FORM 10-KSB
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
|X| ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999 OR
|_| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___________ to ___________
Commission File No. 0-26421
CBCOM, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4635025
------------------------------- --------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification)
incorporation or organization)
16830 Ventura Blvd., Suite 211
Encino, California 91436
------------------- ----------
(Address of principal executive offices) (Zip Code)
(818)461-0800
----------------------------------------------------
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
--------------------------------------
(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. |_|
State issuer's revenues for its most recent fiscal year: None
State the aggregate market value of voting and non-voting stock held by
non-affiliates: There is currently no market for the common stock.
Number of shares of Common Stock outstanding as of March 10, 2000: 17,212,240
CBCOM, Inc.
1999 ANNUAL REPORT ON FORM 10-KSB
PART I
ITEM 1. BUSINESS
Overview
CBCom, Inc. is a development stage company incorporated in Delaware in
April, 1997. CBCom was formed to develop telecommunications projects and
Internet-related information services in the People's Republic of China. CBCom
establishes joint venture partnerships with Chinese companies having data
networking technologies or customer bases to which CBCom will contribute United
States technology and management resources. As of December 31, 1999 CBCom has 14
employees, of which five are located in the United States, five are located in
Beijing and four are located in Shanghai.
In August, 1997, CBCom acquired selected assets of Beijing CBCom
Telecommunications and Consulting Co., Ltd., a Chinese private company owned by
Gordon Gao, currently a 2.5% shareholder and director of CBCom. Beijing CBCom
Telecommunications and Consulting Co., Ltd. was developing a Chinese character
special purpose pager designed to download stock quotations.
In October, 1997 CBCom and Beijing Great Wall Century Communications
Technology Company, Ltd., an established paging company in China established a
Sino-U.S. equity joint venture company called GCC CBCom (Tianjin) Communications
Company, Ltd. to build a nationwide paging network. The joint venture has not
commenced business, the business license has lapsed and CBCom will decide at a
later stage whether to reactivate GCC CBCom.
On January 31, 1999, the Company entered into a Memorandum of
Understanding with Shanghai Stock Exchange Communications Co. Ltd. and Shanghai
Xingtong Telecommunication Science and Technology Co. Ltd. ("SXTST) to develop a
financial data network in China through setting up an equity joint venture
invested by these three parties. The main strategy is to make full usage of the
existing capacity of VSAT satellite communication infrastructure owned by
Shanghai Stock Exchange throughout China. The total capital required in that
joint venture is currently estimated to be US$3,000,000. The Company will
contribute 70% of that amount; SSEC, 20%; and SXTST, 10%. The joint venture has
not yet been established as of March 10, 2000.
Using strategic partnerships in China, combined with acquisitions,
CBCom will become both an Internet Service Provider (ISP) and Internet Content
Provider (ICP), serving China's huge and exponentially growing market of new and
existing Internet users. By entering this market now, CBCom will enjoy an early
lead into China's young and rapidly growing market of Internet users.
From August, 1997 to the present, CBCom has maintained a representative
office in Beijing called CBCom China for the purpose of oversight of its China
projects. From January, 1998 to March, 1999 CBCom had a representative office in
Shanghai for the purpose of developing its business relationship with Shanghai
Stock Exchange Communications Co. Ltd.
On September 24, 1999 CBCom entered into a merger agreement with Abbacy
Corporation, a public reporting company, to acquire 100% of its equity in
exchange for 250,000 shares of common stock of CBcom. On October 8, 1999, the
Board of Directors and the majority shareholders of the constituent corporations
approved the merger. The merger was effected on October 18, 1999 with the filing
of the Certificate of Merger with the State of Delaware.
2
Internet Market
From its beginning of only 1700 users in 1993 (1), the Internet market
in China has seen unprecedented growth. China's Internet population tripled in
1998 (2), and quadrupled in the last year from 2.1 million in January of 1999
(3), to its last reported level of 8.9 million in January of 2000 (4). This
trend is expected to continue. China's Internet industry is nonetheless still in
its infancy and a majority of China's ISPs and ICPs are struggling, and in need
of outside help to grow or even just to remain solvent. This presents a window
of opportunity to capitalize on one of the largest and fastest growing markets
in the world. CBCom can combine its understanding of the special needs and
culture of China along with knowledge and lessons learned from the successful
American ISP and ICP markets.
ECommerce has not yet become a mainstream business in China, as credit
cards are essentially non-existent, and its parcel delivery services are
inadequate. ICP businesses offering free information and services financed
solely by web site "banner ads" are not yet profitable. The most secure Internet
revenues are those paid to the Internet Service Providers, as anyone wishing to
access the Internet must pay access fees. There is a large profit potential for
ISPs both now and in the foreseeable future.
Entering this business is attractive, as start-up costs are relatively
low. This has resulted in a large number of small, unsuccessful ISPs and ICPs,
that are under capitalized. The typical smaller ISP is unable to support its
overhead, even less capable of proper marketing, and is thus unable to increase
its subscribers enough to generate a profit.
CBCom plans an aggressive series of mergers, acquisitions, and service
expansions. CBCom will offer convenient accessibility through local access
numbers nationwide, fast access speeds, high quality customer support, and
user-friendly services, all of which are currently lacking in China but are
taken for granted in America. Internet Content will include unique and targeted
applications on its various web sites thereby drawing an ever-increasing
customer base to its ISP business, as well as generating revenue by charging
fees for specialized information and service web sites.
Acquisitions and Consolidation
In order to quickly reach a profitable number of subscribers, CBCom
plans to acquire a number of smaller ISPs and by using current technology,
- --------
1 "Asia-Pacific Internet & Interactive Services", The Strategis Group, January
1997
2 "China's Internet Population Tripled in 1998", The Industry Standard, January
1999
3 "Semi-annual Report on the Internet", China Internet Network Information
Center, July 1999
4 Kathlene Ohlson, "China Internet Market on the Rise", The Industry Standard,
September 19981
3
combine the existing customers into a single ISP. The infrastructure
requirements of a very small ISP are essentially the same as that of a very
large ISP and the cost to maintain operations are virtually fixed. Therefore the
single most important component of profitability is a high number of
subscribers. By acquiring existing businesses, CBCom will immediately benefit
from achieving economies of scale.
All existing ISP companies, regardless of size, require a minimum
infrastructure to provide customer access to the Internet. The single smaller
ISPs lack sufficient equipment to provide service beyond their local area. With
each acquisition, CBCom will acquire local telephone numbers and lines,
computers and connectivity equipment that is already operating throughout
different cities in China.
Memorandum of Understanding
CBCom has entered into a memorandum of understanding with Shanghai
Stock Exchange Communication Co., Ltd. ("SSECC") and Shanghai Xingtong
Telecommunications Science & Technology Co., Ltd. to form a Sino-foreign joint
venture to develop a financial data network in China called "China Financial
Network" or "CFN". SSECC is a subsidiary of the Shanghai Stock Exchange formed
as a joint venture between Shanghai Stock Exchange and Shanghai Stock Central
Clearing Company. The memorandum contemplates that SSECC will provide access to
its existing satellite communication system as well as licenses, permissions and
rights to use the logo, name and promotional information of the Shanghai Stock
Exchange. Shanghai Xingtong Telecommunications will participate in network
design and management to ensure efficient utilization of the satellite network
and will provide technical assistance. CBCom will provide the resources to
collect and compile global financial information, United States technology,
management resources and capital.
The memorandum of understanding anticipates the project planned in two
phases. Phase I is to market and distribute financial information in Chinese
provided by the Shanghai Stock Exchange over a network to various terminals
throughout China, exclusively targeting Chinese stockbrokers, financial
institutions and corporate users. The financial information provided will
include prices for commodities and futures, precious metals, Asian and global
equities and foreign currencies, global market indexes and real time
international news and commentary. The information provided will differ from
information provided by competitors in that it will be entirely in Chinese at a
lower rate. Phase II is to market to individual consumers real-time financial
data, news and on-line investment trading bundled as a single service,
developing into the equivalent of a commercial Internet Service Provider.
The parties to the memorandum must enter into a joint venture and
obtain the required approvals from the Chinese government authorities by
December 31, 2000 or may lose the exclusive right to the use of the SSECC
satellite communication system. CBCom has advanced $250,000 in start-up expenses
which was expensed during 1998 and which could be credited toward its capital
contribution to the joint venture company when the joint venture is completed.
If the joint venture has not been set up, and exclusive licenses to use the
satellite communication network owned by Shanghai Stock Exchange and use the
logo and name of Shanghai Stock Exchange have not been obtained, the issuance of
promotional stock to Sinoway, Ltd., an affiliate of SSECC, could be cancelled.
4
Shanghai Stock Exchange Communication Co., Ltd.
SSECC is in charge of the satellite system utilized by the Shanghai
Stock Exchange to distribute real time data to its members. Shanghai Stock
Exchange is a leading stock exchange in China with 560 member brokerage
companies aggregating 2,700 brokerage offices, 20,000 stockbrokers and 33
non-member regional security exchange centers throughout China.
Shanghai Xingtong Telecommunications Science & Technology Co.
Shanghai Xingtong Telecommunications is a subsidiary of the China
Broadcast Satellite Communication company and can utilize its satellite
resources and operating license to provide specialized satellite communication
services. Shanghai Xingtong Telecommunications provides assistance to numerous
Chinese and other foreign companies in building telecommunications networks.
Satellite Network
The satellite network is used to transmit daily stock data and
information to selected brokerage firms and consists of three transponders
(relays) with satellite Asia-1 which are exclusively leased by the Shanghai
Stock Exchange for use by it 24 hours per day. The Shanghai Stock Exchange
utilizes the satellite network approximately 4 to 5 hours per day during market
hours to broadcast real-time financial information. Even during this high use
period, the transponders are utilizing only a fraction of their 26 megabit
bandwidth capacity. CBCom estimates that approximately only 20% to 30% of the
satellite network system capability is utilized with additional usage limited to
possible transactional growth. CBCom anticipates that it will be able to
broadcast on the unused network during off hours and on the unused bandwidths
during high usage times.
Competition
Presently, there are four Chinese government-affiliated Internet
service providers that control direct access to the World Wide Web in China and
approximately 100 small independent Internet Service Providers that are not
linked directly to the World Wide Web. There are several major ISPs which may
pose direct competition to the anticipated business of the joint venture
including Prodigy, Inc., a joint venture including the Shanghai Municipal
Commission of Foreign Relations and Trade and China Internet Corporation, which
was created in 1995 and has been responsible for the creation of the China Wide
Web, an on-line business information and communications system which spans
China. There are four primary financial information vendors servicing the
Chinese market:
Reuters, Telerate (Dow Jones), Hong Kong Data, and Xinhua.
CBCom's Pager Business
In August, 1997, CBCom acquired selected assets of Beijing CBCom
Telecommunications and Consulting Co., Ltd., a Chinese private company owned by
Gordon Gao, including its paging system development. In April, 1999, CBCom
entered into an agreement with Radio, Computer & Telephone Corporation (RC&T), a
Minnesota corporation, for a 10-year license for the non-exclusive license to
market the Microtron 2000 pager, an alphanumeric paging device originally
developed by RC&T pursuant to the specifications of Beijing CBCom for sale in
5
China. RC&T had filed a complaint against CBCom and others alleging misuse of
information and appropriation of certain proprietary information in regard to
the Microtron 2000.The April 1999 agreement calls for a royalty payment of $2.25
per pager sold in China and represents a settlement of those claims.
In addition to the standard message taking capabilities, the Microtron
2000 pager works as an electronic organizer with directory and diary
capabilities and has the capability to receive user-defined information such as
stock quotes, bank and brokerage accounts, and e-mail. CBCom entered into an
agreement with Samjin Co., Ltd., a Korean corporation, for the manufacture of
the paging devices. CBCom ordered an initial 2000 paging units for sale in
China. CBCom has finalized testing and has appointed a distributor in China to
market the pagers; however, no sales have occurred to date. All of the parts are
in the hands of Samjin Co. and based on the lack of sales to date, CBCom has
written off the balance of parts needed to manufacture the Microtron 2000 pager.
Marketing
CBCom intends to continue its sale of the Microtron 2000 in addition to
the development of the joint venture project for the creation of the China
Financial Network. CBCom believes that the Shanghai Stock Exchange and its
members provide a ready market for the sale of the Microtron 2000 and its
capability to receive stock quotes.
The use of individual pagers has grown significantly since their
introduction in 1987. The rapid growth is believed to be a result of the
shortage of fixed-line phones and the growth of the private market economic
system. CBCom believes that pagers will compete favorably in China with mobile
telephones because in addition to the scarcity of telephone lines and phones,
pagers are small, easy to use, have lower prices and annual fees, are easier to
purchase, and provide retrieval of data such as current affairs, weather
forecasts, financial news, stock quotes and sports scores.
Prior Joint Venture
In October 1997, CBCom and Beijing Great Wall Century Communications
Technology Company, Ltd., an established paging company in China, entered into a
20-year joint venture contract to establish a Sino-foreign joint venture company
called GCC CBCom (Tianjin) Communications Company, Ltd. to build a nationwide
paging network. The joint venture company was formed and CBCom advanced $107,500
in organizational and start-up costs . The joint venture was not commenced and
the business license for the joint venture expired.
ITEM 2. PROPERTIES.
In September, 1997, the Company leased approximately 8,000 square feet
of office space in Sherman Oaks, California under a 5-year lease which expires
August 31, 2002. The facility was in excess of the needs of CBCom at this time
and the lessor agreed in December, 1999 to take back the space. In January, 2000
the Company entered into a 3-year lease expiring December 31, 2002 for
approximately 2,169 square feet at 16830 Ventura Boulevard, Suite 211, Encino,
California at a monthly rental of $4,771.
6
CBCom has entered into a 5-year lease for its China headquarters that
expires February 28, 2003 for approximately 6,000 square feet at A No. 9 Dong
Tucheng Road, Heping Street, Chao Yang District, Beijing, China, at a monthly
rental of $5,208 per month payable in the form of shares of CBCom common stock.
The aggregate rental ($312,500) has been prepaid by the issuance of 625,000
shares of CBCom to Far East Trading Company, beneficially owned by shareholders
of CBCom.
Each of the facilities are adequate for the Company's current needs.
ITEM 3. LEGAL PROCEEDINGS
CBCom entered into a settlement agreement with Bernard Luskin, the
former Chief Executive Officer of CBCom, in January, 1999, settling an
outstanding dispute for unpaid salary and other compensation. Mr. Luskin had an
employment contract with CBCom which guaranteed payment of his salary through an
escrow account containing 800,000 shares of common stock of Amtec, Inc., which
shares were pledged by Polmont Investments, Ltd., a British Virgin Islands
corporation controlled by one of the principal stockholders of CBCom.
Through the settlement, the parties agreed that Mr. Luskin will receive
unpaid salary and bonus through May 15, 1999 totaling $520,833 plus additional
compensation as may be determined by binding arbitration; but in no event shall
CBCom's liability exceed the value of the shares held in escrow. Mr. Luskin
waived any rights to satisfy any claims against CBCom from any assets other than
those shares held in the escrow account. CBCom is obligated to repay Polmont the
amount it paid to Mr. Luskin from the sale of its Amtec, Inc. shares. Polmont
has agreed to accept payment in the form of shares of CBCom, Inc. valued at
$0.50 per share. Due to the nature of this off-balance sheet financing, the
Company recognized prepaid interest of $220,000 and the corresponding amount in
additional paid-in capital and amortized the prepaid interest over the period of
three years.
On August 30, 1999, a law suit was filed in the Superior Court of the
State of California against CBCom, Inc., Max Sun, and Charles Lesser (Case No.
LCO49888) by Com VU Corporation, a Delaware corporation, based on an alleged
breach of a prior agreement between CBCom and Com VU. The parties entered into a
merger agreement on March 26, 1999, which merger was never effected. Com VU is
alleging CBCom (i) failed to consummate the merger by failure to use its best
efforts to effect it (ii) failed to pay $50,000 in outstanding debts to two
shareholders on behalf of Com Vu (iii) terminated the agreement improperly and
(iv) breached a covenant of good faith. Com Vu is requesting payment of the
$50,000 plus losses of approximately $15,000 in expenses and costs. CBCom
disputes the allegations of the claims and intends to defend the action
vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of security holders during
the fourth quarter of 1999.
7
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
There has never been a market for the Common Equity of the Registrant.
Recent Sales of Unregistered Securities
1997
During 1997, the Company sold securities that were exempt from
registration under the Securities Act. These transactions are described below.
On April 23, 1997, the Company issued 2,000,000 shares of common stock at $0.20
per share to one of the founding shareholders for total proceeds of $400,000.
On April 23, 1997, the Company issued 937,5000 shares of common stock at $0.20
per share to Mr. Gordon Gao in exchange for his company's, Beijing CBCom
Telecommunications and Consulting Co. Ltd., assets of $187,500 (mainly office
equipment, furniture and fixtures) located in Beijing, China.
On December 31, 1997, the Company issued 200,000 shares of common stock at $0.50
per share to a family trust investor for total proceeds of $100,000.
1998
During 1998, the Company sold securities that were exempt from
registration under the Securities Act. These transactions are described below.
On January 1, 1998 the Company issued 500,000, 250,000, and 125,000 (a total of
875,000) shares of common stock to its CEO, CFO, and chief engineer,
respectively, at $.001 per share as signing bonus for their services from
inception to September 30, 1999 with the Company. The Company received proceeds
of $875 and recognized compensation cost of $436,625, based on a fair value of
$.50 per share.
On March 1, 1998, the Company issued 625,000 shares of common stock at $0.50 per
share in exchange for the future rent in its Beijing representative office for
the next five years. The prepaid rental of $312,500 will be amortized over the
next five years.
On April 24, 1998, the Company issued 8,000,000 shares of common stock at $0.20
per share to convert a shareholder loan of $1,600,000. This conversion price was
specified on August 31, 1997 between the original founders and the Company. The
shareholder loan was made to the Company from time to time on an as-needed basis
from June 15, 1997 to April 24, 1998 and was not converted into common stock
until the shareholder loan totaled $1,600,000.
From early October to early December 1998, the principal shareholder converted
$160,000 of shareholder loan into 320,000 shares of common stock at $0.50 per
share in four tranches.
On December 31, 1998, the Company issued 400,000, 400,000, and 320,000 (a total
of 1,120,000) shares of common stock at $0.50 per share to three directors as
their employment compensation of $200,000, $200,000, and $160,000, respectively,
for four months in 1997 (recognized in 1997) and the year of 1998 in accordance
with their respective employment agreements.
8
On December 31, 1998, the Company issued 1,250,000 shares of common stock at
$0.001 per share in exchange for the promotion and facilitation services
provided by Sinoway Limited (Sinoway) registered in the British Virgin Islands
with a corporate office in Hong Kong, which is an affiliate company of Shanghai
Stock Exchange Communication Co. Ltd. Sinoway promised to obtain exclusive
licenses to use VSAT satellite systems owned by SSE and the logo and name of
SSE. Sinoway agreed to pay $0.001 per share for these 1,250,000 shares of common
stock. Accordingly, the Company recognized a notional stock subscription of
$1,250 and a promotion expense for the License/Contract of $623,750. If these
licenses were obtained, the cost would be amortized over the life of joint
venture with SSEC and SXTST. However, the effectiveness of this issuance depends
on the success of setting up the equity joint venture among the Company, SSEC,
and SXTST and obtaining the exclusive licenses. If the joint venture has not
been set up and exclusive licenses to use the satellite communication network
owned by Shanghai Stock Exchange and use the logo and name of Shanghai Stock
Exchange have not been obtained, the issuance of stock could be canceled. As of
March 10, 2000, the license has not been obtained.
1999
During 1999, the Company sold securities that were exempt from
registration under the Securities Act. These transactions are described below.
On February 1, 1999, the Company conducted a private placement to issue
600,000 warrants at $0.25 per warrant in four tranches to an existing
shareholder and received total proceeds of $135,000, net of a finders fee of
$15,000. Each warrant carries an exercise price of $0.25 per share and allows
each holder of warrant to exercise any time on or before January 31, 2004.
Accordingly, the Company reserved 600,000 shares of common stock for these
warrants.
On May 10, 1999, the Company conducted a private placement to issue
100,000 shares of common stock at $0.50 per share to an accredited investor and
received total proceeds of 45,000, net of a finders fee of $5,000.
From May 14 to June 4, 1999 the Company conducted a private placement
to issue 45,000 shares of common stock at $1.00 per share in three tranches to
an individual investor and one corporate investor and received total proceeds of
$40,500, net of a finders fee of $4,500.
On June 22, 1999, the Company issued 40,000 shares of common stock at
$0.50 per share to an existing shareholder. Consequently, the Company received
total proceeds of $18,000, net of a finders fee of $2,000.
Details are included in Note 7 to the Financial Statements.
In August 1999, the Company conducted a private placement to issue
23,000 shares of common stock at $1.00 per share in three tranches to two
individual investors and received total proceeds of $20,700, net of a finders
fee of $2,300.
On August 25, 1999, the Company issued 30,000 shares of common stock at
$0.50 per to an existing shareholder. Consequently, the Company received total
proceeds of $13,500, net of a finders fee of $1,500.
Details are included in Note 7 to the Financial Statements.
9
On August 26, 1999, the Company conducted a Regulation D, Rule 506
offering to issue 50,000 shares of common stock at par value of $0.001 per share
to 300 shareholders through an off-shore investment company in order to satisfy
its goal to be listed on the NASDAQ OTC Bulletin Board. On December 22, 1999,
the Company completed the offering, issued 50,000 shares of common stock, and
recognized a merger transaction expense of $49,950. The $50 cash was received
subsequent to December 31, 1999.
On September 15, 1999, the Company conducted a private placement to
issue 20,000 shares of common stock at $1.00 per share to two individual
investors. Consequently, the Company received total proceeds of $18,000, net of
a finders fee of $2,000.
On September 24, 1999, the Company issued 30,000 shares of common stock
at $0.50 per share to an existing shareholder to reward her effort to introduce
new potential investors to the Company. Consequently, the Company received total
proceeds of $13,500, net of a finders fee of $1,500. Details are included in
Note 7 to the Financial Statements.
On September 24, 1999, the Company entered into a merger agreement with
Abbacy Corporation (a public shell company), to acquire 100% of its equity. On
October 8, 1999, the Board of Directors and the majority shareholders of the
constituent corporations approved the merger. In accordance with the merger
agreement, Abbacy filed a Form 8-K with the SEC on October 19, 1999 to indicate
that CBCom, Inc. would be the successor of the reporting entity in accordance
with the rule 12 (g) 3 in the 1934 Act. On December 22, 1999 the Company issued
250,000 shares of common stock valued at $1.00 per share to the sole shareholder
of Abbacy in exchange for 100% of its equity interest. Accordingly, the Company
recognized $250,000 of merger expense.
On November 1, 1999, the principal shareholder converted $70,000 of
shareholder loan into 140,000 shares of common stock at $0.50 per share.
On December 30, 1999, the principal shareholder converted $578,370 of
shareholder loan into 1,156,740 shares of common stock at $0.50 per share. He
immediately sold the shares to Tan Siong Bee, who is the beneficial holder for
TSB International Inc. Mr. Sun disclaims any beneficial ownership in these
shares.
10
PART II
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following selected financial data is as of and for the years ended
December 31, 1999 and 1998, and for the period ended December 31, 1997.
--------------------------------------------
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ -------------
Statements of Operations Data: (in thousands, except per share data)
Net sales ........................ $ - $ - $ -
Cost of sales ....................
------- -------- --------
Gross profit ..................... - - -
Operating expenses:
General and administrative ..... 1,772 3,001 1,847
Merger Expense.................. 400
-------- -------- --------
Total operating expenses ..... 2,172 3,001 1,847
-------- -------- --------
Income (loss) from operations .... (2,172) (3,001) (1,847)
Interest expense, net ............ 106 14 1
Other (income) expense, net ...... (11) (17) -
-------- -------- --------
Income (loss) before income taxes. (2,267) (3,033) (1,848)
Provision (benefit) for income taxes 1 1 1
-------- -------- --------
Net income (loss) ................ $(2,268) $(3,034) $(1,849)
======== ======== ========
Net income (loss) per common share:
Basic .......................... $ (0.15) $ (0.30) $ (0.63)
======== ======== ========
Diluted ........................ $ (0.15) $ (0.30) $ (0.63)
======== ======== ========
Common shares used in computing per share amounts:
Basic .......................... 15,568,879 10,049,226 2,937,500
========== ========== =========
Diluted ........................ 15,568,879 10,049,226 2,937,500
========== ========== =========
December 31, December 31, December 31,
1999 1998 1997
------------ ------------ -------------
Balance Sheet Data: (in thousands)
Cash and cash equivalents ........ $ 32 $ 240 $ 401
Total assets ..................... 473 733 568
Total liabilities ................ 1,586 1,111 1,730
Total stockholders' equity ....... (1,113) (378) (1,162)
11
Overview
CBCom, Inc. ("the Company") was incorporated under the laws of the
State of Delaware on April 23, 1997 and is registered to do business as a
foreign corporation in the State of California. The strategic mission of the
Company is to participate in the development of telecommunication, internet, and
information service businesses in the People's Republic of China. The Company
will seek to acquire existing Internet Service Providers (ISP)and web based
content providers (ICP) and operate through a series of sino-foreign joint
venture companies. The Company previously established a joint venture in order
to operate in the pager network business in China; however, this venture was
closed due to the inability at that time to raise sufficient capital. The
Company incurred consecutive losses in 1997, 1998, and 1999.
The following table summarizes certain key financial information:
- --------------------------------------------------------------------------------
Change Change
1999 from 1998 from 1997
($000s) prior year ($000s) prior year ($000s)
- --------------------------------------------------------------------------------
Net Sales $ - $ - $ -
- --------------------------------------------------------------------------------
Gross Profit $ - $ - $ -
- --------------------------------------------------------------------------------
General and Administrative
Expenses $ 1,772 (41%) $ 3,002 62% $ 1,847
- --------------------------------------------------------------------------------
Merger Expenses $ 400 $ $
- --------------------------------------------------------------------------------
Interest Expense,Net $ 107 $ 15 $ 1
Other (Income), Net $ (11) $ 17
- -------------------------------------------------------------------------------
Provision (Benefit) for
Income Taxes $ 1 $ 1 $ 1
- -------------------------------------------------------------------------------
Results of Operations
Fiscal Years Ended December 31, 1999 and December 31, 1998
The Company has been in the development stage since its inception in
April, 1997. To date, there have been no revenues generated from any of the
operations of the Company. General and administrative expenses consist
principally of business development expenses in China, and salaries and other
overhead expenses in the United States, as well as legal and other professional
services. General and administrative expenses decreased by 41% to $1.8 million
in 1999 from $3.0 million in 1998.
12
The decrease in general and administrative expenses in 1999 resulted
primarily from the fact that much of the Company's business development expenses
were written off during 1998. The Company has written off all of the expenses of
CBCom China, its representative office in Beijing. The Company wrote off
$280,500 in 1998 and $180,000 in 1999 of funds advanced to CBCom China and
recorded as part of G&A expense. CBCom wrote off all of the assets obtained from
Beijing CBCom Telecommunications and Consulting Company Ltd. in 1988 totaling
$187,500.
CBCom China has been active in securing potential joint venture
projects and in the technical development of the Microtron pager. The balance of
the Microtron pager inventory and development expenses amounting to $143,491
were written off in 1999 as these costs may not have any economic value until
there are current sales.
In October, 1997 CBCom, Inc. and Beijing Great Wall Century
Communications Technology Company, Ltd., an established paging company in China,
established a sino-U.S. equity joint venture company called GCC CBCom (Tianjin)
Communications Company, Ltd. to build a nationwide paging network. CBCom
advanced $107,500 to the joint venture for organization costs and start-up
costs. The joint venture has not commenced operations and CBCom has expensed the
$107,500 during 1998 and will decide at a later date whether to reactivate GCC
CBCOM (Tianjin).
The Company signed a Memorandum of Understanding with Shanghai Stock
Exchange Communication Co., a subsidiary of the Shanghai Stock Exchange on
January 31, 1999. The purpose of the Memorandum of Understanding is to establish
a sino-U.S. equity joint venture company to distribute real time stock and
financial data in China using the satellite communications system owned by
Shanghai Stock Exchange Communications Co. The Company advanced $250,000 in
start-up costs expensed mainly during 1998 which expenses could be credited
toward its capital contribution to the joint venture company when the joint
venture is completed. In 1998, the Company issued 1,250,000 shares of common
stock valued at $0.50 per share to Sinoway Limited for its services to obtain an
exclusive license to use SSEC's VSAT satellite system. The Company recognized a
non-cash promotional expense for the Contract of $623,750 during 1998.
The largest operating expense has been management salaries; however,
much of the management compensation has been paid by issuance of common stock..
The Company issued a total of 875,000 shares of common stock to its CEO, CFO and
Chief Engineer as a signing bonus and recognized a non-cash compensation expense
of $436,625 in 1998. A number of the founding shareholders and directors
received no cash compensation from the inception of the company through the end
of 1998. The Company issued 1,120,000 shares of common stock in December, 1998
and recognized $560,000 non-cash compensation expense. At December 31, 1999 the
company has salaries payable of $557,250, most of which will be converted into
common stock at a conversion price of $1.00 per share, the current fair market
value.
In addition to management salaries, the most significant overhead
expenses of the Company have been legal expenses and merger expenses. The
Company undertook a merger with ComVu Corporation, a dormant public shell
company during 1998 and decided to terminate that merger when the OTC Bulletin
Board (OTCBB) eligibility requirements were changed in January of 1999. The
Company undertook and completed a merger with ABBACY Corporation, a public shell
13
company in October of 1999. The Company recognized $100,000 of legal fees in
connection with the merger and $250,000 related to the issuance to the
shareholders of Abbacy Corporation of 250,000 shares of CBCom, Inc. common stock
valued at $1.00 per share.
Plan of Operation
CBCom was formed to develop telecommunications projects and
Internet-related information services in the People's Republic of China. CBCom
establishes joint venture partnerships with Chinese companies having data
networking technologies or customer bases to which CBCom will contribute United
States technology and management resources. In order to execute its Business
Plan, CBCom plans to list its common shares on the OTC Bulletin Board and
undertake a Private Placement of $5.0-10.0 million. The funds will be used to
capitalize the joint venture partnerships and acquire internet companies in
China. If CBCom is unable to raise funds through a Private Placement, the
company would be dependent upon its major shareholders for funds and would have
to alter its acquisition strategy and timetable.
To limit the use of valuable cash reserves, CBCom will negotiate its
first acquisitions using only CBCom shares. The terms of any acquisition must
give operating control of the acquired business to CBCom. CBCom will provide the
necessary operating cash as well as management and technical staff to operate
the consolidated business. There is good cause to believe that owners of the
ISPs in China will welcome the opportunity to own stock in a United States
public company.
ECommerce has not yet become a mainstream business in China, as credit
cards are essentially non-existent, and its parcel delivery services are
inadequate. ICP businesses offering free information and services financed
solely by web site "banner ads" are not yet profitable. The most secure Internet
revenues are those paid to the Internet Service Providers, as anyone wishing to
access the Internet must pay access fees. There is a large profit potential for
ISPs both now and in the foreseeable future.
Entering this business is attractive, as start-up costs are relatively
low. This has resulted in a large number of small, unsuccessful ISPs and ICPs,
that are under capitalized. The typical smaller ISP is unable to support its
overhead, even less capable of proper marketing, and is thus unable to increase
its subscribers enough to turn a profit.
CBCom plans an aggressive series of mergers, acquisitions, and service
expansions. CBCom will offer convenient accessibility through local access
numbers nationwide, fast access speeds, high quality customer support, and
user-friendly services, all of which are currently lacking in China but are
taken for granted in America. Internet Content will include unique and targeted
applications on its various web sites thereby drawing an ever-increasing
customer base to its ISP business, as well as generating revenue by charging
fees for specialized information and service web sites.
In order to quickly reach a profitable number of subscribers, CBCom
plans to acquire a number of smaller ISPs and by using current technology,
combine the existing customers into a single ISP. The infrastructure
requirements of a very small ISP are essentially the same as that of a very
large ISP and the cost to maintain operations are virtually fixed. Therefore the
14
single most important component of profitability is a high number of
subscribers. By acquiring existing businesses, CBCom will immediately benefit
from achieving economies of scale.
CBCom has entered into a memorandum of understanding with Shanghai
Stock Exchange Communication Co., Ltd. ("SSECC") and Shanghai Xingtong
Telecommunications Science & Technology Co., Ltd. to form a Sino-foreign joint
venture to develop a financial data network in China called "China Financial
Network" or "CFN". SSECC is a subsidiary of the Shanghai Stock Exchange formed
as a joint venture between Shanghai Stock Exchange and Shanghai Stock Central
Clearing Company. The memorandum contemplates that SSECC will provide access to
its existing satellite communication system as well as licenses, permissions and
rights to use the logo, name and promotional information of the Shanghai Stock
Exchange. Shanghai Xingtong Telecommunications will participate in network
design and management to ensure efficient utilization of the satellite network
and will provide technical assistance. CBCom will provide the resources to
collect and compile global financial information, United States technology,
management resources and capital.
The memorandum of understanding anticipates the project planned in two
phases. Phase I is to market and distribute financial information in Chinese
provided by the Shanghai Stock Exchange over a network to various terminals
throughout China, exclusively targeting Chinese stockbrokers, financial
institutions and corporate users. The financial information provided will
include prices for commodities and futures, precious metals, Asian and global
equities and foreign currencies, global market indexes and real time
international news and commentary. The information provided will differ from
information provided by competitors in that it will be entirely in Chinese at a
lower rate. Phase II is to market to individual consumers real-time financial
data, news and on-line investment trading bundled as a single service,
developing into the equivalent of a commercial Internet Service Provider.
The parties to the memorandum must enter into a joint venture and
obtain the required approvals from the Chinese government authorities by
December 31, 2000 or may lose the exclusive right to the use of the SSECC
satellite communication system. CBCom has advanced $250,000 in start-up expenses
which was expensed during 1998 and which could be credited toward its capital
contribution to the joint venture company when the joint venture is completed.
If the joint venture has not been set up and exclusive licenses to use the
satellite communication network owned by Shanghai Stock Exchange and use the
logo and name of Shanghai Stock Exchange have not been obtained, the issuance of
promotional stock to Sinoway, Ltd. could be cancelled.
CBCom intends to continue its sale of the Microtron 2000 in addition to
the development of the joint venture project for the creation of the China
Financial Network. CBCom believes that the Shanghai Stock Exchange and its
members provide a ready market for the sale of the Microtron 2000 and its
capability to receive stock quotes.
15
Liquidity and Capital Resources
The Company has suffered losses in 1997, 1998 and 1999 and had negative
working capital in 1997, 1998 and 1999, respectively. The Company was funded
initially by two of its founding shareholders in the amounts of $400,000 and
$1,600,000, respectively. During 1999, the Company raised money through a series
of private placements netting $304,000 after selling commissions. In addition,
one of the Company's directors and major shareholders has provided the Company
with loan funds that are convertible into Common Stock at a price of $0.50 per
share. Funds loaned to the Company equalled $679,000 in 1998 and $137,000 in
1999.
One the Company's directors and major shareholders continues to provide
the Company with substantial financing sources. The director has provided a
letter of support indicating that he pledges to provide continuous financial
support to enable the Company to satisfy its working capital requirements and to
complete its commitments to its joint venture projects. The Financial Statements
have been prepared assuming that the Company will continue as a going concern.
The audit report indicates that the company has a limited operating history and,
at December 31, 1999 has a shareholders' deficit and that those conditions raise
substantial doubt about the company's ability to continue as a going concern.
While there is no assurance that funding will be available, the Company is
continuing to actively seek funding to complete its joint venture projects and
execute its Business Plan through equity and/or debt financing. Without outside
funding, the Company is totally dependent upon its major shareholders and would
need to reconsider its Business Plan.
RISK FACTORS
CBCom is currently operating at a loss
Revenues from CBCom's sales to date have not been sufficient to cover
the costs of such operations and CBCom has borrowed funds to maintain its
operations. Its ability to develop operations is dependent upon its ability to
generate sales of its paging units or to develop the proposed China Financial
Network.
CBCom commenced operations in 1997 and has a limited operating history
CBCom commenced operations in 1997 and has only a limited history of
operations which to date have not been profitable. Its operations are subject to
the risks and competition inherent in the establishment of a relatively new
business enterprise. There can be no assurance that future operations will be
profitable. Revenues and profits, if any, will depend upon various factors,
including market acceptance of its concepts, market awareness, reliability and
acceptance of the Internet, dependability of its distribution network, and
general economic conditions. There is no assurance that CBCom will achieve its
expansion goals and the failure to achieve such goals would have an adverse
impact on it.
16
Need for additional capital
CBCom needs additional capital in order to implement its business plan,
to continue its operations and pay outstanding liabilities. CBCom anticipates
that it will seek to raise additional capital through the sale of its equity or
debt securities or through borrowings from commercial lending institutions.
CBCom has no commitments from any financial sources for such funding and there
is no assurance that CBCom will be able to locate any such funding. The
inability of CBCom to raise additional capital could result in its inability of
continue its operations.
Prior joint venture did not succeed
CBCom entered into an earlier joint venture for the development of its
paging network. CBCom was unable to provide the capital required to fund the
joint venture and the term of the joint venture expired without development.
There is no assurance that CBCom will be able to provide the funding necessary
in the proposed joint venture with SSECC. If it is unable to provide such
capital, the proposed business plan of the joint venture would not be able to
continue.
Enforceability of certain civil liabilities
Certain of CBCom's officers and directors reside outside the United
States. Many of the assets of these persons are, and CBCom anticipates that a
substantial portion of the assets that may developed or acquired by it will be
located outside the United States. As a result, it may not be possible for
investors to effect service of process within the United States upon such
persons, or to enforce against CBCom's assets or against such personal judgments
obtained in United States courts predicated upon the liability provisions, and
most particularly the civil liability provisions, of the United States
securities laws or state corporation or other law.
Investment in Far East generally
The Company anticipates that it will initially focus its development
efforts on telecommunication projects and opportunities located in China and the
Far East. Because of government controls and lack of established information
systems, information regarding projects in which the Company may participate
located in China and the Far East will be difficult for United States investors
to obtain and investors will be unable to track the progress of the Company. In
addition, if the Company begins operations in China or the Far East it will be
subject to the risks incident to the ownership and operation of businesses
therein. These risks include, among others, the risks of internal political or
civil unrest, war, or government restrictions. These risks are dynamic and
difficult to quantify. The Company will be subject to the risks normally
associated with changes in general national economic conditions or local market
conditions, competition, patronage, changes in market rates, and the need to
periodically upgrade and replace equipment to maintain desirability, and to pay
the costs thereof. Although many of the governments of the countries of the Far
East have liberalized policies on international trade, foreign ownership and
development, investment, and currency repatriation, increasing both
international trade and investment accordingly, such policies might change
17
unexpectedly. The Company will be affected by the rules and regulations
regarding foreign ownership of real and personal property, including
telecommunication switching stations, land lines and other property. Such rules
may change quickly and dramatically which may have an adverse impact on
ownership and may result in a loss without recourse of property or assets of the
Company. Hong Kong is in a period of transition from British control over it to
control by China. It is uncertain what changes may result from such transition
with regard to business, foreign property ownership, restrictions on
development, taxes or other factors.
Investment in China in particular
Because the operations of the Company are expected to be based to a
substantial extent in China, the Company will be subject to the rules and
restrictions governing China's legal and economic system as well as general
economic and political conditions in that country. These include the following:
Political and Economic Matters. Under its current leadership, the
government of the People's Republic of China ("PRC") has been pursuing economic
reform policies, which include the encouragement of private economic activity
and greater economic decentralization. There can be no assurance, however, that
the Chinese government will continue to pursue such policies, or that such
policies will be successful if pursued. Changes in policies made by the Chinese
government may result in new laws, regulations, or the interpretation thereof,
confiscatory taxation, restrictions on imports, currency devaluations or the
expropriation of private enterprise which may, in turn, adversely affect the
Company. Furthermore, business operations in China can become subject to the
risk of nationalization, which could result in the total loss of ownership and
control of any assets or operations that may be developed by the Company in
China. Also, economic development may be limited by the imposition of austerity
measures intended to reduce inflation, the inadequate development of an
infrastructure, and the potential unavailability of adequate power and water,
transportation, communication networks, raw materials and parts.
Legal System. The PRC's legal system is a civil law system based on
written statutes. Unlike the common law system in the United States, decided
legal cases in the PRC have little value as precedents. Furthermore, the PRC
does not have a well-developed body of laws governing foreign enterprises.
Definitive regulations and policies with respect to such matters as the
permissible percentage of foreign investment and permissible rates of equity
returns have not yet been published, statements regarding these evolving
policies have been conflicting, and any such policies, as administered, are
likely to be subject to broad interpretation and modification, perhaps on a
case-by-case basis. As the legal system in the PRC develops with respect to such
new forms of enterprise, foreign investors may be adversely affected by new
laws, changes in existing laws (or interpretation thereof) and the preemption of
provincial or local laws by national laws. The Company's operations in China, if
any are developed (of which there can be no assurance) will be subject to
administrative review and approval by various national and local agencies of the
PRC government. Management intends that the Company's operations will comply
with applicable administrative requirements; however, there is no assurance that
the Company will be able to timely obtain the necessary administrative approvals
for any projects that it determines to develop.
18
Foreign Currency Exchange. The Renminbi ("Rmb"), the currency of China,
is not a freely convertible currency. Both conversion of Rmb into foreign
currencies and the remittance of Rmb abroad are subject to the PRC government
approval. The Company intends to develop telecommunication systems in the Far
East including China and anticipates that initially it may earn revenues, if
any, and incur costs, in Rmb.
Prior to January 1, 1994, Rmb earned within China were not freely
convertible into foreign currencies except with government permission, at rates
determined at swap centers, where the exchange rates often differed
substantially from the official rates quoted by the People's Bank of China. On
January 1, 1994, the People's Bank of China introduced a managed floating
exchange rate system based on the market supply and demand and proposed to
establish a unified foreign exchange inter-bank market among designated banks.
In place of the official rate and the swap center rate, the People's Bank of
China publishes a daily exchange rate for Rmb based on the previous day's
dealings in the inter-bank market. It is expected that swap centers will be
phased out. However, the unification of exchange rates does not imply full
convertability of Rmb into United States dollars or other foreign currencies.
Payment for imported materials and remittance of earnings outside of China are
subject to the availability of foreign currency which is dependent on the
foreign currency-denominated earnings of the entity or allocated to the Company
by the government at official exchange rates.
Approval for exchange at the exchange center is granted to enterprises
in China for valid reasons such as purchases of imported goods and remittance of
earnings. While conversion of Rmb into dollars or other foreign currencies can
generally be effected at the exchange center, there is no guarantee that it can
be effected at all times. There is still uncertainty as to how foreign
enterprises will be treated under this new system or whether the system will be
changed again in the future. In the event of shortages of foreign currency, the
Company may be unable to convert sufficient Renminbi into foreign currency to
enable it to comply with foreign currency payment obligations it may have.
PRC Regulation of the Telecommunications Industry. The Ministry of
Posts and Telecommunications (the "MPT") regulates the telecommunications
industry in China. The MPT directly or indirectly regulates entry into the
telecommunications industry, scope of permissible business, interconnection and
transmission line arrangements, technology and equipment standards, and other
aspects of the Chinese telecommunications industry. Such regulation may limit
the Company's flexibility to respond to certain development opportunities. In
addition, changes in the regulations or policies governing such regulatory
framework could have an adverse effect on the Company. The Company may have to
obtain certain licenses, if required, from the MPT in order to commence its
proposed business. There is no assurance that it will be able to obtain such
licenses, or if obtained, that they will not be untimely revoked or suspended.
The rates that the Company will be permitted to charge for telecommunications
services, if any are developed, are subject to regulation by the State Planning
Commission, the MPT, and relevant Provincial Price Bureaus. Once authorized by
such regulatory agencies, there can be no assurance that changes in the tariffs
and rates would not have a material adverse effect on any Company business and
results of operations, if any had been developed.
19
Management and affiliates own enough shares to control shareholder vote
CBCom's executive officers and directors beneficially own approximately
19.1% of the outstanding common stock of CBCom. These officers and directors do
not have controlling interest over matters requiring shareholder approval. Over
6,500,000 shares of the outstanding common stock of CBCom is owned by companies
or individuals with familial relationships to the officers and directors of
CBCom, over which such officers and directors claim no beneficial ownership or
voting control. However, taken together the shares owned by the executive
officers and directors and those individuals or entities with familial
relationships have controlling interest over matters requiring stockholder
approval, including the election of directors and the approval of material
corporate matters such as change of control transactions. The effects of such
control could be to delay or prevent any attempt to change control of CBCom
instigated by shareholder action without management support.
Issuance of future shares may dilute investors share value
The Certificate of Incorporation as amended of CBCom authorizes the
issuance of 80,000,000 shares of common stock and 20,000,000 shares of preferred
stock. The future issuance of all or part of the remaining authorized common
stock may result in substantial dilution in the percentage of the Company's
common stock held by the its then existing shareholders. Moreover, any common
stock issued in the future may be valued on an arbitrary basis by CBCom. The
issuance of the Company's shares for future services or acquisitions or other
corporate actions may have the effect of diluting the value of the shares held
by investors, and might have an adverse effect on any trading market, should a
trading market develop for the Company's common stock.
The possibility of CBCom issuing preferred stock with certain preferences may
depress market price of the common stock
CBCom has 20,000,000 shares of non-designated preferred stock
authorized which it may issue from time to time by action of the Board of
Directors. The Board of Directors may designate series or classes of preferred
shares without shareholder consent which designations may give the holders of
the preferred stock voting control and other preferred rights such as to
liquidation and dividends. The authority of the Board of Directors to issue such
stock without shareholder consent may have a depressive effect on the market
price of CBCom's common stock even prior to any such designation or issuance of
the preferred stock.
The possibility of issuing preferred stock for anti-takeover effect could
prevent takeovers favored by shareholders
The Board of Directors has the authority, without further approval of
stockholders, to issue preferred stock, having such rights, preferences and
privileges as the Board of Directors may determine. Any such issuance of shares
of preferred stock, under certain circumstances, could have the effect of
delaying or preventing a change in control of CBCom or other take-over attempt
and could adversely materially affect the rights of holders of shares of the
common stock.
20
Officers and directors have limited liability and have indemnity rights
The Certificate of Incorporation and By-Laws of CBCom provide that
CBCom indemnify its officers and directors against losses sustained or
liabilities incurred which arise from any transaction in such officer's or
director's respective managerial capacity unless such officer or director
violates a duty of loyalty, did not act in good faith, engaged in intentional
misconduct or knowingly violated the law, approved an improper dividend, or
derived an improper benefit from the transaction. The Company's Certificate of
Incorporation and By-Laws also provide for the indemnification by it of its
officers and directors against any losses or liabilities incurred as a result of
the manner in which such officers and directors operate the Company's business
or conduct its internal affairs, provided that in connection with these
activities they act in good faith and in a manner which they reasonably believe
to be in, or not opposed to, the best interests of the Company and their conduct
does not constitute gross negligence, misconduct or breach of fiduciary
obligations.
Penny Stock Regulation
Upon commencement of trading in the Company's stock, if a market is
developed and if the Company is accepted for trading on the OTC Bulletin Board
(of which there can be no assurance) the Company's common stock may be deemed a
penny stock. Penny stocks generally are equity securities with a price of less
than $5.00 per share other than securities registered on certain national
securities exchanges or quoted on the Nasdaq Stock Market, provided that current
price and volume information with respect to transactions in such securities is
provided by the exchange or system. The Company's securities may be subject to
"penny stock rules" that impose additional sales practice requirements on
broker-dealers who sell such securities to persons other than established
customers and accredited investors (generally those with assets in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 together with their
spouse). For transactions covered by these rules, the broker-dealer must make a
special suitability determination for the purchase of such securities and have
received the purchaser's written consent to the transaction prior to the
purchase. Additionally, for any transaction involving a penny stock, unless
exempt, the "penny stock rules" require the delivery, prior to the transaction,
of a disclosure schedule prescribed by the Commission relating to the penny
stock market. The broker-dealer also must disclose the commissions payable to
both the broker-dealer and the registered representative and current quotations
for the securities. Finally, monthly statements must be sent disclosing recent
price information on the limited market in penny stocks. Consequently, the
"penny stock rules" may restrict the ability of broker-dealers to sell the
Company's securities. The foregoing required penny stock restrictions will not
apply to the Company's securities if such securities maintain a market price of
$5.00 or greater. There can be no assurance that the price of the Company's
securities will reach or maintain such a level.
21
Disclosure of Year 2000 Issues
Like other companies, the Company could be adversely affected if the
computer systems it and its suppliers or customers use do not properly process
and calculate date-related information and data from the period surrounding and
including January 1, 2000. This is commonly known as the "Year 2000" issue.
Additionally, this issue could also impact non-accounting systems.
The Company's project to assess and correct Y2K related issues
regarding the Year 2000 has been completed and the Company has not experienced
any significant Y2K related events. However, interactions with other companies'
systems make it difficult to conclude there will not be future effects.
Consequently, at this time, management cannot provide assurances that the Year
2000 issues will not have an impact on the Company's operations.
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See Item 13 of this Report.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The predecessor company, Abbacy Corporation, engaged the services of
Weinberg & Company, Certified Public Accountants of Boca Raton, Florida. The
registrant, CBCom, Inc. engages the services of BDO International, through its
Shanghai, PRC office. There are no disagreements with accountants.
22
PART III
ITEM 9. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Name Age Title
Chiah Yi (Max) Sun 35 Chairman of the Board, President, Director
Charles A. Lesser 53 Secretary, Treasurer, Chief Financial
Officer, Director
Hong Wei (Frank) Zhu 43 Chairman, CBCom China and Director
Gordon Xia Gao 30 General Manager, CBCom China and Director
MR. MAX SUN is Chairman, President, and a Director of the Company since 1997.
Mr. Sun founded and was President of Microtron, Inc., a company that has
developed and distributed pagers in China. Mr. Sun was a founding shareholder
and Senior Vice President, International, of Amtec, Inc. an American Stock
Exchange Company constructing telecommunications networks in China. Previously,
he was founder and President of Interactive TeleVideo, Inc. (ITV), a company
that designed interactive circuitry network products. Mr. Sun has been an
investment banker in Hong Kong and China. He holds a Bachelor of Arts degree in
Accounting from New York University.
Mr. CHARLES A. LESSER is Secretary, Treasurer, Chief Financial Officer and a
Director of the Company since 1997. Most recently, Mr. Lesser has served as a
Consultant to early stage companies, acting as an interim Chief Financial
Officer and specializing in raising capital. From 1994-1995, he was Vice
President of Worldwide Corporate Finance, a company which raised private
capital. Previously, Mr. Lesser was Chief Financial Officer of Weider Sporting
Goods, Inc., a manufacturer and distributor of health and fitness products. He
has worked as both a management consultant and auditor with Alder, Green &
Hasson in Los Angeles, KPMG Peat Marwick in Houston and Deloitte & Touche in
Johannesburg, South Africa. He holds an M.B.A. from the University of the
Witwatersrand in South Africa and a B.A. in Economics from the University of
Pittsburgh in Pennsylvania.
MR. FRANK ZHU is a Director of CBCom, Inc.since 1997 and is Chairman of the
Beijing representative office, CBCom China Previously Mr. Zhu held a series of
important managerial positions in China. From 1994 to 1996, he was Chairman and
Vice Executive Officer of China Far East International Trading Group, Los
Angeles, in charge of Sino-US trading activities. From 1991 to 1994, he was
General Manager of Jiyuan Real Estate. Development Company, Beijing, China, and
from 1987 to 1991 he was also General Manager of Linyun Company, China. He
managed projects for China New Start Company between 1983 and 1987 and was with
the Department of Gold, the Ministry of Metallurgy, China from 1979 through
1987.
MR. GORDON GAO is a Director since 1997, a founding shareholder and General
Manager of CBCom China, a representative office of CBCom. His area of expertise
is telecommunications market development and fund raising. From 1995 to 1997, he
was President of Beijing CBCom Telecommunications and Consulting Co. Ltd.,
23
developing a pager for use in the Chinese market. From 1993 to 1995, he was
Executive Assistant, Director of Domestic Branch Offices and Director of Foreign
Investment and Fund-raising for Catch Communications Group, a major
telecommunications company in China. Mr. Gao has extensive start-up and
operational experiences in the paging industry in China. Mr. Gao is a computer
science graduate of Beijing University.
ITEM 10 -- EXECUTIVE COMPENSATION
The following table summarizes the compensation for the three most recent
fiscal periods ended December 31, 1999, December 31, 1998 and December 31, 1997
of our Chief Executive Officer and the four most highly compensated other
executives and officers whose total annual salary and bonus exceed $100,000. No
other employee's compensation exceeded $100,000 for any of the named years.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION LONG TERM COMPENSATION
--------------------------------------- --------------------------
<S> <C> <C> <C> <C> <C> <C>
OTHER RESTRICTED SECURITIES
ANNUAL STOCK UNDERLYING
BONUS COMPEN- AWARDS OPTIONS/
NAME AND PRINCIPAL POSITION(1) YEAR SALARY($) ($) SATION ($) ($) SARS
- -------------------------------- -------- ----------- ---------- ------------ ------------ -----------
Bernard J. Luskin, former 1999 $131,250 0 0 0 0
Chairman and Chief 1998 350,000 $100,000 0 0 500,000
Executive Officer (1) 1997 218,750 $100,000 0 250,000 0
Chian Yi (Max) Sun 1999 $150,000 0 0 0 0
Chairman and President (2) 1998 150,000 0 0 0 312,500
1997 50,000 0 0 0 0
Charles A. Lesser 1999 $150,000 0 $16,000 0 250,000
Chief Financial Officer (3) 1998 150,000 0 16,000 0 250,000
1997 81,2500 0 3,250 125,000 0
Frank Zhu 1999 $100,000 0 0 0 0
Chairman, CBCom China (2) 1998 150,000 0 0 0 187,500
1997 50,000 0 0 0 0
Gordon Gao 1999 $120,000 0 0 0 0
General Manager, CB (2) 1998 120,000 0 0 0 125,000
China 1997 40,000 0 0 0 0
Steven Meadows (4) 1999 $150,000 0 $6,000 0 0
Chief Engineer 1998 150,000 0 6,000 0 125,000
1997 50,000 0 2,000 62,500 0
</TABLE>
24
(1) Mr. Luskin left the company during 1999 and his salary and bonus was accrued
through May 15, 1999 in accordance with his settlement agreement. At December
31, 1999 $363,649 is still owed. Under the terms of the settlement agreement,
Mr. Luskin's stock options have been cancelled and revert back to the company's
stock option plan.
(2) The total salary amount for 1999 has been accrued. The
company was unable to pay compensation and in December, 1999 offered to convert
the amounts owed into Common Stock at a price of $1.00 per share, the current
fair market value. Salaries for 1997 and 1998 were converted at December, 1998
into Common stock at $0.50 share, the fair market value at that time
(3) Salary of $6,250 for 1999 and $12,500 for 1998 has been accrued. The
company has offered to convert the amounts owing into Common Stock at a price of
$1.00 per share, the current market value at December, 1999. Other Compensation
consists of an auto allowance and contribution to the company's 401 (k) plan
(4) Salary of $143,750 for 1999 and $18,750 for 1998 has been accrued. The
company was unable to pay compensation and offered to convert amounts owing into
Common Stock at a price of $1.00 per share, the current market value at
December, 1999. Other Compensation consists of an auto allowance. Mr Meadows is
an executive of the company, but is not an officer.
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
The following table sets forth the information concerning individual grants
of stock options and stock appreciation rights ("SARs") during the period ended
December 31, 1999. All of the options granted in the year ended December 31,
1999 have terms of ten (10) years. A total of 250,000 options were granted to
our employees and directors in the 12-month period ended December 31,1999 under
CBCom's 1998 Employee Stock Option Plan.
OPTION/SAR GRANTS IN LAST FISCAL PERIOD
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
-------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/SARS
UNDERLYING GRANTED TO EXERCISE OR
OPTIONS/SARS EMPLOYEES IN BASE PRICE EXPIRATION
NAME GRANTED(#) FISCAL PERIOD ($/SH) DATE
- ------------------------------ -------------- --------------- ------------ -----------
Charles A. Lesser...........1999 250,000 100.0% $ 0.425 01/30/09
</TABLE>
25
During the year ended December 31, 1998, the Company issued 1,500,000
non-qualified stock options at an exercise price of $0.425. These options become
exercisable over a period of one year and can be exercised for a period of five
to ten years. The 1,500,000 non-qualified stock options included 500,000 options
issued to the former CEO which were cancelled in January, 1999. During the year
ended December 31, 1999, the Company issued 250,000 non-qualified stock options
at an exercise price of $0.425, which was 85% of the market price at grant date.
These options become exercisable over a period of two years and can be exercised
for a period of ten years.
- --------------------------------------------------------------------------------
Aggregated Option Exercises in the 1999 Fiscal Year
and Fiscal Year-End Option Value
- --------------------------------------------------------------------------------
Number of Securities Value of Unexercised
Underlying Enexercised Options In the Money Options
Exercisable/Unexercisable Exercisable/Unexercisable
- --------------------------------------------------------------------------------
Chian Yi (Max) Sun 312,500/0 $179,688/$0.00
Charles A. Lesser 375,000/125,000 $215,625/$71,875
Hong Wei (Frank)Zhu 187,500/0 $107,813/$0.00
Gordon Gao 125,000/0 $71,875/$0.00
Steven Meadows 125,000/0 $71,875/$0.00
- --------------------------------------------------------------------------------
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table contains information regarding the shareholdings
of CBCom's current directors and executive officers and those persons or
entities who beneficially own more than 5% of its common stock (giving effect to
the exercise of warrants or options exercisable within six months held by each
such person or entity):
27
Amount of Common Percent of
Stock Beneficially Common Stock
Owned (1) (2) Owned (2)
Chiah Yi (Max) Sun (3) 1,750,000 10.0%
President, Director
52, Jalan Kelochor
Kota Bharu, Kelanta, Malaysia
Charles A. Lesser (4) 600,000 3.4%
Chief Financial Officer, Director
5801 Serrania Avenue
Woodland Hills, California 91367
Hong Wei (Frank) Zhu (5) 587,500 3.4%
Director
1119 A Valencia Way
Arcadia, California 91006
Gordon Xia Gao (6) 547,500 3.2%
Director
425 Waldo Ave. #301
Pasadena, California 91101
All directors and 3,485,000 19.1%
executive officers as
a group (4 persons)(7)
Topbest Worldwide Group (8) 1,000,000 5.8%
Suite 12.33 Petama Komplek
Jalan Tunku Abdul Rahman
Kuala Lumpur, Malaysia
Wake Little Treasure Ltd. 1,250,000 7.3%
297 Prince Edward Road
Suite 6A
Erin Court, Hong Kong
Jesmax Investment Ltd. (9) 1,000,000 5.8%
Suite 12.33, Petama Komplek
JalanTunkuAbdulRahman
50100 Kuala Lumpur, Malaysia
TSB International Inc. (12) 1,180,716 6.9%
Havelet Trust Co (BVI) Ltd.
Box 3186, Abbott Building
Road Town , Tortola,
British Virgin Islands
28
Ren Zhen Tian (10) 1,200,000 7.0%
7C, 1 Block Jia 2
Zuo Jia Zhuang Road
Chao Yang District
Beijing, China
Gao Bo (11) 800,000 4.6%
Unit 2502, 25/F, K.Wah Centre
Block 901, #03-107
Jurong West St. 91
Singapore 640 902
Sinoway Co. Ltd. 1,250,000 7.3%
191 Java Road
North Point, Hong Kong
(1) Based upon 17,212,240 outstanding shares of common stock.
(2) Assumes exercise of warrants, options or other rights, if any, to
purchase securities held by the named shareholder exercisable within 60
days of the date hereof.
(3) Includes 437,500 shares owned directly by Mr. Sun and 1,000,000 shares
held by Joy Luck Communication Ltd. of which Mr. Sun may be deemed to
be the beneficial owner. Mr. Sun also has beneficial ownership of an
additional 312,500 shares of common stock consisting of options to
purchase 312,500 shares exercisable at $.425 per share.
(4) Includes 225,000 shares and options to purchase 375,000 shares of
common stock held by Mr. Lesser at an exercise price of $.425 per
share.
(5) Includes 400,000 shares owned directly by Mr. Wei and options to
purchase 187,500 shares of common stock at an exercise price of $.425
per share.
(6) Includes 422,500 shares owned by Mr. Gao and options to purchase
125,000 shares of common stock at an exercise price of $.425 per share.
(7) Includes 2,485,000 shares and options to purchase 1,000,000 shares.
(8) Beneficially owned by Mr. Soon Cheh Siong, familially related to Max
Sun, President and a director of the company. Mr. Soon also holds
75,000 shares in his own name. Mr. Sun disclaims beneficial ownership
of any of these shares.
(9) Beneficially owned by persons who are familially related to Max Sun,
President and a director of the Company. Mr. Sun disclaims beneficial
ownership of these shares.
(10) Beneficially owned by persons who are familially related to Zhu Hong
Wei, a director of the Company. Mr. Zhu disclaims beneficial ownership
of these shares.
(11) Beneficially owned by persons who are familially related to Gordon Gao,
a director of the Company. Mr. Gao disclaims beneficial ownership of
these shares.
(12) Beneficially owned by Tan Siong Bee, familially related to Max Sun,
President and a director of the company. Ms. Tan also holds 300,000
shares in her own name. Mr. Sun disclaims beneficial ownership of any
of these shares.
29
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Since inception, Mr. Max Sun, President, a director, and controlling
shareholder, has extended credit to CBCom and is expected to continue to extend
credit to it. CBCom has executed a note for the funds borrowed from Mr. Sun. On
April 24, 1998 CBCom converted $1,600,000 of its outstanding note and issued
8,000,000 shares of common stock to Mr. Sun or designee. The outstanding note
provides for interest at 7% per annum but such interest charge has been waived
by Mr. Sun. The note also contains conversion rights for all outstanding amounts
owed subsequent to April 24, 1998, at a conversion rate of $.50 per share.
Between April 24, 1998 and December 31, 1998, $160,000 of the loan was converted
into 320,000 shares of common stock. During 1999, $660,358 of the loan was
converted into 1,320,716 shares of common stock. At December 31, 1999 the
balance owed to Mr. Sun was zero.
Polmont Investments, Ltd. has agreed to pay on behalf of CBCom, Inc.,
through sale of up to 800,000 of the Amtec, Inc. shares owned by it, the agreed
funds payable to Mr. Luskin in regard to CBCom's settlement with Mr. Luskin.
Polmont Investments, Ltd., a British Virgin Islands corporation, is controlled
by a shareholder of CBCom and the sibling of the president of CBCom. Polmont has
agreed to accept repayment in the form of shares of CBCom, Inc. valued at $0.50
per share.
30
ITEM 13. EXHIBITS, FINANCIAL STATEMENTS, AND REPORTS ON FORM 8-K.
(a) See Index to Financial Statements immediately following Exhibit
Index
(b) A report on Form 8-K has been filed on October 21, 1999 to record
the acquisition of Abbacy Corporation.
(c) A report on Form 8-K/A has been filed on February 10, 2000
including Financial Statements of CBCom, Inc. from Inception
(April 23, 1997) to September 30, 1999.
(d) Exhibits
EXHIBIT NO. DESCRIPTION OF EXHIBIT MANNER OF FILING
1.1 Agreement and Plan of Merger and amendment Form 8-K dated
thereto between Abbacy Corporation and October 19, 1999
CBCom, Inc. dated September 24, 1999
1.2 Certificate of Incorporation of CBCom, Inc.
and amendments *
1.3 By-Laws of CBCom, Inc. *
10.1 CBCom, Inc. 1998 Stock Option Plan *
10.2 Employment Agreement between CBCom, Inc. *
and Charles A. Lesser dated July 18, 1997
and amendment
10.3 Convertible Promissory Note, due April 24, *
2000 between CBCom, Inc. and Max Sun
10.4 Memorandum of Understanding between CBCom, *
Inc., Shanghai Stock Exchange Communications
Co. and Shanghai Xingtong Telecommunications
Science and Technology, Ltd.
27 Financial Data Schedule *
* Included with the filing of this Form 10-KSB
31
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
REPORT ON AUDITED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1999
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
Report of Independent Certified Public Accountants F-2
Financial Statements
Balance Sheets F-3
Statements of Operations F-4
Statements of Shareholders' Deficit F-5
Statements of Cash Flows F-7
Notes to Financial Statements F-9
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Board of Directors
CBCom, Inc. (a development stage company)
We have audited the accompanying balance sheets of CBCom, Inc., (a development
stage company) as of December 31, 1998 and 1999 and the related statements of
operations, stockholders' deficit, and cash flows for the years ended December
31, 1998 and 1999. We also audited the statements of operations, stockholders'
deficit, and cash flows for the period from inception (April 23, 1997) through
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. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CBCom, Inc. at December 31,
1998 and 1999 and the results of its operations and its cash flows for the years
ended 1998 and 1999, and the period from inception (April 23, 1997) through
December 31, 1999, in conformity with generally accepted accounting principles
in the United States.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has a limited operating history and, at
December 31, 1999, has a shareholders' deficit that raises substantial doubt
about its ability to continue as a going concern. Management's plans in regard
to these matters are also described in Note 1. The financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
BDO International
March 10, 2000
Shanghai, PRC
F-2
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEETS
December 31,
--------------------------
1998 1999
------------ ------------
<S> <C> <C>
ASSETS
Current assets:
Cash $ 240,000 $ 31,844
Rent receivable 8,655 -
Prepaid expenses - 4,771
Pager inventory (Note 4) 136,620 -
------------ ------------
Total current assets 385,275 36,615
------------ ------------
Furniture, fixtures and equipment, net (Note 2) 72,673 53,288
Other assets:
Deposits 14,521 19,897
Prepaid interest (Note 5) - 165,000
Prepaid rent in Beijing representation office (Note 6) 260,417 197,917
------------ ------------
Total other assets 274,938 382,814
------------ ------------
Total assets $ 732,886 $ 472,717
============ ============
LIABILITIES AND DEFICIT
Current liabilities:
Accounts payable $ 117,772 $ 331,412
Salaries payable - Former CEO (Note 6) 389,583 363,649
Salaries payable - Other 26,000 557,250
Accrued expenses 24,334 129,922
Income tax payable 1,600 2,400
Capital lease obligation - current (Note 6) 32,504 32,433
Loan payable - shareholders (Note 5) - 11,988
------------ ------------
Total current liabilities 591,793 1,429,054
------------ ------------
Loan payable - - shareholders (Note 5) 518,924 -
Loan from a related party (Note 5) - 157,184
Total liabilities 1,110,717 1,586,238
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 5, 6, 7, and 8)
Shareholders' deficit:
Common stock at par value of $0.001 per share,
100,000,000 shares authorized, 15,327,500 and
17,212,240 shares issued and outstanding at 1998 and
1999, respectively (Note 6 and 7) 15,327 17,212
Paid-in capital 4,491,234 6,021,944
Subscription receivable (1,250) (1,300)
Accumulated deficit during the development stage (4,883,142) (7,151,377)
------------ ------------
Total shareholders' deficit (377,831) (1,113,521)
------------ ------------
Total liabilities and shareholders' deficit $ 732,886 $ 472,717
============ ============
See accompanying summary of accounting policies and notes to financial
statements.
</TABLE>
F-3
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF OPERATIONS
From Inception
(April 23, 1997) to
Year Ended December 31, December 31,
--------------------------
1998 1999 1999
============ ============ =============
<S> <C> <C> <C>
Net sales $ - $ - $ -
Cost of sales - - -
------------ ------------ -------------
Gross profit - - -
Selling expense - - -
General and administrative expense 3,001,534 1,771,692 6,620,603
Merger transaction expense (Note 6) - 399,950 399,950
------------ ------------ -------------
Loss from operations (3,001,534) (2,171,642) (7,020,553)
Other income (expense):
Interest expense, net (14,536) (106,698) (122,869)
Other, net (16,944) 10,905 (5,555)
------------ ------------ -------------
Loss before income taxes (3,033,014) (2,267,435) (7,148,977)
Income tax provision (Note 3) 800 800 2,400
Net loss $(3,033,814) $(2,268,235) $(7,151,377)
============ ============ =============
Weighted average number of common shares outstanding 10,049,226 15,568,879
============ =============
Basic and diluted loss per share $ (0.30) $ (0.15)
============ =============
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-4
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
(SEE NOTE 7)
Additional
Paid-In Stock Accumulated
Shares Amount Capital Subscription Deficit Total
---------- ------- ---------- -------------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Issuance of stock for cash ($.20 per 2,000,000 $ 2,000 $ 398,000 $ - $ - $ 400,000
share)
Issuance of stock for assets ($.20 per 937,500 937 186,563 - - 187,500
share)
Issuance of stock for cash ($.50 per 200,000 200 99,800 - - 100,000
share)
Net loss - - - - (1,849,328) (1,849,328)
---------- ------- ---------- -------------- ------------ ------------
BALANCE, December 31, 1997 3,137,500 3,137 684,363 - (1,849,328) (1,161,828)
Issuance of stock for signing bonus 875,000 875 436,625 - - 437,500
($.50 per share)
Issuance of stock for rental expense in 625,000 625 311,875 - - 312,500
Beijing ($.50 per share)
Conversion of shareholder's loan 8,000,000 8,000 1,592,000 - - 1,600,000
($.20 per share)
Conversion of shareholder's loan 320,000 320 159,680 - - 160,000
($.50 per share)
Issuance of stock for directors' 1,120,000 1,120 558,880 - - 560,000
compensation ($.50 per share)
Issuance of stock for promotion and 1,250,000 1,250 623,750 (1,250) - 623,750
facilitation service ($.50 per share)
Issuance of stock options - - 112,500 - - 112,500
Forgiveness of interest on - - 11,561 - - 11,561
shareholders loan
Net loss - - - - (3,033,814) (3,033,814)
---------- ------- ---------- -------------- ------------ ------------
BALANCE, December 31, 1998 15,327,500 15,327 4,491,234 (1,250) (4,883,142) (377,831)
========== ======= ========== ============== ============= ===========
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-5
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF SHAREHOLDERS' DEFICIT
(SEE NOTE 7)
Additional
Paid-In Stock Accumulated
Shares Amount Capital Subscription Deficit Total
========== ======= ========== ============== =========== =============
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 15,327,500 15,327 4,491,234 (1,250) (4,883,142) (377,831)
Issuance of warrants for cash - - 135,000 - - 135,000
Deemed interest for Polmont - - 220,000 - - 220,000
Issuance of stock for cash ($.45 per 100,000 100 44,900 - - 45,000
share)
Issuance of stock for cash ($.90 per 10,000 10 8,990 - - 9,000
share)
Issuance of stock for cash ($.90 per 35,000 35 31,465 - - 31,500
share)
Issuance of stock for cash ($.45 per 40,000 40 17,960 - - 18,000
share)
Issuance of stock for cash ($.90 per 23,000 23 20,677 - - 20,700
share)
Issuance of stock for cash ($.45 per 30,000 30 13,470 - - 13,500
share)
Issuance of stock for cash ($.90 per 20,000 20 17,980 - - 18,000
share)
Issuance of stock for cash ($.45 per 30,000 30 13,470 - - 13,500
share)
Issuance of stock options - - 18,750 - - 18,750
Issuance of stock for merger with 250,000 250 249,750 250,000
Abbacy ($1.00 per share)
Regulation D, Rule 506 issuance 50,000 50 49,950 (50) 49,950
($1.00 per share)
Conversion of shareholder's loan 140,000 140 69,860 70,000
($.50 per share)
Conversion of shareholder's loan 1,156,740 1,157 577,213 578,370
($.50 per share)
Forgiveness of interest on - - 41,275 - - 41,275
shareholder's loan
Net loss - - - - (2,268,235) (2,268,235)
---------- ------- ---------- -------------- ----------- ------------
BALANCE, December 31, 1999 17,212,240 $17,212 $6,021,944 $ (1,300) $(7,151,377) $(1,113,521)
========== ======= ========== ============== =========== =============
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-6
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
From Inception
(April 23, 1997) to
-------------------------
Year Ended December 31, December 31,
1998 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating
activities:
Net loss $(3,033,814) $(2,268,235) $(7,151,377)
Adjustments to reconcile net
loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 18,612 18,885 43,052
Write-off assets in Beijing - - 187,500
Write-off of pager inventory - 136,620 136,620
Issuance of stock for signing 436,625 -
bonus 436,625
Forgiveness of interest on shareholder's loan 11,561 41,275 52,836
Compensation cost related to options granted 112,500 18,750 131,250
Issuance of stock for promotion and facilitation service 623,750 - 623,750
Issuance of stock for payroll
expense 560,000 560,000 -
Issuance of stock for merger
transaction expenses 250,000 - 250,000
Increase(decrease) in cash from changes in:
Receivables (8,655) 8,655 -
Pager inventory (77,226) - (136,620)
Deposits - (5,376) (19,897)
Prepaids 56,964 112,729 164,812
Accounts payable 119,372 213,640 331,412
Salaries payable - former 289,583 (25,934) 363,649
CEO
Salaries payable - other (550,625) 531,250 557,250
Accrued liabilities and
income tax payable 14,076 106,388 132,322
------------ ------------ ------------
Net cash used in operating
activities (1,427,277) (861,353) (3,336,816)
------------ ------------ ------------
Cash flows from investing
activities:
Purchase of furniture and (3,528) - (64,336)
equipment
Refund of purchase price on
a piece of furniture - 500 500
------------ ------------ ------------
Net cash provided by (used in)
investing activities (3,528) 500 (63,836)
------------ ------------ ------------
</TABLE>
F-7
<TABLE>
<CAPTION>
CBCOM, INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENTS OF CASH FLOWS
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
<S> <C> <C> <C>
From Inception
(April 23, 1997) to
Year Ended December 31, December 31,
-------------------------
1998 1999 1999
------------ ------------ ------------
Cash flows from financing
activities:
Repayment of capital lease - (71) (71)
Proceeds from shareholder
loans 1,398,941 149,000 2,646,619
Repayments to shareholders (130,437) (7,566) (226,261)
Proceeds from related party
loans - 157,184 157,184
Proceeds from issuance of
stock 875 354,150 855,025
------------ ------------ ------------
Net cash provided by financing
activities 1,269,379 652,697 3.432,496
------------ ------------ ------------
Net increase (decrease) in cash and
cash equivalents (161,426) (208,156) 31,844
Cash and cash equivalents,
beginning of period - 401,426 240,000
------------ ------------ ------------
Cash and cash equivalents, end
of period $ 31,844 $ 240,000 $ 31,844
============ ============ ============
SUPPLEMENTARY INFORMATION:
Cash paid during the year:
Interest $ 3,179 $ 2,048 $ 5,563
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF
NON - CASH ACTIVITIES:
Issuance of stock to purchase
selected assets in CBCom
Beijing - - 187,500
Capital lease - - 32,504
Issuance of stock for signing
bonus 436,625 - 436,625
Issuance of stock for prepaid 312,500 - 312,500
rents in Beijing
Conversion of shareholder's 1,760,000 648,370 2,408,370
loan
Issuance of stock for directors' 560,000 - 560,000
compensation
Issuance of stock for promotion 623,750 - 623,750
and facilitation service
Issuance of stock for merger transaction expenses - 250,000 250,000
Deemed interest for Polmont - 220,000 220,000
Forgiveness of interest accrued $ 11,561 $ 34,876 $ 46,437
============ ============ ============
See accompanying summary of accounting policies and notes to financial statements.
</TABLE>
F-8
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION
BACKGROUND OF ORGANIZATION AND GOING CONCERN UNCERTAINTY
CBCom, Inc. ("the Company") was incorporated under the laws of the State of
Delaware on April 23, 1997 and is registered to do business as a foreign
corporation in the State of California. The strategic mission of the Company is
to participate in the development of telecommunication, internet, and
information service businesses in China. The Company was previously involved in
the pager network business in China through transferring Western manufacturing
technology and management resources to joint ventures established in China,
however, these ventures were unsuccessful. The Company has incurred consecutive
losses since inception.
The Company's headquarters is located in Encino, California. From August 1997
to the present, the Company has maintained a representative office in Beijing
for the purpose of oversight of its China projects. From January 1998 to March
1999, the Company had a representative office in Shanghai for the purpose of
developing its business relationship with Shanghai Stock Exchange Communication
Co. Ltd. ("SSEC").
On January 31, 1999, the Company entered into a Memorandum of Understanding with
SSEC and Shanghai Xingtong Telecommunication Science and Technology Co. Ltd.
("SXTST) to develop a financial data network in China through setting up an
equity joint venture invested by these three parties. The main strategy is to
make full usage of the existing capacity of VSAT satellite communication
infrastructure owned by Shanghai Stock Exchange throughout China. The total
capital required in that joint venture is currently estimated to be
US$3,000,000. The Company will contribute 70% of that amount; SSEC, 20%; and
SXTST, 10%. The joint venture has not yet been established as of March 10,
2000.
The Company has suffered losses since its inception in 1997 and had negative
working capital in 1998 and 1999, respectively, that raises substantial doubt
about its ability to continue as a going concern. Historically, one of the
Company's directors and major shareholders provided the Company with substantial
financing sources. The director has provided a letter of support indicating
that he pledges to provide continuous financial support to enable the Company to
satisfy its working capital requirements and to complete its commitments to the
aforementioned Shanghai joint venture project on a going concern basis. While
there is no assurance that funding will be available, the Company is continuing
to actively seek funding to complete the Shanghai joint venture project through
equity and/or debt financing. There is an uncertainty that management fund
raising will be successful. The accompanying financial statements do not
include any provisions or adjustments, which might result from the outcome of
the uncertainty discussed above.
BASIS OF ACCOUNTING
The financial statements are prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) and are presented
in U.S. dollars.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents.
F-9
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
INVENTORY
Inventory consists principally of pager parts and is stated at the lower of cost
or market on a first-in first-out basis.
FURNITURE, FIXTURES AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is computed primarily
using the estimated useful lives of the assets as follows:
Estimated
Useful Life
(in years)
------------
Furniture and fixtures 7
Equipment 5
Maintenance, repairs and minor renewals are charged directly to expenses as
incurred. Additions and betterment to property and equipment are capitalized.
When assets are disposed of, the related cost and accumulated depreciation are
removed from the accounts and any resulting gain or loss is included in the
statement of operations.
USE OF 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.
Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash, accounts payable, accrued expenses, and short-term
loan payable are reasonable estimates of their fair value because of the short
maturity of these items. The fair value of the long-term loan payable is
estimated using a discounted cash flow analysis utilizing the market rate at
which similar loans would be made to borrowers with similar credit ratings and
for the same remaining maturity.
INCOME TAXES
The Company accounts for income taxes using the liability method, which requires
an entity to recognize deferred tax liabilities and assets. Deferred income
taxes are recognized based on the differences between the tax bases of assets
and liabilities and their reported amounts in the financial statements which
will result in taxable or deductible amounts in future years. Further, the
effects of enacted tax laws or rate changes are included as part of deferred tax
expenses or benefits in the period that covers the enactment date. A valuation
allowance is recognized if it is more likely than not that some portion, or all
of, a deferred tax asset will not be realized.
F-10
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
ADOPTION OF SFAS NO. 121
The Company adopted the provisions of Statement of Financial Accounting
Standards No. 121 (SFAS No. 121) "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of", which requires impairment
losses to be recorded on long-lived assets being developed, based on fair value,
when indicators of impairment are present and the undiscounted cash flows
estimated to be generated by those assets are less than the assets' carrying
amount. Examples of indicators of impairment include a significant decrease in
the market value of an asset, a significant change in the extent or manner in
which an asset is used or a significant adverse change in legal or business
factors that could affect the value of an asset.
Management assessed the fair value of assets of $623,750 related to cost
incurred for obtaining the license and contract with Shanghai Stock Exchange
(see Note 4 for detail). As the chance of obtaining the license is uncertain,
the fees paid for promotional services were expensed during 1998. In addition,
management assessed the fair value of pager inventory as of December 31, 1999
and found that these pager inventories did not have any future economic benefits
because development work has been completed and there are no current sales,
therefore, decided to write the value of $136,620 off during 1999.
STOCK BASED COMPENSATION
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-based
Compensation" ("SFAS 123"), establishes a fair value method of accounting for
stock-based compensation plans and for transactions in which a company acquires
goods or services from non-employees in exchange for equity instruments. SFAS
123 also gives the option to account for stock-based employee compensation in
accordance with Accounting Principles Board Opinion No. 25 (APB 25), "Accounting
for Stock issued to Employees," or SFAS 123. The Company elected to follow APB
25 which measures compensation cost for employee stock options as the excess, if
any, of the fair market price of the Company's stock at the measurement date
over the amount an employee must pay to acquire stock.
EARNINGS (LOSS) PER SHARE
Effective December 31, 1997, the Company adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). The statement
replaces the calculation of primary and fully diluted earnings (loss) per share
with basic and diluted earnings (loss) per share. Basic earnings (loss) per
share includes no dilution and is computed by dividing income (loss) available
to common shareholders by the weighted average number of shares outstanding
during the period. Diluted earnings (loss) per share reflects the potential
dilution of securities that could share in the earnings of an entity, similar to
fully diluted earnings (loss) per share. The 1,500,000 options and 1,250,000
options in 1998 and 1999 were not included in calculating weighted average
outstanding shares as they have an anti-dilutive impact on loss per share.
F-11
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 1-BASIS OF PRESENTATION (CONTINUED)
NEW ACCOUNTING STANDARD NOT ADOPTED YET
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Standards No. 133, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS No. 133). SFAS No. 133 requires companies to recognize all
derivatives contracts as either assets or liabilities in the balance sheet and
to measure them at fair value. If certain conditions are met, a derivative may
be specifically designated as a hedge, the objective of which is to match the
timing of gain or loss recognition on the hedging derivative with the
recognition of (i) the changes in the fair value of the hedged asset or
liability that are attributable to the hedged risk or (ii) the earnings effect
of the hedged forecasted transaction. For a derivative not designated as a
hedging instrument, the gain or loss is recognized in income in the period of
change. SFAS No. 133 is effective for all fiscal quarters of fiscal years
beginning after June 15, 2000.
Historically, the Company has not entered into derivatives contracts either to
hedge existing risks or for speculative purposes. Accordingly, the Company does
not expect adoption of the new standard on January 1, 2001 to affect its
financial statements.
NOTE 2-FURNITURE, FIXTURES AND EQUIPMENT
Furniture, fixtures and equipment consists of:
December 31,
1998 1999
------------- -------------
Furniture and fixtures $ 7,716 $ 7,216
Equipment 89,124 89,124
------------- -------------
96,840 96,340
Accumulated depreciation (24,167) (43,052)
------------- -------------
Net $ 72,673 $ 53,288
============= =============
Depreciation expenses were $18,612 and $18,885 for the years ended December 31,
1998, and 1999.
Included in equipment are the following assets held under capital leases:
December 31,
1998 1999
------------- -------------
Equipment $ 32,504 $ 32,504
Accumulated depreciation (9,753) (16,254)
Net $ 22,751 $ 16,250
============= =============
F-12
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 3-INCOME TAXES
The provision for income taxes consists of: Year Ended December 31,
----------------------------
1998 1999
------------- -------------
Income tax provision (state) $ 800 $ 800
------------- -------------
$ 800 $ 800
============= =============
The components of the net deferred tax asset and liability are as follows:
December 31,
----------------------------
1998 1999
------------- -------------
Deferred tax assets:
Net operating loss carryforwards $ 1,729,890 $ 2,591,504
Salary and bonus accrual 179,333 330,653
Capital loss carryforward 7,198 7,198
------------- -------------
Subtotal 1,916,421 2,929,355
Valuation allowance (1,916,421) $(2,929,355)
------------- -------------
Net $ - $ -
============= =============
Management is unable to determine whether the realization of the net deferred
tax asset is more likely than not to realize, therefore, a 100% valuation
allowance has been established.
The Company had accumulated net operating losses of approximately $4,341,000,
and $6,049,000 as of December 31, 1998 and 1999, respectively, for Federal and
California state income tax purposes to offset future taxable income, if any,
and expire at various dates through the year 2014 for federal income tax
purposes and through the year 2004 for California state income tax purposes.
However, the utilization of net operating losses may be subject to certain
limitations as prescribed by Section 382 of the Internal Revenue Code. The
Company has a capital loss carryforward of $17,994 which will expire in 2003.
NOTE 4-JOINT VENTURE PROJECTS
In October, 1997, CBCom, Inc. and Beijing Great Wall Century Communications
Technology Company, Ltd., an established paging company in China, signed a
twenty year joint venture contract to establish a Sino-U.S. equity joint venture
company called GCC CBCom (Tianjin) Communications Company, Ltd. to build a
nationwide paging network. CBCom, Inc. advanced $107,500 to the joint venture
for organization costs and start-up costs. The joint venture has not commenced
the nationwide paging network as of December 31, 1998 and the business license
for GCC CBCom (Tianjin) has expired and has not been renewed. The Company has
expensed $107,500 during 1998 and will decide at a later stage whether to
reactivate GCC CBCom (Tianjin).
F-13
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 4-JOINT VENTURE PROJECTS
The Company signed a Memorandum of Understanding with Shanghai Stock Exchange
Communication Co., a subsidiary of the Shanghai Stock Exchange on January 31,
1999. The purpose of the Memorandum
of Understanding is to establish a Sino-U.S. equity joint venture company, in
which CBCom, Inc. will hold 70% of the equity. The joint venture company will
distribute real time stock and financial data in China using the satellite
communications system owned by Shanghai Stock Exchange Communication Co. At a
later time, the joint venture plans to create an Internet Service Provider (ISP)
in China. The Company has incurred $250,000 in start-up expense which was
expensed during 1998 and which could be credited toward its capital contribution
to the joint venture company when the joint venture is completed.
PAGER INVENTORY
Pager inventory represent parts purchased to be used to manufacture the
Microtron 2000 pager. The parts are already in the hands of the Company's
contract manufacturer, Samjin, Ltd., a third party. As pagers are manufactured
and sold, the cost of the parts already advanced will be charged to the cost of
goods sold and will reduce the amount of cash necessary to pay for the
manufactured pagers. Based on a review of the expected usage in the future, the
Company wrote the $136,620 balance off during 1999.
LICENSES/CONTRACTS
In 1998, the Company issued 1,250,000 shares of common stock valued at $0.50 per
share to Sinoway Limited for its services to obtain an exclusive license to use
SSEC's VSAT satellite system and other telecommunication infrastructures and the
name and logo, etc., of SSEC. Accordingly, the Company recognized a notional
stock subscription receivable of $1,250 and promotion service for License and
Contract of $623,750 in 1998. As the chance of obtaining the license is
uncertain, the fees paid for promotional services were expensed during 1998.
NOTE 5-RELATED PARTY TRANSACTIONS
The Company's operations have been financed by capital injection from
shareholders and loans from shareholders. On April 23, 1997, the first
individual investor injected cash of $400,000 in exchange for 2,000,000 shares
of common stock. Another investor promised to inject cash of $1,600,000. Both
investors agreed that the $1,600,000 should be injected on an as-needed basis
from June 15, 1997 forward and that the advance will be recorded as a loan from
shareholder first and will be converted into common stock at a conversion price
F-14
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
of $0.20 per share when the total amount reaches $1,600,000. If the other
investor does not inject cash up to $1,600,000 by June 30, 1998, he would have
had to accept the current private placement price when he converts his loan.
The funds advanced by the other investor did not bear interest and had no stated
maturity. On April 24, 1998, the other investor converted the outstanding loan
of $1,600,000 into 8,000,000 shares of common stock. Thereafter, the other
investor became the principal shareholder of the Company. After the conversion,
the balance of loan payable to this shareholder was $43,956.
On the same date, the principal shareholder and the Company entered into a
promissory note (the Note), which specified that the principal shareholder will
continue to provide funds to the Company on a going forward basis and that any
balance of loan payable to the principal shareholder should be due on April 24,
2000 bearing an interest rate of 7% per annum. According to the Note, the
lender has the option to convert his outstanding loan balance into the Company's
common stock at a conversion price of $0.50 per share at any time prior to the
maturity date. The Note also specified that the conversion price may be
adjusted if the Company shall at any time undergo a stock split, stock dividend
or other combination or subdivision that does not involve payment of
consideration for such shares. As of December 31, 1998 and 1999, the principal
shareholder waived his accrued interest receivable of $11,561 and $41,275,
respectively.
F-15
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5-RELATED PARTY TRANSACTIONS (CONTINUED)
From early October 1998 to early December of 1998, the principal shareholder
converted $160,000 of shareholder loan into 320,000 shares of common stock in
four tranches.
In November 1999, the principal shareholder converted $70,000 of shareholder
loan into 140,000 shares of common stock at $0.50 per share.
On December 30, 1999, the Company issued 1,156,740 shares of common stock to
convert the shareholder loan of $578,370 into equity at $0.50 per share in
accordance with the terms specified in the Note.
Two other shareholders also advanced money to the Company in 1999. However,
these advances did not bear interest and did not have a definite maturity date.
The Company also has loans from Polmont Ltd., an investment holding company
registered in the British Virgin Islands, which is beneficially owned by the
sister of the principal shareholder. The Company entered into an agreement with
Polmont on March 27, 1999 whereby the Company shall repay the loan balance on a
dollar-to-dollar basis to Polmont on or before March 26, 2002 for all amounts
paid to a former CEO for compensation from the sale of security by an escrow
agent, plus simple interest at 10% per annum on each amount advanced. Also,
that agreement specified that the Company allows Polmont to convert the
outstanding obligation, in whole or part, into common stock at a conversion
price of $0.50 per share. Upon conversion, interest earned by Polmont on the
amount(s) converted shall be waived by Polmont. In addition, the Company
designated Polmont to purchase 500,000 shares of common stock owned by the
former CEO at $30,000 in total after the repayment process is complete. See
Note 6 for details. Due to the nature of this off-balance sheet financing, the
Company recognized prepaid interest of $220,000 and the corresponding amount in
additional paid-in capital and amortized the prepaid interest over the period of
three years.
The balance of loans payable to related parties is as follows:
<TABLE>
<CAPTION>
Loans from Loans from %
Principal Other Loans from
Shareholder Shareholders Polmont Ltd.
<S> <C> <C> <C>
------------ --------------- --------------
Balance at December 31, 1997 1,010,420 - -
New borrowings 1,398,941 - -
Repayments including conversion to stock (1,890,437) - -
------------ --------------- --------------
Balance at December 31, 1998 518,924 - -
New borrowings 136,900 12,100 157,184
Repayments including conversion to stock (655,824) (112) -
------------ --------------- --------------
Balance at December 31, 1999 $ - $ 11,988 $ 157,184
============= ============== ==============
</TABLE>
F-16
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 5-RELATED PARTY TRANSACTIONS (CONTINUED)
The minimum future cash payments for the above loans as of December 31, 1999 are
as follows:
Maturity at December 31, Amount
--------
2000 $ 11,988
2001 -
2002 157,184
--------
Total principal payments $169,172
========
NOTE 6-COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases its facilities in the U.S. under a non-cancelable operating
lease which expires August 31, 2002. The Company also leases equipment under a
non-cancelable capital lease which expires June 2000. Future minimum annual
lease payments as of December 31, 1999 are as follows:
Year ending December 31, Capital Leases Operating Leases
------------------ -------------------
2000 $ 36,693 $ 172,454
2001 - 172,454
2002 - 114,970
Less: interest (4,260) -
------------------ -------------------
Total lease payments $ 32,433 $ 459,878
================== ===================
The Company sublet a portion of the its facility and offset rent expense in 1998
and 1999. The net rental expense is presented as follows:
Year ended December 31,
----------------------
1998 1999
--------- ---------
Gross rental expense (including rent in Beijing, China) $224,537 $241,927
Sublet rental income (67,230) (92,302)
--------- ---------
Net rental expense $157,307 $149,625
========= =========
The Company leases its facilities in Beijing under a five year non-cancelable
operating lease which expires February 28, 2003. The Company issued 625,000
shares of common stock in exchange for $312,500 of rent. The Company amortizes
the prepaid rent at the rate of $5,208 per month. The balance of prepaid rent
is $197,917 at December 31, 1999.
F-17
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 6-COMMITMENTS AND CONTINGENCIES (CONTINUED)
On August 30, 1999, a law suit was filed in the Superior Court of the State of
California against the Company and its officers by Com VU Corporation, a
Delaware corporation, based on an alleged breach of a prior agreement between
CBCcom and Com VU. The parties entered into a merger agreement on March 26,
1999, which merger was never effected. Com VU is alleging that the Company
failed to consummate the merger by failure to use its best efforts to effect it,
failed to pay $50,000 in outstanding debts to two shareholders on behalf of Com
Vu, terminated the agreement improperly and breached a covenant of good faith.
Com Vu is requesting payment of the $50,000 plus losses of approximately $15,000
in expenses and costs. The management is unable to estimate the pending result.
EMPLOYMENT AGREEMENTS
The Company had a five-year employment agreement starting from May 17, 1997 with
the former CEO who left the Company in January 1999. He filed a lawsuit against
the Company for the unpaid compensation of $520,833 through May 17, 1999 plus
$30,000 for repurchasing the shares currently owned by him and the relevant
compensation remaining on his employment agreement. In accordance with the
employment agreement, the former CEO's annual base salary and bonus were
guaranteed up to May 15, 1999 by 800,000 shares of a publicly traded company's
common stock in an escrow account, which were owned by Polmont Investment
Limited.
On January 21, 1999, the Company entered into a settlement agreement with the
former CEO as follows: (1) the delayed compensation of $520,833 would be paid
by the proceeds from the sale of the asset held in the escrow account; and (2)
both parties agreed to submit any remaining compensation claims to binding
arbitration. To the extent that the former CEO wins an award in excess of
$550,833, he will be authorized to sell remaining shares in the escrow account
to the extent of 3,500 shares per day; and (3) the former CEO agreed to look
solely to the escrowed shares for his satisfaction of his claim in this lawsuit,
waive any claim for damages in excess of their value, and generally release all
parties to this lawsuit, such release being subject to the performance of the
obligations of the related defendants. As of December 31, 1999, the escrow has
sold 130,000 shares for proceeds of $157,184, accordingly the amount due to the
former CEO was reduced to $363,649.
Based upon the above settlement agreement, the Company understands that the
total obligation to Polmont will depend on the market value of these shares
remaining in the escrow account (See Note 5 for reference). As of December 31,
1999, there were 670,000 shares remaining in the escrow account with a market
price of $1.8125. According to the agreement between the Company and Polmont,
the Company will recognize the corresponding loan payable to Polmont as shares
are sold and the proceeds are used to settle its obligation to the former CEO.
NOTE 7-EQUITY TRANSACTIONS
On January 1, 1998 the Company issued 500,000, 250,000, and 125,000 (a total of
875,000) shares of common stock to its CEO, CFO, and chief engineer,
respectively, at $.001 per share as signing bonus for their services from
inception to September 30, 1999 with the Company. The Company received proceeds
of $875 and recognized compensation cost of $436,625, based on a fair value of
$.50 per share.
F-18
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7-EQUITY TRANSACTIONS (CONTINUED)
On March 1, 1998, the Company issued 625,000 shares of common stock at $0.50 per
share in exchange for the future rent in its Beijing representative office for
the next five years. The prepaid rental of $312,500 will be amortized over the
next five years.
On April 24, 1998, the Company issued 8,000,000 shares of common stock at $0.20
per share to convert a shareholder loan of $1,600,000. This conversion price
was specified on August 31, 1997 between the original founders and the Company.
The shareholder loan was made to the Company from time to time on an as-needed
basis from June 15, 1997 to April 24, 1999 and was not converted into common
stock until the shareholder loan totaled $1,600,000.
From early October to early December 1998, the principal shareholder converted
$160,000 of shareholder loan into 320,000 shares of common stock at $0.50 per
share in four tranches.
On December 31, 1998, the Company issued 400,000, 400,000, and 320,000 (a total
of 1,120,000) shares of common stock at $0.50 per share to three directors as
their employment compensation of $200,000, $200,000, and $160,000, respectively,
for four months in 1997 (recognized in 1997) and the year of 1998 in accordance
with their respective employment agreement.
On December 31, 1998, the Company issued 1,250,000 shares of common stock at
$0.001 per share in exchange for the promotion and facilitation services
provided by Sinoway Limited (Sinoway) registered in the British Virgin Islands
with a corporate office in Hong Kong, which is an affiliate company of Shanghai
Stock Exchange Communication Co. Ltd. Sinoway promised to obtain exclusive
licenses to use VSAT satellite systems owned by SSE and the logo and name of
SSE. Sinoway agreed to pay $0.001 per share for these 1,250,000 shares of
common stock. Accordingly, the Company recognized a notional stock subscription
of $1,250 and a promotion expense for the License/Contract of $623,750. If
these licenses were obtained, the cost would be amortized over the life of joint
venture with SSEC and SXTST. However, the effectiveness of this issuance
depends on the success of setting up the equity joint venture among the Company,
SSEC, and SXTST and obtaining the exclusive licenses. On June 30, 2000, if the
joint venture has not been set up and exclusive licenses to use the satellite
communication network owned by Shanghai Stock Exchange and use the logo and name
of Shanghai Stock Exchange have not been obtained, the issuance of stock could
be canceled. As of March 10, 2000, the license has not been obtained.
1999
On February 1, 1999, the Company conducted a private placement to issue 600,000
warrants at $0.25 per warrant in four tranches to an existing shareholder and
received total proceeds of $135,000, net of a finders fee of $15,000. Each
warrant carries an exercise price of $0.25 per share and allows each holder of
warrant to exercise any time on or before January 31, 2004. Accordingly, the
Company reserved 600,000 shares of common stock for these warrants.
On March 27, 1999, the Company recognized deferred interest of $220,000 as a
result that Polmont Ltd. was designated to purchase 500,000 shares of the
Company's stock from the former CEO as part of a settlement for a total of
$30,000 whereas the fair value of stock was at $0.50 per share at that date.
Therefore, the Company recognized $220,000 of prepaid interest and will amortize
this $220,000 over the period of three years. See Note 5 for more information.
F-19
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7-EQUITY TRANSACTIONS (CONTINUED)
On May 10, 1999, the Company conducted a private placement to issue 100,000
shares of common stock at $0.50 per share to an accredited investor and received
total proceeds of 45,000, net of a finders fee of $5,000.
From May 14 to June 4, 1999 the Company conducted a private placement to issue
45,000 shares of common stock at $1.00 per share in three tranches to an
individual investor and one corporate investor and received total proceeds of
$40,500, net of a finders fee of $4,500.
On June 22, 1999, the Company issued 40,000 shares of common stock at $0.50 per
share to an existing shareholder. Consequently, the Company received total
proceeds of $18,000, net of a finders fee of $2,000. The amount recorded by the
Company includes deducting $0.50 per share for her service as a part of fund
raising cost.
In August 1999, the Company conducted a private placement to issue 23,000 shares
of common stock at $1.00 per share in three tranches to two individual investors
and received total proceeds of $20,700, net of a finders fee of $2,300.
On August 25, 1999, the Company issued 30,000 shares of common stock at $0.50
per to an existing shareholder. Consequently, the Company received total
proceeds of $13,500, net of a finders fee of $1,500. The amount recorded by the
Company includes deducting $0.50 per share for her service as a part of fund
raising cost.
On August 26, 1999, the Company conducted a Regulation D, Rule 506 offering to
issue 50,000 shares of common stock at par value of $0.001 per share to 300
shareholders through an off-shore investment company in order to satisfy its
goal to be listed on the NASDAQ OTC Bulletin Board. On December 22, 1999, the
Company completed the offering, issued 50,000 shares of common stock, and
recognized a merger transaction expense of $49,950. The $50 cash was received
subsequent to December 31, 1999.
On September 15, 1999, the Company conducted a private placement to issue 20,000
shares of common stock at $1.00 per share to two individual investors.
Consequently, the Company received total proceeds of $18,000, net of a finders
fee of $2,000.
On September 24, 1999, the Company issued 30,000 shares of common stock at $0.50
per share to an existing shareholder to reward her effort to introduce new
potential investors to the Company. Consequently, the Company received total
proceeds of $13,500, net of a finders fee of $1,500. The amount recorded by the
Company includes deducting $0.50 per share for her service as a part of fund
raising cost.
On September 24, 1999, the Company entered into a merger agreement with Abbacy
Corporation (a public shell company), to acquire 100% of its equity. On October
8, 1999, the Board of Directors and the majority shareholders of the constituent
corporations approved the merger.
F-20
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 7-EQUITY TRANSACTIONS (CONTINUED)
On November 1, 1999, the principal shareholder converted $70,000 of shareholder
loan into 140,000 shares of common stock at $0.50 per share.
On December 22, 1999 the Company issued 250,000 shares of common stock valued at
$1.00 per share to the sole shareholder of Abbacy in exchange for 100% of its
equity interest. Accordingly, the Company recognized $250,000 of merger
expense. In addition, the Company incurred approximately $100,000 legal expense
related to this merger transaction. Abbacy would be dissolved subsequent to
December 31, 1999.
On December 30, 1999, the Company issued 1,156,740 shares of common stock to
convert the shareholder loan of $578,370 into equity at $0.50 per share in
accordance with the terms specified in the Note. See Note 5 for reference.
NOTE 8 - STOCK OPTIONS
The Company adopted a stock option plan (the Plan), which includes non-qualified
stock options and incentive stock options for its employees officers and
directors.
The stock option plan authorizes the granting of options to purchase up to an
aggregate maximum of 2,500,000 shares of common stockUnder the incentive stock
option plan, the exercise price shall not be less than 100% of the fair market
value of common stock on the date of grant. If an incentive option is granted
to an employee who at the time of grant owns more than 10% of the total combined
voting power of all classes of capital stock of the Company, the option exercise
price shall be at least 110% of the fair market value of common stock on the
date of grant.
Under the non-qualified stock option plan, the exercise price shall not be less
than 85% of the fair market value of common stock on the date of grant. Each
option under the plan shall become exercisable over a period not to exceed ten
years.
During the year ended December 31, 1998, the Company issued 1,500,000
non-qualified stock options at an exercise price of $0.425. These options
become exercisable over a period of one year and can be exercised for a period
of five to ten years. The 1,500,000 non-qualified stock options included
500,000 options issued to the former CEO which were cancelled in January, 1999.
During the year ended December 31, 1999, the Company issued 250,000
non-qualified stock options at an exercise price of $0.425, which was 85% of the
market price at grant date. These options become exercisable over a period of
two years and can be exercised for a period of ten years.
The Company applies APB Opinion No. 25 in accounting for its Plan. During the
years ended December 31, 1998 and 1999, the options granted under the
non-qualified plan were at an exercise price below the fair market value. In
accordance with APB Opinion No. 25, the Company has recorded compensation
expense of $112,500 and $18,750, respectively.
F-21
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS (CONTINUED)
Had the Company determined compensation cost based on the fair value at the
grant date for its stock options under SFAS No. 123, the Company's net loss
would have been increased to the pro forma amount indicated below:
Year ending December 31,
------------------------
1998 1999
-------- ------
Net loss:
As reported $ (3,033,814) $ (2,268,235)
Pro forma $ (3,273,937) $ (2,568,971)
Loss per share:
As reported $ (0.30) $ (0.15)
Pro forma $ (0.33) $ (0.17)
A summary of changes in stock options during each year is presented below:
<TABLE>
<CAPTION>
December 31,
--------------------------------------
1998 1999
------------------ ------------------
Weighted Weighted
Average Average
Exercise Exercise
Shares Price Shares Price
---------- ------ ---------- ------
<S> <C> <C> <C> <C>
Options outstanding at beginning of year - $ - 1,500,000 $ 0.43
Options granted 1,500,000 0.43 250,000 0.43
Options cancelled - - (500,000) -
Options exercised - - - 0.43
---------- ------ ---------- ------
Options at end of year 1,500,000 $ 0.43 1,250,000 $ 0.43
========== ====== ========== ======
Options and warrants exercisable at end of year 750,000 0.43 1,125,000 0.43
========== ====== ========== ======
Weighted-average fair value of options granted during the year $ 0.39 $ 0.41
====== ======
</TABLE>
F-22
CBCOM, INC.
(a development stage company)
NOTES TO FINANCIAL STATEMENTS
NOTE 8 - STOCK OPTIONS (CONTINUED)
The following table summarizes information about the stock options outstanding
at December 31, 1999.
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Price Outstanding Life (Years) Price Exercisable Price
----------- ------------ ------ ----------- ------
[S] [C] [C] [C] [C] [C]
$0.43 1,250,000 7.92 $ 0.43 1,125,000 $ 0.43
=========== ============ ====== =========== ======
The fair value of the stock options granted during 1998 and 1999 was $588,916
and $102,616, respectively, on the date of grant using the Black Scholes
option-pricing model. The weighted-average assumptions used were as follows:
Year ended December 31,
-----------------------
1998 1999
------------ -----------
Discount rate - bond yield rate 4.51 - 4.82% 4.67%
Volatility 72% 72%
Expected life 5-10 years 5-10 years
Expected dividend yield - -
============ ===========
F-23
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized, in the city of Encino,
California, on the 12th day of April, 2000.
CBCOM, INC.
By /s/ Chian Yi Sun
----------------------------
Chian Yi Sun
Chairman of the Board
Date: April 12, 2000
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
/s/ Chian Yi Sun Chairman of the Board April 12, 2000
- ---------------------- (Principal Executive Officer)
Chian Yi Sun
/s/ Charles A. Lesser Chief Financial Officer/Director April 12, 2000
- ---------------------- (Principal Financial Officer and
Charles A. Lesser Principal Accounting Officer)
/s/ Gordon X. Gao Director April 12, 2000
- ----------------------
Gordon X. Gao
Exhibit 1.2
STATE OF DELAWARE PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, EDWARD J. FREEL, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO HEREBY
CERTIFY THE ATTACHED ARE TRUE AND CORRECT COPIES OF ALL DOCUMENTS ON FILE OF
"CBCOM, INC." AS RECEIVED AND FILED IN THIS OFFICE.
THE FOLLOWING DOCUMENTS HAVE BEEN CERTIFIED:
CERTIFICATE OF INCORPORATION, FILED THE TWENTY-THIRD DAY OF APRIL, A.D. 1997, AT
5:30 O'CLOCK P.M.
CERTIFICATE OF AMENDMENT, FILED THE TENTH DAY OF FEBRUARY, A.D. 1998, AT 9
O'CLOCK A.M.
CERTIFICATE OF RESIGNATION OF REGISTERED AGENT WITHOUT APPOINTMENT, FILED THE
TWENTY-SIXTH DAY OF JANUARY, A.D. 1999, AT 10 O'CLOCK A.M.
CERTIFICATE OF RENEWAL, FILED THE SIXTEENTH DAY OF APRIL, A.D. 1999, AT 9
O'CLOCK A.M.
CERTIFICATE OF AMENDMENT, FILED THE EIGHTH DAY OF OCTOBER, A.D. 1999, AT 9
O'CLOCK A.M.
2741611 8100H /seal of the Secretary' office/
/Edward J. Freel/
___________________
Edward J. Freel, Secretary of State
AUTHENTICATION: 0029365
DATE: 10-15-99
STATE OF DELAWARE
Secretary of STATE
DIVISION OF CORPORATION
FILED 05:30 PM 04/23/1997
CERTIFICATE OF INCORPORATION
OF
CBCOM, INC.
I.
The name of this Corporation is CBCom, Inc.
II.
The address of the registered office of the Corporation in the State of
Delaware is The Corporation Trust Company, Corporation Trust Center, 1209 Orange
Street, New Castle County, Wilmington, Delaware 19801, and the name of the
registered agent at that address is The Corporation Trust Company.
III.
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 the
State of Delaware.
IV.
The Corporation is authorized to issue one class of stock designated as
"Common Stock". The total number of shares of Common Stock authorized to be
issued is 1,000 and each such share shall have a par value of $0.01.
V.
The number of directors which shall constitute the whole Board of directors
shall be fixed by, or in the manner provided in, the Bylaws of the Corporation.
VI.
In furtherance and not in limitation of the powers conferred by statute,
the Board of Directors is expressly authorized to make, repeal, alter, amend and
rescind the Bylaws of the Corporation.
VII.
Election of directors at an annual or special meeting of stockholders need
not be by written ballot unless the Bylaws of the Corporation shall so provide.
VIII.
No director shall be personally liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided that this Article VIII shall not eliminate or limit the liability of a
director (i) for any breach of such 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 the law, (iii)
under Section 174 of the General Corporation Law of the State of Delaware, or
(iv) for any transaction from which such director derives an improper personal
benefit. If the General Corporation Law of the State of Delaware is amended to
authorize corporate action further eliminating or limiting the personal
liability of directors, then the liability of a director of the Corporation
shall be eliminated or limited to the fullest extent permitted by the General
Corporation Law of the State of Delaware as so amended.
IX.
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in this Certificate of Incorporation, in the manner now or
hereafter prescribed by statute, and all rights conferred on stockholders herein
are granted subject to this reservation.
X.
The name and mailing address of the incorporator of the Corporation are:
Name Mailing Address
---- ----------------
Vivian S. Godoy c/o Paul, Hastings, Janofsky
& Walker, LLP
555 South Flower St.
23rd Floor
Los Angeles, CA 90071
IN WITNESS WHEREOF, this Certificate has been signed on the 23rd day of
April, 1997.
/Vivian Godoy
--------------
Vivian S. Godoy, Incorporator
STATE OF DELAWARE
Secretary of STATE
DIVISION OF CORPORATION
FILED 09:00 AM 02/10/1998
981052465 - 2741611
CERTIFICATE OF AMENDMENT
OF CBCOM, INC.
a Delaware corporation
CBCOM, INC., a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Corporation"), DOES
HEREBY CERTIFY:
FIRST: The Corporation has not received any payment for any of its stock.
SECOND: The amendments to the Corporation's Certificate of Incorporation
set forth in the following resolutions were approved by the written consent of a
majority of the Corporation's Board of Directors and were duly adopted in
accordance with the provisions of Section 241 of the General Corporation Law of
the State of Delaware:
RESOLVED, that the Certificate of Incorporation of the Corporation be
amended by striking the last sentence of Article IV in its entirety and
replacing it with the following:
"The total number of shares of Common Stock authorized to be issued is
100,000,000 and each such share shall have a par value of $0.001.
IN WITNESS WHEREOF, the Corporation has caused this certificate to be
signed by Bernard J. Luskin, its Chairman of the Board of Directors and Chief
Executive Officer, and attested by Charles Lesser, its Secretary, this 5th
------
day of February, 1998.
By /Bernard J. Luskins/
---------------------
Bernard J. Luskin
Chairman of the Board of Directors and
Chief Executive Officer
ATTEST:
By /Charles A. Lesser
------------------
Charles Lesser
Secretary
STATE OF DELAWARE
Secretary of STATE
DIVISION OF CORPORATION
FILED 10:00 AM 01/26/1999
991036613 - 2616255
CERTIFICATE OF RESIGNATION OF REGISTERED AGENT
Pursuant to Section 136 of the General Corporation Law of Delaware, THE
CORPORATION TRUST COMPANY hereby resigns as Registered Agent of the corporations
listed on the attached Exhibit A.
Written notice of resignation was given to the corporation on December 21, 1998
by mail or delivery to the corporation at its last known address as shown on our
records, said date being at least 30 days prior to the filing of this
Certificate of Resignation.
DATED: JANUARY 26, 1999
THE CORPORATION TRUST COMPANY
BY: William J. Reif
-----------------
William J. Reif
Assistant Vice President
THE CORPORATION TRUST COMPANY
AGENT RESIGNATIONS - EXHIBIT A
01/26/99 PAGE: 6
FILE
NUMBER CORPORATION NAME
2776217 CLEAN SHOT TECHNOLOGIES, INC.
2756562 CLEARYTH, INC.
2242404 CLEMENTON PLAZA, INC.
2151098 CLUB SPORTS INTERNATIONAL - CONCOURSE, INC.
2275366 COASTAL FINANCIAL CONSULTANTS, INC.
2200176 COLDWATER CREEK OPERATOR CORP.
2149834 COLOR SERVICES INCORPORATED
2193536 COLOR TILE FRANCHISING, INC.
0904478 COLUMBIA MAINTENANCE SERVICES, INC.
2556126 COMMUNITY ASSISTED LIVING CENTERS, INC.
2354674 COMMUTER LEASE INC.
2773640 COMPILE AMERICA INC.
2607741 CONNECTICUT VALLEY SPORTS, INC.
2191723 CONTAINER TESTING LABORATORY, INC.
2428422 CONVENE INTERNATIONAL, INC.
2469749 CORAL ROCK INC.
2597447 CORBETT & CO.
2244837 CORPORATE INVESTMENT ASSOCIATES, INC.
2327098 COSMOS FACTORY, INC.
2004759 COTE D'AZUR REALTY, INC.
2624979 COUNCIL ON HEALTHCARE PROVIDER ACCREDITATION, INC.
2286740 CRITERION INFORMATION SYSTEMS, INC.
2305249 CUE BIC SYSTEMS, INC.
2223464 CURATORS CAPITAL MANAGEMENT INC.
2658461 CYBERTEL NETWORK SYSTEMS, INC.
2336408 CYPRESS POINT TRADING CO.
2320666 CYRUS I. HARVEY, INC.
2119173 CACTUS, INC.
2786155 CAJEN INC.
2744462 CALIFORNIA NO NONSENSE PROPERTY MANAGEMENT CORPORATION
2068008 CANADA SQUARE CORPORATION
2423161 CANAL+ PORTFOLIO, INC.
2577206 CANGEN INC.
2577205 CANLOAN INC.
2577203 CANREO INC.
2418412 CAREER HOLDINGS, INC.
2262924 CARIBBEAN ENTERTAINMENT COMPANY
2242428 CARIBBEAN MARKETING, INC.
2709264 CARL ZEISS IMT, CORP.
2709263 CARL ZEISS OPTICAL, INC.
0676430 CARLSON & SWEATT-MOKENCO, INC.
2482106 CARLTON INVESTORS CORPORATION
2398397 CARRIBEAN ISLAND MANAGEMENT INC.
2492091 CARSON-EUROPE, INC.
2080208 CATALYST CONSTRUCTION CORPORATION OF CONNECTICUT
2741611 CBCOM, INC.
0937190 CBD PHARMACEUTICAL CORPORATION
2139234 CBI UNIFORMS, INC.
CERTIFICATE
FOR RENEWAL AND REVIVAL OF CERTIFICATE OF INCORPORATION
CBCom, Inc., a corporation organized under the laws of Delaware, the
Certificate of Incorporation of which was filed in the office of the Secretary
of State on April 23, 1997 and thereafter forfeited for failure to maintain an
agent, now desiring to procure a revival of its Certificate of Incorporaton,
hereby certifies as follows:
1. The name of the corporation is CBCom, Inc.
2. Its registered office in the State of Delaware is located on 1209
Orange Street, City of Wilmington County of New Castle and the name of its
registered agent at such address is THE CORPORATION TRUST COMPANY.
3) The date when revival of the Certificate of Incorporation of this
corporation is to commence is the 24th day of February, 1999, same being prior
to the date the Certificate of Incorporation became forfeited. Revival of the
Certificate of Incorporation is to be perpetual.
4) This corporation was duly organized under the laws of Delaware and
carried on the business authorized by its Certificate of Incorporation until the
25th day of February, 1999 at which time its Certificate of Incorporation became
inoperative and forfeited for failure to maintain an agent and this Certificate
of Renewal and Revival is filed by authority of the duly elected directors of
the corporation with the laws of Delaware.
IN WITNESS WHEREOF, said CBCom, Inc., in compliance with Section 312 of the
Title 8 of the Delaware Code has caused this Certificate to be signed by CHARLES
LESSER, its last and acting Corporate Secretary & Chief Financial officer, this
11th day of March, 1999.
CBCom, Inc.
By: /Charles A. Lesser/
--------------------
CHARLES LESSER
Corporate Secy. & Chief Financial Officer
STATE OF DELAWAR
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/16/1999
991158822 - 2741611
STATE OF DELAWARE
SECRETARY OF STATE
DIVISION OF CORPORATIONS
FILED 09:00 AM 04/16/1999
991158822 - 2741611
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
CBCOM, INC.,
A Delaware Corporation
It is hereby certified that:
1. The name of the corporation (hereinafter called the "corporation") is CBCom,
Inc.
2. The certificate of incorporation of the corporation is hereby amended by
striking out Article IV thereof and by substituting in lien thereof the
following new Article IV:
IV.
"1. Classes of Stock. This corporation is authorized to issue two
-------------------
classes of stock to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is authorized to issue
is One Hundred Million (100,000,000) shares. Of these shares, Eighty Million
(80,000,000) shares shall be Common Stock, par value $0.001 per share, and
Twenty Million (20,000,000) shares shall be Preferred Stock, par value $0.001
per share.
2. Rights, Preferences and Restrictions of Preferred Stock. The
-------------------------------------------------------------
Preferred Stock authorized hereby may be issued from time to time in series.
The Board of Directors is hereby authorized to fix or alter the rights,
preferences, privileges and restrictions grant to or imposed upon such
additional series of Preferred Stock, and the number of shares constituting any
such series and the designation thereof, or any of them. The Board of Directors
is also authorized to decrease the number of shares of any series subsequent to
the issue of that series, but not below the number of shares of such a series
then outstanding. In the case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution originally fixing the number of
shares of such series."
Upon the filing in the office of the Secretary of State of the State of Delaware
of this Certificate of Amendment of Article IV, twenty million (20,000,000)
shares of the corporation's authorized but unissued shares of Common Stock, par
value $0.001 per share, will be converted and reclassified as twenty million
(20,000,000) shares of authorized but unissued Preferred Stock, par value $0.001
per share, of the corporation.
1
3. The amendment of the certificate of incorporation herein certified has been
duly adopted in accordance with the provisions of Sections 228 and 242 of the
General Corporation Law of the State of Delaware.
Signed on: September 27, 1999.
- - -
/Signature/
-----------
Max Sun, President
/Signature/
-----------
Charles Lesser, Secretary
2
Exhibit 1.3
BYLAWS
of
CBCOM, INC.
TABLE OF CONTENTS
-----------------
Page
----
ARTICLE I - Offices
Section 1.01 Registered Office 1
Section 1.02 Principal Office 1
Section 1.03 Other Offices 1
ARTICLE II - Meetings of Stock holders
Section 2.01 Annual Meetings 1
Section 2.02 Special Meeting 1
Section 2.03 Place of Meetings 2
Section 2.04 Notice of Meetings 2
Section 2.05 Quorum 3
Section 2.06 Voting 3
Section 2.07 List of Stockholders 5
Section 2.08 Inspector of Election 5
Section 2.09 Stockholder Action Without Meetings 5
Section 2.10 Record Date 6
ARTICLE III - Board of Directors
Section 3.01 General Powers 6
Section 3.02 Number and Term 6
Section 3.03 Election of Directors 7
Section 3.04 Resignation and Removal 7
Section 3.05 Vacancies 7
-i-
Section 3.06 Place of Meeting; Telephone
Conference Meeting 8
Section 3.07 First Meeting 8
Section 3.08 Regular Meetings 8
Section 3.09 Special Meetings 8
Section 3.10 Quorum and Action 9
Section 3.11 Action by Consent 9
Section 3.12 Compensation 9
Section 3.13 Committees 9
Section 3.14 Officers of the Board 10
ARTICLE IV - Officers
Section 4.01 Officers 10
Section 4.02 Election and Term 10
Section 4.03 Subordinate Officers 10
Section 4.04 Removal and Resignation 11
Section 4.05 Vacancies 11
Section 4.06 President 11
Section 4.07 Chairman of the Board 11
Section 4.08 Vice President 11
Section 4.09 Secretary 12
Section 4.10 Treasurer 12
Section 4.11 Compensation 13
ARTICLE V -Contracts, Checks, Drafts Bank Accounts, Etc.
Section 5.01 Execution of Contracts 13
- ii -
Section 5.02 Checks, Drafts, Etc. 13
Section 5.03 Deposit 14
Section 5.04 General and Special Bank Accounts 14
ARTICLE VI - Shares and Their Transfer
Section 6.01 Certificates for Stock 14
Section 6.02 Transfer of Stock 15
Section 6.03 Regulations 15
Section 6.04 Lost, Stolen, Destroyed and
Mutilated Certificates 16
Section 6.05 Representation of Shares
of Other Corporation 16
ARTICLE VII - Indemnification
Section 7.01 Actions Other Than By or In
The Right of the Corporation 16
Section 7.02 Actions by or In the Right of the
Corporation 17
Section 7.03 Determination of Right of
Indemnification 17
Section 7.04 Indemnification Against
Expenses of Successful Party 18
Section 7.05 Advance of Expenses 18
Section 7.06 Other Rights and Remedies 18
Section 7.07 Insurance 18
Section 7.08 Constituent Corporations 19
Section 7.10 Broadest Lawful Indemnification 19
Section 7.11 Term 21
- iii -
Section 7.12 Severability 21
Section 7.13 Amendments 21
ARTICLE VIII - Miscellaneous
Section 8.01 Seal 22
Section 8.02 Waiver of Notices 22
Section 8.03 Loans and Guaranties 22
Section 8.04 Gender 22
Section 8.05 Amendments 22
- iv -
BYLAWS
of
CBCOM, INC.
a Delaware Corporation
ARTICLE I
OFFICES
-------
Section 1.01 REGISTERED OFFICE. The registered office of CBCom, Inc.
(hereinafter called the "Corporation") shall be at such place in the State of
Delaware as shall be designated by the Board of Directors (hereinafter called
the "Board").
Section 1.02 PRINCIPAL OFFICE. The principal office for the transaction of
the business of the Corporation shall be at such location, within or without the
State of Delaware, as shall be designated by the Board.
Section 1.03 OTHER OFFICES. The Corporation may also have an office or
offices at such other place or places, either within or without the State of
Delaware, as the Board may from time to time determine or as the business of the
Corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.01 ANNUAL MEETINGS. Annual meetings of the stockholders of the
Corporation for the purpose of electing directors and for the transaction of
such other proper business as may come before such meetings may be held at such
time, date and place as the Board shall determine by resolution.
Section 2.02 SPECIAL MEETINGS. Special meetings of the stockholders of the
Corporation for any purpose or purposes may be called at any time by the Board,
or by a committee of the Board which has been duly designated by the Board and
whose powers and authority, as provided in a resolution of the Board or in the
Bylaws, include the power to call such meetings, but such special
- 1 -
meetings may not be called by any other person or person; provided, however,
that if and to the extent that any special meeting of stockholders may be called
by any other person or persons specified in any provisions of the Certificate of
Incorporation or any amendment thereto or any certificate filed under Section
151 (g) of the General Corporation Law of the State of Delaware (or its
successor statute as in effect from time to time hereafter), then such special
meeting may also be called by the person or persons, in the manner, at the time
and for the purposes so specified.
Section 2.03 PLACE OF MEETINGS. All meetings of the stockholders shall be
held at such places, within or without the State of Delaware, as may from time
to time be designated by the person or persons calling the respective meetings
and specified in the respective notices or waivers of notice thereof.
Section 2.04 NOTICE OF MEETINGS. Except as otherwise required by law,
notice of each meeting of the stockholders, whether annual or special, shall be
given not less than ten (10) nor more than sixty (60) days before the data of
the meeting to each stockholder of record entitled to vote at such meeting by
delivering a typewritten or printed notice thereof to him personally, or by
depositing such notice in the United States mail, in a postage prepaid envelope,
directed to him at his address furnished by him to the Secretary of the
Corporation for such purpose or, if he shall not have furnished to the Secretary
his address for such purpose, then at his address last known to the Secretary,
or by transmitting a notice thereof to him at such address by telegraph, cable
or wireless. Except as otherwise expressly required by law, no publication of
any notice of a meeting of the stockholders shall be required. Every notice of
a meeting of the stockholders shall state the place, date and hour of the
meeting, and, in the case of a special meeting shall also state the purpose or
purposes for which the meeting is called. Except as otherwise expressly
required by law, notice of any adjourned meeting of the stockholders need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
Whenever notice is required to be given to any stockholder to whom (i)
notice of two consecutive annual meetings, and all notices of meetings or of the
taking of action by written consent without a meeting to such person during the
period between such two consecutive annual meetings, or (ii) all, and at least
two,
- 2 -
payments (if sent by first class mail) of dividends or interest on securities
during a twelve month period, have been mailed addressed to such person at his
address as shown on the records of the Corporation and have been returned
undeliverable, the giving of such notice to such person shall not be required.
Any action or meeting which shall have been taken or held without notice to such
person shall the same force and effect as if such notice had been duly given.
If any such person shall deliver to the Corporation a written notice setting
forth his then current address, the requirement that notice be given to such
person shall be reinstated.
No notice need be given to any person with whom communication is unlawful,
nor shall there be any duty to apply for any permanent or license to give notice
to any such person.
Section 2.05 QUORUM. Except as provided by law, the holders of record of a
majority in voting interest of the shares of stock of the Corporation entitled
to be voted, present in person or by proxy, shall constitute a quorum for the
transaction of business at any meeting of the stockholders of the Corporation or
any adjournment thereof. The stockholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough stockholders to leave less
than a quorum. In the absence of a quorum at any meeting or any adjournment
thereof, a majority in voting interest of the stockholders present in person or
by proxy and entitled to vote thereat or, in the absence therefrom of all the
stockholders, any officer entitled to preside at or to act as secretary of such
meeting may adjourn such meeting from time to time. At any such adjourned
meeting at which a quorum is present any business may be transacted which might
have been transacted at the meeting as originally called.
Section 2.06 VOTING
(a) At each meeting of the stockholders, each stockholder shall be entitled
to vote in person or by proxy each share or fractional share of the stock of the
Corporation which has voting rights on the matter in question and which shall
have been held by him and registered in his name on the books of the
Corporation:
(i) on the date fixed pursuant to Section 6.05 of these Bylaws as the
record date for the determination of stockholders entitled to notice of and to
vote at such meeting, or
- 3 -
(ii) if no such record date shall have been so fixed, then (A) at the close
of business on the day next preceding the day on which notice of the meeting
shall be given or (B) if notice of the meeting shall be waived, at the close of
business on the day next preceding the day on which the meeting shall be held.
(b) Shares of its own stock belonging to the Corporation or to another
corporation, if a majority of the shares entitled to vote in the election of
directors in such other corporation is held, directly or indirectly, by the
Corporation, shall neither be entitled to vote nor be counted for quorum
purposes. Persons holding stock of the Corporation in a fiduciary capacity
shall be entitled to vote such stock. Persons whose stock is pledged shall be
entitled to vote, unless in the transfer by the pledgor on the books of the
Corporation he shall have expressly empowered the pledgee, or his proxy, may
represent such stock and vote thereon. Stock having voting power standing of
record in the names of two or more persons, whether fiduciaries, members of a
partnership, joint tenants, tenants in common, tenants by the entirety or
otherwise, or with respect to which two or more persons have the same fiduciary
relationship, shall be voted in accordance with the provisions of the General
Corporation Law of Delaware.
(c) Any such voting rights may be exercised by the stockholder entitled
thereto in person or by his proxy appointed by an instrument in writing,
subscribed by such stockholder or by his attorney thereunto authorized and
delivered to the secretary of the meeting; provided, however, that no proxy
shall be voted or acted upon after three years from its date unless said proxy
shall provide for a longer period. The attendance at any meeting of a
stockholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. At any meeting of the stockholders
all matters, except as otherwise provided in the Certificate of Incorporation,
in these Bylaws or by law, shall be decided by the vote of a majority in voting
interest of the stockholders present in person or by proxy and entitled to vote
thereat and thereon. The stockholders present at a duly called or held meeting
at which a quorum is present may continue to do business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave
- 4 -
less than a quorum. The vote at any meeting of the stockholders on any question
need not be by ballot, unless so directed by the chairman of the meeting. On a
vote by ballot, each ballot shall be signed by the stockholder voting, or by his
proxy if there be such proxy, and it shall state the number of shares voted.
Section 2.07 LIST OF STOCKHOLDERS. The Secretary of the Corporation shall
prepare and make, at least ten (10) days before every meeting of stockholders, a
complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten (10) days prior to
the meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the entire
duration thereof, and may be inspected by any stockholder who is present.
Section 2.08 INSPECTOR OF ELECTION. If at any meeting of the stockholders
a vote by written ballot shall be taken on any question, the chairman of such
meeting may appoint an inspector or inspectors of election to act with respect
to such vote. Each inspector so appointed shall first subscribe an oath
faithfully to execute the duties of an inspector at such meeting with strict
impartiality and according to the best of his ability. Such inspectors shall
decide upon the qualification of the voters and shall report the number of
shares represented at the meeting and entitled to vote on such question, shall
conduct and accept the votes, and, when the voting is completed, shall ascertain
and report the number of shares voted respectively for and against the question.
Reports of the inspectors shall be in writing and subscribed and delivered by
them to the Secretary of the Corporation. Inspectors need not be stockholders
of the Corporation, and any officer of the Corporation may be an inspector on
any question other than a vote for or against a proposal in which he shall have
a material interest.
2.09 STOCKHOLDER ACTION WITHOUT MEETINGS. Any action required by the
General Corporation Law of the State of Delaware to be taken at any annual or
special meeting of the stockholders,
- 5 -
or any action which may be taken at any annual or special meeting of the
stockholders, may be taken without a meeting, without prior notice and without a
vote, if a consent in writing setting forth the action so taken shall be signed
by the holders of outstanding stock having not 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 thereon were present and voted. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing.
Section 2.10 RECORD DATE. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, 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 any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board may fix a record date, which record date shall
not precede the date upon which the resolution fixing the record date is adopted
by the Board and which record date: (i) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (ii) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board; and (iii)
in the case of any other action, shall not be more than sixty days prior to such
other action. If no record date is fixed; (i) the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given, or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; (ii) the record date for
determining stockholders entitled to express consent to corporate action in
writing without a meeting when no prior action of the Board is required by law,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation in
accordance with applicable law, or, if prior action by the Board is required by
law, shall be at the close of business
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on the day on which the Board adopts the resolution taking such prior action;
and (iii) the record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. A determination of stockholders of
record entitled to notice of or to vote at a meeting of stockholders shall apply
to any adjournment of the meeting; provided, however, that the Board may fix a
new record date for the adjourned meeting.
ARTICLE III
BOARD OF DIRECTORS
------------------
Section 3.01 GENERAL POWERS. The property, business and affairs of the
Corporation, shall be managed by or under the direction of the Board, which may
exercise all of the powers of the Corporation, except such as are by the
Certificate of Incorporation, by these Bylaws or by law conferred upon or
reserved to the stockholders.
Section 3.02 NUMBER AND TERM. The Board shall consist of three (3) to
seven (7) members, the number of which shall be three (3) until changed
thereafter from time to time by resolution of the Board. Directors need not be
stockholders of the Corporation. Each director shall hold office until a
successor is elected and qualified or until the director resigns or is removed.
Section 3.03 ELECTION OF DIRECTORS. The directors shall be elected by the
stockholders of the Corporation, and at each election the persons receiving the
greatest number of votes, up to the number of directors then to be elected,
shall be the persons then elected. The election of directors is subject to any
provisions contained in the Certificate of Incorporation relating thereto,
including any provisions for a classified board.
Section 3.04 RESIGNATION AND REMOVAL. Any director of the Corporation may
resign at any time by giving written notice to the Board or to the Secretary of
the Corporation. Any such resignation shall take effect at the time specified
therein, or, if the time is not specified, it shall take effect immediately upon
its receipt; and, unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
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Except as otherwise provided by the Certificate of Incorporation or by law,
any director or the entire board of directors may be removed, with or without
cause, by the holders of a majority of shares then entitled to vote at an
election of directors.
Section 3.05 VACANCIES. Except as otherwise provided in the Certificate of
Incorporation, any vacancy in the Board, whether because of death, resignation,
disqualification, an increase in the number of directors, or any other cause,
may be filled by vote of the majority of the remaining directors, although less
than a quorum, or by a sole remaining director. Each director so chosen to fill
a vacancy shall hold office until his successor shall have been elected and
shall qualify or until he shall resign or shall have been removed. No reduction
of the authorized number of directors shall have the effect of removing any
director prior to the expiration of his term of office.
Upon the resignation of one or more directors from the Board, effective at
a future date, a majority of the directors then in office, including those who
have so resigned, shall have the power to fill such vacancy or vacancies, the
vote thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided hereinabove
in the filling of other vacancies.
Section 3.06 PLACE OF MEETING; TELEPHONE CONFERENCE MEETING. The Board my
hold any of its meetings at such place or places within or without the State of
Delaware as the Board may from time to time by resolution designate or as shall
by the person or persons calling the meeting or in the notice or waiver of
notice of any such meeting. Directors may participate in any regular or special
meeting of the Board by means of conference telephone or similar communications
equipment pursuant to which all person participating in the meeting of the Board
can hear each other, and such participation shall constitute presence in person
at such meeting.
Section 3.07 FIRST MEETING. The Board shall meet as soon as practicable
after each annual election of directors and notice of such first meeting shall
not be required.
Section 3.08 REGULAR MEETINGS. Regular meetings of the Board may be held
at such times as the Board shall from time to time by resolution determine. If
any day fixed for a meeting
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shall be a legal holiday at the place where the meeting is to be held, then the
meeting shall be held at the same hour and place on the next succeeding business
day which is not a legal holiday. Except as provided by law, notice of regular
meetings need not be given.
Section 3.09 SPECIAL MEETINGS. Special meetings of the Board may be called
at any time by the Chairman of the Board or the President or b any two (2)
directors, to be held at the principal office of the Corporation, or at such
other place or places, within or without the State of Delaware, as the person or
persons calling the meeting may designate.
Notice of the time and place of special meetings shall be given to each
director either (i) by mailing or otherwise sending to him a written notice of
such meeting, charges prepaid, addressed to him at his address as it is shown
upon the records of the Corporation, or if it is not so shown on such records or
is not readily ascertainable, at the place in which the meetings of the
directors are regularly held, at least seventy-two (72) hours prior to the time
of the holding of such meeting; or (ii) by orally communicating the time and
place of the special meeting to him at least forty-eight (48) hours prior to the
time of the holding of such meeting. Either of the notices as above provided
shall be due, legal and personal notice to such director.
Section 3.10 QUORUM AND ACTION. Except as otherwise provided in these
Bylaws or by law, the presence of a majority of the authorized number of
directors shall be required to constitute a quorum for the transaction of
business at any meeting of the Board, and all matters shall be decided at any
such meeting, a quorum being present, by the affirmative votes of a majority of
the directors present. In the absence of a quorum, a majority of directors
present at any meeting may adjourn the same from time to time until a quorum
shall be present. Notice of any adjourned meeting need not be given. The
directors shall act only as a Board, and the individual directors shall have no
power as such.
Section 3.11 ACTION BY CONSENT. Any action required or permitted to be
taken at any meeting of the Board or of any committee thereof may be taken
without a meeting if a written consent thereto is signed by all members of the
Board or of such committee, as the case may be, and such written consent is
filed with the minutes of proceedings of the Board or such committee.
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Such action by written consent shall have the same force and effect as the
unanimous vote of such directors.
Section 3.12 COMPENSATION. No stated salary need be paid to directors, as
such, for their services but, as fixed from time to time by resolution of the
Board, the directors my receive directors' fees, compensation and reimbursement
for expenses for attendance at directors' meetings, for serving on committees
and for discharging their duties; provided that nothing herein contained shall
be construed to preclude any director from serving the Corporation in any other
capacity and receiving compensation therefor.
Section 3.13 COMMITTEES. The Board 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 my 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 the committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in place of any such absent or disqualified
member. Any such committee, to the extent permitted by law and provided in the
resolution of the Board, shall have and may exercise all the powers and affairs
of the Corporation, and may authorize the seal of the Corporation to be affixed
to all papers which may require it.
Unless the Board otherwise provides, each committee designated by the Board
may make, alter and repeal rules for conduct of its business. In the absence of
such rules each committee shall conduct its business in the same manner as the
Board conducts its business pursuant to these Bylaws. Any such committee shall
keep written minutes of its meetings and report the same to the Board when
required.
Section 3.14 OFFICERS OF THE BOARD. A Chairman of the Board or a Vice
Chairman may be appointed from time to time by the Board and shall have such
powers and duties as shall be designated by the Board.
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ARTICLE IV
OFFICERS
--------
Section 4.01 OFFICERS. The officers of the Corporation shall be a
President, a Secretary and a Treasurer. The Corporation may also have, at the
discretion of the Board, a Chairman of the Board, a Chief Executive Officer, one
or more Vice Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
as may be appointed in accordance with the provisions of Section 4.03 of these
Bylaws. One person may hold two or more offices, except that the Secretary may
not also hold the office of President. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board.
Section 4.02 ELECTION AND TERM. The officers of the Corporation, except
such officers as may be appointed in accordance with the provisions of Section
4:03 or Section 4.05 of these Bylaws, shall be chosen annually by the Board, and
each shall hold his office until he shall resign or shall be removed or
otherwise disqualified to serve, or until his successor shall be elected and
qualified.
Section 4.03 SUBORDINATE OFFICERS. The Board may appoint, or may authorize
the Chief Executive officer to appoint, such other officers as the business of
the Corporation may require, each of whom shall have such authority and perform
such duties as are provided in these Bylaws or as the Board or the President
from time to time may specify, and shall hold office until he shall resign or
shall be removed or otherwise disqualified to serve.
Section 4.04 REMOVAL AND RESIGNATION. Any officer may be removed, with or
without cause, by a majority of the directors at the time in office, at any
regular or special meeting of the Board, or, except in case of an officer chosen
by the Board, by the Chief Executive Officer upon whom such power of removal may
be conferred by the Board.
Any officer may resign at any time by giving written notice to the Board,
the Chairman of the Board, the President or the secretary of the Corporation.
Any such resignation shall take effect at the date of the receipt of such notice
or at any later time specified therein; and unless otherwise specified therein,
the acceptance of such resignation shall not be necessary to make it effective.
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Section 4.05 VACANCIES. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in the Bylaws for the regular appointments to such office.
Section 4.06 PRESIDENT. The President of the Corporation shall, subject to
the control of the Board, have general supervision, direction and control of the
business and affairs of the Corporation. He shall preside at all meetings of
stockholders and the Board. He shall have the general powers and duties of
management usually vested in the chief executive officer of a corporation, and
shall have such other powers and duties with respect to the administration of
the business and affairs of the Corporation as may from time to time be assigned
to him by the Board or as prescribed by the Bylaws.
Section 4.07 CHAIRMAN OF THE BOARD. The Chairman of the Board, if any,
shall preside at all meetings of the stockholders and the Board and exercise and
perform such other powers and duties with respect to the administration of the
business and affairs of the Corporation as may from time to time be assigned to
him by the Board or as is prescribed by the bylaws.
Section 4.08 VICE PRESIDENT. The Vice President(s), if any, shall exercise
and perform such powers and duties with respect to the administration of the
business and affairs of the Corporation as from time to time may be assigned to
each of them by the President, by the Chairman of the Board, if any, by the
Board or as is prescribed by the bylaws. In the absence or disability of the
President, the Vice Presidents, in order of their rank as fixed by the Board, or
if not ranked, the Vice President designated by the Board, shall perform all of
the duties of the President and when so acting shall have all of the powers of
and be subject to all the restrictions upon the President.
Section 4.09 SECRETARY. The Secretary shall keep, or cause to be kept, a
book of minutes at the principal office for the transaction of the business of
the Corporation, or such other place as the Board may order, of all meetings of
directors and stockholders, with the time and place of holding, whether regular
or special, and if special, how authorized and the notice thereof given, the
names of those present at directors' meetings, the number of shares present or
represented at stockholders' meetings and the proceedings thereof.
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The Secretary shall keep, or cause to be kept, at the principal office for
the transaction of the business of the Corporation or at the office of the
Corporation's transfer agent, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all the meetings
of the stockholders and of the Board required by these Bylaws or by law to be
given, and he shall have such other powers and perform such other duties as may
be prescribed by the Board or these Bylaws. If for any reason the Secretary
shall fail to give notice of any special meeting of the Board called by one or
more of the persons identified in Section 3.09 of these Bylaws, or if he shall
fail to give notice of any special meeting of the stockholders called by one or
more of the persons identified in Section 2.02 of these Bylaws, then any such
person or persons may give notice of any such special meeting.
Section 4.10 TREASURER. The Treasurer shall keep and maintain or cause to
be kept and maintained, adequate and correct accounts of the properties and
business transactions of the Corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, surplus and
shares. Any surplus, including earned reduction of capital, shall be classified
according to source and shown in a separate account. The books of account at
all reasonable times shall be open to inspection by any director.
The Treasurer shall deposit all moneys and other valuables in the name and
to the credit of the Corporation with such depositories as may be designated by
the Board. He shall disburse the funds of the Corporation as may be ordered by
the Board, shall render to the President, to the Chief Executive Officer and to
the directors, whenever they request it, and account of all his transactions as
Treasurer and of the financial condition of the Corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board or
these Bylaws.
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Section 4.11 COMPENSATION. The compensation of the officers of the
Corporation, if any, shall be fixed from time to time by the Board.
ARTICLE V
CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC.
----------------------------------------------
Section 5.01 EXECUTION OF CONTRACTS. The Board, except as otherwise
provided for in these Bylaws, may authorize any officer of officers, agent or
agents, to enter into any contract or execute any instrument in the name and on
behalf of the Corporation, and such authority may be general or confined to
specific instances; and unless so authorized by the Board or by these Bylaws, no
officer, agent or employee shall have any power or authority to ind the
Corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
Section 5.02 CHECKS, DRAFTS, ETC. Al checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name of
or payable to the Corporation, shall be signed or endorsed by such person or
persons and such manner as, from time to time, shall be determined by resolution
of the Board. Each such person shall give such bond, if any, as the Board may
require.
Section 5.03 DEPOSIT. All funds of the Corporation not otherwise employed
shall be deposited from time to time to the credit of the Corporation in such
banks, trust companies or other depositories as the Boards may select, or as may
be selected by any officer or officers, assistants, agent or agents, attorney or
attorneys, of the Corporation to whom such power shall have been delegated by
the Board. For the purpose of deposit and for the purpose of collection for the
account of the Corporation, the President, the Chief Executive Officer, any Vice
President or the Treasurer (or any other officer or officers, assistant or
assistants, agent or agents, or attorney or attorneys of the Corporation who
shall be determined by the Board from time to time) may endorse, assign and
deliver checks, drafts and other orders for the payment of money which are
payable to the order of the Corporation.
Section 5.04 GENERAL AND SPECIAL BANK ACCOUNTS. The Board from time to
time may authorize the opening and keeping of general
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and special bank accounts with such banks, trust companies or other depositories
as the Board may select or as may be selected by an officer or officers,
assistant or assistants, agent or agents, or attorney or attorneys of the
Corporation to whom such power shall have been delegated by the Board. The
Board may make such special rules and regulations with respect to such bank
accounts, not inconsistent with the provisions of these Bylaws, as it may deem
expedient.
ARTICLE VI
SHARES AND THEIR TRANSFER
-------------------------
Section 6.01 CERTIFICATES FOR STOCK. Every owner of stock of the
Corporation shall be entitled to have a certificate or certificates, in such
form as the Board shall prescribe, certifying the number and class of shares of
the stock of the Corporation owned by him. The certificates representing shares
of such stock shall be numbered in the order in which they shall be issued and
shall be signed in the name of the Corporation by the Chairman of the Board, the
President or a Vice President and by the Secretary or an Assistant Secretary or
by the Treasurer or an Assistant Treasurer. Any or all of the signatures on the
certificates may be a facsimile. In case of any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon any
such certificate shall thereafter have ceased to be such officer, transfer agent
or registrar before such certificate is issued, such certificate may
nevertheless be issued by the Corporation with the same effect as though the
person who signed such certificate, or whose facsimile signature shall have been
placed thereupon, were such officer, transfer agent or registrar at the date of
issue. A record shall be kept of the respective names of the persons, firms or
corporations owning the stock represented by such certificates, respectively,
and the respective dates thereof, and in case of cancellation, the respective
dates thereof, and in case of cancellation, the respective dates of
cancellation. Every certificate surrendered to the Corporation for exchange or
transfer shall be canceled, and no new certificate or certificates shall be
issued in exchange for any existing certificate until such existing certificate
shall have been so canceled, except in cases provided for in Section 6.04 of
these Bylaws.
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Section 6.02 TRANSFER OF STOCK. Transfer of shares of stock of the
Corporation shall be made only on the books of the Corporation by the registered
holder thereof, or by his attorney thereunto authorized by power of attorney
duly executed and filed with the Secretary, or with a transfer clerk or a
transfer agent appointed as provided in Section 6.03 of these Bylaws, and upon
surrender of the certificate or certificates for such shares properly endorsed
and the payment of all taxes thereon. The person in whose name shares of stock
stand on the books of the Corporation shall be deemed the owner thereof for all
purposes as regards the Corporation. Whenever any transfer of shares shall be
made for collateral security, and not absolutely, such fact shall be stated
expressly in the entry of transfer if, when the certificate or certificates
shall be presented to the Corporation for transfer, both the tranferor and the
transferee request the Corporation to do so.
Section 6.03 REGULATIONS. The Board may make such rules and regulations as
it may deem expedient, not inconsistent with these Bylaws, concerning the issue,
transfer and registration of certificates for shares of the stock of the
Corporation. The Board may appoint, or authorize any officer or officers to
appoint, one or more transfer clerks or one or more transfer agents and one or
more registrars, and may require all certificates for stock to bear the
signature or signatures of any of them.
Section 6.04 LOST, STOLEN, DESTROYED AND MUTILATED CERTIFICATES. In any
case of loss, theft, destruction, or mutilation of any certificate of stock,
another may be issued in its place upon proof of such loss, theft, destruction,
or mutilation and upon the giving of a bond of indemnity to the Corporation in
such form and in such sums as the Board may direct; provided, however, that a
new certificate may be issued without requiring any bond when, in the judgment
of the Board, it is proper to do so.
Section 6.05 REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The President
or any Vice President and the Secretary or any Assistant secretary of this
Corporation are authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to all shares of any other corporation or
corporations standing in the name of this corporation. The authority herein
granted to said officers to vote or represent on behalf of this Corporation any
and all shares held by this Corporation in any other corporation or corporations
may be exercised either by such
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officers in person or by any person authorized so to do by prozy or power of
attorney duly executed by said officers.
ARTICLE VII
INDEMNIFICATION
---------------
Section 7.01 ACTIONS OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
by made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other than
an action by or in the right of the Corporation) by reason of the fact that he
is or was a director, officer, employee or agent of the Corporation, or is or
was serving at the request of the Corporation as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred by him in connection with such action, suit or
proceeding if he acted in good faith and in a manner he reasonably believed to
be in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
his conduct was unlawful. The termination of any action, suit or proceeding by
judgement, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he reasonably believed to be in, or
not opposed to, the best interests of the Corporation, and, with respect to any
criminal action or proceeding, that he had reasonable cause to believe that his
conduct was unlawful.
Section 7.02 ACTIONS BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed action or suit by or in
the right of the Corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or as a member of any committee or similar
body, against expenses (including attorneys' fees) actually and reasonable
incurred by
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him in connection with the defense or settlement of such action or suit if he
acted in good faith and in a manner he reasonably believed to be in, or not
opposed to, the best interests of the Corporation, except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Corporation
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper.
Section 7.03 DETERMINATION OF RIGHT OF INDEMNIFICATION. Any
indemnification under Section 7.01 or 7.02 of these Bylaws (unless ordered by a
court) shall be made by the Corporation only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because he has met the applicable standard
of conduct set forth in Sections 7.01 and 7.02 of these Bylaws. Such
determination shall be made (i) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (ii) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (iii) by the stockholders.
Section 7.04 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article VII, to the extent that a
director, officer, employee or agent of the Corporation has been successful on
the merits or otherwise in defense of any action, suit or proceeding referred to
in Section 7.01 or 7.02 of these Bylaws, or in defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 7.05 ADVANCE OF EXPENSES. Expenses incurred by an officer or
director in defending a civil or criminal action, suit or proceeding may be paid
by the Corporation in advance of the final disposition of such action, suit or
proceeding as authorized by the Board upon receipt of an undertaking by or on
behalf of the director or officer, to repay such amount if it shall ultimately
be determined that he is not entitled to be indemnified by the
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Corporation as authorized in this Article VII. Such expenses incurred by other
employees and agents may be so paid upon such terms and conditions, if any, as
the Board deems appropriate.
Section 7.06 OTHER RIGHTS AND REMEDIES. The indemnification and
advancement of expenses provided by, or granted pursuant to, the other Sections
of this Article VII shall not be deemed exclusive and are declared expressly to
be nonexclusive of any other rights to which those seeking indemnification or
advancements of expenses may be entitled under any bylaw, agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in his
official capacity and as to action in another capacity while holding such
office.
Section 7.07 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or is or was
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise or as a member of any committee or similar body against any liability
asserted against him and incurred by him in any such capacity, or arising out of
his status as such, whether or not the Corporation would have the power to
indemnify him against such liability under the provisions of this Article VII.
Section 7.08 CONSTITUENT CORPORATIONS. For the purposes of this Article
VII, references to "the Corporation" include in addition to the resulting
corporation, any constituent corporation (including any constituent of a
constituent) absorbed in a consolidation or merger which, if its separate
existence had continued, would have had power and authority to indemnify its
directors, officers and employees or agents, so that any person who is or was a
director, officer, employee or agent of such constituent corporation or is or
was serving at the request of such agent of another corporation, partnership,
joint venture, trust or other enterprise or as a member of any committee or
similar body shall stand in the same position under the provisions of this
Article VII with respect to the resulting or surviving corporation as he would
have with respect to such constituent corporation it its separate existence had
continued.
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Section 7.09 EMPLOYEE BENEFIT PLANS. For the purposes of this Article VII,
references to "other enterprises" shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service as a director, officer, employee
or agent of the Corporation which imposes duties on, or involves services by,
such director, officer, employee or agent with respect to an employee benefit
plan, its participants or beneficiaries; and a person who acted in good faith
and in a manner he reasonably believed to be in the interest of the participants
and beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Corporation" as referred to in
this Article VII.
Section 7.10. BROADEST LAWFUL INDEMNIFICATION. In addition to the
foregoing, the Corporation shall, to the broadest and maximum extent permitted
by Delaware law, as the same exists from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of indemnification
than is permitted to the Corporation prior to such amendment or change),
indemnify each person who was or is a party or is threatened to be made a party
to any threatened, pending or completed administrative or investigative by
reason of the fact that he is or was a director or officer of the Corporation,
or is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, fines and amounts paid in settlement actually and reasonably
incurred by him in connection with such action, suit or proceeding. In
addition, the Corporation shall, to the broadest and maximum extent permitted by
Delaware law, as the same may exist from time to time (but, in case of any
amendment to or change in Delaware law, only to the extent that such amendment
or change permits the Corporation to provide broader rights of payment of
expenses incurred in advance of the final disposition of an action, suit or
proceeding than is permitted to the Corporation prior to such amendment or
change), pay to such person any and all expenses (including attorneys' fees)
incurred in defending or settling any such action, suit or proceeding in advance
of the final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf
- 20 -
of the director or officer, to repay such amount if it shall ultimately be
determined by a final judgment or other final adjudication that he is not
entitled to be indemnified by the Corporation as authorized in this Section
7.10. The first sentence of this Section 7.10 to the contrary notwithstanding,
the Corporation shall not indemnify any such person with respect to any of the
following matters: (i) remuneration paid to such person if it shall be
determined by a final judgment or other final adjudication that such
remuneration was in violation of law; or (ii) any accounting of profits made
from the purchase or sale by such person of the Corporation's securities within
the meaning of Section 16(b) of the Securities Exchange Act of 1934 and
amendments thereto or similar provisions of any federal, state or local
statutory law; or (iii) actions brought about or contributed to by the
dishonesty of such person, if a final judgment or other final adjudication
adverse to such person establishes that acts of active and deliberate dishonesty
were committed or attempted by such person with actual dishonest purpose and
intent and were material to the adjudication; or (iv) actions based on or
attributable to such person having gained any personal profit or advantage to
which he was not entitled, in the event that a final judgment or other final
adjudication adverse to such person established that such person in fact gained
such personal profit or other advantage to which he was not entitled; or (v) any
matter in respect of which a final decision by a court with competent
jurisdiction shall determine that indemnification is unlawful; provided,
however, that the Corporation shall perform its obligations under the second
sentence of this Section 7.10 on behalf of such person until such time as it
shall be ultimately determined by a final judgment or other final adjudication
that he is not entitled to be indemnified by the Corporation as authorized by
the first sentence of this Section 7.10 by virtue of any of the preceding
clauses (i), (ii), (iii), (iv) or (v).
Section 7.11. TERM. The indemnification and advancement of expenses
provided by, or granted pursuant to, advancement of expenses provided by, or
granted pursuant to, this Article VII shall, unless otherwise provided when
authorized or ratified, continue as t a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 7.12 SEVERABILITY. If any part of this Article VII shall be found,
in any action, suit or proceeding or appeal therefrom or in any other
circumstances or as to any particular officer, director, employee or agent to be
unenforceable,
- 11 -
ineffective or invalid for any reason, the enforceability, effect and validity
of the remaining parts or of such parts in other circumstances shall not be
affected, except as otherwise required by applicable law.
Section 7.13 AMENDMENTS. The foregoing provisions of this Article VII
shall be deemed to constitute an agreement between the Corporation and each of
the persons entitled to indemnification hereunder, for as long as such
provisions remain in effect. Any amendment to the foregoing provisions of this
Article VII which limits or otherwise adversely affects the scope of
indemnification or rights of any such persons hereunder shall, as to such
persons, apply only to claims arising, or causes of action based on actions or
events occurring, after such amendment and delivery of notice of such amendment
is given to the person or persons so affected. Until notice of such amendment
is given to the person or persons whose rights hereunder are adversely affected,
such amendment shall have no effect on such rights of such persons hereunder.
Any person entitled to indemnification under the foregoing provisions of the
Article VII shall, as to any act or omission occurring prior to the date of
receipt of such notice, be entitled to indemnification to the same extent as had
such provisions continued as Bylaws of the Corporation without such amendment.
ARTICLE VIII
MISCELLANEOUS
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Section 8.01 SEAL. The Board shall provide a corporate seal, which shall
be in the form of a circle and shall bear the name of the Corporation and words
and figures showing that the Corporation was incorporated in the State of
Delaware and showing the year of Incorporation.
Section 8.02 WAIVER OF NOTICES. Whenever notice is required to be given
under any provision of these bylaws, the Certificate of Incorporation or by law,
a written waiver, signed by the person entitled to notice, whether before or
after the time stated therein, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when a person attends a meeting for the express purpose of objecting at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Neither the business to be
transacted at, nor
- 22 -
the purpose of, any regular or special meeting of the stockholders, directors,
or members of a committee of directors need be specified in any written waiver
of notice unless required by the Certificate of Incorporation.
Section 8.03 LOANS AND GUARANTIES. The Corporation may lend money to, or
guarantee any obligation of, and otherwise assist any officer or other employee
of the Corporation or of its subsidiaries, including any officer who is a
director, whenever, in the judgment of the Board, such loan, guaranty or
assistance may reasonably be expected to benefit the Corporation. The loan,
guaranty, or other assistance by be with or without interest, and my be
unsecured or secured in such manner as the Board shall approve, including,
without limitation, a pledge of shares of stock of the Corporation.
Section 8.04 GENDER. All personal pronouns used in these Bylaws shall
include the other genders, whether used in the masculine, feminine or neuter
gender, and the singular shall include the plural, and vice versa. Whenever and
as often as may be appropriate.
Section 8.05 AMENDMENTS. These Bylaws, or any of them, may be rescinded,
altered, amended or repealed, and new Bylaws may be made (i) by the Board, by a
vote of a majority of the number of directors then in office as directors,
acting at any meeting of the Board or (ii) by the stockholders, by the vote of a
majority of the outstanding shares of voting stock of the Corporation, at an
annual meeting of stockholders, without previous notice, or at any special
meeting of stockholders, provided that notice of such proposed amendment,
modification, repeal or adoption is given in the notice of special meeting;
provided, however, that Section 2.02 of these Bylaws can only be amended if that
Section as amended would not conflict with the Corporation's Certificate of
Incorporation. Any Bylaw made or altered by the stockholders may be altered or
repealed by the Board or may be altered or repealed by the stockholders.
- 23 -
Exhibit 10.1
CBCOM, INC.
1998 STOCK OPTION PLAN
As adopted November 13, 1998
1. PURPOSE OF PLAN
1.1 Purpose. The purpose of the Plan is to enable the Company to grant
-------
to selected Eligible Persons a favorable opportunity to acquire Common Stock
and, thereby, to create an incentive for them to remain in the employ of, or
provide services to, the Company or any Affiliate and to contribute to its
success.
1.2 Nature of Options. Options granted under the Plan may be Incentive
-------------------
Options or Nonstatutory Options, as determined by the Administrator at the time
of grant.
1.3 Rule 701. At the time the Plan is being adopted, the Company is not
--------
subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act
and is not an investment company registered or required to be registered under
the Investment Company Act of 1940. As such, the Company's offers and sales of
Common Stock under the Plan are, to the extent determined by the Administrator
in accordance with Applicable Laws, or any successor rule, intended to be exempt
from the registration requirements of the Securities Act under Rule 701 under
the Securities Act.
2. CERTAIN DEFINITIONS; CONSTRUCTION
2.1 Definitions. When used herein, the following terms shall have the
-----------
meaning indicated:
(a) "Administrator" means the Board or any Committee as shall be
administering the Plan.
(b) "Affiliate" means, with respect to any entity, any "parent" or
"subsidiary" of the entity as those terms are defined in sections 424(e) and
424(f), respectively, of the Code.
(c) "Applicable Laws" means the laws, rules and regulations relating to
the adoption, implementation and administration of stock option plans under
applicable state corporate laws, federal and state securities laws and the Code.
(d) "Board" means the Board of Directors of the Company.
(e) "Code" means the Internal Revenue Code of 1986, as amended, and
applicable Treasury Regulations promulgated thereunder.
(f) "Committee" means a committee appointed by the Board in accordance
with section 4.1 hereof.
(g) "Common Stock" means the Common Stock of the Company.
(h) "Company" means CBCom, a Delaware corporation.
(i) "Disability" means total and permanent disability as defined in
section 22(e)(3) of the Code.
(j) "Eligible Persons" means (x) directors, officers and other
employees of the Company or of any Affiliate of the Company, as well as (y)
non-employee consultants and advisors who perform bona fide significant services
for or on behalf of the Company or any Affiliate (other than services rendered
in connection with an offer or sale of securities in a capital raising
transaction).
2
(k) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(l) "Fair Market Value" means, as of any date, the value of Common
Stock determined as follows:
(1) if the Common Stock is listed on an established stock
exchange or a national market system, including without limitation the Nasdaq
National Market of the National Association of Securities Dealers, Inc.
Automated Quotation ("NASDAQ") System, the Fair market Value of a share of
Common Stock shall be the closing sales price for such stock (or the closing
bid, if no sales were reported) as quoted on such system or exchange (or the
exchange with the greatest volume of trading in Common Stock) on the last market
trading day prior to the day of determination, as reported in The Wall Street
----------------
Journal or such other source as the Administrator deems reliable;
------
(2) if the Common Stock is quoted on the NASDAQ System (but not on the
Nasdaq National Market thereof) or is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
-----------------------
the Administrator deems reliable; and
(3) in the absence of an established trading market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(m) "Incentive Option" means an Option intended to qualify as an
incentive stock option within the meaning of section 422 of the Code.
(n) "Nonstatutory Option" means any Option other than an Incentive
Option.
(o) "Notice of Grant" means a written notice specifying certain
terms and conditions of an Option grant.
(p) "Option" means a stock option granted pursuant to the Plan.
(q) "Option Agreement" means a written agreement between the
Company and an Optionee evidencing the terms and conditions of an Option,
together with any Notice of Grant relating to the Option.
(r) "Optionee" means an Eligible Person or permitted transferee
who holds an outstanding Option.
(s) "Plan" means this 1998 Stock Option Plan, as originally
adopted and as amended from. time to time as herein provided.
(t) "Plan of Exchange" means any agreement, plan or arrangement
under which an outstanding Option may be surrendered in exchange for a newly
granted Option with a lower exercise price or other terms which differ from the
terms of the Option surrendered.
(u) "Section 16" means section 16 of the Securities Exchange Act
of 1934.
3
(v) "Securities Act" means the Securities Act of 1933, as amended.
(w) "Termination of Employment" shall mean the date when any
employee-employer relationship between an Optionee and the Company is terminated
for any reason, including, but not by way of limitation, a termination by
resignation, discharge, death, disability or retirement, but excluding (1)
terminations where there is a simultaneous reemployment or continuing employment
of an Optionee by the Company, (2) at the discretion of the Administrator,
terminations which result in a temporary severance of the employee-employer
relationship, and (3) at the discretion of the Administrator, terminations which
are followed by the simultaneous establishment of a consulting relationship by
the Company with the former employee. The Administrator, in its absolute
discretion, shall determine the effect of all matters and questions relating to
Termination of Employment.
2.2 Construction. The Plan shall be construed in accordance with the
------------
following provisions:
(a) the adoption of the Plan shall not affect any other
compensation or incentive plans in effect for the Company. Nothing in the Plan
shall be construed to limit the right of the Company (1) to establish any other
forms of incentives or compensation for employees of the Company, or (2) to
grant or assume options or other rights otherwise than under the Plan in
connection with any proper corporate purpose, including, but not by way of
limitation, the grant or assumption of options in connection with the
acquisition by purchase, lease, merger, consolidation or otherwise, of the
business, stock or assets of any corporation, partnership, firm or association;
(b) the existence of outstanding Options under the Plan shall not
affect the Company's right to effect adjustments, recapitalizations,
reorganizations or other changes in its or any other corporation's capital
structure or business, any merger or consolidation, any issuance of bonds,
debentures, preferred or prior preference stock ahead of or affecting Common
Stock, the dissolution or liquidation of the Company's or any other
corporation's assets or business, or any other corporate act, whether similar to
the events described above or otherwise; and
(c) nothing in the Plan or in any Option Agreement shall confer
upon any Optionee any right to continue in the employ of the Company or shall
interfere with or restrict in any way the rights of the Company, which are
hereby expressly reserved, to discharge any Optionee at any time for any reason
whatsoever, with or without cause.
3. STOCK SUBJECT TO THE PLAN
3.1 Common Stock. Subject to adjustment as provided in section 9
-------------
hereof, the stock to be offered and issued under the Plan shall be shares of
Common Stock, which may be either authorized and unissued shares or treasury
shares. The cumulative aggregate number of shares of Common Stock to be offered
and issued under the Plan shall not exceed Two Million Five Hundred Thousand
(2,500,000), subject to adjustment as provided in section 9 hereof.
Notwithstanding anything to the contrary contained herein, at no time may the
total number of shares issuable upon exercise of all outstanding Options, when
combined with the total number of shares provided for under any Company stock
bonus or similar plan exceed the applicable percentage as calculated in
accordance with the conditions and exclusions of California Corporate Securities
Rule 260.140.45, based on shares outstanding at the time such calculation is
made.
3.2 Calculation of Shares. If an Option shall expire or terminate for
----------------------
any reason without having been filly exercised, or is surrendered pursuant to a
4
Plan of Exchange or otherwise, the unpurchased shares subject thereto shall
again be available for the purposes of the Plan. Where the exercise price of an
Option is paid by means of the Optionee's surrender of previously owned shares
of Common Stock or the Company's withholding of shares otherwise issuable upon
exercise of the Option as permitted herein, only the net number of shares issued
and which remain outstanding in connection with such exercise shall be deemed
"issued" and no longer available for issuance under the Plan.
3.3 Reservation of Shares. The Company will at all times during the
-----------------------
term of the Plan reserve and keep available such number of shares of Common
Stock as shall be sufficient to satisfy the requirements of the Plan.
4. ADMINISTRATION
4.1 Administrator. The Plan shall be administered by the Board or,
-------------
either in its entirety or only insofar as it relates to Eligible Persons subject
to Section 16 (if any), by a committee of the Board established for this purpose
in accordance with Applicable Laws. If necessary in order to comply with Rule
16b-3 under the Exchange Act as contemplated below, the Committee shall be
comprised solely of "non-employee directors" within the meaning of said Rule
16b-3. The foregoing notwithstanding, the Administrator may delegate
nondiscretionary administrative duties to such employees of the Company as it
deems proper and the Board, in its absolute discretion, may at any time and from
time to time exercise any and all rights and duties of the Administrator under
the Plan.
4.2 Rule 16b-3 Compliance. In the event, and for so long as, the Common
---------------------
Stock is registered under the Exchange Act, the Plan shall be administered in
accordance with the requirements of Rule 1 6b-3 under the Exchange Act, or any
successor rule thereto, with the intention that transactions under the Plan by
Eligible Persons subject to Section 16, if any, comply with the applicable
requirements of Rule 16b-3, or any successor rule thereto. In this regard, to
the extent any provision of the Plan or action by the Administrator fails to so
comply, it shall, to the extent permitted by Applicable Laws and deemed
advisable by the Administrator, be deemed null and void. Notwithstanding the
above, it shall remain the sole responsibility of Optionees, not of the Company
or the Administrator, to comply with applicable requirements of Section 16; and
neither the Company nor the Administrator shall be liable if the Plan or any
transaction under the Plan fails to comply with the applicable conditions of
Rule 16b-3 or any successor rule thereto, or if any Optionee incurs any
liability under Section 16 by reason of any transaction under the Plan.
4.3 Expenses: Exculpation. All expenses and liabilities which members
----------------------
of the Administrator incur in connection with the administration of this Plan
shall be borne by the Company. The Administrator may employ attorneys,
consultants, accountants, appraisers, brokers or other persons. The
Administrator, the Company and the Company's directors, officers and other
employees shall be entitled to rely upon the advice, opinions or valuations of
any such persons. No member of the Administrator shall be personally liable for
any action, determination or interpretation made in good faith with respect to
the Plan.
4.4 Powers of Administrator. Subject to the provisions of the Plan, and
-----------------------
in the case of a Committee, subject to the specific duties delegated by the
Board to such Committee, the Administrator shall have the authority, in its
discretion:
(a) to determine whether and to what extent Options are granted
hereunder;
5
(b) to select from among Eligible Persons those individuals to
whom Options shall be granted hereunder;
(c) to determine the number of shares of Common Stock to be
covered by each Option granted hereunder;
(d) to approve forms of Option Agreements and other instruments
for use under the Plan;
(e) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any Option granted hereunder, the exercise price, the
time or times when the Option may be exercised (which may be based on
performance or other criteria), any vesting, acceleration or waiver of
forfeiture restrictions, and any restriction or limitation regarding the Option
or the shares of Common Stock relating thereto, based in each case on such
factors as the Administrator, in its sole discretion, shall determine;
(I) to determine the Fair Market Value of Common Stock;
(g) to reduce the exercise price of any Option to the then current
Fair Market Value if the Fair Market Value of Common Stock covered by such
Option shall have declined since the date the Option was granted;
(h) to construe and interpret the terms and provisions of the Plan
and of any Option Agreement and all Options granted under the Plan;
(i) to prescribe, amend and rescind rules and regulations relating
to the Plan, including rules and regulations relating to sub-plans established
for the purpose of qualifying for preferred tax treatment under foreign tax
laws;
(j) to modify or amend each Option (subject to section 12.2
hereof), including the discretionary authority to extend the post-termination
exercisability period of any Option longer than is otherwise provided for in the
Plan;
(k) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant or exercise of an Option
authorized by the Administrator;
(1) to institute from time to time a Plan of Exchange; and
(m) to make all other determinations it deems necessary or
advisable for administering the Plan or any Option Agreement or Option.
The Administrator's decisions, determinations and interpretations shall be final
and binding on all Optionees and other persons.
5. PARTICIPATION
Eligible Persons shall be eligible for selection to participate in the Plan
upon approval by the Administrator; provided, however, that only "employees"
(within the meaning of section 340 1(c) of the Code) of the Company shall be
eligible for the grant of Incentive Options. An individual who has been granted
an Option may, if otherwise eligible, be granted additional Options if the
6
Administrator shall so determine. No Eligible Person is entitled to participate
in the Plan by matter of right; only those Eligible Persons who are selected by
the Administrator in its discretion shall participate in the Plan.
6. OPTION AGREEMENT; TERMS OF OPTIONS
6.1 Option Agreement. Each Option shall be evidenced by an Option
-----------------
Agreement, which shall be subject to the terms and conditions of the Plan and
shall contain such other terms and conditions that are not inconsistent with the
Plan as the Administrator may deem appropriate in each case. In the event of a
conflict between the terms or conditions of an Option Agreement and the terms
and conditions of the Plan, the terms and conditions of the Plan shall govern.
Failure of an Optionee to execute an Option Agreement shall not invalidate or
render void the grant of an Option hereunder.
6.2 Exercise Price. The exercise price of each Incentive Option shall
---------------
be determined by the Administrator, but shall not be less than 100% of the Fair
Market Value of Common Stock on the date of grant. If an Incentive Option is
granted to an employee who at the time of grant owns (within the meaning of
section 424(d) of the Code) more than 10% of the total combined voting power of
all classes of capital stock of the Company, the Option exercise price shall be
at least 110% of the Fair Market Value of Common Stock on the date of grant. The
exercise price of each Nonstatutory Option also shall be determined by the
Administrator, but shall not be less than 85% of the Fair Market Value of Common
Stock on the date of grant. The status of each Option granted under the Plan as
either an Incentive Option or a Nonstatutory Stock Option shall be determined by
the Administrator at the time the Administrator acts to grant the Option, and
shall be designated as such in the related Option Agreement.
6.3 "Reload" Options. At the time of grant or at any time thereafter,
-----------------
the Administrator may determine that an Optionee who has paid the exercise price
of an Option by surrendering previously owned shares of Common Stock or by the
Company's withholding of shares otherwise issuable upon exercise of the Option
shall automatically receive a new Option hereunder to purchase additional shares
of Common Stock equal to the number of shares so surrendered or withheld and may
specify the terms and conditions of such "reload" options.
6.4 Payment of Exercise Price. Except as provided below, payment in
----------------------------
full shall be made for all shares of Common Stock purchased at the time written
notice of exercise of an Option is given to the Company, either in cash or by
delivery by the Optionee of Common Stock already owned by the Optionee, for all
or part of the aggregate exercise price of the shares as to which the Option is
being exercised, provided that the Fair Market Value of such Common Stock is
equal on the date of exercise to the aggregate exercise price of the shares as
to which the Option is being exercised. At the time an Option is granted or
exercised, the Administrator, in the exercise of its discretion, may authorize
one or more of the following additional methods of payment:
(a) to the extent consistent with applicable law, through
acceptance of the Optionee's full recourse promissory note for a portion of the
aggregate exercise price of the shares as to which the Option is being
exercised, payable on such terms and bearing such interest as determined by the
Administrator, which promissory note may be either secured or unsecured in such
manner as the Administrator shall approve (including, without limitation, by a
security interest in the shares of Common Stock so acquired);
7
(b) any other property, so long as such property constitutes valid
consideration under Applicable Laws for the shares as to which the Option is
being exercised and is surrendered in good form for transfer; and
(c) subject to section 422 of the Code, by means of so-called
"cashless" exercises as permitted under applicable rules and regulations of the
Securities and Exchange Commission and the Federal Reserve Board.
6.5 Withholding. Irrespective of the form of payment of the exercise
-----------
price of an Option, the delivery of shares pursuant to the exercise of an Option
shall be conditioned upon payment by the Optionee to the Company of amounts
sufficient to enable the Company to pay all federal, state, and local
withholding taxes applicable, in the Company's judgment, to the exercise. In the
discretion of the Administrator, such payment to the Company may be effected
through (a) the Company's withholding from the number of shares of Common Stock
that would otherwise be delivered to the Optionee by the Company on exercise of
the Option a number of shares of Common Stock equal in value (as determined by
the Fair Market Value of Common Stock on the date of exercise) to the aggregate
withholding taxes, (b) payment by the Optionee to the Company of the aggregate
withholding taxes in cash, (c) withholding by the Company from other amounts
contemporaneously owed by the Company to the Optionee, or (d) any combination of
these three methods, as determined by the Administrator in its discretion.
6.6 Vesting and Exercise.
----------------------
(a) Each Option granted under the Plan shall become exercisable and the
total number of shares subject thereto shall be purchasable, in a lump sum or in
such installments, which need not be equal, as the Administrator shall
determine; provided, however, that each Option shall become exercisable in full
no later than five years after such Option is granted, and each Option shall
become exercisable as to at least 20% of the shares of Common Stock covered
thereby on each anniversary of the date such Option is granted; and provided,
further, that if an Optionee shall not in any given installment period purchase
all of the shares which such Optionee is entitled to purchase in such
installment period, such Optionee's right to purchase any shares not purchased
in such installment period shall continue until the expiration or sooner
termination of the Optionee's Option. The Administrator may, at any time after
grant of an Option and from time to time, increase the number of shares
purchasable in any installment, subject to the total number of shares subject to
the Option and the limitations set forth in paragraph (f) of this section 6.6.
At any time and from time to time prior to the time when any exercisable Option
or exercisable portion thereof becomes unexercisable under the Plan or the
applicable Option Agreement, such Option or portion thereof may be exercised in
whole or in part; provided, however, that the Administrator may, by the terms of
the Option Agreement, require any partial exercise to be with respect to a
specified minimum number of shares. No Option or installment thereof shall be
exercisable except with respect to whole shares. Fractional share interests
shall be disregarded, except that they may be accumulated as provided above and
except that if such a fractional share interest constitutes the total shares of
Common Stock remaining available for purchase under an Option at the time of
exercise, the Optionee shall be entitled to receive on exercise a certified or
bank cashier's check in an amount equal to the Fair Market Value of such
fractional share of stock.
(b) To the extent that the aggregate Fair Market Value (determined on
the date of grant) of Common Stock with respect to which an Incentive Option
granted hereunder (together with any incentive Options granted the Optionee
under all other plans of the Company) are exercisable for the first time by an
Optionee in any calendar year under the Plan exceeds $100,000, such Option shall
8
be treated as a Nonstatutory Option to the extent required by section 422 of the
Code. The rule set forth in the preceding sentence shall be applied by taking
Options into account in the order in which they were granted.
(c) Exercising an Option in any manner shall decrease the number of
shares thereafter available for purposes of the Plan, and for sale under the
Option, by the number of shares as to which the Option is exercised.
(d) The Administrator may, at any time, extend the exercise period of
an Option as stated in the relevant Option Agreement for any period not
exceeding the original expiration date of the Option on such terms and
conditions as it may determine.
(e) Notwithstanding any provision of this section 6.6, in no event
shall any Option be exercised after the expiration date of the Option set forth
in the applicable Option Agreement.
(f) If Common Stock acquired upon exercise of any Incentive Option is
disposed of in a disposition that, under section 422 of the Code, disqualifies
the Optionee from the application of section 421(a) of the Code, the holder of
the Common Stock immediately before the disposition shall comply with any
requirements imposed by the Company in order to enable the Company to secure the
related income tax deduction to which it is entitled in such event.
7. TERMINATION OF EMPLOYMENT, DEATH OR DISABILITY; REPURCHASE
7.1 Termination of Employment. Upon Termination of Employment of an
---------------------------
Optionee, other than upon the Optionee's death or Disability, the Optionee may
exercise his or her Option, but only within such period of time as is specified
in the Notice of Grant, and only to the extent that the Optionee was entitled to
exercise it at the date of termination (but in no event later than the
expiration date of the Option set forth in the applicable Option Agreement). In
the case of an Incentive Option, such period of time for exercise shall not
exceed three months from the date of termination, and in the absence of a
specified time in the Option Agreement, the Incentive Option shall remain
exercisable for three months following Termination of Employment of the
Optionee. In the case of a Nonstatutory Option, such period of time for exercise
shall not exceed two years from the date of termination, and in the absence of a
specified time in the Option Agreement, the Nonstatutory Option shall remain
exercisable for two years following Termination of Employment of the Optionee.
If, on the date of termination, the Optionee is not entitled to exercise the
Optionee's entire Option, the shares covered by the unexercisable portion of the
Option shall revert to the Plan. If, after termination, the Optionee does not
exercise his or her Option within the time specified by the Administrator, the
Option shall terminate, and the shares covered by the Option shall revert to the
Plan.
7.2 Disability. in the event of a Termination of Employment of an
----------
Optionee as a result of the Optionee's Disability, the Optionee may exercise his
or her Option (a) at any time within twelve months from the date of such
termination, in the case of an Incentive Option, or (b) at any time within two
years from the date of such termination, in the case of a Nonstatutory Option,
but in each case only to the extent that the Optionee was entitled to exercise
it at the date of such termination (but in no event later than the expiration of
the term of such Option as set forth in the Notice of Grant). If, at the date of
termination, the Optionee is not entitled to exercise his or her entire Option,
the shares covered by the unexercisable portion of the Option shall revert to
the Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and the
Shares covered by such Option also shall revert to the Plan.
9
7.3 Death. The Option may be exercised at any time (a) within twelve
-----
months following the date of death, in the case of an Incentive Option, or (b)
within two years following the date of death, in the case of a Nonstatutory
Option, but in either case, in no event later than the expiration of the term of
such Option as set forth in the Option Agreement, by the Optionee's estate or by
a person who acquired the right to exercise the Option by bequest or
inheritance. If, after an Optionee's death, the Optionee's estate or a person
who acquired the right to exercise the Option by bequest or inheritance is not
entitled to exercise the entire Option, the shares covered by the unexercisable
portion of the Option shall revert to the Plan. If, after death, the Optionee's
estate or a person who acquired the right to exercise the Option by bequest or
inheritance does not exercise the Option within the time specified herein, the
Option shall terminate, and the Shares covered by such Option shall revert to
the Plan.
7.4 Leave of Absence. Unless otherwise provided in the applicable
------------------
Option Agreement, and to the extent permitted by section 422 of the Code, an
Optionee's employment shall not be deemed to terminate by reason of sick leave,
military leave or other leave of absence approved by the Company if the period
of any such leave does not exceed a period approved by the Company, or such
longer period, if any, for which the Optionee's right to reemployment by the
Company is guaranteed either contractually or by statute; provided, however,
that, with respect to Incentive Options, a leave of absence or other change in
the employee-employer relationship shall constitute a Termination of Employment
if, and to the extent that, such leave of absence or other change interrupts
employment for the purposes of section 422(a)(2) of the Code and the
then-applicable regulations and revenue rulings under said section. Unless
otherwise determined by the Administrator in its discretion, vesting of options
shall be suspended during a leave of absence.
7.5 Repurchase of Shares. Shares of Common Stock issuable upon exercise
--------------------
of Options are subject to the following repurchase rights:
(a) Company's Right to Repurchase on Termination of Employment.
Any Optionee who holds shares of Common Stock acquired pursuant to the exercise
of an Option shall be required to sell such shares to the Company upon
termination of employment with the Company. Such repurchase shall be made in
cash within ninety days after the date of termination of employment.
(b) Purchase Price. The price the Company shall pay for any
purchases of shares of Common Stock pursuant to this section 7.5 shall be the
Fair Market Value as defined in section 2.1(1).
(c) Right of Designation. Should the Company at any time have the
right to purchase shares of Common Stock obtained upon exercise of Options, and
the Company at that time is unwilling or unable to effect that repurchase, the
Company may designate that the Company's then-existing shareholders may purchase
those shares, pro-rata among all the shareholders desiring to purchase those
shares, for the purchase price set forth in this section 7.5.
(d) Termination of Repurchase Rights. The repurchase rights in
this section 7.5 shall terminate and be of no further force or effect upon the
effectiveness of a registration statement, covering the Company's Common Stock,
filed by the Company under the Securities Act of 1933.
10
8. TRANSFERABILITY OF OPTIONS
8.1 Options Generally Nontransferable. Except as provided in section
-----------------------------------
8.2 hereof, each Option shall, by its terms, be nontransferable by the Optionee
other than by will or the laws of descent and distribution and shall be
exercisable during the Optionee's lifetime only by the Optionee or by his or her
guardian or legal representative. More particularly, but without limiting the
generality of the immediately preceding sentence, an Option may not be assigned,
transferred, pledged or hypothecated (whether by operation of law or otherwise),
and shall not be subject to execution, attachment or similar process. Any
attempted assignment, transfer, pledge, hypothecation or other disposition of
any Option contrary to the provisions of the Plan and the applicable Option
Agreement, and any levy of any attachment or similar process upon an Option,
shall be null and void, and otherwise without effect, and the Administrator may,
in its sole discretion, upon the happening of any such event, terminate such
Option forthwith.
8.2 Permitted Transfers. In the discretion of the Administrator and
--------------------
subject to Applicable Laws, an Incentive Option may be transferred by the
Optionee to a revocable living trust of which the Optionee is the grantor and a
principal beneficiary. In the discretion of the Administrator and subject to
Applicable Laws, a Nonstatutory Option may be transferred by the Optionee (a) by
gift or otherwise to the Optionee's spouse or other immediate relative, or to a
trust or estate in which the Optionee or his or her spouse or other immediate
relative has a substantial beneficial interest, or (b) pursuant to a qualified
domestic relations order (as defined by the Code). However, any Incentive Option
or Nonstatutory Option so transferred shall continue to be subject to all the
terms and conditions contained in the Option Agreement evidencing such Option.
8.3 Restricted Securities. The Options granted under the Plan are, and
----------------------
the Common Stock issuable upon exercise of the Options will be, characterized as
"restricted securities" under the federal securities laws inasmuch as they are
being acquired from the Company in a transaction not involving a public
offering. Under such laws and applicable regulations the Common Stock may only
be (a) sold pursuant to an effective registration statement filed under the
Securities Act of 1933 (the "Act"), or (b) sold without registration under only
in certain limited circumstances, as set forth in Rule 701 and Rule 144
promulgated under the Act.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION, DISSOLUTION, MERGER OR ASSET
SALE
9.1 Changes in Capitalization. Subject to any required action by the
---------------------------
stockholders of the Company, the number of shares of Common Stock covered by
each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon surrender or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the
Administrator, whose determination in this respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option.
11
9.2 Dissolution or Liquidation. In the event of the proposed
----------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it will terminate immediately prior to the
consummation of such proposed action. The Administrator may, in the exercise of
its sole discretion in such instances, declare that any Option shall terminate
as of a date fixed by the Administrator and give each Optionee the right to
exercise his or her Option as to all or any part of the Common Stock covered
thereby, including shares as to which the Option would not otherwise be
exercisable.
9.3 Merger or Sale of Assets. In the event of a merger of the Company
--------------------------
with or into another corporation in which the Company is not the surviving
entity, or the sale of substantially all of the assets of the Company, each
outstanding Option shall be assumed or an equivalent Option substituted by the
successor corporation or any Affiliate of the successor corporation. In the
event that the successor corporation refuses to assume or substitute for the
Option, the Optionee shall have the right to exercise the Option as to all of
the shares covered thereby, including shares as to which it would not otherwise
be exercisable. If an Option is exercisable in lieu of assumption or
substitution in the event of a merger or sale of assets, the Administrator shall
notify the Optionee that the Option shall be fully exercisable for a period of
less than 15 days from the date of such notice, and the Option shall terminate
upon the expiration of the period specified in such notice.
9.4 Fractional Shares. No fractional share of Common Stock shall be
------------------
issued under the Plan on account of any adjustment under any provision of this
section 9.
10. DATE OF GRANT AND EXERCISE
10.1 Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination to grant
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
10.2 Date of Exercise. An Option shall be deemed to be exercised when
the Secretary of the Company receives written notice from the Optionee of such
exercise, payment of the exercise price determined pursuant to section 6.4
hereof and set forth in the Option Agreement, and all representations,
indemnifications and documents reasonably requested by the Administrator.
10.3 Issuance of Share Certificates. The Company shall not be required
to issue or deliver any certificate or certificates for shares of Common Stock
purchased upon the exercise of any Option or portion thereof prior to
fulfillment of all of the following conditions:
(a) the admission of such shares to listing on all stock exchanges
on which such class of stock is then listed;
(b) the completion of any registration or other qualification of
such shares under any state or federal law, or under the rules or regulations of
the Securities and Exchange Commission or any other governmental regulatory body
which the Administrator shall, in its absolute discretion, deem necessary or
advisable;
(c) the obtaining of any approval or other clearance from any
state or federal governmental agency which the Administrator shall, in its
absolute discretion, determine to be necessary or advisable;
12
(d) the lapse of such reasonable period of time following the
exercise of the Option as the Administrator may establish from time to time
solely for reasons of administrative convenience; and
(e) the receipt by the Company of full payment for such shares,
including payment of any applicable withholding tax.
10.4 Rights of Optionees and Beneficiaries. The Company shall pay all
---------------------------------------
amounts payable hereunder only to the Optionee or beneficiaries entitled thereto
pursuant to the Plan. The Company shall not be liable for the debts, contracts
or engagements of any Optionee or his or her beneficiaries, and rights to cash
payments under the Plan may not be taken in execution by attachment or
garnishment, or by any other legal or equitable proceeding while in the hands of
the Company.
10.5 Government Regulations. The Plan, and the grant hereunder and
-----------------------
exercise of Options and the issuance and delivery of shares of Common Stock
subject to Options, shall be subject to compliance with all applicable federal
and state laws, rules and regulations (including but not limited to state and
federal securities law) and federal margin requirements and to such approvals by
any listing, regulatory or governmental authority as may, in the opinion of
counsel for the Company, be necessary or advisable in connection therewith. Any
securities delivered under the Plan shall be subject to such restrictions, and
the person acquiring such securities shall, if requested by the Company, provide
such assurances and representations to the Company as the Company may deem
necessary or desirable to assure compliance with all applicable legal
requirements.
11. LIABILITY OF COMPANY
11.1 Absence of Authority. The inability of the Company to obtain
----------------------
authority from any regulatory body having jurisdiction, which authority is
deemed by the Company's counsel to be necessary to the lawful issuance and sale
of any shares of Common Stock hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such shares as to which.
such requisite authority shall not have been obtained.
11.2 Grants in Excess of Available Shares. If shares of Common Stock
---------------------------------------
covered by an Option exceeds, as of the date of grant, the number of shares
which may be issued under the Plan without additional stockholder approval, such
Option shall be void with respect to such excess shares, unless stockholder
approval of an amendment sufficiently increasing the number of shares subject to
the Plan is timely obtained in accordance with section 12 .2(c) hereof.
12. EFFECTIVE DATE; AMENDMENT AND TERMINATION
12.1 Effective Date. The Plan shall be effective as of the date of its
---------------
adoption by the Board, provided it is approved by the stockholders of the
Company within twelve months before or after such date. Options may be granted
but not exercised prior to stockholder approval of the Plan. If any Options are
so granted and stockholder approval shall not have been obtained within twelve
months of the date of adoption of this Plan by the Board, such Options shall
terminate retroactively as of the date they were granted.
13
12.2 Amendment: Termination.
-----------------------
(a) The Plan shall terminate automatically as of the earlier of(l)
the sale of all shares available for issuance under the Plan, (2) the close of
business on the day preceding the tenth anniversary date of its adoption by the
Board, or (3) earlier as provided below.
(b) The Administrator may at any time suspend, amend or terminate
the Plan and may, with the consent of an Optionee, make such modifications of
the terms and conditions of such Optionee's Option as it shall deem advisable.
No Option may be granted during any suspension of the Plan or after such
termination. The amendment, suspension or termination of the Plan shall not,
without the consent of the Optionee affected thereby, alter or impair any rights
or obligations under any Option theretofore granted under the Plan.
(c) The Company shall obtain stockholder approval of any Plan
amendment to the extent necessary and desirable to comply with Rule 1 6b-3 under
the Exchange Act or section 422 of the Code (or any successor rule or statute or
other Applicable Law, including the requirements of any exchange or quotation
system on which the Common Stock is listed or quoted). Such stockholder
approval, if required, shall be obtained in such a manner and to such a degree
as the Administrator determines is required by Applicable Laws
(d) Notwithstanding anything to the contrary contained herein, the
Plan shall terminate on the earlier to occur of the tenth (10th) anniversary of
the date it is (i) adopted by the Board or (ii) approved by the Stockholders.
13. MISCELLANEOUS
13.1 Rights and Privileges of Stock Ownership: Investment Intent. An
--------------------------------------------------------------
Optionee shall not be entitled to the rights and privileges of stock ownership
as to any shares of Common Stock not actually issued to the Optionee. Upon
exercise of an Option at a time when there is not in effect under the Securities
Act a Registration Statement relating to the Common Stock issuable upon exercise
or payment therefor and available for delivery a Prospectus meeting the
requirements of section 10(a)(3) of the Securities Act, the Optionee shall
represent and warrant in writing to the Company that the shares purchased are
being acquired for investment and not with a view to the distribution thereof.
13.2 Reports to Optionees. The Company shall furnish to each Optionee
----------------------
under the Plan the Company's annual report and such other periodic reports, if
any, as are disseminated by the Company in the ordinary course to its
stockholders. Notwithstanding the immediately preceding sentence, the Company
shall furnish its financial statements to each Optionee at least annually.
13.3 Legend Conditions. The following legends shall be placed on the
------------------
certificates evidencing the shares of Common Stock issued upon exercise of an
Option:
(a) THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED ('ACT'), OR
APPLICABLE STATE SECURITIES LAWS, NOR THE SECURITIES LAWS OF
ANY OTHER JURISDICTION. THEY MAY NOT BE SOLD OR TRANSFERRED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER
THOSE SECURITIES LAWS OR AN OPINION OF COUNSEL, SATISFACTORY
TO THE COMPANY, THAT THE SALE OR TRANSFER IS PURSUANT TO
AN EXEMPTION TO THE REGISTRATION REQUIREMENTS OF THOSE
SECURITIES LAWS.
14
(b) THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
CERTAIN RIGHTS OF REPURCHASE AS SET FORTH IN THE COMPANY'S
1998 STOCK OPTION PLAN.
(c) Any legend require by the state securities laws of the state
or other jurisdiction in which an Optionee resides.
Additionally, and not by way of limitation, the Administrator may impose such
restrictions on any Common Stock issued pursuant to the Plan as it may deem
advisable, including, without limitation, restrictions under the requirements of
any stock exchange upon which Common Stock is then traded. At such time as the
Company's shares are publicly traded, the Administrator shall seek advice of
counsel as to whether the legends listed above may be removed from the stock
certificates.
13.4 Use of Proceeds. Proceeds realized pursuant to the exercise of
-----------------
Options shall constitute general finds of the Company.
13.5 Governing Law. The Plan shall be governed by, and construed in
--------------
accordance with the internal laws of the State of California (without giving
effect to conflicts of law principles).
* * *
15
CBCOM, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the day of , by and between
-------- -------------
CBCom, Inc. (the "Company"), and---------------------------------------------
("Optionee").
W I T N E S S E T H
-------------------
WHEREAS, pursuant to the CBCom, Inc. 1998 Stock Option Plan (the "Stock
Option Plan"), the Plan Administration Committee of the Board of Directors of
the Company (the "Administrator") has authorized the granting to Optionee of an
Incentive Option to purchase the number of shares of Common Stock of the Company
specified in Paragraph 1 hereof, at the exercise price specified therein, such
option to be for the term and upon the terms and conditions hereinafter stated;
NOW, THEREFORE, in consideration of the promises and of the undertakings of
the parties hereto contained herein, it is hereby agreed:
1. Number of Shares: Option Price. Pursuant to said action of the
----------------------------------
Administrator, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of said Stock Option
Plan,, all or any part of shares of Common Stock of the Company for
---------
cash or Common Stock of the Company at the exercise price of $ per share
------
("Exercise Price").
2. Terms. This Option shall expire on the day before the tenth
-----
anniversary (fifth anniversary if Optionee owns more than 10% of the voting
stock of the Company, a Parent or a Subsidiary on the date of this Agreement) of
the date hereof unless such Option shall have been terminated prior to that date
in accordance with the provisions of the Stock Option Plan or this Agreement.
The terms "Parent" and "Subsidiary" herein mean a parent corporation or a
subsidiary corporation, as such terms are defined in the Stock Option Plan.
3. Vesting. This Option shall vest as follows:
-------
After the Option vests, it shall thereafter remain wholly exercisable until and
including the day before the tenth anniversary (fifth anniversary if Optionee
owns more than 10% of the voting stock of the Company, a Parent or a Subsidiary
on the date of this Agreement) of the date hereof, provided that Optionee is
then and has continuously been in the employ of the Company, a Parent or a
Subsidiary; subject, however, to the provisions of Paragraph 5 hereof.
4. Exercise. The Option may be exercised by written notice delivered to
--------
the Company stating the number of shares with respect to which the Option is
being exercised, together with (i) the Exercise Price for the number of options
being exercised (in the consideration therefor contemplated by Section 6.4 of
the Stock Option Plan, including by means of a check made payable to the Company
and/or shares of Common Stock of the Company in the amount of the purchase price
of such shares) and (ii) the written statement provided for in Paragraph 9
hereof, if required by said Paragraph 9. Not less than ten (10) shares may be
purchased at any one time unless the number purchased is the total number
purchasable under such Option at the time. Only whole shares may be purchased.
5. Exercise on Termination of Employment. In the event Optionee's
-----------------------------------------
employment is terminated, Optionee's right to exercise his Option, if any, shall
be governed by Section 7 of the Stock Option Plan.
6. Nontransferability. This Option may not be assigned or transferred
------------------
except by will or by the laws of descent and distribution, and may be exercised
only by Optionee during his lifetime and after his death, by his representative
or by the person entitled thereto under his will or the laws of intestate
succession.
7. Optionee Not a Shareholder. Optionee shall have no rights as a
-----------------------------
shareholder with respect to the Common Stock of the Company covered by the
Option until the date of issuance of a stock certificate or stock certificates
to him upon exercise of the Option. No adjustment will be made for dividends or
other rights for which the record date is prior to the date such stock
certificate or certificates are issued, except as provided in Section 9 of the
Stock Option Plan.
8. Modification and Termination. The rights of Optionee are subject to
-----------------------------
modification and termination in certain events as provided in Sections 7 and 9
of the Stock Option Plan.
9. Restrictions on Sale of Shares.
----------------------------------
(a) Securities Laws Restrictions. Optionee understands that the
------------------------------
Options granted under the Plan are, and the Common Stock issuable upon exercise
of the Options will be, characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering. Under such laws and applicable
regulations the Common Stock may only be (a) sold pursuant to an effective
registration statement filed under the Securities Act of 1933 (the "Act"), or
(b) sold without registration under only in certain limited circumstances, as
set forth in Rule 701 and Rule 144 promulgated under the Act. In this
connection, Optionee represents and warrants to the Company that Optionee is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act. Accordingly, Optionee represents and
agrees that upon his exercise of the Option, in whole or in part, unless there
is in effect at that time under the Securities Act of 1933, as amended, a
registration statement relating to the shares issued to him, or an exemption
from registration requirements under Rule 701 or otherwise, he will acquire the
shares issuable upon exercise of this Option for the purpose of investment and
not with a view to their resale or further distribution, and that upon such
exercise thereof he will furnish to the Company a written statement to such
effect, satisfactory to the Company in form and substance. Optionee agrees that
any certificate issued upon exercise of this Option may bear a legend indicating
that the transferability of the shares represented thereby is restricted in
accordance with applicable state and federal securities law. Any person or
persons entitled to exercise this Option under the provisions of Paragraphs 5
and 6 hereof shall, upon each exercise of the Option under circumstances in
which Optionee would be required to furnish such a written statement, also
furnish to the Company a written statement to the same effect, satisfactory to
the Company in form and substance.
(b) Repurchase Rights. Shares of Common Stock acquired pursuant to
-----------------
the exercise of an Option are subject to certain repurchase rights of the
Company, and under certain conditions may or must be sold to the Company or the
Company's designees as set forth in Section 7 of the Plan.
10. Plan Governs. This Agreement and the Option evidenced hereby are
-------------
made and granted pursuant to the Stock Option Plan and are in all respects
limited by and subject to the express terms and provisions of that Plan, as it
may be amended from time to time and construed by the Administrator. It is
intended that this Option shall qualify as an incentive stock option as defined
by Section 422 of the Code, and this Agreement shall be construed in a manner
which will enable this Option to be so qualified. Optionee hereby acknowledges
receipt of a copy of the Stock Option Plan.
11. Notices. All notices to the Company shall be addressed to the
-------
Administrator at CBCom, Inc., 15260 Ventura Blvd., Suite 1200, Sherman Oaks, CA
91403, and all notices to Optionee shall be addressed to Optionee at the address
of Optionee set forth below, or to such other address as either may designate to
the other in writing. A notice shall be deemed to be duly given if and when
enclosed in a properly addressed sealed envelope deposited, and sent by
certified mail, return receipt requested, with the United States Postal Service.
In lieu of giving notice by mail as aforesaid, written notices under this
Agreement may be given by personal delivery to Optionee or to the Administrator
(as the case may be).
12. Sale or Other Disposition. Optionee understands that, under current
-------------------------
law, beneficial tax treatment resulting from the exercise of this Option will be
available only if certain requirements of the Code are satisfied, including
without limitation, the requirement that no disposition of shares of Common
Stock of the Company acquired pursuant to exercise of this Option be made within
two years from the grant date or within one year after the transfer of such
shares to him or her. If Optionee at any time contemplates the disposition
(whether by sale, gift, exchange, or other form of transfer) of any shares
acquired by exercise of this Option, he or she will first notify the Company in
writing of such proposed disposition and cooperate with the Company in complying
with all applicable requirements of law, which, in the judgment of the Company,
must be satisfied prior to such disposition. In addition to the foregoing,
Optionee hereby agrees that if Optionee disposes (whether by sale, exchange,
gift, or otherwise) of any of the shares acquired by exercise of this Option
within two years of the grant date or within one year after the transfer of such
shares to Optionee upon exercise of this Option, then Optionee shall notify the
Company of such disposition in writing within 30 days after the date of such
disposition. Said written notice shall state the date of such disposition, and
the type and amount of the consideration received for such share or shares by
Optionee in connection therewith. In the event of any such disposition, the
Company shall have the right to require Optionee to immediately pay the Company
the amount of taxes (if any) which the Company is required to withhold under
federal andlor state law as a result of the granting or exercise of the subject
Option in the disposition of the subject shares.
13. Option Not an Employment Contract. Neither this Agreement, nor the
----------------------------------
grant of the Option hereunder to Optionee, constitutes or shall be construed as
a contract or agreement for continuing employment or services with the Company.
Any rights to employment or the rendering of services shall be governed by a
separate agreement. This Agreement does riot constitute a waiver by the Company
of any rights of the Company under any agreement of employment the Company may
have at any time with Optionee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
CBCom, Inc.
CBCom, Inc.
By:
-------------------------
Name:
Title:
OPTIONEE:
----------------------------
Name:
Address:
----------------------------
----------------------------
----------------------------
CBCOM, INC.
NONSTATUTORY STOCK OPTION AGREEMENT
THIS AGREEMENT is made as of the day of , by and between CBCom,
------ ---------
Inc. (the "Company"), and ("Optionee").
---------------------------
W I T N E S S E T H
-------------------
WHEREAS, pursuant to the CBCom, Inc. 1998 Stock Option Plan (the "Stock
Option Plan'), the Plan Administration Committee of the Company's Board of
Directors (the "Administrator") has authorized the granting to Optionee of a
Nonstatutory Option to purchase the number of shares of Common Stock of the
Company specified in Paragraph 1 hereof, at the exercise price specified
therein, such option to be for the term and upon the terms and conditions
hereinafter stated;
NOW, THEREFORE, in consideration of the promises and of the undertakings of
the parties hereto contained herein, it is hereby agreed:
1. Number of Shares: Option Price. Pursuant to said action of the
----------------------------------
Administrator, the Company hereby grants to Optionee the option ("Option") to
purchase, upon and subject to the terms and conditions of said Stock Option
Plan, all or any part of shares of Common Stock of the Company for
---------
cash or Common Stock of the Company at the exercise price of $ per
share ("Exercise Price"). ---------
2. Term. This Option shall expire on the day before the tenth
----
anniversary of the date hereof unless such Option shall have been terminated
prior to that date in accordance with the provisions of the Stock Option Plan or
this Agreement. The terms "Parent" and "Subsidiary" herein mean a parent
corporation or a subsidiary corporation, as such terms are defined in the Stock
Option Plan.
Vesting. This Option shall vest as follows:
-------
- --------------------------------------------------------------------------------
After the Option vests, it shall thereafter remain wholly exercisable until and
including the day before the tenth anniversary of the date hereof, provided that
Optionee is then and has continuously been in the employ of the Company, a
Parent or a Subsidiary; subject, however, to the provisions of Paragraph 5
hereof.
4. Exercise. The Option may be exercised by written notice delivered to
--------
the Company stating the number of shares with respect to which the Option is
being exercised, together with (i) the Exercise Price for the number of Options
being exercised (in the consideration therefor contemplated by Section 6.4 of
the Stock Option Plan, including by means of a check made payable to the Company
and/or shares of Common Stock of the Company in the amount of the Exercise
Price) plus the amount of applicable federal, state and local withholding taxes
and (ii) the written statement provided for in Paragraph 9 hereof, if required
by said Paragraph 9. Not less than ten (10) shares may be purchased at any one
time unless the number purchased is the total number purchasable under such
Option at the time. Only whole shares may be purchased.
5. Exercise on Termination of Employment. If Optionee shall cease to be
-------------------------------------
a(n) (insert employee, director, etc.) of the Company, a Parent
--------------
or a Subsidiary, Optionee's right to exercise his Option, if any, shall be
governed by Section 7 of the Stock Option Plan.
6. Nontransferability. Except as otherwise permitted by Section 8 of
------------------
the Stock Option Plan, the Option may not be assigned or transferred.
7. Optionee Not a Shareholder. Optionee shall have no rights as a
-----------------------------
shareholder with respect to the Common Stock of the Company covered by such
Option until the date of issuance of a stock certificate or stock certificates
to him upon exercise of the Option. No adjustment will be made for dividends or
other rights for which the record date is prior to the date such stock
certificate or certificates are issued, except as provided in Section 9 of the
Stock Option Plan.
s
8. Modification and Termination. The rights of Optionee are subject to
-----------------------------
modification and termination in certain events as provided in Sections 7 and 9
of the Stock Option Plan.
9. Restrictions on Sale of Shares.
----------------------------------
(a) Securities Laws Restrictions. Optionee understands that the
------------------------------
Options granted under the Plan are, and the Common Stock issuable upon exercise
of the Options will be, characterized as "restricted securities" under the
federal securities laws inasmuch as they are being acquired from the Company in
a transaction not involving a public offering. Under such laws and applicable
regulations the Common Stock may only be (a) sold pursuant to an effective
registration statement filed under the Securities Act of 1933 (the "Act"), or
(b) sold without registration under only in certain limited circumstances, as
set forth in Rule 701 and Rule 144 promulgated under the Act. In this
connection, Optionee represents and warrants to the Company that Optionee is
familiar with SEC Rule 144, as presently in effect, and understands the resale
limitations imposed thereby and by the Act. Accordingly, Optionee represents and
agrees that upon his exercise of the Option, in whole or in part, unless there
is in effect at that time under the Securities Act of 1933, as amended, a
registration statement relating to the shares issued to him, or an exemption
from registration requirements under Rule 701 or otherwise, he will acquire the
shares issuable upon exercise of this Option for the purpose of investment and
not with a view to their resale or further distribution, and that upon such
exercise thereof he will furnish to the Company a written statement to such
effect, satisfactory to the Company in form and substance. Optionee agrees that
any certificate issued upon exercise of this Option may bear a legend indicating
that the transferability of the shares represented thereby is restricted in
accordance with applicable state and federal securities law. Any person or
persons entitled to exercise this Option under the provisions of Paragraphs 5
and 6 hereof shall, upon each exercise of the Option under circumstances in
which Optionee would be required to furnish such a written statement, also
furnish to the Company a written statement to the same effect, satisfactory to
the Company in form and substance.
(b) Repurchase Rights. Shares of Common Stock acquired pursuant to
-----------------
the exercise of an Option are subject to certain repurchase rights of the
Company, and under certain conditions may or must be sold to the Company or the
Company's designees as set forth in Section 7 of the Plan.
10. Plan Governs. This Agreement and the Option evidenced hereby are
-------------
made and granted pursuant to the Stock Option Plan and are in all respects
limited by and subject to the express terms and provisions of that Plan, as it
may be amended from time to time and construed by the Administrator. Optionee
hereby acknowledges receipt of a copy of the Stock Option Plan.
11. Notices. All notices to the Company shall be addressed to the
-------
Administrator at CBCom, Inc., 15260 Ventura Blvd., Suite 1200, Sherman Oaks, CA
91403, and notices to Optionee shall, be addressed to Optionee at the address of
Optionee set forth below, or to such other address as either may designate to
the other in writing. A notice shall be deemed to be duly given if and when
enclosed in a properly addressed sealed envelope, sent via certified mail,
return receipt requested, postage prepaid, with the United States Postal
Service. In lieu of giving notice by mail as aforesaid, written notice under
this Agreement may be given by personal delivery to Optionee or to the
Administrator (as the case may be).
12. Sale or Other Disposition. If Optionee at any time contemplates the
-------------------------
disposition (whether by sale, gift, exchange, or other form or transfer) of any
shares acquired by exercise of this Option, he or she will first notify the
Company in writing of such proposed disposition and cooperate with the Company
in complying with all applicable requirements of law, which, in the judgment of
the Company, must be satisfied prior to such disposition.
13. Option Not an Employment Contract. Neither this Agreement, nor the
----------------------------------
grant of the Option hereunder to Optionee, constitutes or shall be construed as
a contract or agreement for continuing employment or services with the Company.
Any rights to employment or the rendering of services shall be governed by a
separate agreement. This Agreement does not constitute a waiver by the Company
of any rights of the Company under any agreement of employment the Company may
have at any time with Optionee.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
CBCom, Inc.
By:
--------------------------
Name:
Title:
OPTIONEE:
--------------------------
Name:
Address:
--------------------------
--------------------------
--------------------------
Exhibit 10.2
July 18, 1997
Mr. Charles Lesser
5801 Serrania Avenue
Woodland Hills, CA 91367
Dear Charles,
I am pleased to confirm your employment with Celestial Based Communications
CBCom, Inc. as a member of our senior management. Effective 16,1997, you will
fill the position of Vice President for Business Development and Chief Financial
Officer for CBCom, Inc. You may be assigned other positions, titles and
responsibilities from time to time.
In your primary position with CBCom, Inc. you will be expected to, among other
things, (1) carrying out fiscal and accounting responsibilities of the company
and its projects, (2) develop project and business plans, (3) raise capital to
finance the company and its projects, and at the direction of the Chief
Executive Officer, (4) maintain the financial viability of the company, in
addition to other duties the Chief Executive Officer may assign.
Your base pay will be $150,000 per year, paid in send-monthly increments.
Annual performance bonus payments, If any, shall be at the discretion of the
Chief Executive Officer. All bonuses are discretionary. Your salary hall be
increased on your twelve month anniversary by amount of the increase In the Los
Angeles-Anaheim-Riverside, California Consumer Index for all Urban Consumers as
reported for the Immediately preceding December 31st by the Bureau of Labor
Statistics of the US Department of Labor, has increased over the level at March
31, 1.997 and subsequent annual March 31st reference dates.
You will be allowed an option to purchase two percent of the companies stock at
par value. In addition you will be awarded an option to purchase two percent of
the companies stock, one percent to vest on each anniversary of service. The
executive committee of the board will determine the terms. It is also
anticipated that the company will make future offerings of securities and you
may be rewarded for your efforts at the discretion of the Chief Executive
Officer subject to whatever concurrence policies are established by the board.
You will be eligible to participate in deferred compensation plans, yet to be
developed, which serve essential executives. You will be eligible to participate
in a company 401K plan pursuant to the rules and requirements of such a plan.
You will be bound by company policies and procedures as prescribed by the
company policy handbook at such time and as adopted by the Board of Directors.
You will be covered by life insurance at two times your annual earnings and will
be provided accidental death and dismemberment coverage equal to two times your
salary. You will be eligible to participate in the company health plan,
including medical and dental coverage with your deductibles reimbursed by the
company. You will be entitled to four weeks of vacation and a minimum often
paid holidays per year. Sick days will accrue at the rate of one per month to a
maximum of 40 days. You shall receive a monthly car allowance of $500.
The term of this agreement shaft be for two years, extended thereafter on an
annual basis by notification of the Chief Executive Officer on or before April
15 of each year. You may be terminated for cause which Is defined as commission
of a misdemeanor or felony, or non-performance of your duties as assigned, or
neglect, which In either case has not, In the sole judgment of the Chief
Executive Officer, been cured after 30 days prior written notice. If this
agreement Is terminated for any reason other than cause, you will be given a
severance payment equal to four.(4) month's compensation.
Should a dispute arise regarding the terms of your employment, It shall be
resolved by final and binding arbitration. In California in accordance with the
arbitration procedures of the American Arbitration Association.
Signed and accepted, Signed and accepted,
- ----------------------- ------------------------------------
Charles Lesser Bernard J. Luskin, Chairman and CEO
- ----------------------
Date
MAX SUN
PRESIDENT AND CHIEF OPERATIONS OFFICER
APRIL 21, 1999
MR. CHARLES A. LESSER
5801 SERRANIA AVENUE
WOODLAND HILLS, CA 91367
RE: EMPLOYMENT AGREEMENT
DEAR CHARLES,
YOUR ORIGINAL EMPLOYMENT AGREEMENT DATED JULY 18, 1997 WAS FOR A PERIOD A TWO
YEARS FROM JUNE 16, 1997 THROUGH JUNE 15, 1999.
ACCORDING TO THE NOTICE PROVISION CONTAINED IN THE AGREEMENT, WE HEREBY EXTEND
THE AGREEMENT FOR ONE ADDITIONAL YEAR THROUGH JUNE 15, 2000.
SIGNED AND ACCEPTED, SIGNED AND ACCEPTED,
- ------------------- ------------------
CHARLES A. LESSER MAX SUN,PRESIDENT
- ------------------
DATE
Exhibit 10.3
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
APPLICABLE STATE SECURITIES LAWS, NOR THE SECURITIES LAWS OF ANY OTHER
JURISDICTION. IT MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THOSE SECURITIES LAWS
OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS
NOT REQUIRED.
CBCOM, INC.
Convertible Promissory Note
Due April 24, 2000
Date: April 24, 1998
$43,956.17 (plus additional Loaned Funds)
CBCOM, INC., (the "Company'", a Delaware corporation, for value received,
hereby promises to pay to Max Sun ("Lender"), the amount of the Loaned Funds (as
defined below) unpaid and outstanding from time to time, with interest on the
unpaid balance of such principal amount as described below. The full unpaid
principal amount of the Loaned Funds plus interest will be due and payable on
April 24, 2000 (the "Maturity Date"). Payment of interest and principal shall be
made in lawful money of the United States of America at the principal office of
the Lender or at such other place as the Lender shall have designated to the
Company in writing. In the event the Maturity Date is not a business day in Los
Angeles, California, payment shall be made on the next succeeding business day.
1. Loaned Funds. Lender has extended credit to the Company, and is
-------------
expected to continue to extend credit to the Company ("Loan"), which Loan is
evidenced by this Note. The principal amount of the Loan shall include (a) the
initial loan of $43,956.17, and (b) any other loans or advances Lender agrees,
in its sole discretion, to make to the Company that are not covered by any other
agreement between the Company and Lender. Each month that Lender makes advances
or loans to the Company, the Company shall enter the amount of those advances or
loans at Exhibit A of this Note, and shall have Lender acknowledge that
installment on that exhibit. The aggregate of unpaid loans and advances listed
on Exhibit A from time to time shall be referred to as "Loaned Funds."
2. Interest. This Note shall bear interest at the rate of seven
---------
percent (7%) per annum on the unpaid principal balance of Loaned Funds
outstanding from time to time. Interest will commence on any installment of
Loaned Funds from the date set forth in Exhibit A, and continue through the date
on which such unpaid principal balance is repaid in frill. Throughout the term
of this Note, interest shall be calculated on the basis of a 365-day year and
shall be computed for the actual number of days in the period for which interest
is charged.
3. Conversion.
----------
3.1 Conversion Rights. The unpaid principal amount of this Note
------------------
may be converted into shares of the Company's Common Stock, at the election of
the Lender, at any time prior to the close of business on the business day prior
to the Maturity Date, at the conversion price of $0.50 per share, as may be
adjusted in accordance with section 4 hereof (such conversion price, as so
adjusted and in effect at any time, herein called the "Conversion Price"), into
the number of fully paid and nonassessable shares of the Company's Common Stock
determined by dividing the principal amount to be so converted by the Conversion
Price in effect at the time of such conversion. If the Lender converts some or
all of this Note from time to time, he shall be entitled to receive the interest
accrued to the conversion date on that portion of this Note so converted, in
cash or in stock at the Company's option.
3.2 Notice of Conversion; New Note. This Note may be converted in
-------------------------------
full or in part by the Lender prior to the Maturity Date by surrender of this
Note with the notice of conversion annexed hereto duly executed by Lender
(specifying the portion of the principal amount thereof to be converted in the
case of a partial conversion) to the Company. Upon any partial conversion of
this Note, the Company will make the appropriate entry evidencing such partial
conversion at Exhibit A, and the amount of principal and interest (if any)
represented by such conversion shall be reduced from the then-outstanding amount
of Loaned Funds. Each conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which this Note and
notice of conversion shall have been so surrendered to the Company.
3.3 Delivery of Stock Certificates; Fractional Shares. As promptly
-------------------------------------------------
as practicable after the conversion of this Note in full or in part, and in any
event within 30 days thereafter, the Company at its expense will issue and
deliver to the Lender a certificate or certificates for the number of full
shares of Common Stock issuable upon such conversion, plus, in lieu of any
fractional share to which the Lender would otherwise be entitled, cash equal to
such fraction of the Conversion Price.
4. Adjustment of Conversion Price.
---------------------------------
4.1 Adjustments for Stock Splits. etc. In the event the Company
------------------------------------
shall at any time undergo a stock split, stock dividend or other combination or
subdivision that does not involve payment of consideration for such shares, the
Conversion Price in effect immediately prior to such change shall be
proportionately decreased. In the event the Company shall at any time combine
its outstanding Common Stock, the Conversion Price in effect immediately prior
to such combination shall be proportionately increased. Any adjustment shall
become effective at the close of business on the date that such subdivision or
combination shall become effective.
4.2 Certificate as to Adjustments. In the case of each adjustment
------------------------------
or readjustment of the Conversion Price pursuant to this Section 4, the Company
will promptly compute such adjustment or readjustment in accordance with the
terms hereof and cause a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based to be delivered to the Lender.
4.3 Notices. In the event of: (a) any capital reorganization of
-------
the Company, any reclassification or recapitalization of the capital stock of
the Company or any transfer of all or substantially all of the assets of the
Company to any other person or any consolidation or merger involving the
Company, or (b) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company, the Company will mail to the Lender at least 10 days
prior to the earliest date specified therein, a notice specifying the date and a
brief description of the event in question.
4.4 Reservation of Stock Issuable on Conversion. The Company will
--------------------------------------------
at all times prior to the Maturity Date reserve and keep available, solely for
issuance and delivery upon the conversion of this Note, all shares of Common
Stock from time to time issuable upon the conversion of this Note. All shares of
Common Stock issuable upon conversion of this Note shall be duly authorized and,
when issued, validly issued, fully paid and nonassessable.
5. Consolidation. Merger, Sale of Assets, Reorganization, etc. In case
-----------------------------------------------------------
the Company consolidates with or merges into any other corporation and shall not
be the continuing or surviving corporation of such consolidation or merger, the
Company, at its option, may redeem the Note or make proper provision so that the
Lender will upon conversion of this Note receive shares of equity securities of
the surviving entity as nearly equivalent as possible in kind and value to the
Common Stock into which this Note would otherwise be convertible immediately
prior to the date of such consolidation or merger, provided that in the second
case the surviving entity shall agree to remain liable under the Note until such
conversion is finished.
6. Default.
6.1 Events of Default. Each of the following events shall be an
-------------------
Event of Default hereunder: (a) default in the payment of any principal or
interest on the Note when due, continued for 30 days; or (b) if the Company or
any subsidiary shall make an assignment for the benefit of creditors, or shall
file a voluntary petition in bankruptcy, or shall be adjudicated a bankrupt or
insolvent, or shall file any petition or answer seeking for itself any
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any present or future statue, law or regulation, or
shall seek or consent to or acquiesce in the appointment of any trustee,
receiver or liquidator of the Company or of all or any substantial part of the
properties of the Company, or commence voluntary or involuntary dissolution
proceedings. If an event of default under the Note occurs and is continuing for
a period of more than ten days, the Lender of the Note may declare the Note
immediately due and payable.
6.2 Remedies on Default, etc. In case of a default in the payment
-------------------------
of any principal of or interest on this Note, the Company will pay to the Lender
thereof the amount owing together with (a) simple interest at the rate per annum
equal to the lower of (x) 15% and (y) the maximum rate permitted under
applicable law on the amounts past due, and (b) such additional amount as shall
be sufficient to cover the cost and expenses of collection, including, without
limitation, reasonable attorneys' fees, expenses and disbursements. No right,
power or remedy conferred by this Note upon Lender shall be exclusive of any
other right, power or remedy referred to herein or therein or now or hereafter
available at law, in equity, by statute or otherwise.
7. Application of Payment. Payments received by Lender pursuant to the
-----------------------
terms hereof shall be applied in the following manner: First, to the payment of
all out of pocket expenses, charges, costs and fees incurred by or payable to
Lender and for which the Company is obligated pursuant to the terms hereof;
second, to the payment of all interest accrued to the date of such payment; and
third, to the payment of principal. Notwithstanding anything to the contrary
contained herein, after the occurrence and during the continuation of an Event
of Default, all amounts received by Lender from any party shall be applied in
such order as Lender, in its sole discretion, may elect.
8. Amendment of Note. The provisions of this Note may be amended or
-------------------
modified only with written consent of the Company and the Lender.
9. Waiver. The Company hereby waives diligence, presentment, protest
------
and demand, notice of protest, dishonor and nonpayment of this Note and
expressly agrees that, without in any way affecting the liability of the Company
hereunder, Lender may extend any maturity date or the time for payment of any
installment due hereunder, accept additional security, release any party liable
hereunder and release any security now or hereafter securing this Note. The
Company further waives, to the fall extent permitted by law, the right to plead
any and all statutes of limitations as a defense to any demand on this Note.
10. Attorney's Fees. If this Note is not paid when due or if any Event
----------------
of Default occurs, the Company promises to pay all costs of enforcement and
collection, including, but not limited to, Lender's attorney's fees, whether or
not any action or proceeding is brought to enforce the provisions hereof.
11. Severability. Every provision of this Note is intended to be
------------
severable. In the event any term or provision hereof is declared by a court of
competent jurisdiction to be illegal or invalid for any reason whatsoever, such
illegality or invalidity shall not affect the balance of the terms and
provisions hereof, which terms and provisions shall remain binding and
enforceable.
12. Choice of Law. This Note shall be governed by and construed in
---------------
accordance with the laws of the State of California. Any and all disputes
arising under this Note shall be adjudicated in the appropriate court in the
county of Los Angeles, California, and all parties submit to jurisdiction of
such court for resolution of such disputes.
13. Interest Rate Limitation. It is the intent of the Company and
--------------------------
Lender in the execution of this Note and all other instruments securing this
Note that the loan evidenced hereby be exempt from the restrictions of the usury
laws of the State of California. In the event that, for any reason, it should be
determined that the California usury law is applicable to the loan, the Company
and Lender stipulate and agree that none of the terms and provisions contained
herein shall ever be construed to create a contract for the use, forbearance or
detention of money requiring payment of interest at a rate in excess of the
maximum interest rate permitted to be charged by the laws of the State of
California. In such event, if the Lender shall collect monies which are deemed
to constitute interest which would otherwise increase the effective interest
rate on this Note to a rate in excess of the maximum rate permitted to be
charged by the laws of the State of California, all such sums deemed to
constitute interest in excess of such maximum rate shall, at the option of
Lender, be credited to the payment of the sums due hereunder or returned to the
Company.
14. Entire Agreement. This Note constitutes the entire agreement among
-----------------
the parties with regard to the subjects hereof, and supersedes and replaces any
prior or contemporaneous negotiations, discussions, contracts or agreements,
written or oral. The terms and conditions of this Note shall inure to the
benefit of, and be binding upon, the respective successors and assigns of the
parties. Nothing in this Note is intended to confer on any third party any
rights, liabilities or obligations, except as specifically provided.
IN WITNESS WHEREOF, the Company has executed this Note as of the date first
above written.
CBCOM, INC.
By ---------------------
Charles Lesser,
Chief Financial Officer and Secretary
Address: 15260 Ventura Blvd, 12th Floor
Sherman Oaks, California 91403
NOTICE OF CONVERSION
--------------------
[To Be Signed Only Upon Conversion of Note]
TO CBCOM, IN.:
The undersigned, the Lender of the foregoing Note, hereby surrenders such
the Note for conversion into shares of Common Stock CBCOM, inc., to the extent
of $__________unpaid principal amount of such Note, and requests that the
certificates for such shares be issued in the name of, and delivered to
____________, whose address is ________________________.
Dated: __________________.
_______________________________________
(Signature must conform in all respects to name of
Lender as specified on the face of the note.)
________________________________
(Address)
EXHIBIT A
SCHEDULE OF LOANED FUNDS
Date of Loan Amount Notes
- -------------- ------ -----
Exhibit 10.4
Confidential
MEMORANDUM OF UNDERSTANDING
Parties Party A: CBCom Inc.
Party B: Shanghai Stock Exchange Communication Ca
Party C: Shanghai Xingtong Telecommunications Science &
Technology Co. Ltd.
I. COMPANY OVERVIEW
CBCom Inc. is a Los Angeles based high-tech communication and investment firm.
It is especially keen on the design, development, operation and investment
activities surrounding the completion of an intelligent communication network In
addition the firm also provides research and development in accessory items used
by the network such as servers or end user platform. Both the management team
and the technical personnel have extensive experience of constructing and
operating communication networks in North America and Asia. Representative and
branch offices have been set up in Shanghai as well as Beijing.
Shanghai Stock Exchange Communication Co is a joint venture formed by Shanghai
Stock Exchange and Shanghai Stock Central Clearing Company. The staff primarily
came from the department of communications of the Shanghai Stock Exchange. The
company's services largely centers around its two-way satellite system, which
serves as a back up to DDN, to ensure uninterrupted transmission of stock data
and information. The company also provides satellite network related technology
development management and other services. The following systems are part of the
network operation and management projects that the company is currently engaged:
one one-way broadcast satellite system, three two-way satellite systems, one
2000-line switch, Utilizing the above network equipment the company provides
connection to over 2600 brokerages to ensure daily transmission of stock
information.
Shanghai Xingtong Telecommunications Science and Technology, Ltd is a
telecommunications company held by China Broadcast Satellite Communication
Company, which belongs to Ministry of Information Industry. As a subsidiary of
China Broadcast Satellite Communication Company, Xingtong can tap into the
unique satellite resources and operating license owned by China Broadcast
Satellite Communication Company to provide specialized satellite communication
services to its customers. At the present Shanghai Xingtong Telecommunications
Science and Technology, Ltd has helped numerous companies to build national
networks that service thousands of customers. Among them are Hong Kong Digital
Communications Ltd, Shanghai Stock Exchange Communications Ltd, and Zhenzhou
Jicheng Information Technology Ltd. Furthermore, Xingtong has invested in a
joint effort with America based Wood Company to provide wide band digital TV
transmission to ABC, NBC, FOX, HBO, CCFV, STV and other Television related
companies. Xingtong specializes in design as well as construction of
communication networks.
II. OBJECTIVE OF THIS MOU
The aforementioned three parties have used over a year to perform a detailed
research and analysis on the potential and policy with regard to Chinese
Internet market This research reviewed the historical development of the
Internet in other mature markets around the globe such as the United States, and
compiled an enormous database on the content provision services within the
information industry. Consequently, all three parties have reached consensus on
the following areas:
1. The current and future potential of Chinese Internet market
2. The service standard of Shanghai Stock Exchange's satellite network
3. Key factors to building a successful commercial ISP in China
4. Initial concept and proposal for China Financial Network (CFN) as a joint
effort of the three parties
This MOU is hereby to record the consensus to establish a firm foundation for
future cooperation.
III. THE CURRENT AND FUTURE POTENTIAL OF CHINESE INTERNET MARKET
The rise of Internet popularity in the past few has generated an exceptional
growth rate of 162% per annum that astounded the world. With moth than 50
million users, hundreds of billions of dollars of revenue are generated by new
opportunities associated with the Internet. Internet usage has become a key
indicator for national governments in assessing their competitiveness against
other nations in the information industry. Moreover, the Internet has left
indelible marks in reforming the social structure and forced revolutionary
changes. As information technology rapidly develops, information becomes readily
available, which creates a wealth of opportunities while improving qualities of
life. Geographical and economical barriers are broken through the process of
information transfer. The forces of free market will finally champion making all
aspects of life such as employment, education, medicine, easily accessible to
everyone.
The Chinese Internet development came in at a later stage of the global
development Nevertheless is has been growing with an amazing fervor. The
development process can be broken into three phases.
The first phase (199874994) can be called the Email phase. During this period,
Email became a popular communication tool The ability to communicate with
European and North American countries through dial up service and email was
realized. The second phase (1994-1995) began by farther investment from the
Department of Education on the existing education and research network,
astonishingly similar to the early stages of development in the us. TCP/IP
connection was eventually established on this network, thus realizing the full
functionality of the Internet. The third phase (1995 to present) came soon after
Internet became accessible not only to the research and educational institution,
but also to private customers through commercial 151's. In 1998, Chinese
Internet users stood at 1.2 million and is projected to growth at 220% per annum
in the coming years. China has family become an official member of the world
Internet family.
Presently, there are thirteen international gateways in China. They belong to
four networks.
Despite the promising growth, many Chinese Internet users and ISP become
increasingly concerned with the future development of Internet in China. Chinese
Internet development is unique in many aspects. Specifically, Chinese Internet
leapfrogged a number of development stages as the other countries have, such as
PC penetration. It can be said that China Internet came prematurely without all
the necessary infrastructure elements in place. Therefore, Chinese Internet is
missing some basic characteristics of the Internet Yet the demand for further
development and maturity continues to collect momentum. As we examined the
potential of commercial 151's, a set of barriers for continued development of
Chinese Internet becomes evident.
1. High operating expenses:
-------------------------
All ISPs in China that do not belong to China Telecom must pay outrageous
fees for leased lines thus incurring high cost and make it difficult for ISPs to
maintain profitability. International connections are particularly expensive.
DDN lines are charged not only at a monthly rental fee, but also additional
charge according to the amount of information transmissions If an ISP intend to
build a national network, the long distance rental charges are prohibitively
high. This creates the dilemma for many ISPs: they are unable to invest in
expanding the network as the number of customers increases. While line lease
charges only consists of 5% of the total operating cost for a typical ISP in the
US, it often accounts for 70-80% of total operating cost for a ISP in China. The
financial stress leaves very little room for the Chinese ISP to invest in
further development of the network
2. Technology investment
----------------------
The information industry characterizes itself through the close link
between investment and technology. It is projected that Chinese Internet
development will require over 100 billion EMB by year 2000. The investment gap
that many ISP confront is daunting. On the other hand, much of the information
on the Internet is in English. The center of technology development and
application is also located in the US. The insufficient funds and backward
technology caused by language barriers bode ill for the future Chinese Internet
development.
3. Content market opportunities:
------------------------------
Many Chinese Internet portals (with Chinese languages) have been
unsuccessful in attracting customers due to lackluster content design. For
instance, in the US on-line banking, stock trading and purchasing have long
become popular among the users to provide additional convenience to the
customers. Currently, similar Chinese web sites are nearly non-existent As the
content of the Chinese web sites become more aggressive and creative, the market
potential will provide highly lucrative opportunities for ISPs.
IV. THE SERVICE STANDARD OF SHANGHAI STOCK EXCHANGE SATELLITE NETWORK
Shanghai Stock Exchange (SSE) became fully operations in 1990 and is the
largest, most well equipped, and best organized stock exchange in China today
with the widest reach in community (nearly 19 million customers). SSE's daily
transaction volume exceeds 10 million. Furthermore, SSE operates a satellite
network with more than 3100 receiving stations and owns the largest exchange
lobby in Asia.
SSE's satellite system is the most advanced satellite system with the widest
geographical coverage as well as largest customer base in China. It has been
approved and licensed with the right to operate VSAT related services and other
value adding communication services.
SSE's satellite system includes three systems: VAST, SCPC and TDM/TDMA. It also
provides backup for DDN. Since the stock exchange only operates four hours each
day, the utilization of this network is especially low. In addition, the network
offers the following features:
1. Network topology: The main station and the _________. This method of
-----------------
satellite network is beat used for digital communication and exactly meets the
requirement of Internet communication.
2. Network scale: Currently the network covers all Chinese provinces with
--------------
the exception of Taiwan and has 33 key nodes with over 1000 customer connected.
Each of the nodes has comprehensive satellite communication equipment and
capability including switches, and highly competent technical support personnel
3. Price and performance ratio (compare to X.25 and DDN net): Among similar
----------------------------------------------------------
speeds, satellite network is comparable to XIS and DDN net in data transmission
speed. Because XIS and DDN net use fiber optic cables, satellite transmission
incurs a slightly longer delay. However, the delay bears no significance in data
transmission. The error rate of satellite transmission is between 1(P and 108,
which is similar to that of DDN error rate. Moreover, due to the stock
exchange's particular function, a high degree of reliability was required since
the design of the network The SSE network has double backup with automatic
switching capability and has proved to be highly reliable in the last five years
of operation The network survived many severe weather conditions, as well as a
number of market irregularities such as sudden volume surge. The operational
expense comparison is attached as well (based on 64 Kbps):
Satellite network 42,000 RMB/ year
DDN net 145,000 RMB/year
X.25 163,000 RMB/ year
V. KEY FACTORS TO BUILDING A SUCCESSFUL COMMERCIAL ISP IN CHINA
This analysis demonstrates not only the factors that would make a successful
commercial ISP in China, but also why SSE satellite network is especially
fitting for such a task
1. Independent national network: an independent network that does not rely
on the network provided by China Telecom, thus avoiding the outrageous fees and
cost is critical to guarantee profitability for any ISP in China. SSE satellite
network was initially designed and constructed precisely for this objective.
After years of development, the network now operates independent and covers all
regions in China.
2. Substantive customer base: customer base is the livelihood of any ISP.
There are currently 17 million investors who have accounts at SSE. The majority
of these investors receive information and trade from various nodes on the SSE
network. The brokerages are direct customers and the investors constitute one
the most substantive and stable customer base. These investors are prone to
adopt new technology as they are generally more educated than the average
population.
3. Attractive content creative and interesting content is a key to the
success of any ISP. Stock trading has become a focal point in the Chinese
economic life Many industries have tapped into this to generate new commercial
opportunity for themselves. For example, in the last few years, the number of
stock pagers has rocketed through the roof to millions. Real time stock quotes,
information, analyst reports and most of web trading will attract millions to
visit the site.
VI. INITIAL CONCEPT AND PROPOSAL OF CNN AS A JOINT EFFORT
CFN is the ultimate - for the joint effort It will begin more like an Intranet
then expand to become a true Internet From construction to operations there are
two major phases CEN I, CEN II which are detailed as follows:
CFN I: This is a professional Intranet that is based in Hong Kong. The service
- ------
collects and compiles global financial market information with real time stock
data as well as historical data for analysis. Most importantly, all information
will be broadcasted through the SSE satellite network in Chinese using
proprietary software to brokerages and professional investors. It will differ
from Dow Jones and Reuters in that the information will be completely in Chinese
at a much lower rate. Our market research reveals that as China's financial
market develops, ft will eventually become an integral part of the global
financial market Financial information from other parts of the world, especially
Hong Kong Southeast Asia will impact the financial performances of Chinese stock
market Already more than 95% of the brokerages would like to access this
information. However the price tag for Reuters and Dow Jones services are simply
too much to bear. If the existing network allows transmission of similar sorts
of information and it requires no additional installation of other equipment it
sure will be welcomed by many brokerages.
CFN II: This network will create a customer interface directly to the individual
- ------
customers, thus equivalent to a commercial ISP. The service will include various
value added services such as real time stock data and web trading. Utilizing the
current network with over a thousand connection nodes, the network will be able
to provide Email and other Internet service while allowing real time web trading
to its customers. Web trading is an unique feature that this network offers,
since the SSE is the sole clearing and settlement agency for its stocks. Thus,
only SSE network is able to realize true web trading through SSE.
The roles and responsibilities of the three parties will vary as well.
Party A will be primarily responsible for collecting and compiling global
financial information, providing funds for network reconstruction and assisting
software development in the first phase. In the second phase, party A will
provide funds to modify connection nodes, development of management software,
and operation of the Internet sites (e.g. content design).
Party B will be primarily responsible for network security and operation while
coordinating with various brokerage firms to maintain market position and direct
network design.
Party C will participate in network design and management to ensure efficient
utilization of the satellite network The majority of its operation will focus on
construction of the network in the beginning and software development at a later
stage.
This MOU will serve as the founding principles for the joint effort Formal
feasibility study and business plan will be drawn to establish the actual
structure to realize the proposed network As soon as the structure is finalized,
we will seek professional consulting firms to conduct detailed analysis to
identify optimal marketing, organization and technology management strategies.
All parties have agreed that the interest of each party in this joint venture is
allocated as follow: Party A 70%; party B 20%; party C 10%.
VII. FINAL REMARKS
As one of the most significant document indicating commitment to form the joint
venture aforementioned, the MOU is only effective after all three parties have
signed.
Party A: CBCCom Inc.
/x/
Party B: Shanghai Stock Exchange Communication Co.
/x/ General Manager
Party C: Shanghai Xingtong Telecommunications Science & Technology Co.
Ltd
/x/ President
January 31, 1999
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