accountants' reports on the Company's financial
statements for the past two years did not contain an adverse opinion, disclaimer
of opinion nor was it qualified or modified as to uncertainty, audit scope or
accounting principles. The decision to change certifying accountants was
recommended and approved by the Company's Board of Directors. During the
Company's two most recent fiscal years there were no disagreements or
"reportable events" with the Company's former or current independent accountants
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure.
22
<PAGE>
Financial Statements
The Company's financial statements and management's discussion and
analysis of the financial statements are attached to this information statement
at Annex C.
Certain Provisions of the GCL, Amended and Restated Certificate of Incorporation
and Bylaws
The Delaware General Corporation Law ("GCL"), the Amended and Restated
Certificate of Incorporation and the Amended and Restated Bylaws contain certain
provisions which may be considered to have the effect of discouraging, delaying
or making more difficult a hostile effort to obtain control of the Company.
These provisions are intended to promote stability and continuity of management
so that there is sufficient time to undertake the Company's business strategy.
The following discussion is intended to provide highlights only and reference
should be made to the complete text of the GCL, the Amended and Restated
Certificate of Incorporation and the Amended and Restated Bylaws.
Classified Board of Directors. The Amended and Restated Certificate of
Incorporation provides for our Board of Directors to be divided into three
classes of directors, with each class as nearly equal in number as possible,
serving staggered three-year terms (other than directors who may be elected by
holders of preferred stock). As a result, approximately one-third of our Board
of Directors will be elected each year. The classified board provision will help
to assure the continuity and stability of our Board of Directors and our
business strategies and policies as determined by our Board of Directors. The
classified board provision could have the effect of discouraging a third party
from making an unsolicited tender offer or otherwise attempting to obtain
control of us without the approval of our Board of Directors. In addition, the
classified board provision could delay shareholders who do not like the policies
of our Board of Directors from electing a majority of our Board of Directors for
two years.
Special Meetings. The Company's Amended and Restated Bylaws require
that if shareholders desire to request a special meeting, shareholders holding
at least a majority of the Company's voting shares must submit a written request
to the Company. This provision makes is more difficult for shareholders to call
a special meeting than if a lesser number of shareholders were authorized to
request a meeting.
Nominations and Stockholder Proposals. Our Amended and Restated Bylaws
establish an advance notice procedure for our stockholders to make nominations
of candidates for election as directors or to bring other business before an
annual meeting of our stockholders (the "Stockholder Notice Procedure"). The
Stockholder Notice Procedure provides that only persons who are nominated by, or
at the direction of, our Board of Directors or its Chairman, or by a stockholder
who has given timely written notice to our Secretary or any Assistant Secretary
prior to the meeting at which directors are to be elected, will be eligible for
election as our directors. The Stockholder Notice Procedure also provides that
at an annual meeting only such business may be conducted as has been brought
before the meeting by, or at the direction of, our Board of Directors or its
Chairman or by a stockholder who has given timely written notice to our
Secretary of such stockholder's intention to bring such business before such
meeting. Under the Stockholder Notice Procedure, if a stockholder desires to
submit a proposal or nominate persons for election as directors at an annual
meeting, the stockholder must submit written notice to the Company not less than
90 days nor more than 120 days prior to the first anniversary of the previous
year's annual meeting. In addition, under the Stockholder Notice Procedure, a
stockholder's notice to the Company proposing to nominate a person for election
as a director or relating to the conduct of business other than the nomination
of directors must contain certain specified information. If the chairman of a
meeting determines that business was not properly brought before the meeting, in
accordance with the Stockholder Notice Procedure, such business shall not be
discussed or transacted.
23
<PAGE>
Removal; Filling Vacancies. Our Amended and Restated certificate of
Incorporation and Amended and Restated Bylaws authorize our Board of Directors
to elect additional directors under specified circumstances and fill any
vacancies that occur in our Board of Directors by reason of death, resignation,
removal, or otherwise. A director so elected by our Board of Directors to fill a
vacancy or a newly created directorship holds office until the next election of
the class for which such director has been chosen and until his successor is
elected and qualified. Subject to the rights of the holders of any series of our
preferred stock, if any, our Amended and Restated certificate of Incorporation
and Amended and Restated Bylaws also provide that directors may be removed only
for cause and only by the affirmative vote of holders of a majority of the
combined voting power of the then outstanding stock of the Company. The effect
of these provisions is to preclude a stockholder from removing incumbent
directors without cause and simultaneously gaining control of our Board of
Directors by filling the vacancies created by such removal with its own
nominees.
Additional Information
Additional information concerning the Company, including its annual,
quarterly and current reports for the past twelve months and its Form 10-SB
Registration Statement, as amended, which have been previously filed with the
Securities and Exchange Commission, may be accessed though the EDGAR Archives,
at The Company's Amended and Restated Bylaws are attached at Annex D.
24
<PAGE>
Forward-looking Information
Certain of the information in this information statement may constitute
forward-looking statements relating to the Company that are based on the current
beliefs of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. When used in this
information statement, words such as "anticipate", "believe", "estimate",
"expect", "intend" and similar expressions, as they relate to the Company or the
Company's management, identify forward-looking statements. Such statements
reflect the current views or expectations of the Company with respect to future
events, and are subject to change based on numerous factors including, but not
limited to, regulatory changes and changes in management's intentions or
beliefs.
BY ORDER OF THE BOARD OF DIRECTORS
HARRY J. WEITZEL
Chairman and Chief Executive Officer
Beverly Hills, California
April 26, 2000
25
<PAGE>
ANNEX A
Amended and Restated Certificate of Incorporation
<PAGE>
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
SHANECY, INC.
The undersigned hereby certifies that:
1. The present name of this corporation is Shanecy, Inc. (the
"Corporation"). This Amended and Restated Certificate of Incorporation changes
the name of the Corporation to Inc.ubator Capital, Inc. The Corporation was
originally incorporated under the name Shanecy, Inc., and the date of filing of
the original Certificate of Incorporation of the Corporation with the Secretary
of State of the State of Delaware was May 31, 1994. The date of filing of the
Amended and Restated Certificate of Incorporation of the Corporation with the
Secretary of State of the State of Delaware is February __,2000. The above
Amended and Restated Certificate of Incorporation, herein certified, has been
duly adopted in accordance with the provisions of Sections 228, 242 and 245 of
the General Corporation Law.
2. The undersigned is the duly elected Chairman and Chief Executive
Officer of the Corporation.
3. The Certificate of Incorporation of the Corporation, as amended, is
hereby amended and restated to read as follows:
FIRST: The name of the Corporation is Inc.ubator Capital, Inc.
SECOND: The address of the registered office in the State of Delaware
is 32 Loockerman Square, Suite L-100, Dover, DE 19901, and the name of the
registered agent of the Corporation in the State of Delaware is The
Prentice-Hall Corporation Systems, Inc., in the County of Kent.
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the General Corporation
Law of Delaware ("General Corporation Law").
FOURTH. The total number of shares of stock the Corporation shall have
authority to issue is (i) 150,000,000 shares of Common Stock, $.001 par value
per share ("Common Stock"), and (ii) 25,000,000 shares of Preferred Stock, $.001
par value per share ("Preferred Stock").
The following is a statement of the designations and the powers,
privileges and rights, and the qualifications, limitations or restrictions in
respect of each class of capital stock of the Corporation.
1
<PAGE>
(a) Preferred. The Corporation's board of directors (hereafter called
"Board of Directors" or "Board") is authorized to adopt at any time, or from
time to time, amendments to this Amended and Restated Certificate of
Incorporation with respect to any unissued and/or treasury shares of Preferred
Stock, and thereby to fix or change the division of shares of the Preferred
Stock into classes and/or into series within any class or classes, and to fix or
change the determination of the voting rights, designations, preferences,
limitations, special rights and relative rights of the shares of any class or
series. The authority of the Board with respect to each class or series of
Preferred Stock shall include, but not be limited to, determination of the
following:
(i) The number of shares constituting that class or series and
the distinctive designation of that class or series;
(ii) The dividend rate on the shares of that class or series,
whether dividends shall be cumulative, and, if so, from which date or dates;
(iii) Whether that class or series shall have voting rights,
in addition to any voting rights provided by law, and, if so, the terms of such
voting rights;
(iv) Whether that class or series shall have conversion
privileges and, if so, the terms and conditions of such conversion, including
provision for adjustment of the conversion rate in such events as the Board of
Directors shall determine;
(v) Whether or not shares of that class or series shall be
redeemable and whether or not the Corporation or the holder (or both) may
exercise the redemption right, including the date or dates upon or after which
they shall be redeemable, and the amount per share payable in case of
redemption, which amount may vary under different conditions;
(vi) The rights of the shares of that class or series in the
event of voluntary or involuntary liquidation, dissolution or winding up of the
Corporation; and
(vii) Any other relative rights, preferences and limitations
of that class or series as may be permitted or required by law.
(b) Common Stock. Each share of Common Stock shall be entitled to one
vote on all matters submitted to a vote of shareholders except as the right to
exercise such note may be limited by the provisions of these Articles of
Incorporation or of any class or series of Preferred Stock established
hereunder. The holders of Common Stock shall be entitled to such dividends as
may be declared by the Board of Directors from time to time, provided that
required dividends, if any, on the Preferred Stock have been paid or provided
for. In the event of the liquidation, dissolution, or winding up, whether
voluntary or involuntary of the Corporation, the assets and funds of the
Corporation available for distribution to the shareholders, and remaining after
the payment to holders of Preferred Stock of the amounts (if any) to which they
are entitled, shall be divided and paid to the holders of the Common Stock
according to their respective shares.
2
<PAGE>
FIFTH: The Board of Directors shall be divided into three classes
(Class 1, Class 2 and Class 3), as nearly equal in number as the then total
number of directors constituting the whole Board permits, with the term of
office of one class expiring each year beginning with Class 1, then Class 2, and
finally Class 3. At the annual meeting of shareholders in the year 2000,
directors in Class 1 shall be elected to hold office for a one-year term;
directors in Class 2 shall be elected to hold office for a two-year term; and
directors in Class 3 shall be elected to hold office for a three-year term.
At each annual meeting after the annual meeting in the year 2000,
elections shall be held to elect directors to replace those whose terms have
expired. The term of office for all directors elected at each annual meeting
held after the year 2000 shall be three years from the date of their election.
All directors shall continue in office after the expiration of their terms until
their successors are elected or appointed and have qualified, except in the
event of earlier resignation, removal or disqualification.
SIXTH: No director shall be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty by such
director as a director. Notwithstanding the foregoing sentence, a director shall
be liable, solely to the extent provided by applicable law, (i) for breach of
the director's duty of loyalty to the Corporation or its stockholders, (ii) for
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) pursuant to Section 174 of the Delaware General
Corporation Law or (iv) for any transaction from which the director derived an
improper personal benefit. No amendment to or repeal of this Article Sixth shall
apply to or have any effect on the liability or alleged liability of any
director of the Corporation for or with respect to any acts or omissions of such
director occurring prior to such amendment.
SEVENTH: Section 7.1 Mandatory Indemnification. The Corporation shall,
to the fullest extent permitted by applicable law, indemnify its directors and
officers who were or are a party or are threatened to be made a party to any
threatened, pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative (whether or not such action, suit or
proceeding arises or arose by or in the right of the Corporation or other
entity) by reason of the fact that such member, director or officer is or was a
director or officer of the Corporation or is or was serving at the request of
the Corporation as a director, officer, employee, general partner, agent or
fiduciary of another Corporation, partnership, joint venture, trust or other
enterprise (including service with respect to employee benefit plans), against
expenses (including, but not limited to, attorneys fees and costs), judgments,
fines (including excise taxes assessed on a person with respect to any employee
benefit plan) and amounts paid in settlement actually and reasonably incurred by
such director or officer in connection with such action, suit or proceeding,
except as otherwise provided in Section 7.3 hereof. A director or officer of the
Corporation entitled to indemnification under this Section 7.1 is hereafter
called a "covered person."
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Section 7.2 Expenses. Expenses incurred by a covered
person in defending a threatened, pending or completed civil or criminal action,
suit or proceeding shall be paid by the Corporation in advance of the final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall ultimately be
determined that such person is not entitled to be indemnified by the
Corporation, except as otherwise provided in Section 7.3.
Section 7.3 Exceptions. No indemnification under
Section 7.1 or advancement or reimbursement of expenses under Section 7.2 shall
be provided to a covered person (a) if a final unappealable judgment or award
establishes that such director or officer engaged in intentional misconduct or
transaction from which the member, director or officer derived an improper
personal benefit; (b) for expenses or liabilities of any type whatsoever
(including, but not limited to, judgments, fines, and amounts paid in
settlement) which have been paid directly to such person by an insurance carrier
under a policy of officers' and directors' liability insurance maintained by the
Corporation or other enterprise; and (c) for amounts paid in settlement of any
threatened, pending or completed action, suit or proceeding without the written
consent of the Corporation, which written consent shall not be unreasonably
withheld. The Board of Directors of the Corporation is hereby authorized, at any
time by resolution and without stockholder approval, to add to the above list of
exceptions from the right of indemnification under Section 7.1 or advancement or
reimbursement of expenses under Section 7.2, but any such additional exception
shall not apply with respect to any event, act or omission which has occurred
prior to the date that the Board of Directors in fact adopts such resolution.
Any such additional exception may, at any time after its adoption, be amended,
supplemented, waived or terminated by further resolution of the Board of
Directors of the Corporation.
Section 7.4 Continuation of Rights. The
indemnification and advancement or reimbursement of expenses provided by, or
granted pursuant to, this Article Seventh shall continue as to a person who has
ceased to be a director or officer of the Corporation, and shall inure to the
benefit of the heirs, executors and administrators of such person.
Section 7.5 General Provisions.
(a) The term "to the fullest extent
permitted by applicable law", as used in this Section 7, shall mean the maximum
extent permitted by public policy, common law or statute. Any covered person
may, to the fullest extent permitted by applicable law, elect to have the right
to indemnification or to advancement or reimbursement of expenses, interpreted,
at such person's option, (i) on the basis of the applicable law on the date this
Article Seventh was approved by the stockholders, or (ii) on the basis of the
applicable law in effect at the time of the occurrence of the event or events
giving rise to the action, suit or proceeding, or (iii) on the basis of the
applicable law in effect at the time indemnification is sought.
(b) The right of a covered person to be
indemnified or to receive an advancement or reimbursement of expenses pursuant
to Section 7 (i) may also be enforced as a contract right pursuant to which the
person entitled thereto may bring suit as if the provisions hereof were set
forth in a separate written contract between the Corporation and such person,
(ii) to the fullest extent permitted by applicable law, is intended to be
retroactive and shall be available with respect to events occurring prior to the
adoption hereof, and (iii) shall continue to exist after the rescission or
restrictive modification (as determined by such person) of this Section 7 with
respect to events, acts or omissions occurring before such rescission or
restrictive modification is adopted.
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(c) If a request for indemnification or for
the advancement or reimbursement of expenses pursuant hereto is not paid in full
by the Corporation within thirty days after a written claim has been received by
the Corporation together with all supporting information reasonably requested by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim (plus interest at the
prime rate announced from time to time by the Corporation's primary banker) and,
if successful in whole or in part, the claimant shall be entitled also to be
paid the expenses (including, but not limited to, attorney's fees and costs) of
prosecuting such claim. Neither the failure of the Corporation (including its
Board of Directors or independent legal counsel) to have made a determination
prior to the commencement of such action that indemnification of or the
advancement or reimbursement of expenses to the claimant is proper in the
circumstances, nor an actual determination by the Corporation (including its
Board of Directors or independent legal counsel) that the claimant is not
entitled to indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the action or create a presumption that the claimant is
not so entitled.
(d) The indemnification and advancement or
reimbursement of expenses provided by, or granted pursuant to, this Section 7
shall not be deemed exclusive of any other rights to which those seeking
indemnification or advancement or reimbursement of expenses may be entitled
under any bylaw, agreement, vote of stockholders or disinterested directors or
otherwise.
(e) Nothing contained in this Section 7
shall be construed to limit the rights and powers the Corporation possesses
under applicable provisions of the Delaware General Business Corporation Law (as
amended from time to time), or otherwise, including, but not limited to, the
powers to purchase and maintain insurance, create funds to secure or insure its
indemnification obligations, and any other rights or powers the Corporation may
otherwise have under applicable law.
(f) The provisions of this Section 7 may, at
any time (and whether before or after there is any basis for a claim for
indemnification or for the advancement or reimbursement of expenses pursuant
hereto), be amended, supplemented, waived or terminated, in whole or in part,
with respect to any covered person covered by a written agreement signed by the
Corporation and such person.
(g) The Corporation shall have the right to
appoint the attorney for a covered person, provided such appointment is not
unreasonable under the circumstances.
Section 7.6 Optional Indemnification. The Corporation
may, to the fullest extent permitted by applicable law, indemnify, and advance
or reimburse expenses for, persons in all situations other than that covered by
this Section 7 subject to the unanimous consent of the Board of Directors.
EIGHTH: Meetings of the stockholders may be held within or without the
State of Delaware, as the Bylaws may provide. Subject to the provisions of any
law or regulation, the books of the Corporation may be kept outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation. The election of
directors need not be by written ballot unless the Bylaws so provide.
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NINTH: Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for the Corporation under the
provision of Section 291 of the General Corporation Law, or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
Corporation under Section 279 of the General Corporation Law, order a meeting of
the creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing
three-fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of the
Corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders of the Corporation, as the case may be, and also on the
Corporation.
TENTH: From time to time any of the provisions of this Certificate of
Incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by such laws, and all
rights at any time conferred upon the stockholders of the Corporation by this
Certificate of Incorporation are granted subject to the provisions of this
Article Tenth.
Subject to the provisions of this Certificate of Incorporation and the
provisions of the General Corporation Law, the power to amend, alter or repeal
the bylaws of the Corporation may be exercised by the Board of Directors.
ELEVENTH: The Corporation hereby elects to not be governed by to
Section 203 of the General Corporation Law.
IN WITNESS WHEREOF, the undersigned has duly executed this Amended and
Restated Certificate of Incorporation this __ day of February, 2000, and
declares under the penalty of perjury that the matters set forth in the
foregoing Certificate are true of his own knowledge.
SHANECY, INC.
By:
-------------------------------
Name: Harry J. Weitzel
Title: Chairman and Chief Executive Officer
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CERTIFICATE OF DESIGNATIONS
OF
INC.UBATOR CAPITAL, INC.
ADOPTED PURSUANT TO SECTION 151(g)
OF THE
DELAWARE GENERAL CORPORATION LAW
RESOLVED, that pursuant to the authority expressly granted to the Board
of Directors (the "Board of Directors") of Inc.ubator Capital, Inc., a Delaware
Corporation (the "Company"), by the provisions of the Amended and Restated
Certificate of Incorporation of the Company and the provisions of Section 151(g)
of the Delaware General Corporation Law, the Board of Directors hereby creates a
series of preferred stock, par value $0.001 per share, and determines the
designation and number of Series A Preferred Stock which constitute such series
and the relative rights, preferences and limitations of such series as follows:
1. Designation and Number of Series A Preferred Stock. The series of
Preferred Stock shall be designated as "Series A Convertible Preferred Stock"
(hereinafter called "Series A Preferred Stock") and shall consist of a total of
8,500,000 shares of Series A Preferred Stock, par value $0.001 per share.
2. Dividends.
(a) The holders of Series A Preferred Stock shall be entitled
to receive an annual dividend rate of six and one-half percent (6.5%) on the
liquidation preference amount as set forth in Section 3 below, which dividends
shall accrue day to day from November 11, 1999, whether or not earned or
declared. Such dividends shall be cumulative so that, if such dividends in
respect of any previous or current annual dividend period shall not have been
paid at the annual rate specified above, the deficiency shall first be fully
paid before any dividend or other distribution shall be paid on or declared and
set apart for the shares of common stock of the Company (the "Common Stock").
Any accumulation of dividends on the Series A Preferred Stock shall not bear
interest. Cumulative dividends with respect to shares of Series A Preferred
Stock which are accrued, payable and/or in arrears shall, upon conversion of
such shares of Series A Preferred Stock to Common Stock, be paid to the extent
assets are legally available therefor and any amounts for which assets are not
legally available shall be paid promptly as assets become legally available. Any
partial payment pursuant to the preceding sentence shall be made pro rata among
the holders of such Series A Preferred Stock, provided, however, that the
Company may pay all or any portion of any outstanding dividend by issuing
additional shares of Series A Preferred Stock in an aggregate amount equal to
such payment divided by the market value of the number of shares of Common Stock
(determined as the average of the closing prices of the Common Stock, for the
thirty day period ending prior to the date of payment, as quoted on the
Over-the-Counter Bulletin Board stock quotation system (and any successor
thereto) on which the Common Stock is then listed for trading) into which such
Series A Preferred Stock shall be convertible at the time of such payment.
<PAGE>
(b) Unless full dividends on the Series A Preferred Stock for
all past dividend periods and the then-current dividend period shall have been
paid or declared and a sum sufficient for the payment thereof set apart: (i) no
dividend whatsoever shall be paid or declared, and no distribution shall be
made, on any shares of Common Stock, and (ii) no shares of Common Stock shall be
purchased, redeemed or acquired by the Company and no funds shall be paid into
or set aside or made available for a sinking fund for the purchase, redemption
or acquisition thereof, provided, however, that this restriction shall not apply
to the repurchase of Common Stock held by employees, officers, directors,
consultants or other persons performing services for the Company or any
wholly-owned subsidiary that are subject to restrictive stock purchase
agreements under which the Company has the option to repurchase such Common
Stock at "cost" (as defined in any such agreements) upon the occurrence of
certain events, such as the termination of employment.
3. Liquidation Preference.
(a) In the event of any liquidation, dissolution or winding up
of the Company, either voluntary or involuntary, the holders of Series A
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets of the Company to the holders of Common Stock
by reason of their ownership thereof, an amount per share of Series A Preferred
Stock equal to the sum of (i) $0.7756 for each outstanding share of Series A
Preferred Stock (the "Original Issue Price") and (ii) an amount equal to
declared but unpaid dividends on such Series A Preferred Stock (the "Premium").
If, upon the occurrence of the liquidation, dissolution or winding up of the
Company, the assets and funds thereof distributed to the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders in
full of the Original Issue Price and the Premium, then the entire assets and
funds of the Company legally available for distribution shall be distributed
ratably among the holders of the Series A Preferred Stock in proportion to the
amount of Series A Preferred Stock held by each.
(b) For purposes of this Section 3, a liquidation, dissolution
or winding up of the Company shall be deemed to be occasioned by, or to include
the acquisition of the Company or the sale of its assets, unless the Company's
shareholders of record as constituted immediately prior to such acquisition or
sale will immediately thereafter hold at least 50% of the voting power of the
surviving or acquiring entity. For purposes of this subsection (b), (i)
"acquisition" shall mean the acquisition of the Company by any other entity by
means of any transaction or series of related transactions (including, without
limitation, any reorganization, merger or consolidation but excluding any merger
effected exclusively for the purpose of changing the domicile of the Company);
and (ii) "sale of assets" shall mean a sale of all or substantially all of the
assets of the Company.
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(c) In the event of a liquidation as described above, all
non-cash assets of the Company shall be valued as follows:
(i) Securities not subject to legend, investment letter
or other similar restrictions on free marketability:
(A) If traded on a recognized securities exchange,
the value shall be deemed to be the average of the closing prices of the
securities on such exchange over the thirty day period ending three days prior
to the closing;
(B) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty day period ending three days prior to the
closing; and
(C) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the Company
and the holders of a least a majority of the then-outstanding shares of Series A
Preferred Stock.
(ii) Securities subject to legend, investment letter or
other similar restrictions shall be valued by an appropriate discount from the
market value as determined in accordance with subsection (i) above, as mutually
determined by the Company and the holders of at least a majority of the
then-outstanding shares of Series A Preferred Stock.
(iii) In the event that the Company and the holders of
at least a majority of the then-outstanding shares of Series A Preferred Stock
(the "Holders") cannot agree on a valuation pursuant to subsections (i)(C) or
(ii) above, then the dispute shall be resolved as follows: (A) immediately after
written notice of a valuation dispute, either the Company or the Holders may
initiate an arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association; (B) within ten (10) days after notice of
the commencement of such arbitration, the parties shall jointly designate an
arbitrator or, if they cannot agree, each shall designate an arbitrator and both
such arbitrators shall, within ten (10) days, designate a third arbitrator; (C)
within sixty (60) days after the selection of the arbitrator(s) has been
completed, the arbitrator(s) shall hold the arbitration hearing; (D) the
arbitrator(s) shall award the costs and expenses of arbitration, including
reasonable attorneys' and expert witness fees, to the prevailing party; and (E)
the arbitration award shall be final, non-appealable and may be enforced by any
court of competent jurisdiction.
(d) The Company shall give each holder of record of Series A
Preferred Stock written notice of any transaction of the type described in this
Section 3 not later than (i) twenty (20) days prior to the shareholders' meeting
called to approve such transaction, (ii) twenty (20) days prior to the closing
of such transaction, or (iii) the applicable notice period prescribed by law,
whichever is earlier, and shall also notify such holders in writing of the final
approval of such transaction. The first such notice shall describe the material
terms and conditions of the contemplated transaction and the effect thereon of
the provisions of this Section 3, and the Company shall thereafter give such
holders prompt notice of any material changes in such terms and conditions. The
contemplated transaction shall in no event take place sooner than twenty (20)
days after the Company has given the first notice provided herein, provided,
however, that such period may be shortened upon the written consent of the
holders of at least a majority of the then-outstanding shares of Series A
Preferred Stock.
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4. Conversion.
(a) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof at any time, into two (2) fully
paid and nonassessable shares of Common Stock for each share of Series A
Convertible Stock converted (2::1 being referred to as the "Conversion Ratio",
subject to adjustment as provided below). In order to convert any shares of
Series A Preferred Stock into Common Stock, the holder shall surrender the
certificate(s) therefor, duly endorsed, at the office of the Company or of any
transfer agent for the Series A Preferred Stock, and shall give written notice
to the Company of the election to convert the same, which notice shall state
therein the name(s) in which the certificate(s) of shares of Common Stock are to
be issued. The Company shall, as soon as practicable thereafter, issue and
deliver at such officer to such holder of Series A Preferred Stock, or to the
nominee(s) of such holder, a certificate or certificates for the number of
shares of Common Stock to which such holder is entitled. Such conversion shall
be deemed to have been made immediately prior to the close of business on the
date of the surrender of the Series A Preferred Stock to be converted, and the
person(s) entitled to receiver the Common Stock issuable upon such conversion
shall be treated for all purposes as the record holder(s) of such Common Stock
as of such date.
(b)(1) If the Company shall at any time or from time to time
after the date that the first share of Series A Preferred Stock is issued (the
"Original Issue Date") effect a stock dividend or division (i.e., split) of the
outstanding Common Stock without a corresponding stock dividend or division of
the Series A Preferred Stock, the Conversion Ratio in effect immediately before
that stock dividend or division shall be proportionately increased. Conversely,
if the Company shall at any time or from time to time after the Original Issue
Date combine the outstanding shares of Common Stock into a smaller number of
shares without a corresponding combination of the Series A Preferred Stock, the
Conversion Ratio in effect immediately before the combination shall be
proportionately decreased. Any adjustment under this Section 4(b)(1) shall
become effective at the close of business on the date the stock dividend or
division or combination becomes effective.
(b)(2) The Conversion Ratio shall be adjusted by the Board of
Directors if the Company shall at any time after the Original Issue Date issue
additional shares of Common Stock in exchange for which the Company does not
receive fair market value (in either cash, services, securities or other
assets), other than (i) shares issued as a dividend, division or distribution as
contemplated by subsection 4(b)(1), or (ii) shares issued to consultants,
employees, officers or directors of the Company either directly or pursuant to a
stock option plan, restricted stock plan or other compensation plan approved by
the Board of Directors. Upon such an event, the Board of Directors shall adjust
the Conversion Ratio upward so that the economic value of the Common Stock into
which each share of Series A Preferred Stock is convertible shall be
approximately equal both immediately before and immediately after such event.
For purposes of this subsection 4(b)(2), the value of non-cash consideration
shall be determined by the Board of Directors in good faith.
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(c) In the event that the Company shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Company or other persons, securities, assets (excluding cash dividends), options
or rights in the capital of the Company, then in each such case the holders of
the Series A Preferred Stock shall be entitled to a proportionate share of any
such distributions as though they were the holders of the number of shares of
Common Stock into which their shares of Series A Preferred Stock are convertible
as of the record date fixed for the determination of the holders of Common Stock
entitled to receive such distribution.
(d) If at any time there shall be a recapitalization of the
Common Stock (other than as contemplated by Section 3 hereof), the holders of
the Series A Preferred Stock shall be entitled to receive upon conversion of the
Series A Preferred Stock the number of shares of stock of or other securities or
property of the Company or otherwise to which a holder of shares of Common Stock
deliverable upon conversion would have been entitled to receive on such
recapitalization.
(e) The Company shall not, by amendment of its Amended and
Restated Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, dissolution, issue
or sale of securities or any other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms to be observed or performed
hereunder by the Company, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 4 and the taking of all such
action as may be necessary or appropriate in order to protect the rights
hereunder of the holders of the Series A Preferred Stock against impairment.
(f) No fractional shares shall be issued upon the conversion
of any shares of Series A Preferred Stock, and the number of shares of Common
Stock to be issued shall be rounded to the nearest whole share (with a one-half
share being rounded upward). Whether or not fractional shares are issuable upon
such conversion shall be determined on the basis of the total number of shares
of Series A Preferred Stock the holder is at the time converting into Common
Stock and the number of shares of Common Stock issuable upon such aggregate
conversion.
(g) Upon the occurrence of each adjustment or readjustment of
the Conversion Ratio pursuant to this Section 4, the Company, at its own
expense, shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and prepare and furnish to each holder of Series A
Preferred Stock a certificate setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Company shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish or cause to be furnished to such holder a like
certificate setting forth (A) such adjustment or readjustment, (B) the
Conversion Ratio for the Series A Preferred Stock then in effect, and (C) the
number of shares of Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of a share of Series A
Preferred Stock.
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(h) The Company shall at all times reserve and keep available
out of its authorized but unissued Common Stock, solely for the purpose of
effecting the conversion of the shares of Series A Preferred Stock, such number
of shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding Series A Preferred Stock. If at any time the
number of authorized but unissued Common Stock shall not be sufficient to effect
the conversion of all the then outstanding shares of Series A Preferred Stock,
in addition to such other remedies as shall be available to the holder of such
shares of Series A Preferred Stock, the Company shall take such corporate action
as may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of Common Stock to such number as shall be sufficient for
such purposes.
(i) In the event any shares of Series A Preferred Stock shall
be converted pursuant to this Section 4, the Series A Preferred Stock so
converted shall be cancelled and shall not be issuable by the Company.
5. Redemption. The holders of the Series A Preferred Stock shall have
no right of redemption by the Company, and the Company shall have no right to
redeem such Series A Preferred Stock.
6. Voting Rights. Each holder of outstanding shares of Series A
Preferred Stock shall be entitled to the number of votes equal to the number of
whole shares of commons stock into which the shares of Series A Preferred Stock
held by such holder are convertible (as adjusted from time to time), at each
meeting of stockholders of the Company (and written actions of stockholders in
lieu of meetings) with respect to any and all matters presented to the
stockholders of the Company for their action or consideration. Except as
provided by law or as provided below, holders of Series A Preferred Stock and of
any other outstanding series of Preferred Stock shall vote together with the
holders of common stock as a single class.
7. Protective Provisions. So long as any shares of Series A Preferred
Stock are outstanding, the Company shall not, without first obtaining the
approval (by vote or by written consent, as provided by law) of the holders of
at least a majority of the then outstanding shares of Series A Preferred Stock:
(a) sell, convey or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the Company is disposed of;
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(b) alter or change the rights, preferences of privileges of
the Series A Preferred Stock so as to affect adversely affect such Series A
Preferred Stock;
(c) increase or decrease (other than by redemption or
conversion) the total number of authorized shares of Series A Preferred Stock;
(d) authorize or issue, or obligate itself to issue, any other
equity security, including any other security convertible into or exercisable
for any equity security (i) having a preference over, or being on a parity with,
the Series A Preferred Stock with respect to dividends or upon liquidation, or
(ii) having rights similar to any of the rights of the Series A Preferred Stock
under this Section 7;
(e) redeem, purchase or otherwise acquire (or pay into or set
aside for a sinking fund for such purpose) any Series A Preferred Stock or
Common Stock, provided, however, that this restriction shall not apply to the
repurchase of Common Stock from employees, officers, directors, consultants or
other persons performing services for the Company or any subsidiary pursuant to
agreements under which the Company has the option to repurchase such Series A
Preferred Stock at "cost" (as defined in any such agreements) upon the
occurrence of certain events, such as the termination of employment;
(f) amend the Company's Certificate of Incorporation or
bylaws; or
(g) change the authorized number of directors of the Company.
8. Notices of Record Date. In the event of any taking by the Company of
a record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend (other
than a cash dividend) or other distribution (other than a cash distribution),
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each holder of Series A Preferred Stock, at least
twenty (20) days prior to the date specified therein, a notice specifying the
date on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.
9. Notices. Any notice required by the provisions hereof to be given to
the holders of the Series A Preferred Stock shall be deemed given if deposited
by mail, postage prepaid, and addressed to each holder of record at his or her
address appearing on the books of the Company.
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ANNEX B
Stock Option Plan
<PAGE>
SHANECY, INC.
1999 STOCK OPTION PLAN
1. Purpose of Plan
The purpose of this 1999 Stock Option Plan (the "Plan") is to provide
additional incentive to officers, directors and key employees of and important
consultants to Shanecy, Inc., a Delaware corporation (the "Company"), and each
present or future parent or subsidiary corporation by encouraging them to invest
in shares of the Company's common stock ("Common Stock"), and thereby acquire a
proprietary interest in the Company and an increased personal interest in the
Company's continued success and progress, to the mutual benefit of officers,
directors, employees and shareholders.
2. Aggregate Number of Shares
6,000,000 shares of the Company's Common Stock (the "Stock") shall be
the aggregate number of shares which may be issued under this Plan.
Notwithstanding the foregoing, in the event of any change in the outstanding
shares Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee (defined in Section
4(a) below) deems in its sole discretion to be similar circumstances, the
aggregate number and kind of shares which may be issued under this Plan shall be
appropriately adjusted in a manner determined in the sole discretion of the
Committee. Reacquired shares of the Company's Stock, as well as unissued shares,
may be used for the purpose of this Plan. Stock of the Company subject to
options which have terminated unexercised, either in whole or in part, shall be
available for future options granted under this Plan.
3. Class of Persons Eligible to Receive Options
All officers, directors and key employees of and consultants to the
Company and of any present or future Company parent or subsidiary corporation
are eligible to receive an option or options under this Plan. The individuals
who shall, in fact, receive an option or options shall be selected by the
Committee, in its sole discretion, except as otherwise specified in Section 4
hereof. No individual may receive options under this Plan for more than 90% of
the total number of shares of the Company's Common Stock authorized for issuance
under this Plan.
4. Administration of Plan
(a) This Plan shall be administered by the Company's Board of
Directors unless and until the Board shall appoint an Option Committee
("Committee") to do so. The Committee shall consist of a minimum of two and a
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maximum of five members of the Board of Directors, each of whom shall be a
"Non-Employee Director" within the meaning of Rule 16b-3(b)(3) under the
Securities Exchange Act of 1934, as amended, or any future corresponding rule,
except that the failure of the Committee for any reason to be composed solely of
Non-Employee Directors shall not prevent an option from being considered granted
under this Plan. The Committee shall, in addition to its other authority and
subject to the provisions of this Plan, determine which individuals shall in
fact be granted an option or options, whether the option shall be an Incentive
Stock Option or a Non-Qualified Stock Option (as such terms are defined in
Section 5(a)), the number of shares to be subject to each of the options, the
time or times at which the options shall be granted, the rate of option
exercisability, and, subject to Section 5 hereof, the price at which each of the
options is exercisable and the duration of the option. The term "Committee", as
used in this Plan and the options granted hereunder, refers to the Board of
Directors prior to the appointment of an option committee pursuant to this
Section and, thereafter, to the option committee so appointed.
(b) The Committee shall, in addition to its other authority and
subject to the provisions of this Plan, determine which individuals shall in
fact be granted an option or options, whether the option shall be an Incentive
Stock Option or a Non-Qualified Stock Option (as such terms are defined in
Section 5(a) below), the number of shares to be subject to each of the options,
the time or times at which the options shall be granted, the rate of option
exercisability, and, subject to Section 5 hereof, the price at which each of the
options is exercisable and the duration of the option.
(c) The Committee shall adopt such rules for the conduct of its
business and administration of this Plan as it considers desirable. A majority
of the members of the Committee shall constitute a quorum for all purposes. The
vote or written consent of a majority of the members of the Committee on a
particular matter shall constitute the act of the Committee on such matter. The
Committee shall have the right to construe the Plan and the options issued
pursuant to it, to correct defects and omissions and to reconcile
inconsistencies to the extent necessary to effectuate the Plan and the options
issued pursuant to it, and such action shall be final, binding and conclusive
upon all parties concerned. No member of the Committee shall be liable for any
act or omission (whether or not negligent) taken or omitted in good faith, or
for the exercise of an authority or discretion granted in connection with the
Plan to the Committee or for the acts or omissions of any other members of a
Committee.
(d) Subject to the numerical limitations on Option Committee
membership set forth in Section 4(a) hereof, the Board of Directors may at any
time appoint additional members of the Option Committee and may at any time
remove any member of the Option Committee with or without cause. Vacancies in
the Option Committee, however caused, may be filled by the Board of Directors,
if it so desires.
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5. Incentive Stock Options and Non-Qualified Stock Options
(a) Options issued pursuant to this Plan may be either Incentive
Stock Options granted pursuant to Section 5(b) hereof or Non-Qualified Stock
Options granted pursuant to Section 5(c) hereof, as determined by the Committee.
An "Incentive Stock Option" is an option which satisfies all of the requirements
of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
the regulations thereunder, and a "Non-Qualified Stock Option" is an option
which either does not satisfy all of those requirements or the terms of the
option provide that it will not be treated as an Incentive Stock Option. The
Committee may grant both an Incentive Stock Option and a Non-Qualified Stock
Option to the same person, or more than one of each type of option to the same
person. The option price for Incentive Stock Options issued under this Plan
shall be equal at least to the "Fair Market Value" (as defined below) of the
Company's Stock on the date of the grant of the Option and the option price for
Non-Qualified Stock Options may or may not be equal to such Value.
Notwithstanding the foregoing, in the case of an Incentive Stock Option granted
to an individual who owns more than 10 percent of the total combined voting
power of all classes of outstanding stock of the Company, the exercise price per
share shall be at least 110 percent of such Fair Market Value. For purposes of
this paragraph, in determining stock ownership, an individual shall be
considered as owning the stock owned, directly or indirectly, by or for his
brothers and sisters (whether by whole or half blood), spouse, ancestors and
lineal descendants. The Fair Market Value of the Company's Stock on any
particular date shall mean the last reported sale price of a share of the
Company's Stock on any stock exchange on which such stock is then listed or
admitted to trading, or on the NASDAQ Stock Market, on such date, or if no sale
took place on such day, the last such date on which a sale took place, or if the
Stock is not then quoted on the NASDAQ Stock, or listed or admitted to trading
on any stock exchange, the average of the bid and asked prices in the
over-the-counter market on such date, or if none of the foregoing, a price
determined in good faith by the Committee to equal the fair market value per
share of the Common Stock.
(b) Subject to the authority of the Committee set forth in Section
4(a) hereof, Incentive Stock Options issued pursuant to this Plan shall be
issued substantially in the form set forth in Appendix I hereof, which form is
hereby incorporated by reference and made a part hereof, and shall contain
substantially the terms and conditions set forth therein. Incentive Stock
Options shall not be exercisable after the expiration of ten years from the date
such options are granted, unless terminated earlier under the terms of the
option, except that options granted to individuals described in Section
422(b)(6) of the Code shall conform to the provisions of Section 422(c)(5) of
the Code. At the time of the grant of an Incentive Stock Option hereunder, the
Committee may, in its sole and absolute discretion, set, amend or supplement any
of the option terms contained in Appendix I for any particular optionee,
provided that the option as amended or supplemented satisfies the requirements
of Section 422 of the Code and the regulations thereunder. Each of the options
granted pursuant to this Section 5(b) is intended, if possible, to be an
"Incentive Stock Option" as that term is defined in Section 422 of the Code and
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the regulations thereunder. In the event this Plan or any option granted
pursuant to this Section 5(b) is in any way inconsistent with the applicable
legal requirements of the Code or the regulations thereunder for an Incentive
Stock Option, this Plan and such option shall be deemed automatically amended as
of the date hereof to conform to such legal requirements, if such conformity may
be achieved by amendment. If such conformity may not be achieved by amendment,
such option shall be deemed to be a Non-Qualified Stock Option.
(c) Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to officers and other key
employees pursuant to this Plan shall be issued substantially in the form set
forth in Appendix II hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Subject to the authority of the Committee set forth in Section
4(a) hereof, Non-Qualified Stock Options issued to directors and important
consultants pursuant to this Plan shall be issued substantially in the form set
forth in Appendix III hereof, which form is hereby incorporated by reference and
made a part hereof, and shall contain substantially the terms and conditions set
forth therein. Non-Qualified Stock Options shall expire ten years after the date
they are granted, unless terminated earlier under the option terms. At the time
of granting a Non-Qualified Stock Option hereunder, the Committee may, in its
sole and absolute discretion, set, amend or supplement any of the option terms
contained in Appendix II or Appendix III for any particular optionee.
(d) Neither the Company nor any of its current or future parent,
subsidiaries or affiliates, nor their officers, directors, shareholders, stock
option plan committees, employees or agents shall have any liability to any
optionee in the event (i) an option granted pursuant to Section 5(b) hereof does
not qualify as an "Incentive Stock Option" as that term is used in Section 422
of the Code and the regulations thereunder; (ii) any optionee does not obtain
the tax treatment pertaining to an Incentive Stock Option; or (iii) any option
granted pursuant to Section 5(c) hereof is an "Incentive Stock Option."
(e) Except as otherwise provided in Section 422 of the Code and
regulations thereunder or any successor provision, no Incentive Stock Option
granted pursuant to this Plan shall be transferable other than by will or the
laws of descent and distribution. Except as otherwise provided by the Rules and
Regulations of the Securities and Exchange Commission, the Committee at the time
of grant of a Non-Qualified Stock Option may provide that such stock option is
transferrable to any "family member" of the optionee by gift or qualified
domestic relations order. For purposes of this section, a family member includes
any child, stepchild, grandchild, parent, step-parent, grandparent, spouse,
former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law,
daughter-in-law, brother-in-law, or sister-in-law, including adoptive
relationships, any person sharing the grantee's household (other than a tenant
or employee), a trust in which these persons have more than 50% of the
beneficial interest, a foundation in which these persons (or the grantee)
controls the management of assets, and any other entity in which these persons
or the grantee own more than 50% of the voting interests.
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6. Amendment, Supplement, Suspension and Termination
Options shall not be granted pursuant to this Plan after the expiration
of ten years from the date the Plan is adopted by the Board of Directors of the
Company. The Board of Directors reserves the right at any time, and from time to
time, to amend or supplement this Plan, including the forms of option agreement
attached hereto, in any way, or to suspend or terminate it, effective as of such
date, which date may be either before or after the taking of such action, as may
be specified by the Board of Directors; provided, however, that such action
shall not affect options granted under the Plan prior to the actual date on
which such action occurred. If an amendment or supplement of this Plan is
required by the Code or the regulations thereunder to be approved by the
shareholders of the Company in order to permit the granting of "Incentive Stock
Options" (as that term is defined in Section 422 of the Code and regulations
thereunder) pursuant to the amended or supplemented Plan, such amendment or
supplement shall also be approved by the shareholders of the Company in such
manner as is prescribed by the Code and the regulations thereunder. If the Board
of Directors voluntarily submits a proposed amendment, supplement, suspension or
termination for shareholder approval, such submission shall not require any
future amendments, supplements, suspensions or terminations (whether or not
relating to the same provision or subject matter) to be similarly submitted for
shareholder approval.
7. Effectiveness of Plan
This Plan shall become effective on the date of its adoption by the
Company's Board of Directors, subject however to approval by the holders of the
Company's Stock in the manner as prescribed in the Code and the regulations
thereunder. Options may be granted under this Plan prior to obtaining
shareholder approval, provided such options shall not be exercisable until
shareholder approval is obtained.
8. General Conditions
(a) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any employee the right to continue in the employ of
the Company or any affiliated or subsidiary corporation or interfere in any way
with the rights of the Company or any affiliated or subsidiary corporation to
terminate his employment in any way.
(b) Nothing contained in this Plan or any option granted pursuant to
this Plan shall confer upon any director or consultant the right to continue as
a director of, or consultant to, the Company or any affiliated or subsidiary
corporation or interfere in any way with the rights of the Company or any
affiliated or subsidiary corporation, or their respective shareholders, to
terminate the directorship of any such director or the consultancy relationship
of any such consultant.
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(c) Corporate action constituting an offer of stock for sale to any
person under the terms of the options to be granted hereunder shall be deemed
complete as of the date when the Committee authorizes the grant of the option to
such person, regardless of when the option is actually delivered to the such
person or acknowledged or agreed to by him.
(d) The terms "parent corporation" and "subsidiary corporation" as
used throughout this Plan, and the options granted pursuant to this Plan, shall
(except as otherwise provided in the option form) have the meaning that is
ascribed to that term when contained in Section 422(b) of the Code and the
regulations thereunder, and the Company shall be deemed to be the grantor
corporation for purposes of applying such meaning.
(e) References in this Plan to the Code shall be deemed to also
refer to the corresponding provisions of any future United States revenue law.
(f) The use of the masculine pronoun shall include the feminine
gender whenever appropriate.
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APPENDIX I
INCENTIVE STOCK OPTION
To:
Name:
Address
Date of Grant:
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.001 par value per share ("Common
Stock"), of Shanecy, Inc., a Delaware corporation (the "Company"), at a price of
$____________ per share pursuant to the Company's 1999 Stock Option Plan (the
"Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to
__________ years from the date of grant, your option may be exercised for up to
_____% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted as the
Committee in its sole discretion determines for any change in the outstanding
shares of the Common Stock of the Company by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional _____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after _____ years after the date of grant, except if terminated earlier
as provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
Notwithstanding anything in the foregoing to the contrary, in addition
to the restrictions on exercise described above for any calendar year, any
options granted hereunder shall become exercisable solely to the extent that the
aggregate fair market value ("FMV") of the Stock (as determined for purposes of
Section 422(d) of the Internal Revenue Code of 1986, as amended, or any
successor provision thereto) with respect to which the options are exercisable
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for the first time in such calendar year does not exceed $100,000. For these
purposes, (i) the FMV of the optioned Stock shall be determined as of the date
of grant of the related option, (ii) options shall be taken into account in the
order in which they were granted, and (iii) any options which would have been
exercisable in a calendar year but for the restriction in the immediately
preceding sentence shall become exercisable in the following calendar year
subject to: (x) the restrictions provided in the immediately preceding sentence
(as determined for such following calendar year), and (y) the limitations
otherwise described in this option or the Plan.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
51% of the outstanding voting stock of the Company;
2. A sale of all or substantially all of the Company's assets;
3. A merger or consolidation of the Company where the Company's
shareholders prior to the merger do not have voting control of the surviving
entity;
4. A dissolution or liquidation of the Company; or
5. Any other event deemed by the Committee in its discretion to
constitute a "Change of Control".
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
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payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
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This option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is approved
by the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Committee) (i) all federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise, and (ii) your
portion of other federal, state and local payroll and other taxes due in
connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
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laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or under applicable
state securities laws. The shares have been acquired for investment and may not
be offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement under the Securities Act of 1933, as amended,
and under any applicable state securities laws or an opinion of counsel
acceptable to the Company that the proposed transaction will be exempt from such
registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall, if
possible, be an "Incentive Stock Option" as that term is used in Section 422 of
the Code and the regulations thereunder. In the event this option is in any way
inconsistent with the legal requirements of the Code or the regulations
thereunder for an "Incentive Stock Option," this option shall be deemed
automatically amended as of the date hereof to conform to such legal
requirements, if such conformity may be achieved by amendment. If such
conformity may not be achieved by amendment, such option shall be deemed to be a
Non-Qualified Stock Option.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
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Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Delaware.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
SHANECY, INC.
By: _______________________
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 1999 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
- -----------].
____________ ________________________
(Date) (Signature)
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Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
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<PAGE>
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
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APPENDIX II
NON-QUALIFIED STOCK OPTION FOR OFFICERS
AND OTHER KEY EMPLOYEES
To:
Name
Address
Date of Grant:
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.001 par value per share ("Common
Stock"), of Shanecy, Inc., a Delaware corporation (the "Company"), at a price of
$_______ per share pursuant to the Company's 1999 Stock Option Plan (the
"Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to _____
years from the date of grant, your option may be exercised for up to _______ of
the total number of shares subject to the option minus the number of shares
previously purchased by exercise of the option (as adjusted as the Committee in
its sole discretion determines for any change in the outstanding shares of the
Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional ____% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after_____ years after the date of grant, except if terminated earlier as
provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
its sole discretion) and your vesting date may accelerate accordingly. A "Change
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of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
51% of the outstanding voting stock of the Company;
2. A sale of all or substantially all of the Company's assets;
3. A merger or consolidation of the Company where the Company's
shareholders prior to the merger do not have voting control of the surviving
entity;
4. A dissolution or liquidation of the Company; or
5. Any other event deemed by the Committee in its discretion to
constitute a "Change of Control".
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which your employment by the Company or
a Company subsidiary corporation is terminated (whether such termination be
voluntary or involuntary) other than by reason of disability as defined in
Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the "Code"),
and the regulations thereunder, or death (but in no event later than the
Scheduled Termination Date). After the date your employment is terminated, as
aforesaid, you may exercise this option only for the number of shares which you
had a right to purchase and did not purchase on the date your employment
terminated. If you are employed by a Company subsidiary corporation, your
employment shall be deemed to have terminated on the date your employer ceases
to be a Company subsidiary corporation, unless you are on that date transferred
to the Company or another Company subsidiary corporation. Your employment shall
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<PAGE>
not be deemed to have terminated if you are transferred from the Company to a
Company subsidiary corporation, or vice versa, or from one Company subsidiary
corporation to another Company subsidiary corporation.
If you die while employed by the Company or a Company subsidiary
corporation, your executor or administrator, as the case may be, may, at any
time within one year after the date of your death (but in no event later than
the Scheduled Termination Date), exercise the option as to any shares which you
had a right to purchase and did not purchase during your lifetime. If your
employment with the Company or a Company parent or subsidiary corporation is
terminated by reason of your becoming disabled (within the meaning of Section
22(e)(3) of the Code and the regulations thereunder), you or your legal guardian
or custodian may at any time within one year after the date of such termination
(but in no event later than the Scheduled Termination Date), exercise the option
as to any shares which you had a right to purchase and did not purchase prior to
such termination. Your executor, administrator, guardian or custodian must
present proof of his authority satisfactory to the Company prior to being
allowed to exercise this option.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
Except for transfers to ___________ under the terms set forth in the
Plan, this option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
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(a) Until the Plan pursuant to which this option is granted is approved
by the shareholders of the Company in the manner prescribed by the Code and the
regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which may
include payment through the surrender of Common Stock, unless prohibited by the
Committee) (i) all federal, state and local income tax withholding required to
be withheld by the Company in connection with the option exercise and (ii) your
portion of other federal, state and local payroll and other taxes due in
connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgments and agreements as the
Company may, in its sole discretion, deem advisable to avoid any violation of
federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may not be
II-4
<PAGE>
offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement under the Securities Act of 1933, as amended,
and under any applicable state securities laws or an opinion of counsel
acceptable to the Company that the proposed transaction will be exempt from such
registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Nothing herein shall modify your status as an at-will employee of the
Company. Further, nothing herein guarantees you employment for any specified
period of time. This means that either you or the Company may terminate your
employment at any time for any reason, or no reason. You recognize that, for
instance, you may terminate your employment or the Company may terminate your
employment prior to the date on which your option becomes vested.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
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<PAGE>
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Delaware.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
SHANECY, INC.
By:
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 1999 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions including
Attachment A hereto. I accept this option in full satisfaction of any previously
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
- ---------------].
________________________ ________________________
(Date) (Signature)
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<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company or
at any time thereafter, except with the express prior written consent of the
Company or pursuant to the lawful order of any judicial or administrative agency
of government, directly or indirectly, disclose, communicate or divulge to any
individual or entity, or use for the benefit of any individual or entity, any
knowledge or information with respect to the conduct or details of the Company's
business which you, acting reasonably, believe or should believe to be of a
confidential nature and the disclosure of which not to be in the Company's
interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your employment with the Company and
for a period of two years thereafter, except with the express prior written
consent of the Company, directly or indirectly, whether as employee, owner,
partner, consultant, agent, director, officer, shareholder or in any other
capacity, engage in or assist any individual or entity to engage in any act or
action which you, acting reasonably, believe or should believe would be harmful
or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your
employment with the Company ceases for any reason whatsoever (whether voluntary
or not), except with the express prior written consent of the Company, directly
or indirectly, whether as employee, owner, partner, consultant, agent, director,
officer, shareholder or in any other capacity, for your own account or for the
benefit of any individual or entity, (i) solicit any customer of the Company for
business which would result in such customer terminating their relationship with
the Company; or (ii) solicit or induce any individual or entity which is an
employee of the Company to leave the Company or to otherwise terminate their
relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
prevails in such enforcement or litigation, then the term of such covenants and
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<PAGE>
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
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<PAGE>
APPENDIX III
NON-QUALIFIED STOCK OPTION FOR DIRECTORS
AND IMPORTANT CONSULTANTS
To:
Name
Address
Date of Grant:
You are hereby granted an option, effective as of the date hereof, to
purchase __________ shares of common stock, $0.001 par value per share ("Common
Stock"), of Shanecy, Inc., a Delaware corporation (the "Company"), at a price of
$_______ per share pursuant to the Company's 1999 Stock Option Plan (the
"Plan").
Your option may first be exercised on and after one year from the date
of grant, but not before that time. On and after one year and prior to
______years from the date of grant, your option may be exercised for up to
______% of the total number of shares subject to the option minus the number of
shares previously purchased by exercise of the option (as adjusted as the
Committee in its sole discretion determines for any change in the outstanding
shares of the Common Stock of the Company by reason of a stock dividend, stock
split, combination of shares, recapitalization, merger, consolidation, transfer
of assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Each succeeding year thereafter, your
option may be exercised for up to an additional ______% of the total number of
shares subject to the option minus the number of shares previously purchased by
exercise of the option (as adjusted for any change in the outstanding shares of
the Common Stock of the Company by reason of a stock dividend, stock split,
combination of shares, recapitalization, merger, consolidation, transfer of
assets, reorganization, conversion or what the Committee deems in its sole
discretion to be similar circumstances). Thus, this option is fully exercisable
on and after _____ years after the date of grant, except if terminated earlier
as provided herein. This option shall terminate and is not exercisable after ten
years from the date of its grant (the "Scheduled Termination Date"), except if
terminated earlier as hereafter provided.
In the event of a "Change of Control" (as defined below) of the
Company, your option may, from and after the date of the Change of Control, and
notwithstanding the immediately preceding paragraph, be exercised for up to 100%
of the total number of shares then subject to the option minus the number of
shares previously purchased upon exercise of the option (as adjusted for stock
dividends, stock splits, combinations of shares and what the Committee deems in
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its sole discretion) and your vesting date may accelerate accordingly. A "Change
of Control" shall be deemed to have occurred upon the happening of any of the
following events:
1. A change within a twelve-month period in the holders of more than
51% of the outstanding voting stock of the Company;
2. A sale of all or substantially all of the Company's assets;
3. A merger or consolidation of the Company where the Company's
shareholders prior to the merger do not have voting control of the surviving
entity;
4. A dissolution or liquidation of the Company; or
5. Any other event deemed by the Committee in its discretion to
constitute a "Change of Control".
You may exercise your option by giving written notice to the Secretary
of the Company on forms supplied by the Company at its then principal executive
office, accompanied by payment of the option price for the total number of
shares you specify that you wish to purchase. The payment may be in any of the
following forms: (a) cash, which may be evidenced by a check and includes cash
received from a stock brokerage firm in a so-called "cashless exercise"; (b)
(unless prohibited by the Committee) certificates representing shares of Common
Stock of the Company, which will be valued by the Secretary of the Company at
the fair market value per share of the Company's Common Stock (as determined in
accordance with the Plan) on the date of delivery of such certificates to the
Company, accompanied by an assignment of the stock to the Company; or (c)
(unless prohibited by the Committee) any combination of cash and Common Stock of
the Company valued as provided in clause (b). The use of the so-called
"attestation procedure" to exercise a stock option may be permitted by the
Committee. Any assignment of stock shall be in a form and substance satisfactory
to the Secretary of the Company, including guarantees of signature(s) and
payment of all transfer taxes if the Secretary deems such guarantees necessary
or desirable.
Your option will, to the extent not previously exercised by you,
terminate three months after the date on which you cease for any reason to be a
director of, or consultant to, the Company or a subsidiary corporation (whether
by death, disability, resignation, removal, failure to be reappointed, reelected
or otherwise, or the expiration of any consulting arrangement, and regardless of
whether the failure to continue as a director or consultant was for cause or
without cause or otherwise), but in no event later than ten years from the date
this option is granted. After the date you cease to be a director or consultant,
you may exercise this option only for the number of shares which you had a right
to purchase and did not purchase on the date you ceased to be a director or
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consultant. If you are a director of a subsidiary corporation, your directorship
shall be deemed to have terminated on the date such company ceases to be a
subsidiary corporation, unless you are also a director of the Company or another
subsidiary corporation, or on that date became a director of the Company or
another subsidiary corporation. Your directorship or consultancy shall not be
deemed to have terminated if you cease being a director of, or consultant to,
the Company or a subsidiary corporation but are or concurrently therewith become
(a) a director of, or consultant to, the Company or another subsidiary
corporation or (b) an employee of the Company or a subsidiary corporation.
In the event of any change in the outstanding shares of the Common
Stock of the Company by reason of a stock dividend, stock split, combination of
shares, recapitalization, merger, consolidation, transfer of assets,
reorganization, conversion or what the Committee deems in its sole discretion to
be similar circumstances, the number and kind of shares subject to this option
and the option price of such shares shall be appropriately adjusted in a manner
to be determined in the sole discretion of the Committee.
Notwithstanding anything to the contrary contained in this option, in
the event of a sale or a proposed sale of the majority of the stock or assets of
the Company or a proposed Change of Control, the Committee shall have the right
to terminate this option upon thirty (30) days prior written notice to you,
subject to your right to exercise such option to the extent vested prior to such
termination.
Except for transfers to __________ under the terms set forth in the
Plan, this option is not transferable otherwise than by will or the laws of
descent and distribution, and is exercisable during your lifetime only by you,
including, for this purpose, your legal guardian or custodian in the event of
disability. Until the option price has been paid in full pursuant to due
exercise of this option and the purchased shares are delivered to you, you do
not have any rights as a shareholder of the Company. The Company reserves the
right not to deliver to you the shares purchased by virtue of the exercise of
this option during any period of time in which the Company deems, in its sole
discretion, that such delivery would violate a federal, state, local or
securities exchange rule, regulation or law.
Notwithstanding anything to the contrary contained herein, this option
is not exercisable until all the following events occur and during the following
periods of time:
(a) Until the Plan pursuant to which this option is granted is
approved by the shareholders of the Company in the manner prescribed by the Code
and the regulations thereunder;
(b) Until this option and the optioned shares are approved and/or
registered with such federal, state and local regulatory bodies or agencies and
securities exchanges as the Company may deem necessary or desirable; or
(c) During any period of time in which the Company deems that the
exercisability of this option, the offer to sell the shares optioned hereunder,
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or the sale thereof, may violate a federal, state, local or securities exchange
rule, regulation or law, or may cause the Company to be legally obligated to
issue or sell more shares than the Company is legally entitled to issue or sell.
(d) Until you have paid or made suitable arrangements to pay (which
may include payment through the surrender of Common Stock, unless prohibited by
the Committee) (i) all federal, state and local income tax withholding required
to be withheld by the Company in connection with the option exercise and (ii)
your portion of other federal, state and local payroll and other taxes due in
connection with the option exercise.
The following two paragraphs shall be applicable if, on the date of
exercise of this option, the Common Stock to be purchased pursuant to such
exercise has not been registered under the Securities Act of 1933, as amended,
and under applicable state securities laws, and shall continue to be applicable
for so long as such registration has not occurred:
(a) The optionee hereby agrees, warrants and represents that he will
acquire the Common Stock to be issued hereunder for his own account for
investment purposes only, and not with a view to, or in connection with, any
resale or other distribution of any of such shares, except as hereafter
permitted. The optionee further agrees that he will not at any time make any
offer, sale, transfer, pledge or other disposition of such Common Stock to be
issued hereunder without an effective registration statement under the
Securities Act of 1933, as amended, and under any applicable state securities
laws or an opinion of counsel acceptable to the Company to the effect that the
proposed transaction will be exempt from such registration. The optionee shall
execute such instruments, representations, acknowledgements and agreements as
the Company may, in its sole discretion, deem advisable to avoid any violation
of federal, state, local or securities exchange rule, regulation or law.
(b) The certificates for Common Stock to be issued to the optionee
hereunder shall bear the following legend:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, or under applicable state
securities laws. The shares have been acquired for investment and may not be
offered, sold, transferred, pledged or otherwise disposed of without an
effective registration statement under the Securities Act of 1933, as amended,
and under any applicable state securities laws or an opinion of counsel
acceptable to the Company that the proposed transaction will be exempt from such
registration."
The foregoing legend shall be removed upon registration of the legended shares
under the Securities Act of 1933, as amended, and under any applicable state
laws or upon receipt of any opinion of counsel acceptable to the Company that
said registration is no longer required.
III-4
<PAGE>
The sole purpose of the agreements, warranties, representations and
legend set forth in the two immediately preceding paragraphs is to prevent
violations of the Securities Act of 1933, as amended, and any applicable state
securities laws.
It is the intention of the Company and you that this option shall not
be an "Incentive Stock Option" as that term is used in Section 422 of the Code
and the regulations thereunder.
Any dispute or disagreement between you and the Company with respect to
any portion of this option or its validity, construction, meaning, performance
or your rights hereunder shall be settled by arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, as amended from time to time. However, prior to submission to
arbitration you will attempt to resolve any disputes or disagreements with the
Company over this option amicably and informally, in good faith, for a period
not to exceed two weeks. Thereafter, the dispute or disagreement will be
submitted to arbitration. At any time prior to a decision from the arbitrator(s)
being rendered, you and the Company may resolve the dispute by settlement. You
and the Company shall equally share the costs charged by the American
Arbitration Association or its successor, but you and the Company shall
otherwise be solely responsible for your own respective counsel fees and
expenses. The decision of the arbitrator(s) shall be made in writing, setting
forth the award, the reasons for the decision and award and shall be binding and
conclusive on you and the Company. Further, neither you nor the Company shall
appeal any such award. Judgment of a court of competent jurisdiction may be
entered upon the award and may be enforced as such in accordance with the
provisions of the award.
This option shall be subject to the terms of the Plan in effect on the
date this option is granted, which terms are hereby incorporated herein by
reference and made a part hereof. In the event of any conflict between the terms
of this option and the terms of the Plan in effect on the date of this option,
the terms of the Plan shall govern. This option constitutes the entire
understanding between the Company and you with respect to the subject matter
hereof and no amendment, supplement or waiver of this option, in whole or in
part, shall be binding upon the Company unless in writing and signed by the
President of the Company. This option and the performances of the parties
hereunder shall be construed in accordance with and governed by the laws of the
State of Delaware.
In consideration of the grant to you of this option, you hereby agree
to the confidentiality and non-interference provisions set forth in Attachment A
hereto.
Please sign the copy of this option and return it to the Company's
Secretary, thereby indicating your understanding of and agreement with its terms
and conditions, including Attachment A hereto.
SHANECY, INC.
By: ________________________
III-5
<PAGE>
I hereby acknowledge receipt of a copy of the foregoing stock option
and the 1999 Stock Option Plan and, having read them hereby signify my
understanding of, and my agreement with, its terms and conditions, including
Attachment A hereto. I accept this option in full satisfaction of any previous
written or verbal promises made to me by the Company with respect to option
grants [except for options granted to me pursuant to agreements dated
- --------].
________________________ ________________________
(Date) (Signature)
<PAGE>
Attachment A to Stock Option
Confidentiality and Non-Interference.
(a) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company or at any time thereafter, except with the express
prior written consent of the Company or pursuant to the lawful order of any
judicial or administrative agency of government, directly or indirectly,
disclose, communicate or divulge to any individual or entity, or use for the
benefit of any individual or entity, any knowledge or information with respect
to the conduct or details of the Company's business which you, acting
reasonably, believe or should believe to be of a confidential nature and the
disclosure of which not to be in the Company's interest.
(b) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, during your term as a director of, or a
consultant to, the Company and for a period of two years thereafter, except with
the express prior written consent of the Company, directly or indirectly,
whether as employee, owner, partner, consultant, agent, director, officer,
shareholder or in any other capacity, engage in or assist any individual or
entity to engage in any act or action which you, acting reasonably, believe or
should believe would be harmful or inimical to the interests of the Company.
(c) You covenant and agree that, in consideration of the grant to you
of this stock option, you will not, for a period of two years after your term as
a director of, or a consultant to, the Company ceases for any reason whatsoever
(whether voluntary or not), except with the express prior written consent of the
Company, directly or indirectly, whether as employee, owner, partner,
consultant, agent, director, officer, shareholder or in any other capacity, for
your own account or for the benefit of any individual or entity, (i) solicit any
customer of the Company for business which would result in such customer
terminating their relationship with the Company; or (ii) solicit or induce any
individual or entity which is an employee of the Company to leave the Company or
to otherwise terminate their relationship with the Company.
(d) The parties agree that any breach by you of any of the covenants or
agreements contained in this Attachment A will result in irreparable injury to
the Company for which money damages could not adequately compensate the Company
and therefore, in the event of any such breach, the Company shall be entitled
(in addition to any other rights and remedies which it may have at law or in
equity) to have an injunction issued by any competent court enjoining and
restraining you and/or any other individual or entity involved therein from
continuing such breach. The existence of any claim or cause of action which you
may have against the Company or any other individual or entity shall not
constitute a defense or bar to the enforcement of such covenants. If the Company
is obliged to resort to the courts for the enforcement of any of the covenants
or agreements contained in this Attachment A, or if such covenants or agreements
are otherwise the subject of litigation between the parties, and the Company
III-7
<PAGE>
prevails in such enforcement or litigation, then the term of such covenants and
agreements shall be extended for a period of time equal to the period of such
breach, which extension shall commence on the later of (a) the date on which the
original (unextended) term of such covenants and agreements is scheduled to
terminate or (b) the date of the final court order (without further right of
appeal) enforcing such covenant or agreement.
(e) If any portion of the covenants or agreements contained in this
Attachment A, or the application hereof, is construed to be invalid or
unenforceable, the other portions of such covenant(s) or agreement(s) or the
application thereof shall not be affected and shall be given full force and
effect without regard to the invalid or enforceable portions to the fullest
extent possible. If any covenant or agreement in this Attachment A is held
unenforceable because of the area covered, the duration thereof, or the scope
thereof, then the court making such determination shall have the power to reduce
the area and/or duration and/or limit the scope thereof, and the covenant or
agreement shall then be enforceable in its reduced form.
(f) For purposes of this Attachment A, the term "the Company" shall
include the Company, any successor to the Company and all present and future
direct and indirect subsidiaries and affiliates of the Company.
III-8
PAGE>
ANNEX C
Financial Statements
<PAGE>
SHANECY, INC.
FINANCIAL STATEMENTS
Shanecy, Inc.
Unaudited Consolidated Financial Statements at and for the Nine Month Periods
Ended December 31, 1999 and 1998
Management's Discussion and Analysis
Audited Consolidated Financial Statements at and for the Fiscal Years Ended
March 31, 1999, 1998 and 1997
Unaudited Pro Forma Financial Statements at and for the Nine Months Ended
December 31, 1999 and at and for the Fiscal Year Ended March 31, 1999
Brunswick Capital Partners, Inc.
Audited Financial Statements at and for the Years Ended December 31, 1999 and
1998
InfoBase Direct Marketing Services, Inc.
Audited Financial Statements at and for the Years Ended December 31, 1999 and
1998
<PAGE>
SHANECY, INC.
Consolidated Balance Sheet
December 31, 1999, with comparative figures for 1998
(unaudited)
<TABLE>
<CAPTION>
1999 1998
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 64,893 $ 1,370
Subscription receivable 25,000 -
Prepaids 75,000 -
Due from related parties (note 7) 24,871 -
- ---------------------------------------------------------------------------------------------------
189,764 1,370
Investment in Eikos Management, LLC (note 4 (b)) 6,556,869 -
Other assets (note 4 (a)) 2,000 -
- ---------------------------------------------------------------------------------------------------
$6,748,633 $ 1,370
- ---------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable 12,016 -
Shares subscribed but unissued 140,000 -
Shareholders' equity:
Common shares (note 6) 17,490 10,665
Preferred shares to be authorized and issued (note 6) 6,592,494 -
Additional paid-in capital 27,185 (6,765)
Deficit (40,552) (2,530)
- ---------------------------------------------------------------------------------------------------
6,596,617 1,370
- ---------------------------------------------------------------------------------------------------
$6,748,633 $ 1,370
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SHANECY, INC.
Consolidated Statement of Operations
(unaudited)
<TABLE>
<CAPTION>
Nine months ended December 31 1999 1998
- ------------------------------------------------------------------------------------------------------
<S> <C> <C>
Income
Bank interest $ 33 $ -
- ------------------------------------------------------------------------------------------------------
33 -
Expenses
Accounting - 1,000
Administration 9,621 -
Audit - 800
Bank charges 245 30
Foreign exchange 196 -
Legal 12,079 -
Marketing 1,055 -
Statutory filings 615 -
Stock transfer agent 921 500
- ------------------------------------------------------------------------------------------------------
24,732 2,330
- ------------------------------------------------------------------------------------------------------
Net loss 24,699 2,330
- ------------------------------------------------------------------------------------------------------
Weighted average loss per share $0.0027 $0.0002
- ------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SHANECY, INC.
Consolidated Statement of Cash Flows
(unaudited)
<TABLE>
<CAPTION>
Nine months ended December 31 1999 1998
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss $ (24,699) $(2,330)
Change in non-cash operating working capital (112,855) -
- ---------------------------------------------------------------------------------------------------------
(137,554) (2,330)
- ---------------------------------------------------------------------------------------------------------
Investing activities:
MBDA distribution 37,125 -
- ---------------------------------------------------------------------------------------------------------
37,125 -
- ---------------------------------------------------------------------------------------------------------
Financing activities:
Common shares issued 25,200 -
Common shares subscribed but unissued 140,000 -
- ---------------------------------------------------------------------------------------------------------
165,200 -
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in
cash 64,771 (2,330)
Cash, beginning of
period 122 3,700
- ---------------------------------------------------------------------------------------------------------
Cash, end of period $ 64,893 $ 1,370
- ---------------------------------------------------------------------------------------------------------
Supplementary cash flow information:
Issuance of common shares to various unrelated parties on
acquisition of CASA@Home, Inc. assets
$ 2,000 -
Common Shares issued to Thesseus International Asset
Fund on acquisition of 49.5% of Eikos Management, LLC
1,500 -
Preferred Shares to be authorized and issued to Thesseus
International Asset Fund on acquisition of 49.5% of
Eikos Management, LLC 6,592,494 -
Stock dividend 8,745 -
- ---------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SHANECY, INC.
Consolidated Statement of Changes in Shareholders' Equity
(unaudited)
<TABLE>
<CAPTION>
Preferred
Shares to be
Common Additional Accumulated authorized
Shares Par value paid-in capital deficit and issued
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, March 31, 1998 10,665,000 $ 107 $ 3,793 $ (200) $ -
October 7, 1998
Change par value from $0.00001
to $0.001 - 10,558 (10,558) - -
- ------------------------------------------------------------------------------------------------------------------------------------
10,665,000 10,665 (6,765) (200) -
Net loss for the nine months
ended December 31, 1998 - - - (2,330) -
- ------------------------------------------------------------------------------------------------------------------------------------
10,665,000 10,665 (6,765) (2,530) -
Net loss for the three months
ended March 31, 1999 - - - (1,248) -
- ------------------------------------------------------------------------------------------------------------------------------------
10,665,000 10,665 (6,765) (3,778) -
September 14, 1999
Cancellation of shares (9,000,000) (9,000) 9,000 - -
- ------------------------------------------------------------------------------------------------------------------------------------
1,665,000 1,665 2,235 (3,778) -
September 16, 1999
Forward stock split 2:1 1,665,000 1,665 - (1,665) -
- ------------------------------------------------------------------------------------------------------------------------------------
3,330,000 3,330 2,235 (5,443) -
September 28, 1999
Forward stock split 1.5:1 1,665,000 1,665 - (1,665) -
- ------------------------------------------------------------------------------------------------------------------------------------
4,995,000 4,995 2,235 (7,108) -
November 11, 1999
Common shares issued on
business acquisitions 3,500,000 3,500 - - 6,592,494
- ------------------------------------------------------------------------------------------------------------------------------------
8,495,000 8,495 2,235 (7,108) 6,592,494
December 29, 1999
Shares issued 250,000 250 24,950 - -
- ------------------------------------------------------------------------------------------------------------------------------------
8,745,000 8,745 27,185 (7,108) 6,592,494
December 30, 1999
Stock dividend 8,745,000 8,745 - (8,745) -
- ------------------------------------------------------------------------------------------------------------------------------------
17,490,000 17,490 27,185 (15,853) 6,592,494
Net loss for nine months ended
December 31, 1999 - - - (24,699) -
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 17,490,000 $ 17,490 $ 27,185 $ (40,552) $ 6,592,494
- ------------------------------------------------------------------------------------------------------------------------------------
(see note 6)
</TABLE>
<PAGE>
SHANECY, INC.
Notes to Consolidated Financial Statements
(unaudited)
Nine months ended December 31, 1999
- -------------------------------------------------------------------------------
1. General:
Shanecy, Inc. ("the Company") was incorporated on May 31, 1994 under the laws of
the State of Delaware. Shanecy is an Internet-related operating company that
invests in businesses that utilize the Internet to provide products, services
and personal empowerment information to moderate income consumers.
2. Significant accounting policies:
a) Basis of presentation:
The Company's accounting policies are in accordance with U.S. generally accepted
accounting principles (GAAP).
The various interests that the Company acquires in its Portfolio Companies are
accounted for under three broad methods: consolidation, equity method and cost
method. The applicable accounting method is generally determined by the
Company's voting interest in a Portfolio Company.
(i) Consolidation: These consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries, Eikos Acquisition
Limited ("EAL") and Casa@Home, Inc. ("CASA"), collectively the "Companies".
Portfolio companies in which the Company directly or indirectly owns more that
50% of the outstanding voting securities are generally accounted for under the
consolidation method of accounting. Under this method, a Portfolio Company's
results of operations are reflected within the Company's Consolidated Statement
of Operations. All significant inter-company accounts and transactions are
eliminated. Participation of other shareholders in the earnings or losses of a
consolidated Portfolio Company will be reflected in the caption "Minority
Interest" in the Company's Consolidated Statement of Operations. Minority
interest adjusts the Company's consolidated results of operations to reflect
only the Company's share of the earnings or losses of the consolidated Portfolio
Company.
(ii) Equity Method: Portfolio Companies whose results are not consolidated,
but over whom the Company exercises significant influence, will be accounted for
under the equity method of accounting. Whether or not the Company exercises
significant influence with respect to a Portfolio Company depends on an
evaluation of several factors including, among others, representation on the
Portfolio Company's Board of Directors and ownership percentage, which is
generally a 20% to 50% interest in the voting securities of the Portfolio
Company, including voting rights associated with the Company's holdings in
common, preferred and other convertible instruments in the Portfolio Company.
Under the equity method of accounting, a Portfolio Company's accounts will not
be reflected within the Company's Consolidated Statement of Operations; however,
the Company's share of the earnings or losses of the Portfolio Company will be
reflected in the caption "Equity income (loss)" in the Consolidated Statement of
Operations.
<PAGE>
(iii) Cost method: Portfolio Companies not accounted for under the
consolidation or equity method will be accounted for under the cost method of
accounting. Under this method, the Company's share of the earnings or losses of
such companies will not be included in the Consolidated Statement of Operations.
b) Measurement uncertainty:
Financial statements prepared in conformity with GAAP require management to make
estimates and assumptions that can affect the reported amounts of assets and
liabilities or the disclosure of contingencies as at the date of the balance
sheet, or the revenues and expenses recognized in the period. Assumptions
underlying asset valuations are limited by the availability of reliable data and
the uncertainty of predictions concerning future events. By their nature, asset
valuations include a subjective element. Accordingly, amounts actually realized
or incurred may vary from recorded amounts.
c) Income taxes:
The Company and CASA are subject to taxation in the U.S. EAL is subject to
taxation in the country of its domicile, the Isle of Man. The Companies had no
material tax liability as at December 31, 1999.
A flat tax of 30 percent is imposed on a foreign corporation's gross income from
"interest (other than original issue discount as defined in Section 1273 of U.S.
tax law), dividends, rents, salaries, wages, premiums, annuities, compensation,
remunerations, emoluments, and other fixed or determinable annual or periodical
gains, profits, and income," but only to the extent the amount is received from
sources within the United States or is effectively connected with the conduct of
a trade or business by such corporation within the United States and which is
received from sources outside the United States.
As of November 11, 1999, through its subsidiary EAL, the Company owns 49.5% of
the equity of Eikos Management, LLC ("Eikos"), an Isle of Man limited liability
company. Eikos is a party to the Mutual Business Development Agreement ("MBDA")
with The Credit Store, Inc. ("TCS"), the successor to Service One International
Corporation under the MBDA, which operates within the United States. The MBDA
provides that Eikos is to provide certain consumer debt portfolio acquisition
and financing services to TCS, outside the United States, and that Eikos is to
treat income received under the MBDA as a distribution from an entity taxed as a
partnership. It is possible that the U.S. Internal Revenue Service could assert
that such income is income effectively connected to the U.S. In the opinion of
management of the Company, the outcome of such assertion is not determinable at
this time. However, the Company intends to treat any income from Eikos as exempt
from U.S. taxation because it is earned in connection with the operations of
Eikos outside the U.S.
d) Revenue recognition:
Payments received from Eikos under the MBDA are accounted for on the cost
recovery basis whereby the full amount of the payment reduces the carrying value
of the investment. Payments received after the carrying value has been reduced
to nil will be recognized as revenue when earned.
3. Change in business direction:
Control of the Company changed hands on November 11, 1999 and a new Board of
Directors was appointed. The Company, under the direction of its new Board, has
<PAGE>
initiated a business plan to act as a publicly traded incubator company that
invests in and operates businesses using the Internet to provide products and
services to the moderate income consumer market. It believes that this market
has been largely under-served by the majority of such companies. Accordingly,
the Board has determined that investing in these companies will promote its
primary objective of enhancing long-term value for the Company's shareholders.
4. Investment transactions:
On November 11, 1999, as the initial step in implementing its strategy, the
Company entered into two acquisition transactions.
a) CASA:
The Company agreed with K. Washington-Galanis Investments, LLC ("WGI"), a
private investment entity controlled by two Shanecy Directors, to acquire 100%
of CASA for two million shares of its common stock (the "Common Stock"). The
sole asset of CASA at the date of acquisition was certain intellectual capital
and a business plan for an Internet-based provider of services. The Company
carries this asset at the par value of its shares issued.
CASA is an Internet-based vertical portal that intends to focus on providing
moderate income consumers access to the financial and non-financial benefits of
the Internet. It intends to offer moderate-income consumers access to what it
believes are the pricing transparency benefits of the Internet. CASA intends to
use proprietary systems it has developed to analyze consumer buying patterns
with the objective of delivering highly targeted and value-added services to its
subscribers. CASA intends to offer a bundle of four primary services in order to
introduce the moderate income consumer to the benefits of the Internet. The
bundle will consist of: (1) a new VISA(R) 'E-Commerce' credit card, (2) a low
cost non-PC Internet access device, (3) low cost ISP service, and (4) highly
customized subscriber content services. It has entered into an agreement with
companies affiliated with Thesseus International Asset Fund, NV ("Thesseus")
that have issuing agreements with non-affiliated credit card issuers pursuant to
which it will be permitted to issue a new VISA(R) credit card to each of its
subscribers. The card will provide the subscriber with a payment mechanism for
e-commerce transactions CASA plans to facilitate, while simultaneously providing
the Company with statistically based information to better assess individual
customer requirements.
Thesseus is a closed-end venture capital fund formed in December, 1997 in the
Netherlands Antilles. It engages in the identification, analysis and acquisition
of growth companies, concentrating its investments primarily in financial
services companies with an information technology orientation.
b) EAL:
The Company agreed with Thesseus to acquire 100% of EAL in exchange for 3.0
(adjusted for stock-split) million of its common shares and 17.0 million
(adjusted for anti-dilution) convertible preferred shares to be issued
immediately after the Company's Articles of Incorporation are amended to
authorize the Company to issue preferred stock. Such amendment will require
shareholder approval. Each share of preferred stock, subject to anti-dilution
provisions, will be convertible into one share of common stock. Two Shanecy
Directors, who are also officers, are shareholders of Thesseus.
EAL is a corporation formed in October, 1999 under the laws of the Isle of Man.
The sole asset of EAL, as described below, is a 49.5% equity interest in Eikos
and it is recorded at its carrying value in EAL. The principal asset of Eikos is
the MBDA dated October 8, 1996, as amended December 16, 1997 and September 1,
1998, with TCS, a Delaware corporation with offices in Sioux Falls, South
Dakota. TCS is a nationwide financial services company engaged in the
acquisition and recovery of non-performing consumer receivables and the
origination and servicing of credit cards. It acquires
<PAGE>
portfolios of non-performing consumer receivables and originates new credit
cards to those consumers who satisfy certain credit criteria and agree to pay
all or a portion of the outstanding amount due on their debt.
Pursuant to the MBDA, Eikos is entitled to receive a license fee, to a maximum
of $24 million in cash and/or performing credit card receivables, equal to from
3% to 5% of gross credit receivable originations (as defined in the MBDA)
produced by TCS during the period ending in September, 2004. Approximately $1.7
million of this amount has been paid prior to the Company's acquisition of EAL.
Eikos is administered by Ionian Trust Company Limited, a Republic of Ireland
Corporation owned by a brother of Shanecy's President. Pursuant to an
administration agreement dated August 31, 1998, Ionian has the right to
determine the amount and timing of any distributions that may be made to the
members of Eikos.
5. Option:
As part of the EAL acquisition transaction, Thesseus immediately entered into an
agreement with two Directors, who are also officers of the Company, pursuant to
which the 8.5 million shares of preferred stock, and any common stock into which
it may be converted, were subject to a put and call option. The aggregate price
agreed for exercising this option was $6.59 million. The number of shares
subject to this right, which was to terminate two years after the preferred
stock is issued, was to decrease by 5% every three months, with the aggregate
purchase price remaining the same. The right to call could be exercised only by
the two Directors acting together and only for the entire amount of shares
subject to purchase at the time of exercise. The option was exercised on
December 31, 1999 for the entire 8.5 million shares, at the $6.59 million option
price. Payment was made by way of a Secured Promissory Note bearing interest at
6% per annum, payable semi-annually commencing June 30, 2000. The note is due in
full on June 30, 2000, with a provision to extend the term for a further six
months at the option of the two directors. The price for such extension is
$500,000 and accrued interest on the note must be paid in full. The note is
secured by the stock.
6. Share capital and additional paid-in capital:
The Company's authorized capital consists of 20 million common shares, each with
a par value of $0.001 and entitled to one vote.
On December 20, 1999 the Board of Directors of the Company declared a 100%, or
one for one stock dividend on its common stock, to all shareholders of record at
December 30, 1999. An additional 8,745,000 common shares were issued pursuant to
this resolution.
The 8,500,000 preferred shares to be authorized and issued are 6.5% cumulative,
convertible, non-redeemable preferred shares with a liquidation value of $0.7756
per share. Each share shall be convertible at the option of the holder thereof
at any time, into one fully paid and nonassessable common share for each share
converted, subject to adjustment for anti-dilution.
The Company has agreed to issue options to acquire an aggregate 10,500,000
shares of common stock to certain officers and directors at exercise prices of
$.04 or $.045 per share. The options have a five year term and shall be
exercisable upon issuance, which will occur shortly after the Company's amended
articles and restated certificate of incorporation are filed.
7. Net income (loss) per share:
Net income (loss) per share (EPS) is computed using the weighted average number
of common shares outstanding during each perod. Diluted EPS inclued common stock
equivalents (unless anti-dilutive) which would arise from the exercise of stock
<PAGE>
options and conversion of other convertible securitites and is adjusted, if
applicable for the effect on net income (loss) of such transactions.
8. Related party balances:
Amounts due from related parties are unsecured, non-interest bearing and with no
specific terms of repayment.
9. Subsequent events:
The Company acquired, through a wholly-owned subsidiary, Shanecy Holdings, Inc.
("SHI"), preferred stock in eCard Solutions Inc. (formerly Brunswick Capital
Partners, Inc.) ("eCard Solutions"), of Sioux Falls, South Dakota, convertible
into 40% of the common stock of eCard Solutions and preferred stock in InfoBase
Direct Marketing Services, Inc. ("InfoBase") of Carlsbad, California,
convertible into 49% of the outstanding common stock of InfoBase. These
interests were acquired from Thesseus through a merger effective January 11,
2000 between SHI and a subsidiary of Thesseus, in return for 2.0 million shares
of Common Stock of the Company. The initial purchase agreement was revised to
provide that delivery of the 2.0 million shares would not be required until the
filing and effectiveness of an amended and restated certificate of incorporation
with the Secretary of the State of Delaware to increase the Company's authorized
stock.
eCard Solutions is a national, specialty financial services company that intends
to use proprietary database mining, marketing techniques, automated systems and
information technology to issue credit cards to moderate income consumer. eCard
Solutions will manage the resulting portfolio of accounts and outstandings in an
attempt to ensure that they remain in a performing status. General purpose
credit cards have become the primary payment mechanism for e-commerce
transactions over the Internet. eCard Solutions' management has over ten years
of experience in originating and servicing credit cards.
InfoBase is an information-based, technology driven direct marketing company
that designs, develops and implements sophisticated inbound and outbound
marketing programs on behalf of credit card companies that target the moderate
income consumer. In support of its marketing efforts, InfoBase has developed
proprietary software to facilitate sophisticated sales tracking, support
activities such as customer service and order processing, data mining, neural
analysis and database management.
10. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect an entity's ability to conduct normal business operations. It is not
possible to be certain that all aspects of the Year 2000 Issue affecting the
Company, including those related to the efforts of venture investees, suppliers
and other third parties, will be fully resolved.
<PAGE>
MANAGEMENT DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
On November 11,1999, the two Directors of Shanecy, Inc. (the "Company"), Ann
Myers and Jill Wright, resigned and appointed Jason W. Galanis and Kevin L.
Washington to replace them. On November 19, 1999, four additional Directors and
Officers were appointed. As detailed in Form 8-K filed on November 29, 1999 and
Forms 8-K(A) filed on December 8, 1999 and January 25, 2000, the Company changed
its business direction and launched a new business plan to act as a publicly
traded Internet-related operating company that will concentrate on businesses
using the Internet to provide products and services to the moderate income
consumer market.
On November 11, 1999, as the initial step in implementing its strategy, the
Company entered into two acquisition transactions. A full description of the
companies acquired and the details of these transactions appear in Note 4 of the
appended consolidated financial statements of the Company for the nine months
ended December 31, 1999 and in the Forms 8-K referenced above. The carrying
value of assets acquired in the transactions, in exchange for 3,500,000 common
shares of the Company, and 8,500,000 preferred shares to be authorized and
issued, was $6,558,869 and is reflected as Investment and Other Assets on the
December 31, 1999 consolidated balance sheet. Just prior to the end of the
quarter ended December 31, 1999, the Company received a common stock
subscription for $140,000, for which shares were unissued as at December 31,
1999. A portion of the funds were used to prepay certain contracts for services
in the normal course of business and the balance remains in the Company's bank
account at the end of the quarter. The Company had no revenue for the three
quarters ended December 31, 1998 and only nominal interest income in the three
quarters ended December 31, 1999. The Company's first distribution for an MBDA
payment, pursuant to its 49.5% interest in Eikos Management, LLC is reflected in
the accounts at December 31, 1999. As reflected in Note 2 (e) of the financial
statements, the Company accounts for such payments on a cost recovery basis and
hence no revenue will be recognized until the carrying value of the asset has
been reduced to nil. As the company is just beginning operations, it had no
material expenses for the nine months ended December 31, 1999 or for the
comparative period in 1998.
<PAGE>
SHANECY, INC.
(A Development Stage Company)
AUDITED
FINANCIAL STATEMENTS
MARCH 31, 1999
MARCH 31, 1998
MARCH 31, 1997
TABLE OF CONTENTS
INDEPENDENT AUDITORS REPORT
ASSETS
LIABILITIES AND STOCKHOLDERS' EQUITY
STATEMENT OF OPERATIONS
STATEMENT OF STOCKHOLDERS' EQUITY
STATEMENT OF CASH FLOWS
NOTES TO FINANCIAL STATEMENTS
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
INDEPENDENT AUDITORS' REPORT
Board of Directors May 28, 1999
Shanecy, Inc.
Poway, California
I have audited the accompanying Balance Sheets of Shanecy, Inc. (A
Development Stage Company), as of March 31, 1999, March 31, 1998, and March 31,
1997, and the related statements of operations, stockholders' equity and cash
flows for the three years ended March 31, 1999, March 31, 1998, and March 31,
1997 and the period May 31, 1994 (inception) to March 31, 1999. These financial
statements are the responsibility of the Company's management. My responsibility
is to express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that 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.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Shanecy, Inc. (A
Development Stage Company), as of March 31, 1999, March 31, 1998, and March 31,
1997, and the results of its operations and cash flows for the three years ended
March 31, 1999, March 31, 1998, and March 31, 1997 and the period May 31, 1994
(inception) to March 31, 1999, in conformity with generally accepted accounting
principles.
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. As discussed in Note #5 to the
financial statements, the Company has suffered recurring losses from operations
and has no established source of revenue. This raises substantial doubt about
its ability to continue as a going concern. Management's plan in regard to these
matters is described in Note #5. These financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ BARRY L. FRIEDMAN
- ----------------------------
Barry L. Friedman
Certified Public Accountant
<PAGE>
SHANECY, INC.
(A Development Stage Company)
BALANCE SHEET
ASSETS
MARCH MARCH MARCH
31, 1999 31, 1998 31, 1997
------ ------ ------
CURRENT ASSETS:
CASH $ 122 $3,700 $3,700
------ ------ ------
TOTAL CURRENT ASSETS: $ 122 $3,700 $3,700
------ ------ ------
OTHER ASSETS: $ 0 $ 0 $ 0
------ ------ ------
TOTAL OTHER ASSETS: $ 0 $ 0 $ 0
------ ------ ------
TOTAL ASSETS $ 122 $3,700 $3,700
------ ------ ------
See accompanying notes to financial statements
- 2 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
BALANCE SHEET
LIABILITIES AND STOCKHOLDERS' EQUITY
MARCH MARCH MARCH
31, 1999 31, 1998 31, 1997
-------- -------- --------
CURRENT LIABILITIES: $ 0 $ 0 $ 0
------- ------- -------
TOTAL CURRENT LIABILITIES: $ 0 $ 0 $ 0
------- ------- -------
STOCKHOLDERS' EQUITY: (Note #4)
Common stock
Par value $0.00001
Authorized 20,000,000 shares
Issued and outstanding at
March 31, 1997 -
137,000 shares
$ 1
March 31, 1998 -
10,665,000 shares $ 107
Common stock
Par value $0.001
Authorized 20,000,000 shares
Issued and outstanding at
March 31, 1999 -
10,665,000 shares $10,665
Additional Paid-In Capital -6,765 +3,793 +3,799
Deficit accumulated during
Development stage -3,778 -200 -100
TOTAL STOCKHOLDERS' EQUITY: $ 122 $ 3,700 $ 3,700
------- ------- -------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY: $ 122 $ 3,700 $ 3,700
------- ------- -------
See accompanying notes to financial statements
- 3 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
Year Year Year May 31,1994
Ended Ended Ended (Inception)
Mar. 31, Mar. 31, Mar. 31, to Mar. 31,
1999 1998 1997 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
INCOME:
Revenue $ 0 $ 0 $ 0 $ 0
----------- ----------- ----------- -----------
EXPENSES:
General, Selling and
Administrative: $ 3,578 $ 100 $ 0 $ 3,778
----------- ----------- ----------- -----------
TOTAL EXPENSES: $ 3,578 $ 100 $ 0 $ 3,778
----------- ----------- ----------- -----------
NET PROFIT/LOSS (-): $ -3,578 $ -100 $ 0 $ -3,778
----------- ----------- ----------- -----------
Net Profit/Loss(-)
per weighted share
(Note 1): $ -.0004 $ NIL $ NIL $ -.0004
----------- ----------- ----------- -----------
Weighted average
Number of common
shares outstanding: 10,665,000 10,665,000 10,665,000 10,665,000
----------- ----------- ----------- -----------
</TABLE>
See accompanying notes to financial statements
- 4 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
Additional
Common Stock paid-in Accumulated
Shares Amount Capital Deficit
--------- --------- -------- --------
Balance,
March 31, 1996 137,000 $ 1 $ 3,799 $ -100
Net loss year ended
March 31, 1997:
-0-
---------- -------- ---------- ---------
Balance,
March 31, 1997: 137,000 $ 1 $ 3,799 $ -100
February 28, 1998
Stock Issued
For Services 100,000 +1 99
February 28, 1998
Forward Stock Split
45:1 10,428,000 +105 -105
Net Loss Year Ended
March 31, 1998 -100
---------- -------- ---------- ---------
Balance,
March 31, 1998 10,665,000 107 3,793 -200
October 7, 1998
Change Par Value
From $.00001 to $.001 10,558 -10,558
Net Loss Year Ended
March 31, 1999 -3,578
---------- -------- ---------- ---------
Balance,
March 31, 1999 10,665,000 $ 10,665 $ -6,765 $ -3,778
---------- -------- ---------- ---------
See accompanying notes to financial statements
- 5 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Year Year Year May May 31,1994
Ended Ended Ended (Inception)
Mar. 31, Mar. 31, Mar. 31, to Mar. 31,
1999 1998 1997 1999
--------- --------- --------- ----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES
Net Loss -3,578 $ -100 $ 0 $ 3,778
Adjustment to
Reconcile net loss
To net cash provided
by operating
Activities:
Issue Common Stock
For Services 0 +100 0 +200
Changes in assets and
Liabilities: 0 0 0 0
-------- ------ --------- --------
NET CASH USED IN
OPERATING ACTIVITIES: $ -3,578 $ 0 $ 0 $ -3,578
CASH FLOWS FROM
INVESTING ACTIVITIES: 0 0 0 0
CASH FLOWS FROM
FINANCING ACTIVITIES:
Issuance of Common
Stock for Cash 0 0 0 +3,700
-------- --------- --------- --------
Net Increase (decrease) $ -3,578 $ 0 $ 0 $ +122
Cash,
Beginning of period: 3,700 3,700 3,700 0
-------- --------- --------- --------
Cash, End of Period: $ 122 $ 3,700 $ 3,700 $ 122
-------- --------- --------- --------
</TABLE>
See accompanying notes to financial statements
- 6 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1999, MARCH 31, 1998, and MARCH 31, 1997
NOTE 1 - HISTORY AND ORGANIZATION OF THE COMPANY
The Company was organized MAY 31, 1994, under the laws of the State of
Delaware as SHANECY, INC. The Company currently has no operations and in
accordance with SFAS #7, is considered a development company.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Accounting Method
The Company records income and expenses on the accrual method.
Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting
period.
Actual results could differ from those estimates.
Cash and equivalents
The Company maintains a cash balance in a non-interest-bearing
bank that currently does not exceed federally insured limits. For
the purpose of the statements of cash flows, all highly liquid
investments with the maturity of three months or less are
considered to be cash equivalents. There are no cash equivalents
as of March 31, 1999.
- 7 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999, MARCH 31, 1998, and MARCH 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
Income taxes are provided for using the liability method of
accounting in accordance with Statement of Financial Accounting
Standards No. 109 (SFAS #109) "Accounting for Income Taxes". A
deferred tax asset or liability is recorded for all temporary
difference between financial and tax reporting. Deferred tax
expense (benefit) results from the net change during the year of
deferred tax assets and liabilities.
Loss Per Share
Net loss per share is provided in accordance with Statement of
Financial Accounting Standards No. 128 (SFAS #128) "Earnings Per
Share". Basic loss per share is computed by dividing losses
available to common stockholders by the weighted average number
of common shares outstanding during the period. Diluted loss per
share reflects per share amounts that would have resulted if
dilative common stock equivalents had been converted to common
stock. As of March 31, 1999, the Company had no dilative common
stock equivalents such as stock options.
Year End
The Company has selected March 31st as its fiscal year-end.
Policy in Regards to Issuance of Common Stock in a Non-Cash Transaction
The company's accounting policy for issuing shares in a non-cash
transaction is to issue the equivalent amount of stock equal to
the fair market value of the assets or services received.
- 8 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999, MARCH 31, 1998, and MARCH 31, 1997
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Year 2000 Disclosure
Computer programs that have time sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000.
This could result in a system failure or miscalculations causing
disruption of normal business activities.
The company's potential software suppliers have verified that
they will provide only certified "Year 2000" compatible software
for all of the company's computing requirements. Because the
company's products and services are sold to the general public
with no major customers, the company believes that the "Year
2000" issue will not pose significant operational problems and
will not materially affect future financial results.
NOTE 3 - INCOME TAXES
There is no provision for income taxes for the period ended March 31,
1999, due to the net loss and no state income tax in Nevada, the state
of the Company's domicile and operations. The Company's total deferred
tax asset as of March 31, 1999 is as follows:
Net operation loss carry forward $ 3,778
Valuation allowance $ 3,778
Net deferred tax asset $ 0
The federal net operating loss carry forward will expire in 2017 to
2019.
- 9 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999, MARCH 31, 1998, and MARCH 31, 1997
NOTE 4 - STOCKHOLDERS' EQUITY
Common Stock
The authorized common stock of the corporation consists of 20,000,000
shares with a par value $.001 per share.
Preferred Stock
Shanecy, Inc. has no preferred stock.
On June 14, 1994, the Company issued 100,000 shares of its $0.00001 par
value common stock in consideration of $100.00 to its directors.
Fifty-Thousand (50,000) Shares to each of the two directors.
On July 31, 1995, the Company issued 37,000 shares of its $0.00001 par
value common stock for cash of $3,700.00.
On February 28, 1998, the Company issued 100,000 shares of its $0.00001
par value common stock for services of $100.00 to its directors.
Fifty-Thousand (50,000) Shares to each of the two directors.
On February 28, 1998, the Company approved a forward stock split on the
basis of 45:1, thus increasing the common stock from 237,000 shares
10,665,000 shares.
On October 7, 1998, the State of Delaware approved the Company's
restated Articles of Incorporation, which changed the par value from
$0.00001 to $0.001.
- 10 -
<PAGE>
SHANECY, INC.
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1999, MARCH 31, 1998, and MARCH 31, 1997
NOTE 5 - GOING CONCERN
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates
the realization of assets and liquidation of liabilities in the normal
course of business. However, the Company does not have significant cash
or other material assets, nor does it have an established source of
revenues sufficient to cover its operating costs and to allow it to
continue as a going concern. The stockholders/officers and or directors
have committed to advancing the operating costs of the Company interest
free.
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company neither owns nor leases any real or personal property. An
officer of the corporation provides office services without charge. Such
costs are immaterial to the financial statements and accordingly, have
not been reflected therein. The officers and directors of the Company
are involved in other business activities and may in the future, become
involved in other business opportunities. If a specific business
opportunity becomes available, such persons may face a conflict in
selecting between the Company and their other business interests. The
Company has not formulated a policy for the resolution of such
conflicts.
NOTE 7 - WARRANTS AND OPTIONS
There are no warrants or options outstanding to acquire any additional
share of common stock.
- 11 -
<PAGE>
BARRY L. FRIEDMAN, P.C.
Certified Public Accountant
1582 TULITA DRIVE OFFICE (702) 361-8414
LAS VEGAS, NEVADA 89123 FAX NO. (702) 896-0278
To Whom It May Concern: May 28, 1999
The firm of Barry L. Friedman, P.C., Certified Public Accountant
consents to the inclusion of their report of May 28, 1999, on the Financial
Statements of SHANECY, INC., as of March 31, 1999, in any filings that are
necessary now or in the near future with the U.S.
Securities and Exchange Commission.
Very truly yours,
/s/ BARRY L. FRIEDMAN
- - ---------------------------
Barry L. Friedman
Certified Public Accountant
<PAGE>
SHANECY, INC.
Unaudited Pro Forma Consolidated Balance Sheet (note 3)
As at December 31, 1999
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
BCP / IDMS Pro Forma Pro Forma
Shanecy Businesses Adjustments Consolidated
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Assets
Current Assets
Cash $ 64,893 $ - $ 64,893
Subscriptions receivable 25,000 - 25,000
Prepaids 75,000 - 75,000
Due from related parties 24,871 - 24,871
---------- ---------- -----------
189,764 - 189,764
Investments
Eikos Management, LLC 6,556,869 - 6,556,869
Brunswick Capital Partners, Inc. - 6,276,996 6,276,996
InfoBase Direct Marketing
Services, Inc. - 367,791 367,791
Other assets 2,000 - 2,000
---------- ----------- -----------
$6,748,633 $6,644,787 $13,393,420
========== =========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued $ 12,016 $ - $ 12,016
liabilities
Shares subscribed but unissued 140,000 - 140,000
Shareholders' Equity
Common shares 17,490 2,000 19,490
Preferred shares to be
authorized and issued 6,592,494 - 6,592,494
Additional paid-in capital 27,185 6,642,787 6,669,972
Deficit (40,552) - (40,552)
---------- ---------- -----------
Total shareholders' equity 6,596,617 6,644,787 13,241,404
---------- ---------- -----------
Total liabilities and shareholders'
equity $6,748,633 $6,644,787 $13,393,420
========== ========== ===========
</TABLE>
<PAGE>
SHANECY, INC.
Unaudited Pro Forma Consolidated Statement of Operations (note 3)
Nine months ended December 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BCP / IDMS Pro Forma Pro Forma
Shanecy Businesses Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Bank interest $ 33 $ - $ 33
Losses of equity accounted
investees - (697,434) (697,434)
---------- ---------- ----------
Total revenue 33 (697,434) (697,401)
---------- ---------- ----------
Expenses:
Selling, general and administrative expenses 24,732 - 24,732
---------- ---------- ----------
Total expenses 24,732 - 24,732
---------- ---------- ----------
Net loss $ (24,699) $ (697,434) $ (722,133)
========== ========== ==========
Net loss per share $ (0.05)
==========
</TABLE>
<PAGE>
SHANECY, INC.
Unaudited Pro Forma Consolidated Statement of Operations (note 3)
Year ended March 31, 1999
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
BCP / IDMS Pro Forma Pro Forma
Shanecy Businesses Adjustments Consolidated
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue:
Bank interest $ - $ - $ 0
Losses of equity accounted
investees - (501,469) (501,469)
--------- --------- -----------
Total revenue - (501,469) (501,469)
--------- --------- -----------
Expenses:
Selling, general and administrative expenses 3,578 - 3,578
--------- --------- -----------
Total expenses 3,578 - 3,578
--------- --------- -----------
Net loss $ (3,578) $(501,469) $ (505,047)
========= ========= ===========
Net loss per share $ (0.04)
===========
</TABLE>
<PAGE>
SHANECY, INC.
Notes to Unaudited Pro Forma Consolidated Financial Statements
- --------------------------------------------------------------------------------
1. Basis of presentation:
The accompanying unaudited pro forma consolidated financial statements of
Shanecy, Inc. ("Shanecy") are based upon the historical financial
statements of Shanecy giving effect to the transaction described in note 2.
These pro forma financial statements do not purport to represent Shanecy's
financial position and results of operations that would have been attained
had the transactions actually taken place at the dates indicated and do not
purport to be indicative of the effects that may be expected to occur in
the future. These pro forma financial statements also do not give effect to
any events, including any synergies that Shanecy is able to achieve, other
than those discussed in the notes to the pro forma financial statements.
The pro forma financial statements have been compiled from financial
information in the:
(a) unaudited consolidated financial statements of Shanecy as at and for
the nine months ended December 31, 1999;
(b) audited financial statements of Shanecy as at and for the year ended
March 31, 1999;
(c) audited financial statements of Brunswick Capital Partners, Inc.
("BCP") and InfoBase Direct Marketing Services, Inc. ("IDMS"), together
hereinafter called the "BCP / IDMS Businesses", as at and for the
years ended December 31, 1999 and 1998;
(d) unaudited information of BCP and IDMS included in their internal books
of account; and
(e) the additional information set out in note 2.
These pro forma financial statements should be read in conjunction with the
financial statements of BCP and IDMS included elsewhere in this Form 8-K/A.
Shanecy's consolidated financial statements are prepared by management in
accordance with United States generally accepted accounting principles
("GAAP"). The BCP / IDMS Businesses amounts have been extracted from the
financial statements of the BCP / IDMS Businesses prepared in accordance
with GAAP.
2. Pro forma transactions and assumptions:
In January, 2000, Shanecy, through its wholly-owned subsidiary Shanecy
Holdings, Inc., acquired preferred shares in BCP, convertible into 40% of
BCP's outstanding common shares, and preferred shares of IDMS, convertible
into 49% of IDMS' outstanding common shares, for consideration of 2,000,000
common shares of Shanecy.
<PAGE>
SHANECY, INC.
Notes to Unaudited Pro Forma Consolidated Financial Statements
- -------------------------------------------------------------------------------
2. Pro forma transactions and assumptions (continued):
These investments were acquired from Thesseus International Asset Fund
N.V., ("Thesseus"), which has certain directors in common with Shanecy and
is a significant shareholder of Shanecy. Accordingly, the values of the
investments acquired in this transaction have been determined based on
their book value in the accounts of Thesseus.
3. Pro forma adjustments:
(a) Pro forma consolidated balance sheet:
The pro forma consolidated balance sheet gives effect to the acquisitions
as if they had occurred on December 31, 1999.
(b) Pro forma consolidated statements of operations:
The pro forma consolidated statements of operations give effect to the
acquisitions as if they had occurred on January 1, 1998.
Shanecy has adopted the equity method of accounting for these investments,
which are subject to significant influence by Shanecy. As Shanecy has a
March 31 fiscal year end and the BCP / IDMS Businesses have December 31
fiscal year ends, Shanecy has included the investees' operating results for
the year ended December 31, 1998 in its pro forma operating results for the
year ended March 31, 1999. Similarly, Shanecy's pro forma operating results
for the nine months ended December 31, 1999 include the investees'
operating results for the nine months ended September 30, 1999.
4. Share capital:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Number of Additional
common Stated paid-in
shares values capital
---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Share capital, Shanecy 17,490,000 $17,490 $ 27,185
Shares to be issued on acquisition of BCP and IDMS 2,000,000 2,000 6,642,787
---------------------------------------------------------------------------------------------------------
Balance 19,490,000 $19,490 $6,669,972
---------------------------------------------------------------------------------------------------------
</TABLE>
Pro forma net loss per share has been calculated by dividing pro forma net
loss by the weighted average number of shares outstanding. The weighted
average number of shares outstanding represents Shanecy's weighted average
number of shares outstanding for the nine months ended December 31, 1999
and for the year ended March 31, 1999, in each instance plus the 2,000,000
common shares to be issued for the acquisition of the BCP / IDMS,
Businesses assuming such shares had been issued on January 1, 1998.
<PAGE>
Financial Statements of
BRUNSWICK CAPITAL PARTNERS, INC.
Years ended December 31, 1999 and 1998
<PAGE>
AUDITORS' REPORT
To the Board of Directors
Brunswick Capital Partners, Inc.
We have audited the balance sheets of Brunswick Capital Partners, Inc. (a
Development Stage Enterprise) as at December 31, 1999 and 1998 and the
statements of operations and deficit and cash flows for the years ended December
31, 1999 and 1998 and the period from incorporation on December 31, 1997 to
December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform this 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 the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the years
ended December 31, 1999 and 1998 and the period from incorporation on December
31, 1997 to December 31, 1999 in accordance with generally accepted accounting
principles in the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 3(a) to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 3(a). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Vancouver, Canada
March 17, 2000
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------
1999 1998
- --------------------------------------------------------------------------------------------------------
Assets
Current assets:
<S> <C> <C>
Cash $ 17,002 $ 106,406
Accounts receivable 2,108 90,512
Due from related parties (note 8(a)) 24,089 20,728
Note receivable from related party -- 100,000
- --------------------------------------------------------------------------------------------------------
43,199 317,646
Cash reserve account 25,000 25,000
Investments (note 4):
Performing credit card receivables 725,654 --
Non-performing consumer debt 5,353,030 5,700,790
- --------------------------------------------------------------------------------------------------------
6,078,684 5,700,790
Fixed assets -- 398
- --------------------------------------------------------------------------------------------------------
$ 6,146,883 $ 6,043,834
- --------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 11,990 $ 37,916
Due to related parties (note 8(a)) 6,218 77,239
Promissory note (note 5) 200,000 --
- --------------------------------------------------------------------------------------------------------
218,208 115,155
Note payable to Thesseus International Asset
Fund N.V. (note 6) 689,542 --
- --------------------------------------------------------------------------------------------------------
907,750 115,155
Shareholders' equity:
Share capital (note 7) 910 910
Additional paid-in capital in respect of preferred
shares (note 2) 6,481,113 6,481,113
Deficit accumulated during the development stage (1,242,890) (553,344)
- --------------------------------------------------------------------------------------------------------
5,239,133 5,928,679
Subsequent events (note 9)
- --------------------------------------------------------------------------------------------------------
$ 6,146,883 $ 6,043,834
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Statements of Operations and Deficit
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------
Period from
incorporation on
December 31,
1997 to Year ended Year ended
December 31, December 31, December 31,
1999 1999 1998
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue:
Credit card $ 223,279 $ 223,279 $ --
Interest 26,525 8,314 18,211
Other 7,022 -- 7,022
- ----------------------------------------------------------------------------------------------------------------------------
256,826 231,593 25,233
Expenses:
Accounting and audit 25,670 10,067 15,603
Administration (note 8) 109,706 48,000 61,706
Depreciation 763 398 365
Bad debts 171,520 171,520 --
Consulting 29,303 551 28,752
Credit card services 165,816 165,816 --
Interest 65,439 65,439 --
Legal 89,658 21,743 67,915
Management fees (note 8) 184,920 145,000 39,920
Marketing (note 8) 262,722 135,459 127,263
Payroll 95,426 78,117 17,309
Telephone 8,515 2,949 5,566
Travel 18,302 8,641 9,661
Write-offs of related party balances, net (note 8) 67,439 67,439 --
- ----------------------------------------------------------------------------------------------------------------------------
1,295,199 921,139 374,060
- ----------------------------------------------------------------------------------------------------------------------------
Net loss 1,038,373 689,546 348,827
Capital dividends (note 2) 204,517 -- 204,517
Deficit accumulated during the development
stage, beginning of period -- 553,344 --
- ----------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period $1,242,890 $1,242,890 $ 553,344
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Period from
incorporation on
December 31,
1997 to Year ended Year ended
December 31, December 31, December 31,
1999 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $(1,038,373) $ (689,546) $ (348,827)
Items not involving cash:
Depreciation 763 398 365
Write-off of note receivable 100,000 100,000 --
Change in non-cash operating working capital:
Decrease (increase) in accounts receivable (2,108) 88,404 (90,512)
Advances from (to) related parties, net (17,871) (74,382) 56,511
Increase (decrease) in accounts payable
and accrued liabilities 11,990 (25,926) 37,916
- ----------------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (945,599) (601,052) (344,547)
Cash flows from investing activities:
Note receivable (100,000) -- (100,000)
Recoveries of non-performing consumer debt 528,483 347,760 180,723
Purchase of fixed assets (763) -- (763)
Investment in cash reserve account and
performing credit card receivables (61,112) (36,112) (25,000)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 366,608 311,648 54,960
Cash flows from financing activities:
Promissory note 200,000 200,000 --
Issuance of common shares 510 -- 510
Issuance of preferred shares 600,000 -- 600,000
Capital dividend on preferred shares (204,517) -- (204,517)
- ----------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 595,993 200,000 395,993
- ----------------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 17,002 (89,404) 106,406
Cash, beginning of period -- 106,406 --
- ----------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 17,002 $ 17,002 $ 106,406
- ----------------------------------------------------------------------------------------------------------------------------
Supplementary disclosure of cash flow information:
Interest paid $ 65,439 $ 65,439 $ --
Note issued for performing credit card receivables 689,542 689,542 --
Issuance of preferred shares for non-performing
consumer debt 5,881,513 -- 5,881,513
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. General:
Brunswick Capital Partners, Inc. ("BCP") was incorporated in South Dakota
on October 13, 1998. Brunswick is a national credit card service company
specializing in the marketing, underwriting and administration of credit
card products and services, and is headquartered in Sioux Falls, South
Dakota. As the Company has not generated significant revenues from these
activities since its incorporation, it is considered for financial
reporting purposes to be a development stage enterprise. Being a
development stage enterprise does not impact the accounting applied.
2. Merger:
As of December 2, 1998 the Company merged with Consumer and Merchant Credit
Services Ltd. ("CMCS"), an affiliated Wyoming corporation that was in the
same business, and the new entity was continued under the name of BCP. The
nature of the merger was a pooling of assets and management expertise of
two start-up ventures, rather than an acquisition, hence the financial
statements of the Company have been prepared using the continuity of
interest method of accounting. Under this method, the financial statements
include the assets, liabilities, deficit and results of operations of
CMCS from the date of its incorporation on December 31, 1997.
CMCS was originally a Yukon Territory corporation, which migrated to
Wyoming in order to facilitate the merger. On December 31, 1997, CMCS
entered into an agreement with Thesseus International Asset Fund N.V. (the
"Fund") to acquire certain non-performing consumer debt from the Fund and
to obtain $600,000 working capital funding. The consideration given was
4,730,605 6% cumulative non-voting convertible preferred shares without par
value. On February 10, 1998, CMCS acquired additional non-performing
consumer debt from the Fund in exchange for a further 2,682,827 preferred
shares. The cumulative preferred shares issued were assigned a value of
$6,481,513 representing a carrying value of $5,881,513 in non-performing
consumer debt and $600,000 in a note receivable.
The 7,413,432 preferred shares then held by the Fund, were convertible into
a 40% voting and equity interest in CMCS at the Fund's discretion. As part
of the merger, the Fund exchanged it's 7,413,432 convertible preferred
shares of CMCS, for 400 voting convertible preferred shares of BCP with a
par value of $1 each. The balance of $6,481,113 is reflected as additional
paid-in capital of BCP. The Fund effectively holds the same position in BCP
as it held in CMCS prior to the merger.
In lieu of a three year participation interest that it previously held with
CMCS, the Fund is now entitled to a 20% interest in all net proceeds, as
defined, from performing credit card receivables that BCP creates from the
non-performing consumer debt that CMCS originally acquired from the Fund
(the "Fund Participation Interest").
During the year ended December 31, 1998, $204,517 was returned to the Fund
by way of a capital dividend.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 2
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies:
(a) Going concern assumption:
These financial statements have been prepared in accordance with United
States generally accepted accounting principles that are applicable to
a going concern, which assume that the Company will attain profitable
operations and generate positive cash flow. As at December 31, 1999 the
Company has a working capital deficiency of $175,009, and during the
1999 fiscal year the Company incurred a loss of $689,546 and it has not
generated profit since incorporation. Future operations of the Company
depend upon the continued financial support of shareholders and common
controlled companies. Management is of the opinion that the going
concern assumption is appropriate because the Company's preferred
shareholder intends to contribute additional financing to support the
Company.
(b) Measurement uncertainty:
Financial statements prepared in conformity with United States
generally accepted accounting principles require management to make
estimates and assumptions that can affect the reported assets and
liabilities or the disclosure of contingencies as at the date of the
balance sheet, or the revenue and expenses recognized in the period.
Assumptions underlying asset valuations are limited by the availability
of reliable data and the uncertainty of predictions concerning future
events. By their nature, asset valuations include a subjective element.
Significant estimates have been made by management with respect to the
timing and amount of collection of future cash flows from performing
credit card receivables and non-performing consumer debt (the
"Portfolios"). Among other things, the estimated future cash flows of
the Portfolios are used to recognize impairment of the investment in
non-performing consumer debt and to determine a provision for losses on
credit card receivables. Actual results could differ from these
estimates, making it reasonably possible that a change in these
estimates could occur within one year. On a periodic basis, management
reviews the estimate of future collections, and it is reasonably
possible that its assessment may change based on actual results and
other factors. The change could be material.
(c) Investments in performing credit card receivables and non-performing
consumer debt:
Performing credit card receivables consist of amounts funded by the
Company for new purchases or advances, accrued interest on new
purchases and advances, and accrued fees, less a provision for losses.
Investments in non-performing consumer debt consist of portfolios of
consumer debt purchased by the Company, which is recorded at cost, less
recoveries. Cost is less than the remaining outstanding balance of
these Portfolios. To the extent that the cost of debt purchased exceeds
the estimated amount of cash expected to be collected, a valuation
allowance would be recognized in the amount of such impairment.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 3
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(d) Revenue recognition:
Revenue from credit cards represents interest and fees on new advances
and purchases made by holders of the Company's credit cards on an
accrual basis.
Under the cost recovery method of accounting, all cash receipts
relating to non-performing consumer debt are applied first to recover
the cost prior to recognizing any revenue. Cash receipts in excess of
the cost of the investment are then recognized as revenue.
(e) Allowance for loan losses:
Bad debts include current period losses and an amount which, in the
judgement of management, is necessary to maintain the allowance for
possible credit losses at a level that reflects known and inherent
risks in the credit card receivables. Credit card accounts are
generally charged off at the end of the month during which they become
contractually 120 days past due, with the exception of bankrupt
accounts, which are charged off immediately upon formal notification of
bankruptcy, and accounts of deceased cardholders without a surviving,
contractually liable individual, which are also charged off immediately
upon notification.
4. Investments in performing credit card receivables and non-performing
consumer debt:
(a) Non-performing consumer debt:
The Company has acquired Portfolios of non-performing consumer debt and
credit card receivables from the Fund at a value related to their
original acquisition cost from independent third parties. These debts
are acquired at a substantial discount from the actual outstanding
balance. The Company's objective is to offer the consumer an
opportunity to settle these debts, typically at a discount, and
transfer the settled amount to a newly issued credit card (see credit
card receivables below).
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 4
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
4. Investments in performing credit card receivables and non-performing
consumer debt (continued):
(b) Credit card receivables:
Upon settlement of the debt, a credit card is issued to the consumer
with the opening balance and credit line equal to the settlement
amount. After making principal payments on the transferred balance, the
customer may use the credit card for new purchases and cash advances up
to their available credit limit, which may be increased from time to
time based on their consecutive payment history.
5. Promissory note:
During 1999, BCP entered into a Loan and Security Agreement with Ticknor
Investment Corporation ("TIC"), a company that has a common shareholder,
and the Fund. Under this agreement, BCP borrowed $200,000 from TIC for
working capital purposes in exchange for a promissory note in that amount,
bearing interest at a rate of 12% per annum, payable monthly in arrears
commencing June 15, 1999. The note is due in full on or before May 14,
2001, although TIC has an option exercisable on or before April 14, 2000 to
demand payment of the outstanding principal in full on May 14, 2000. The
obligation is secured by a senior security interest in all performing
credit card receivables and proceeds therefrom owned by BCP from time to
time, as defined.
TIC is also entitled to a 50% contingent interest in the Net Proceeds, as
defined, of a sale or securitization of performing credit card receivables,
to the maximum aggregate face principal amount of $750,000 (the "TIC
Contingent Interest"). Net Proceeds are after payment of the Fund
Participation Interest (note 2).
During the year, interest expense of $14,000 (1998 - $nil) has been
recorded, of which $2,037 is included in accounts payable as at December
31, 1999.
6. Note payable:
On May 14, 1999, BCP acquired performing credit card receivables with a
face value of $726,482 from the Fund in exchange for a promissory note in
the amount of $689,542. The note bears interest at a rate of 12% per annum,
payable quarterly in arrears commencing August 15, 1999. Principal and any
accrued interest are due in full on or before May 14, 2001 and, in lieu of
cash, payments may be made by delivery of title to performing credit card
receivables, as defined in the promissory note, having a face value equal
to 115% of the obligation to be satisfied. In the event that credit card
receivables delivered are non-performing, 21.75% of the face value of such
receivables will be credited against the obligation to be satisfied, but
under no circumstances may such non-performing receivables comprise more
than 10% of the aggregate face amount of receivables delivered. The
obligation is secured by a junior security interest in all performing
credit cards and proceeds therefrom owned by BCP from time to time.
During the year, interest expense of $48,267 (1998 - $nil) has been
recorded.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 5
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. Share capital:
Authorized:
100,000 common shares with a par value of $1 per share
100,000 6% cumulative, voting preferred shares, with a par value of $1
per share, each convertible into 0.85 common shares of the
Company, subject to an anti-dilution provision
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
Issued:
<S> <C> <C> <C>
510 common shares $ 510 $ 510
400 preferred shares 400 400
- -------------------------------------------------------------------------------------------------------------------
$ 910 $ 910
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
8. Related party transactions:
(a) Amounts due from related parties and due to related parties are
unsecured, non-interest bearing and have no fixed terms of repayment.
(b) Management fees of $145,000 (1998 - $39,920) were paid to individuals
who are directors, officers and shareholders of the Company.
(c) During the year, marketing fees of $121,532 (1998 - $121,899) were paid
to InfoBase Direct Marketing Services, Inc., a company that has the
same preferred shareholder as the Company.
(d) Administration fees of $22,175 (1998 - $58,348) were paid during the
year to Thesseus Services Ltd., a wholly-owned subsidiary of the Fund.
(e) Administration fees of $18,000 (1998 - $nil) were paid during the year
to Ticknor Investment Corporation, a company that has a common
shareholder.
(f) The write-offs of related party balances represent the note receivable
from related party (a shareholder of the Fund) less amounts owing to
the Fund and a subsidiary thereof.
<PAGE>
BRUNSWICK CAPITAL PARTNERS, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 6
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
9. Subsequent events:
Subsequent to the year end a number of agreements were signed, which impact
the Company as follows:
(a) The outstanding preferred shares of the Company were acquired by
Shanecy, Inc. from its significant shareholder, the Fund. The Company
amended its articles of incorporation to increase its authorized share
capital to include 2,000,000 preferred shares, with a par value of $1
each, composed of 400 Series A voting preferred shares (the "Series A
Shares"), 1,000,000 Series B non-voting preferred shares (the "Series B
Shares") and such other series of preferred shares as the Board of
Directors determines. The Series A Shares and the Series B Shares shall
be entitled to receive dividends when and as declared by the Board of
Directors. The Series A Shares and the Series B Shares shall be
entitled to preference equal to their original issue price in the event
of any liquidation, dissolution or winding up of the Company, with the
Series A Shares having preference over the Series B Shares.
(b) The currently outstanding preferred shares are to be reclassified as
Series A Shares, and Shanecy, Inc. agreed to purchase from the Company
1,000,000 Series B shares for $1,000,000 cash. If the Series B Shares
are not redeemed by the Company prior to March 1, 2003, then the Series
A Shares and the Series B Shares are thereafter convertible by their
holders into 40% of the outstanding common shares of the Company. If
the Series B Shares are redeemed by the Company prior to March 1, 2003,
then the Series A Shares are thereafter convertible by their holders
into 20% of the outstanding common shares of the Company.
(c) The Company changed its name to eCard Solutions Inc.
(d) As part of the severance agreement with a departing employee, officer
and director, the Company agreed to repurchase his 255 common shares
for $255.
(e) The Company agreed to sell 255 common shares to each of three new
employees, officers and directors at a price of $1 per share. In
accordance with their employment agreements, these individuals are
required to sell, and the Company is required to repurchase, the
employee's common shares at the original issue price if the employee
voluntarily terminates employment or is terminated for cause.
(f) The Company agreed to repay the TIC promissory note (note 5) and all
accrued interest with the proceeds received from the sale of common
shares and Series B Shares disclosed above. The Company also agreed to
pay TIC $50,000 to effect cancellation of the TIC Contingent Interest.
<PAGE>
Financial Statements of
INFOBASE DIRECT MARKETING
SERVICES, INC.
Years ended December 31, 1999 and 1998
<PAGE>
AUDITORS' REPORT
To the Board of Directors
InfoBase Direct Marketing Services, Inc.
We have audited the balance sheets of InfoBase Direct Marketing Services, Inc.
(a Development Stage Enterprise) as at December 31, 1999 and 1998 and the
statements of operations and deficit and cash flows for the year ended December
31, 1999, the period from incorporation on January 29, 1998 to December 31, 1998
and the period from incorporation on January 29, 1998 to December 31, 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 audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform this 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 the Company as at December 31,
1999 and 1998 and the results of its operations and its cash flows for the year
ended December 31, 1999, the period from incorporation on January 29, 1998 to
December 31, 1998 and the period from incorporation on January 29, 1998 to
December 31, 1999 in accordance with generally accepted accounting principles in
the United States of America.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in note 2(a) to the
financial statements, the Company has suffered recurring losses from operations
and has a net capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Management's plans in regard to these matters
are also described in note 2(a). The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
/s/ KPMG LLP
Vancouver, Canada
March 17, 2000
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 13,793 $ 16,552
Prepaids and deposits 3,900 7,953
- -----------------------------------------------------------------------------------------------------------
17,693 24,505
Due from related parties (note 3) 25,511 31,096
Fixed assets (note 4) 55,559 73,567
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
$ 98,763 $ 129,168
- -----------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable and accrued liabilities $ 26,826 $ 6,971
Due to related parties (note 5) 56,772 15,000
Capital lease obligations - current portion (note 6) 6,490 4,929
- -----------------------------------------------------------------------------------------------------------
90,088 26,900
Capital lease obligations (note 6) 34,402 40,892
Shareholders' equity:
Share capital (note 7) 4,951 4,951
Additional paid-in capital in respect of preferred shares 362,891 209,628
Deficit accumulated during the development stage (393,569) (153,203)
- -----------------------------------------------------------------------------------------------------------
(25,727) 61,376
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
$ 98,763 $ 129,168
- -----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Statements of Operations and Deficit
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Period from Period from
incorporation incorporation
on January 29, on January 29,
1998 to Year ended 1998 to
December 31, December 31, December 31,
1999 1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income:
Marketing fees $243,431 $121,532 $121,899
Interest 871 209 662
- -----------------------------------------------------------------------------------------------------------------
244,302 121,741 122,561
Expenses:
Payroll 337,796 197,298 140,498
Telephone 99,020 71,802 27,218
Depreciation 31,601 22,422 9,179
Rent and utilities 46,096 19,203 26,893
Lease interest 12,883 12,510 373
Travel 36,724 9,726 26,998
Accounting and audit 13,345 7,140 6,205
Legal 22,983 3,963 19,020
Other 37,423 18,043 19,380
- -----------------------------------------------------------------------------------------------------------------
637,871 362,107 275,764
- -----------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------
Net loss 393,569 240,366 153,203
Deficit, accumulated during the development stage,
beginning of period -- 153,203 --
- -----------------------------------------------------------------------------------------------------------------
Deficit, accumulated during the development stage,
end of period $393,569 $393,569 $153,203
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Statements of Cash Flows
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------
Period from Period from
incorporation incorporation
on January 29, on January 29,
1998 to Year ended 1998 to
December 31, December 31, December 31,
1999 1999 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash provided by (used in):
Operating activities:
Net loss $(393,569) $(240,366) $(153,203)
Depreciation 31,601 22,422 9,179
Change in non-cash operating working capital:
Decrease (increase) in prepaids and
deposits (3,900) 4,053 (7,953)
Increase in accounts payable and
accrued liabilities 26,826 19,855 6,971
- -----------------------------------------------------------------------------------------------------------------------
(339,042) (194,036) (145,006)
Investing activities:
Due from related parties (25,511) 5,585 (31,096)
Purchase of fixed assets, net of capital lease
obligations (41,260) (4,414) (36,846)
- -----------------------------------------------------------------------------------------------------------------------
(66,771) 1,171 (67,942)
Financing activities:
Due to related parties 56,772 41,772 15,000
Repayment of capital lease obligations (5,008) (4,929) (79)
Issuance for cash of:
Common shares 51 -- 51
Preferred shares 367,791 153,263 214,528
- -----------------------------------------------------------------------------------------------------------------------
419,606 190,106 229,500
- -----------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash 13,793 (2,759) 16,552
Cash, beginning of period -- 16,552 --
- -----------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 13,793 $ 13,793 $ 16,552
- -----------------------------------------------------------------------------------------------------------------------
Supplementary disclosure of cash flow information:
Interest paid $ 12,883 $ 12,510 $ 373
Purchase of fixed assets by capital lease
obligations 45,900 -- 45,900
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
1. General:
InfoBase Direct Marketing Services, Inc. (the "Company") was incorporated
in the State of Nevada on January 29, 1998. The Company is an information
based, technology driven direct marketing company that designs, develops
and implements sophisticated inbound and outbound marketing programs using
the Internet and computerized call management systems for companies
targeting the moderate income customer. As the Company has not generated
significant revenues from these activities since its incorporation, it is
considered for financial reporting purposes to be a development stage
enterprise. Being a development stage enterprise does not impact the
accounting applied. The Company is headquartered in Carlsbad, California.
2. Significant accounting policies:
(a) Going concern assumption:
These financial statements have been prepared in accordance with United
States generally accepted accounting principles that are applicable to
a going concern, which assume that the Company will attain profitable
operations and generate positive cash flow. As at December 31, 1999,
the Company has a working capital deficiency of $72,395 and a capital
deficiency of $25,727. In addition, during the 1999 fiscal year the
Company incurred a loss of $240,366 and it has not generated a profit
since incorporation. Future operation and cash flows of the Company
depend upon continued financial support from shareholders and common
controlled companies. Management is of the opinion that the going
concern assumption is appropriate because the Company's preferred
shareholder intends to contribute additional financing to support the
Company.
(b) Measurement uncertainty:
Financial statements prepared in conformity with United States
generally accepted accounting principles require management to make
estimates and assumptions that can affect the reported assets and
liabilities or the disclosure of contingencies as at the date of the
balance sheet, or the revenues and expenses recognized in the period.
Actual amounts may differ from such estimates.
(c) Fixed assets:
Furniture and equipment is carried at cost and depreciated over seven
years on a double declining balance basis.
Computer hardware and system software is carried at cost and
depreciated over five years on a double declining balance basis.
(d) Revenue recognition:
Marketing fees are recognized as the related services are provided to
the customer.
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 2
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
3. Due from related parties:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Vianden Capital Management LLC, a company
controlled by a director of the Company's
preferred shareholder $ 25,000 $ 25,000
Other 511 6,096
- -------------------------------------------------------------------------------------------------------------------
$ 25,511 $ 31,096
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Balances due from related parties are unsecured, non-interest bearing and
have no fixed terms of repayment.
4. Fixed assets:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Furniture and equipment $ 12,668 $ 4,912 $ 7,756
Computer hardware and system
software 74,492 26,689 47,803
- -------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------
$ 87,160 $ 31,601 $ 55,559
- -------------------------------------------------------------------------------------------------------------------
1998
- -------------------------------------------------------------------------------------------------------------------
Accumulated Net book
Cost depreciation value
- -------------------------------------------------------------------------------------------------------------------
Furniture and equipment $ 12,668 $ 1,810 $ 10,858
Computer hardware and system
software 70,078 7,369 62,709
- -------------------------------------------------------------------------------------------------------------------
$ 82,746 $ 9,179 $ 73,567
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 3
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
5. Due to related parties:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
CASA Internet Services, Inc., a company subject to
significant influence by a director of the Company's
preferred shareholder $ 20,000 $ -
An officer and significant shareholder of a company that
has the same preferred shareholder as the Company 10,000 -
Employee 9,750 15,000
Brunswick Capital Partners, Inc., a company that has the
same preferred shareholder as the Company 4,963 -
Other 12,059 -
- -------------------------------------------------------------------------------------------------------------------
$ 56,772 $ 15,000
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
Balances due to related parties are unsecured, non-interest bearing and
have no fixed terms of repayment.
6. Capital lease obligations:
Future minimum lease payments under capital lease obligations are as
follows:
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1999 $ - $ 17,235
2000 17,235 17,235
2001 17,235 17,235
2002 17,235 17,235
2003 17,235 17,235
- -------------------------------------------------------------------------------------------------------------------
Total minimum capital lease payments 68,940 86,175
Less amount representing interest at an average
rate of 28% (28,048) (40,354)
- -------------------------------------------------------------------------------------------------------------------
Capital lease obligations - principal 40,892 45,821
Less current portion (6,490) (4,929)
- -------------------------------------------------------------------------------------------------------------------
$ 34,402 $ 40,892
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
INFOBASE DIRECT MARKETING SERVICES, INC.
(a Development Stage Enterprise)
Notes to Financial Statements, page 4
Years ended December 31, 1999 and 1998
- --------------------------------------------------------------------------------
7. Share capital:
Authorized:
25,000 common shares without par value
10,000 6% cumulative, non-voting convertible preferred shares, with a
par value of $1 per share each
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
1999 1998
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Issued:
5,100 common shares $ 51 $ 51
4,900 preferred shares 4,900 4,900
- -------------------------------------------------------------------------------------------------------------------
$ 4,951 $ 4,951
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
The 4,900 preferred shares were issued in consideration for a funding
commitment of $500,000, subject to the shareholder receiving financing.
Amounts received in excess of the $4,900 par value of those preferred
shares represents additional paid-in capital irrevocably contributed by the
shareholder. The issued and outstanding preferred shares are each
convertible into one common share of the Company, subject to an
anti-dilution provision, assuming that funds totalling $500,000 are
received from the preferred shareholder in respect thereof. The conversion
entitlement is reduced proportionately to the extent that the funds
received are less than $500,000.
8. Related party transactions:
During the year marketing fees of $121,532 (1998 - $121,899) were received
from Brunswick Capital Partners, Inc.
<PAGE>
ANNEX D
Amended and Restated Bylaws
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
SHANECY, INC.
To be Renamed
INC.UBATOR CAPITAL, INC.
------------------------------------
ARTICLE I
OFFICES
Section 1.1 Principal Office. The principal executive office shall be
in such other location as determined by resolution of the Board of Directors
from time to time.
Section 1.2 Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation may
require.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1 Time and Place of Meetings. All meetings of shareholders
for the election of directors shall be held in at such place as the Board of
Directors may fix from time to time, or at such other place either within or
without the State of Delaware as shall be designated from time to time by the
Board of Directors and stated in the notice of the meeting. Meetings of
shareholders for any purpose may be held at such time and place, within or
without the State of Delaware, as shall be stated in the notice of the meeting
or in a duly executed waiver of notice.
Section 2.2 Annual Meetings. Annual meetings of shareholders,
commencing with the year 2000, shall be held on any date during September of
each year as shall be designated from time to time by the Board of Directors, or
on such other date as shall be designated from time to time by the Board of
Directors and stated in the notice of the annual meeting, at which they shall by
a plurality vote elect a Board of Directors. The shareholders may transact any
other proper business at the annual meeting.
Section 2.3 Notice of Stockholders Business and Nominations. (1)
Nominations of persons for election to the Board of Directors of the Corporation
and the proposal of business to be considered by the stockholders may be made at
an annual meeting of stockholders (i) by or at the direction of the Board of
Directors or the Chairman of the Board, or (ii) by any stockholder of the
Corporation who is entitled to vote at the meeting, who complies with the notice
procedures set forth in clauses (2) and (3) of this Section and who was a
stockholder of record at the time such notice is delivered to the Secretary of
the Corporation.
<PAGE>
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder, pursuant to clause (ii) of paragraph
(1) of this bylaw, the stockholder must have given timely notice thereof in
writing to the Secretary of the Corporation. To be timely, a stockholder's
notice shall be delivered to the Secretary at the principal executive offices of
the Corporation not less than ninety days nor more than one hundred and twenty
days prior to the first anniversary of the preceding year's annual meeting;
provided, that if the date of the annual meeting is advanced by more than twenty
days or delayed by more than seventy days from such anniversary date, notice by
the stockholder to be timely must be so delivered not earlier than one hundred
and twenty days prior to such annual meeting and not later than the close of
business on the later of the ninetieth day prior to such annual meeting or the
tenth day following the day on which public announcement of the date of such
meeting is first made. For purposes of determining whether a stockholder's
notice shall have been delivered in a timely manner for the annual meeting of
stockholders, the "first anniversary of the preceding year's annual meeting"
shall initially be deemed to be May 15, 2000. In no event shall the adjournment
of an annual meeting commence a new time period for the giving of a
stockholder's notice as described above. Such stockholder's notice shall set
forth (a) as to each person whom the stockholder proposes to nominate for
election or reelection as a Director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
Directors, or is otherwise required, in each case pursuant to Regulations 14A
under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and
Rule 14a-11 thereunder, including such person's written consent to being named
in the proxy statement as a nominee and to serving as a Director if elected; (b)
as to any other business that the stockholder proposes to bring before the
meeting, a brief description of the business desired to be brought before the
meeting, the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and of any beneficial
owner on whose behalf the proposal is made; and (c) as to the stockholder giving
the notice and any beneficial owner on whose behalf the nomination or proposal
is made (i) the name and address of such stockholder, as they appear on the
Corporation's books, and of such beneficial owner and (ii) the class and number
of shares of the Corporation which are owned beneficially and of record by such
stockholder and such beneficial owner.
(3) Notwithstanding anything in the second sentence of clause
(2) of this bylaw to the contrary, in the event that the number of Directors to
be elected to the Board of Directors of the Corporation is increased and there
is no public announcement naming all of the nominees for Director or specifying
the size of the increased Board of Directors made by the Corporation at least
one hundred days prior to the first anniversary of the preceding year's annual
meeting, a stockholder's notice under this paragraph shall also be considered
timely, but only with respect to nominees for any new positions created by such
increase, if it shall be delivered to the Secretary at the principal executive
offices of the Corporation not later than the close of business on the tenth day
following the day on which such public announcement is first made by the
Corporation.
2
<PAGE>
Section 2.4 Notice of Annual Meeting. Written notice of the annual
meeting stating the place, date and hour of the meeting shall be given to each
shareholder entitled to vote at such meeting not less than ten nor more than
sixty days before the date of the meeting.
Section 2.5 Stock Ledger. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten days before every
meeting of shareholders a complete list of the shareholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
shareholder and the number of shares registered in the name of each shareholder.
Such list shall be open to the examination of any shareholder, for any purpose,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time of
the meeting and may be inspected by any shareholder who is present.
Section 2.6 Special Shareholder Meetings. Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
statute or by the certificate of incorporation, may be called by the Chairman
and shall be called by the Chairman, president or secretary at the request in
writing of a majority of the Board of Directors, or at the request in writing of
shareholders owning a majority in the amount of the entire capital stock of the
Corporation issued and outstanding and entitled to vote. Such request shall
state the purpose of the proposed meeting.
Section 2.7 Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given not less than ten or
more than sixty days before the date of the meeting, to each shareholder
entitled to vote at such meeting. Business transacted at any special meeting of
shareholders shall be limited to the purposes stated in the notice.
Section 2.8 Quorum. The holders of a majority of the stock issued and
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the shareholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote at the meeting, present in person or represented by proxy, shall have power
to adjourn the meeting from time to time, without notice other than announcement
at the meeting, until a quorum shall be present or represented. At such
adjourned meeting, at which a quorum shall be present or represented, the
shareholders may transact any business that they might have transacted at the
original meeting. If the adjournment is for more than thirty 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 shareholder of record entitled
to vote at the meeting.
Section 2.9 Majority Vote. When a quorum is present at any meeting of
the shareholders of the Corporation, the vote of the holders of a majority of
the stock having voting power present in person or represented by proxy shall
decide any question brought before such meeting, unless the question is one upon
which, by express provision of the applicable statutes or of the certificate of
incorporation, a different vote is required, in which case such express
provision shall govern and control the decision of such question.
3
<PAGE>
Section 2.10 Voting. Unless otherwise provided in the certificate of
incorporation, each shareholder shall at every meeting of the shareholders be
entitled to one vote in person or by proxy for each share of the capital stock
having voting power held by such shareholder, but no proxy shall be voted on
after three years from its date, unless the proxy provides for a longer period.
The shareholders of the Corporation shall not have the right to cumulate their
votes for the election of Directors of the Corporation.
Section 2.11 Conduct of Stockholders' Meetings. The President shall
preside at all stockholders' meetings, or, in his or her absence, any
vice-president. The officer presiding over the stockholders' meeting may
establish such rules and regulations for the conduct of the meeting as he or she
may deem to be reasonably necessary or desirable for the orderly and expeditious
conduct of the meeting. The revocation of a proxy shall not be effective until
written notice thereof has been given to the Secretary of the Corporation.
Section 2.12 Shareholder Action by Consent. Unless otherwise provided
in the certificate of incorporation, the shareholders may, without a meeting,
without prior notice and without a vote, take any action required to be taken at
any annual or special meeting of shareholders of the Corporation, or any action
that the shareholders may take at any annual or special meeting of such
shareholders, if the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote on such action were present
and voted sign a consent in writing, setting forth the action so taken. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those shareholders who have not
consented in writing.
ARTICLE III
DIRECTORS
Section 3.1 Number of Directors. Subject to the applicable provisions
of the certificate of incorporation, the number of directors which shall
constitute the whole Board shall be fixed by the Board of Directors at a number
between one and nine. Within the limits above specified and subject to the
certificate of incorporation, the number of directors may be changed at any time
and from time to time by vote at a meeting or by written consent of the holders
of stock entitled to vote on the election of directors, or a by a resolution of
the Board of Directors passed by a majority of the whole Board of Directors. The
number of directors may also be increased in accordance with any applicable
provisions of the certificate of incorporation. Notwithstanding the foregoing,
no decrease in the number of directors shall shorten the term of any incumbent
director unless such director is specifically removed pursuant to this Article
III at the time of such decrease.
Section 3.2 Vacancies. A majority of the directors then in office,
although less than a quorum, or a sole remaining director may fill vacancies and
newly created directorships resulting from any increase in the authorized number
of directors. The directors so chosen shall hold office until the next annual
election and until their successors are duly elected and shall qualify, unless
sooner displaced. If there are not directors in office, then an election of
directors may be held in the manner provided by statute. If, at the time of
filling any vacancy or any newly created directorship, the directors then in
office shall constitute less than a majority of the whole Board(as constituted
immediately before any such increase), the appropriate Delaware court may, upon
application of any shareholder or shareholders holding at least ten percent of
the total number of shares at the time outstanding having the right to vote for
such directors, summarily order an election to be held to fill any such
directors, summarily order an election to be held to fill any such vacancies or
newly created directorships, or to replace the directors chosen by the directors
then in office.
4
<PAGE>
Section 3.3 Powers. The Board of Directors shall manage the business of
the Corporation and may exercise all such powers of the Corporation and do all
such lawful acts and things as are not by statute or by the certificate of
incorporation or by these bylaws directed or required to be exercised or done by
the shareholders.
Section 3.4 Meetings of the Board of Directors. The Board of Directors
of the Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. The Board of Directors shall meet for
organization purposes at the first regular meeting following the annual meeting
of shareholders at which the directors are elected.
Section 3.5 Term of Directors. Each director shall serve until his or
her successor is elected and qualifies, or until his or her earlier resignation
or removal.
Section 3.6 Regular Meetings. Regular meetings of the Board of
Directors may be held without notice at such time and at such place as the Board
shall from time to time determine.
Section 3.7 Special Meetings. The president may call special meetings
of the Board on three days' notice to each director, either personally or by
mail or by telegram; the president or secretary shall call special meetings in
like manner and on like notice on the written request of two directors unless
the Board consists of only one director; in which case special meetings shall be
called by the president or secretary in like manner and on like notice on the
written request of the sole director.
Section 3.8 Quorum. At all meetings of the Board not less than
one-third of the directors shall constitute a quorum for the transaction of
business and the act of a majority of the directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors, except as
any statute or the certificate of incorporation may otherwise specifically
provide. If a quorum shall not be present at any meeting of the Board of
Directors, the directors present at the meeting may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum shall be present.
Section 3.9 Director Action By Consent. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the Board of Directors or any
committee of the Board may, without a meeting, take any action required or
permitted to be taken at any meeting of the Board or the committee, if all
members of the Board of committee, as the case may be, consent to the action in
writing, and the writing or writings are filed with the minutes of proceedings
of the Board or committee.
5
<PAGE>
Section 3.10 Participation by Conference Telephone. Unless otherwise
restricted by the certificate of incorporation or these bylaws, members of the
Board of Directors, or any committee designated by the Board of Directors, may
participate in a meeting of the Board of Directors, or any committee, by means
of conference telephone or similar communications equipment by means of which
all persons participating in the meeting can hear each other, and such
participation in a meeting shall constitute presence in person at the meeting.
Section 3.11 Committees of Directors. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, each committee to consist of one or more of the directors of the
Corporation. The Board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of a member of a
committee, the member or members of the committee present at any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers that may
require it; but no such committee shall have power or authority in reference to
amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the shareholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets, recommending
to the shareholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the bylaws of the Corporation; and, unless the
resolution or the certificate of incorporation expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees shall have such
name or names as the Board of Directors may determine from time to time by
resolution.
Section 3.12 Committee Minutes. Each committee shall keep regular
minutes of its meetings and report the same to the Board of Directors when
required.
Section 3.13 Compensation of Directors. Unless otherwise restricted by
the certificate of incorporation or these bylaws, the Board of Directors shall
have the authority to fix the compensation of directors. The Corporation may pay
the directors their expenses, if any, of attendance at each meeting of the Board
of Directors and a fixed sum for attendance at each meeting of the Board of
Directors or a stated salary as director. No such payment shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation for such service. Members of special or standing committees may be
allowed like compensation for attending committee meetings.
Section 3.14 Removal of Directors. Any Director may be removed at any
time, but only for cause, upon the affirmative vote of the holders of a majority
of the combined voting power of the then outstanding stock of the Corporation
entitled to vote generally in the election of Directors at any meeting of such
stockholders, including meetings called expressly for that purpose, and at which
a quorum of stockholders is present. Subject to the rights of the holders of any
series of preferred stock of the Corporation, any vacancy in the Board of
Directors caused by any such removal shall be filled at such meeting by the
stockholders entitled to vote for the election of the Director so removed.
6
<PAGE>
Section 3.15 Chairperson of the Board. The directors may choose a
Chairperson of the Board who shall preside at the meetings of the Board and
perform such other duties as may be prescribed by the Board of Directors.
ARTICLE IV
NOTICES
Section 4.1 Notices. Whenever any provision of the applicable statutes
or of the certificate of incorporation or of these bylaws requires notice to be
given to any director or shareholder, it shall not be construed to mean personal
notice, but such notice may be given in writing, by mail, addressed to such
director or shareholder, at his address as it appears on the records of the
Corporation, with postage prepaid. Such notice shall be deemed to be given at
the time when the same shall be deposited in the United States mail. Notice to
directors may also be given by telegram.
Section 4.2 Waiver of Notice. Whenever any provision of the applicable
statutes or of the certificate of incorporation or of these bylaws requires
notice to be given, a written waiver of notice, signed by the person or persons
entitled to notice, whether before or after the time stated in the waiver, shall
be deemed equivalent to notice.
7
<PAGE>
ARTICLE V
OFFICERS
Section 5.1 Officers. The officers of the Corporation shall be elected
by the Board of Directors and shall be a chairman, a president, a vice
president, a secretary and, if so determined by the Board, a treasurer. The
secretary and treasurer of the Corporation may be appointed after the formation
of the Corporation when reasonable and necessary. The Board of Directors may
also elect additional vice presidents, and one or more assistant secretaries and
assistant treasurers. One person may hold any number of offices, unless the
certificate of incorporation or these bylaws otherwise provides.
Section 5.2 Election of Officers. The Board of Directors at its first
meeting after each annual meeting of shareholders shall elect a president, a
senior vice president, one or more vice presidents, a secretary and a treasurer.
Section 5.3 Additional Officers. The Board of Directors may appoint
such other officers and agents as it shall deem necessary, who shall hold their
offices for such terms and shall exercise such powers and perform such duties as
the Board shall determine from time to time.
Section 5.4 Compensation of Officers. The Board of Directors shall fix
the salaries of all officers and agents of the Corporation.
Section 5.5 Term of Office, Removal and Vacancy. The officers of the
Corporation shall hold office until their successors are chosen and qualified.
The Board of Directors may by the affirmative vote of a majority of its members
remove at any time any officer elected or appointed by the Board of Directors.
The Board of Directors may fill any vacancy occurring in any office of the
Corporation.
Section 5.6 The Chairman. The chairman of the Corporation shall, unless
otherwise determined by resolution of the Board, be the chief executive officer
of the Corporation, shall report directly to the Board, shall provide strategic
oversight to the Board, and shall oversee the activities of the president and
the Corporation's other officers. The chairman may execute bonds, mortgages and
other contracts requiring a seal, under the seal of the Corporation, except
where required or permitted by law to be otherwise signed and executed.
Section 5.7 The President. The president shall, in the absence of the
chairman, and to the extent delegated by the chairman, be the chief executive
officer of the Corporation, shall, in the absence of the Chairman, preside at
all meetings of the shareholders and the Board of Directors, shall have general
and active management of the business of the Corporation and shall see that all
orders and resolutions of the Board of Directors are carried into effect. The
president shall execute bonds, mortgages and other contracts requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except where the Board of Directors shall
expressly delegate the signing and execution thereof to some other officer or
agent of the Corporation.
8
<PAGE>
Section 5.8 The Vice President. In the absence of the senior vice
president or in the event of his inability or refusal to act, the vice president
(or in the event there be more than one vice president, the vice presidents in
the order designated, or in the absence of any designation, then in the order of
their election) shall perform the duties of the senior vice president, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the senior vice president. The vice president shall perform such other
duties and have such other powers as the Board of Directors may from time to
time prescribe.
Section 5.9 The Secretary. The secretary shall attend all meetings of
the Board of Directors and all meetings of the shareholders and record all the
proceedings of the meetings of the Corporation and the Board of Directors in a
book to be kept for that purpose and shall perform like duties for the standing
committees when required. He shall give, or cause to be given, notice of all
meetings of the shareholders and special meetings of the Board of Directors, and
shall perform such other duties as may be prescribed by the Board of Directors
or president, under whose supervision he shall be. He shall have custody of the
corporate seal of the Corporation and he, or an assistant secretary, shall have
authority to affix the same to any instrument requiring it and when so affixed,
it may be attested by his signature or by the signature of such assistant
secretary. The Board of Directors may give general authority to any other
officer to affix the seal of the Corporation and to attest the affixing by his
signature.
Section 5.10 The Treasurer. The treasurer, if any, shall have the
custody of the corporate funds and securities and shall keep full and accurate
accounts of receipts and disbursements in books belonging to the Corporation and
shall deposit all moneys and other valuable effects in the name and to the
credit of the Corporation in such depositories as the Board of Directors may
designate.
The treasurer, if any, shall disburse the funds of the Corporation as
the Board of Directors may order, taking proper vouchers for such disbursements,
and shall render to the president and the Board of Directors, at its regular
meetings, or when the Board of Directors so requires, an account of all his
transactions as treasurer and of the financial condition of the Corporation. If
required by the Board of Directors, the treasurer shall give the Corporation a
bond (which shall be renewed every six years) in such sum and with such surety
or sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office of all books, papers, vouchers, money and other property of whatever kind
in his possession or under this control belonging to the Corporation.
Section 5.11 Assistant Officers. Any assistant officers elected by the
Board of Directors shall have such duties as may be prescribed by the Board of
Directors, the President, or the officer to whom they are an assistant.
Assistant officers shall perform the duties and have the power of the officer to
whom they are an assistant in the event of such officer's absence or disability.
9
<PAGE>
ARTICLE VI
CERTIFICATES OF STOCK AND TRANSFER OF STOCK
Section 6.1 Certificates of Stock. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by the president or a vice president and the treasurer or an
assistant treasurer, or the secretary or assistant secretary of the Corporation,
certifying the number of shares owned by him in the Corporation.
Section 6.2 Facsimile Signatures on Certificates. Where a certificate
is countersigned (1) by a transfer agent other than the Corporation or its
employee, or (2) by a registrar other than the Corporation or its employee, any
other signature on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed or whose facsimile signature has been
placed upon a certificate shall have ceased to be such officer, transfer agent
or registrar before such certificate is issued, the Corporation may issue the
certificate with the same effect as if he were such officer, transfer agent or
registrar at the date of issue.
Section 6.3 Lost or Destroyed Certificates. The Board of Directors may
direct a new certificate or certificates to be issued in place of any
certificate or certificates theretofore issued by the Corporation alleged to
have been lost, stolen or destroyed, upon the making of an affidavit of that
fact by the person claiming the certificate of stock to be lost, stolen or
destroyed. When authorizing such issue of a new certificate or certificates or
uncertified shares, the Board of Directors may, in its discretion and as a
condition precedent to the issuance of the new certificate, require the owner of
such lost, stolen or destroyed certificate or certificates, or his legal
representative, to advertise the same in such manner as it shall require or to
give the Corporation a bond in such sum as it may direct or indemnity against
any claim that may be made against the Corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 6.4 Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the Corporation to issue a new certificate to
the person entitled to the new certificate, cancel the old certificate and
record the transaction upon its books.
Section 6.5 Fixing Record Date. In order that the Corporation may
determine the shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment of a meeting, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise an rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, that shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days before any other
action. A determination of shareholders of record entitled to notice of or to
vote at a meeting of shareholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
10
<PAGE>
Section 6.6 Registered Shareholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such shares or shares on the part of any other person, whether or
not it shall have express or other notice thereof, except as the laws of
Delaware otherwise provide.
ARTICLE VII
GENERAL PROVISIONS
Section 7.1 Dividends. The Board of Directors, pursuant to law, at any
regular or special meeting may declare dividends upon the capital stock of the
Corporation subject to the provisions of the certificate of incorporation, if
any, dividends may be paid in cash, in property, or in shares of the capital
stock, subject tot he provisions of the certificate of incorporation.
Section 7.2 Reserves for Contingencies. Before payment of any dividend,
there may be set aside out of any funds of the Corporation available for
dividends such sum or sums as the directors from time to time, in their absolute
discretion, think proper as a reserve to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purposes as the directors shall think conducive to the interest
of the Corporation. The directors may modify or abolish any such reserve in the
manner in which it was created.
Section 7.3 Annual Statement. The Board of Directors shall present at
each annual meeting, and at any special meeting of the shareholders when called
for by vote of the shareholders, a full and clear statement of the business and
condition of the Corporation.
Section 7.4 Execution of Written Instruments. Subject to the
limitations and solely for the purposes set forth in the certificate of
incorporation, the Board of Directors shall, from time to time, authorize and
designate the officers, employees or agents of the Corporation who shall have
power in its name to sign and endorse checks and other negotiable instruments.
Subject to the limitations and solely for the purposes set forth in the
certificate of incorporation, no loans can be contracted on behalf of the
Corporation and no evidences of indebtedness issued in its name unless
authorized by a resolution of the Board of Directors. Any officer so designated
by the Board may further delegate his powers to the extent provided in any
resolution by the board.
Section 7.5 Fiscal Year. The fiscal year of the Corporation shall end
on March 31 of each year and begin on the following day.
Section 7.6 Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its organization and the Words "Corporate
Seal, Delaware". The seal may be used by causing it or a facsimile of the seal
to be impressed or affixed or reproduced or otherwise.
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ARTICLE VIII
TRANSACTIONS WITH AFFILIATES
Section 8.1 Transactions With Affiliates. Except as otherwise provided
in the certificate of incorporation, all business transactions entered into by
the Corporation, with any Affiliate shall be on terms and conditions that are
not more or less favorable to the Corporation than terms and conditions
available at the time to the Corporation for comparable transactions with
unaffiliated persons, and must be approved by a majority of the Board of
Directors.
ARTICLE IX
AMENDMENTS
Section 9.1 Amendments. The shareholders or the Board of Directors,
when such power is conferred upon the Board of Directors by the certificate of
incorporation, may alter, amend, or repeal these bylaws, or adopt new bylaws, at
any regular meeting of the shareholders or the Board of Directors or at any
special meeting of the shareholders or the Board of Directors if notice of such
alteration, amendment, repeal or adoption of new bylaws is contained in the
notice of such special meeting. Any bylaw amendment relating to the
classification or declassification of the Corporation's Board may only be
changed by a by-law amendment which is adopted by all of the then members of the
Board of Directors.
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