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U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
General Form For Registration of Securities
of Small Business Issuers Under Section 12(b)
or 12(g) of the Securities Exchange Act of 1934
CYPOST CORPORATION
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(Name of Small Business Issuer in Its Charter)
Delaware 98-0178674
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
101-260 W. Esplanade
N. Vancouver, British Columbia V7M3G7
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(Address of Principal Executive Offices) (Zip Code)
(604)904-4422
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(Registrant's Telephone Number, Including Area Code)
Securities to be registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which
to be so Registered Each Class is to be Registered
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None None
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Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.001 per share
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INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. Description of Business.
(a) Business Development.
CyPost Corporation (hereinafter referred to as the "Registrant", the
"Issuer", or as "CyPost"), a Delaware corporation, was formed on September 5,
1997 under the name "E Post Corporation" to operate as the parent company of two
wholly-owned, sister subsidiaries: ePost Innovations, Inc., a corporation
organized under the laws of British Columbia, Canada ("ePost Canada") and CyPost
USA, Inc., a Delaware corporation formed on September 5, 1997 by the Company
("CyPost USA"). ePost Canada was formed on March 27, 1997 and was acquired by
the Issuer on September 15, 1997 (the "Acquisition"). Prior to the Acquisition,
ePost Canada was a wholly owned subsidiary of Mushroom Innovations, Inc. a
corporation organized under the laws of British Columbia ("MII"). Under the
terms of the Acquisition, the Issuer acquired from MII all of the issued and
outstanding shares of ePost Canada, as well as all intellectual property rights
then owned by ePost Canada, in exchange for 2,000,000 shares of CyPost's Common
Stock. On October 29, 1998, CyPost acquired all of the issued and outstanding
capital stock of Communication Exchange Management Inc., a British Columbia
corporation, from MII. Unless otherwise stated herein, all dollar amounts refer
to U.S. Dollars ("USD$")--not Canadian Dollars ("CDN$).
(b) Business of the Issuer.
The Issuer is a holding company, the principal assets of which consist of
the capital stock of CyPost USA and the capital stock of ePost Canada. The
company conducts no business on its own independent of CyPost USA or ePost
Canada. To date, the Issuer, through its operating subsidiaries, has been
largely involved in the development of software using email encryption to
enhance user security and convenience. (Unless otherwise qualified herein, the
term "Company" shall be used to refer to the business operations of the
Registrant and its consolidated subsidiaries.) The Company is currently selling
three versions of its "Navaho" software encryption programs which are more
specifically described below and is developing a fourth version which is
expected to be released during the latter half of 1999.
Markets for principal products and services
The Company has developed the Navaho family of software products for the
following markets:
1) Personal Use--consumers who have little or no technical knowledge
of computers and computer programs but who wish to keep electronic
correspondence private.
2) Professional Use--professional business users such as attorneys,
accountants, medical doctors, as well those who need secure communication
capability while traveling
3) Small Businesses--companies between 10-50 employees with a small,
or no Information Services department and who operate out of a single location
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4) Enterprise--large businesses with more than 50 employees and who
use corporate intranets including LAN's and WAN's, Extranets, and government
institutions
Products
The Company currently offers three (3) different security encryption
software products each of which bear the name "Navaho". (See discussion of
these under "Status of any publicly announced new product or service").
Distribution Method of the Product or Service.
The CyPost family of products will be delivered both digitally over the
Internet and through distributors who will sell shrink-wrapped versions.
CyPost's website, www.cyost.com, offers a full description of its products and
the chance for viewers to make a "cyber-purchase " of its software. In addition,
consumers will be able to purchase products directly from popular online retail
sites such as www.beyond.com, www.egghead.com, www.cdw.com, and
www.futureshop.com to name a few. CyPost has entered into a distribution
agreement with Digital River, Inc., a company that provides proprietary software
delivery technology to more than 2000 software publishers and online retailers.
The Company has also negotiated with several distribution competitors of Digital
River, Inc. who offer similar capabilities. The Company estimates that its
Navajo products are currently available at more than 1000 secure websites.
The Company also intends to utilize highly trained sales professionals to
sell the Office version of Navaho Lock to small businesses, corporations, and
government institutions.
Status of any publicly announced new product or service.
Navaho Lock Personal Edition and Navaho Lock Office Edition: CyPost's first
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commercial product, Navaho Lock Personal Edition, is available for purchase at
www.cypost.com and over 1000 secure distribution and retail sites on the
Internet. This product has received favorable product reviews from CNN
Interactive and PC World On Line. It enables consumers to send and receive
secure email and attachments such as documents, spreadsheets, digital sound
files and business presentations. The Company is currently developing Navaho
Lock "Office Edition", a more powerful version of Navaho Lock designed for
corporate and larger, institutional users and expects that it will be ready for
release during the second half of 1999.
Navaho Viewer: Navaho Viewer provides an alternative for those consumers
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not wanting to purchase the full working copy of Navaho Lock Personal Edition,
but who require the ability to read encrypted files sent to them by friends or
colleagues. Navaho Viewer is available for download free at CyPost's web site
and numerous web sites on the Internet.
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Navaho ZipSafe: The third product in CyPost's Navaho family of security and
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encryption software, Navaho ZipSafe, has been released in March 1999. This
product enables users to secure all computer files, folders, and directories on
a local hard drive such as that found on a laptop computer. Navaho ZipSafe is
available on a free thirty (30) day trial basis.
Competition
There are at least four publicly traded companies presenting products that offer
direct competition to CyPost. They are Network Associates Inc. ("PGP Personal
Privacy"), AT&T Corp. ("SecretAgent"), Symantec Corporation ("Norton Your Eyes
Only"), and OpenSoft Corporation ("Express Mail").
Network Associates Inc. (Nasdaq: NETA), a public company headquartered in
Santa Clara, California is the world's largest independent network security and
management software company, and the tenth largest independent software company
with more than 30 million users worldwide, $612 million in revenue in fiscal
1997, and over 1,500 employees worldwide.
Network Associates has the largest market share of email encryption software.
Its PGP Personal Privacy software program is the most well known email
encryption software program currently on the market. PGP Personal Privacy's
unique selling proposition is they use the strongest encryption available in the
United States using PGP's strong public/private key technology with at least
128-bit keys. It was voted as the easiest email encryption program to use in
the September 1998 issue of PC World Magazine.
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PGP Personal Privacy ($39.95) is available for purchase at the Network
Associates web site as well as most Internet shareware download sites.
In the opinion of the Company's management, as compared to PGP Personal
Privacy, Navaho Lock has superior functionality and features including the Drop
area which allows drag and drop file encryption, compression of files, and an
interactive graphical user interface. Thus, although both CyPost Navaho Lock
and Network Associates PGP Personal Privacy send encrypted email using rigorous
encryption techniques (128-bit), management believes Navaho Lock offers a more
secure, reliable, and faster form of email security, along with affordability
and ease of use.
AT&T Corp: A public company incorporated in 1885, AT&T and its
subsidiaries Lucent Technologies and NCR Corp. provide communications services,
communications systems and technologies, and transaction-intensive computing,
respectively.
AT&T SecretAgent ($179.95) provides a cross-computer platform, multi-
algorithm encryption software program. SecretAgent is the most expensive of the
security products. Furthermore the product cannot be evaluated before being
purchased. These oversights coupled with
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the superior functionality, availability and affordability of Navaho Lock
presents CyPost an opportunity to overtake SecretAgent's share of the email
encryption market.
Symantec Corporation: Founded in 1982, Symantec Corporation (Nasdaq SYMC)
is a leader in utility software development. Symantec is the seventh largest PC
software company in the world, with annual revenues of more than $575 million in
fiscal 1998 and employing more than 2,300 people worldwide.
Symantec's product Norton Your Eyes Only ($89.95) offers 32-bit security
designed for the Windows 95 and Windows NT operating systems and "on-the-fly"
automatic encryption using RSA Data Security Inc.'s public key encryption
technology.
Norton Your Eyes Only is more than twice as expensive as Navaho Lock and
some industry observers have characterized it as not very user friendly. A
product review in the September 1998 issue of PC World Magazine stated that
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"with its multiple interfaces and rather technical design, Norton Your Eyes Only
is more like a set of spare parts flying in information that a fully constructed
airplane. Not only are its looks off-putting, you can find most of its
features-a quick-encrypt folder, a paper shredder, and an auditor-in other
programs that cost half as much".
Furthermore, there is no evaluation version of this product as it can only
be purchased via retail stores and the Entrust corporate web site. Symantec's
decision to distribute their product to the public in this matter presents an
opportunity for CyPost to gain market share. Our product will be available for
download not only from the CyPost corporate web site, and popular shareware
download sites, but it will also be available for purchase from over 1000
affiliate sites.
OpenSoft Corporation: Founded in 1990 OpenSoft is a privately held
California corporation specializing in the development of Internet and Intranet
software products for corporate customers and home users alike.
OpenSoft's main product ExpressMail ($49) takes advantage of asymmetric
encryption and authentication technology using the S/MIME security framework.
Like Navaho Lock, Express Mail is able to encrypt email attachments, rich text
documents, and multimedia files; however, it has two major shortcomings in
addition to its higher price. First, ExpressMail does not have file compression
capability and thus larger attachment files such as graphics and spreadsheets
would take significantly longer to be sent as compared to Navaho Lock. Second,
ExpressMail only supports Windows 95/98 and NT operating systems. Those
individuals using Macintosh systems would not be able to use this program.
Therefore should an encrypted email be sent via ExpressMail to a Macintosh user
it would be completely unusable.
OpenSoft's current market share of email encryption is thought to be small.
Due to OpenSoft's lack of marketing and Internet presence, and its operating
incompatibility, management does not view this product as a major competitive
threat.
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Government Regulation
The Company believes that the design features of the Navaho products are
unique in connecting to existing Crypto Service Providers and using them without
itself containing any direct encryption coding. Because of this feature, the
Navaho products fall outside of government regulations such as the munition or
export laws that may restrict other forms of software encryption programs.
Dependence on Key Customers
The Company broadly markets its software products and seeks to avoid
reliance on a limited number of customers. Nonetheless, the Company has had a
relatively brief period of actually selling products to customers. The Company
has been designated as a "preferred vendor and provider" by the Canadian Bar
Association, British Columbia branch and under an agreement with them reached in
March 1999 will license 250 copies of Navaho Lock and Navaho ZipSafe. In
addition, clients of these bar members will be able, for a fee, to license their
own versions of these programs. This contract accounts for virtually all of
the Company's revenues to date which is not surprising given the Company's brief
operating history and the substantial size of this contract. The Company is
actively seeking to broadly market its products and has recently concluded
acquisitions of two internet service providers. These acquisitions will broaden
the Company's existing customer base. See "The Recently Concluded Acquisitions
and the Company's Broadened Strategic Focus".
Research and Development
The Company has abandoned its former development of the CyPost Terminal, a
type of communications software designed to operate on a remote terminal
network. Since December 1998, the Company has focused its research and
development efforts on refinements and/or improvements to its software
encryption products. The Company has completed "beta" or final step testing of
its Navaho Zipsafe products, the third entry in its line of personal computer
encryption products and has begun selling this product during March of 1999.
Any monies expended on research and development will be absorbed directly by the
Company and cannot be "passed through" to customers in the form of any "cost
plus" type of contract.
The Recently Concluded Acquisitions and the Company's Broadened Strategic
Focus
On May 24, 1999 and May 25, 1999 the Company announced that it had signed
letters of intent to acquire Hermes Net Solutions, Inc., an internet service
provider and Intouch.Internet Inc., a company whose focus is providing Web-
hosting and access services for web users. These transactions were consummated
on June 30, 1999. The Company hopes that these transactions, if consummated,
will provide mutual advantage to each corporate participant.
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As internet service providers, Hermes and Intouch are expected to provide
several complementary features to CyPost's business strategy. CyPost gains the
advantage of the existing Hermes and Intouch client base who are expected to be
significant purchasers of encryption products while Hermes and Intouch will gain
the ability to work hand-in-hand with an encryption services provider. Also,
much of Hermes' and Intouch's business is service-based and it is hoped will
provide predictable cash flows.
The integration of the CyPost's current operations with those of these
Internet Service Providers ("ISP's") offers several marketing and strategic
advantages. CyPost, through these ISP's will make available solutions of privacy
and protection, enabling the members of the ISP's enhanced communication over
the Internet. In addition to the marketing advantage of having an installed user
base, the acquisition of ISP's offers the chance to offer several value-added
products available at the ISP level. CyPost has undertaken negotiations to
license software which will protect against virus transmission at the ISP level
and is developing programs to regulate content and provide "Family Safe Surfing"
at the Server level.
CyPost is also actively seeking further opportunities to ally with ISP's
both within North America and abroad.
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
This document contains forward looking statements relating to our Company's
future economic performance, plans and objectives of management for future
operations, projections of revenue mix and other financial items that are based
on the beliefs of, as well as assumptions made by and information currently
known to, our management. The words "expects, intends, believes, anticipates,
may, could, should" and similar expressions and variations thereof are intended
to identify forward-looking statements. The cautionary statements set forth in
this section are intended to emphasize that actual results may differ materially
from those contained in any forward looking statement.
The following discussion relates to the results of our operations to date,
and our financial condition:
For the period from inception: September 5, 1997 To December 31, 1997 and
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for the year ending December 31, 1998 and for the three months ended March 31,
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1998 and 1999 and the period from inception (June 23, 1997) To March 31, 1999.
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Development stage/implementation.
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The Company has been in the initial development stage and implementation
of its core products from its inception on September 5, 1997 to March 31, 1999.
The Company develops and markets Internet privacy and protection systems. CyPost
specializes in making state-of-the-art encryption solutions accessible for both
business and personal use. CyPost's flagship product, Navaho Lock
www.navaholock.com, is an easy to use application using strong encryption
algorithms. Navaho Lock permits both individual and business clients to keep
their electronic information, whether stored on a personal computer, used on a
network, or sent across the Internet, completely private and protected.
During this period, management devoted the majority of its efforts to
initiating the process of the software design and development, developing and
testing its marketing strategy and finding a management team to begin the
process of: completing its marketing goals; furthering its research and
development for its products and introducing several of its products; and
completing the documentation for and selling initial shares through several
private placements and exempt offerings. These activities were funded by the
Company's management and investments from stockholders. The Company has not
yet generated sufficient revenues during its limited operating history to
fund its ongoing operating expenses, repay outstanding indebtedness, or
fund its software and product development activities. There can be no assurance
that development of the software will be completed and fully tested in a timely
manner and within the budget constraints of management and that the Company's
marketing research will provide a profitable path to utilize the Company's
marketing plans. Further investments into software development, initiation of
a Company owned web site defined in the Company's operating plan will
significantly reduce
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the cost of development, preparation, and processing of purchases and orders by
enabling the Company to effectively compete in the electronic market place.
During this developmental period, the Company has been financed through
trade payables of $50,702 and the sale of shares of common stock raising an
aggregate of $654,820.
Results of Operations for the period from inception, September 5, 1997 to
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December 31, 1997 as compared to the year ended December 31, 1998.
- ------------------------------------------------------------------
For the year ended December 31, 1998, the Company generated $-0- sales as
compared to $-0- for the period from inception, September 5, 1997, to December
31, 1997 representing an increase of $-0-. The Company's cost of goods sold for
the year ended December 31, 1998 was $-0-as compared to $-0- for the period from
inception, September 5, 1997, to December 31, 1997. The Company's gross profit
on sales was approximately $-0- for the year ended December 31, 1998 as
compared to $-0- for the period from inception, September 5, 1997, to December
31, 1997.
The Company's general and administrative costs aggregated approximately
$257,263 for the year ended December 31, 1998 as compared to $-0- for the period
from inception, September 5, 1997, to December 31, 1997 representing an increase
of $257,263. This increase represents increased spending for legal and
professional of 32,118; office expense of 52,526; advertising and marketing
promotion of 8,606; payroll of 51,045; and offering expense of 29,973.
Results of Operations for the three months ended March 31, 1999 as compared
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to the three months ended March 31, 1998.
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For the three months ended March 31, 1999, the Company generated net
sales of $10,407 as compared to $-0- for the three months ended March 31, 1998
representing a increase of $10,407. The Company's cost of goods sold for the
three months ended March 31, 1999 was $2,290 as compared to $-0- for the three
months ended March 31, 1998. The Company's gross profit on sales was $8,117
for the three months ended March 31, 1999 as compared to $-0- for the three
months ended March 31, 1998. The increase in gross profit is the result of the
sale of initial quantities of the Company's software.
The Company's general and administrative costs aggregated approximately
$282,378 for the three months ended March 31, 1999 as compared to $18,500 for
the three months ended March 31, 1998 representing an increase of $263,878. This
figure for the more recent three month period represents office expense of
$24,174; advertising marketing and promotion of $62,233; software development
costs of $36,548; salaries of $125,064; rent $8,040; and professional fees of
$26,319.
Results of Operations for the period from inception (September 5, 1997)
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to March 31, 1999.
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For the period from the Company's inception, September 5, 1997,
through March 31, 1999, a period of approximately 19 months, the Company
generated net sales of $10,407 (an average of $548 per month). The
Company's cost of goods sold was approximately $2,290 for the period from
the Company's inception September 5, through March 31, 1999. The gross profit
from sales for this 19 month period is $8,117. Management believes the monthly
gross profit of an average of $427 for the period from inception, September 5,
1997, through March 31, 1999, will improve and stabilize once the Company's
software is fully test marketed and the Company's products receive greater
marketplace acceptance as its marketing plans become fully implemented. In
addition, it should be noted that the Company's software became available only
in March 1999 and therefore this initial period reflects a very limited period
of operations.
The Company's general and administrative costs aggregated approximately
$539,641 for the period from inception, September 5, through March 31,1999.
Of these initial startup costs, approximately $58,437 is attributable to
legal and professional fees, $76,700 to office expenses; $176,109 to payroll;
$190,855 to software development costs; $29,500 to offering costs; and $8,040 to
rent.
Liquidity and Capital Resources.
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The Company increased liquidity by $47,212 from a cash balance of $-0- at
September 5, 1997 to $47,212 at December 31, 1998 and to $105,475 at March 31,
1999. Working capital at December 31, 1998 and March 31, 1999 was $64,120 and
$87,073 respectively. For the year ended December 31, 1998 and for the three
months ended March 31, 1999, working capital was provided by an increase in
trade payables of $11,090 and $50,702 and the sale of an aggregate of 654,820 in
shares of common stock. The Company expended cash for the development of the
business and absorbing losses aggregating $261,573 for the period from
inception, September 5, 1997, to December 31, 1998 and $275,761 for the three
months ended March 31, 1999; purchase of fixed assets aggregating $42,539;
paying security deposits totaling $28,810; organization expense of $477; and
funding accounts receivable for $9,988.
Management expects that cash flow from operations will improve as the
Company's products achieve greater marketplace acceptance. In addition, the
Company's acquisitions of two Internet Service Providers, management believes,
will provide a more predictable source of revenues given the existing customer
base of these two entities. Should these sources of cash flow prove
insufficient, the Company will need to seek further financing. There is no
assurance that such financing will be available, or if available, can be
procured on commercially advantageous terms.
Item 3. Description of Property.
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The Company has entered into a Sublease dated February 1, 1998 for for
approximately 5000 square feet of office space at 101-260 W. Esplanade, North
Vancouver, British Columbia (the "Premises"). The term of the sublease is for 23
months and ends on December 30, 1999.
The annual rent for the Premises is $28,800 CDN$ payable in equal monthly
installments of $2400. The lease provides for the payment by the Company of
additional rent, attributable to a Goods and Services Tax levied by Canadian
taxing authorities. The Company has been required to post letters of credit
totaling $2,400 CDN$ as security for its rent obligations. The Company believes
that it could secure comparable office space in the event that it needed to do
so.
Item 4. Security Ownership of Certain Beneficial Owners and Management.
(a) Security Ownership of Certain Beneficial Owners.
The following information relates to those persons known to the Issuer to
be the beneficial owner of more than five percent (5%) of the Common Stock, par
value $.001 per share, the only class of voting securities of the Issuer
outstanding.
<TABLE>
<CAPTION>
Name and Amount and
Title of Address of Nature of Percentage
Class Beneficial Owner Beneficial Ownership of Class*
----- ---------------- -------------------- ---------
<S> <C> <C> <C>
Common stock, par value Kelly Shane Montalban 1,550,000 shares 15.15%
$0.001 per share P.O Box 700, Lions direct ownership
Bay
British Columbia VON
2EO
</TABLE>
* Based on 10,233,00 shares issued and outstanding
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______________
The Company has not contacted stock brokerage firms holding shares of the
Company's Common Stock in "street name" to determine whether there are
additional substantial shareholders of the Company. 3,209,800 shares or 31.37%
of the Common Stock outstanding is held in the name of Cede & Co., a nominee for
Depository Trust Company, a stock clearing house servicing financial
institutions.
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(b) Security Ownership of Management.
The number of shares of Common Stock of the Issuer owned by the Directors
and Executive Officers of the Issuer is as follows:
<TABLE>
<CAPTION>
Name and Amount and
Title of Address of Nature of Percentage
Class Beneficial Owner Beneficial Ownership of Class*
----- ---------------- ------------------- ---------
<S> <C> <C> <C>
Common stock, par value Steven M. Berry 400,000 shares 3.90 %
$0.001 per share 10 Periwinkle Drive, direct ownership
Lions
Bay, British Columbia VON
2EO
Common stock, par value Carl Whitehead 218,000 shares 2.13 %
$0.001 per share 20 Oceanview Road direct ownership
Vancouver, British
Columbia VON 2EO
Common stock, par value Robert Sendoh 220,000 shares 2.15 %
$0.001 per share 990 Beach Avenue, #304 direct ownership
Vancouver, British
Columbia V6Z 2N9
9 All Officers and Directors (3 persons): 838,000 shares 8.19 %
</TABLE>
_________________________
* Based on 10,233,000 shares issued and outstanding.
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Item 5. Directors, Executive Officers, Promoters and Control Persons.
The Directors and Executive Officers of the Issuer are as follows.
Directors of the Company serve for a term of one year or until their successors
are elected. Officers are appointed by, and serve at the pleasure of, the
Board.
Steven M. Berry, 40, Chief Executive Officer and President
Mr. Berry currently occupies the position of Chief Executive Officer and
Chief Operating Officer of CyPost. Prior to joining the Company in 1999, he was
Vice President Sales/Marketing for Corporate Express, a distributor of office
supply products located in Vancouver. Mr. Berry was employed by Corporate
Express from 1994 until he joined the Company this year. From 1986 until 1994,
Mr. Berry was the founder and principal executive for Profile Business Supplies,
a sales and distribution company located in Vancouver. His duties at Profile
Business Supplies were primarily concerned with aspects of purchasing, inventory
control, marketing and sales programs. Mr. Berry attended the Faculty of
Commerce at the University of British Columbia.
Carl Whitehead, 28, Head of Strategic Acquisitions and Partnerships
Carl who is originally from Calgary, moved to Vancouver where he
operated his own seasonal business Pacific Northwest in Vancouver as a fly
fishing tour guide. In the off season he operated a seismic exploration-drilling
rig in the western four provinces of Canada for Diamond F Drilling in Calgary.
In 1993 he relocated to West Vancouver and began a computer service company
called Futuresite Productions which supplies, maintains, and services, home and
business computers in the lower mainland. Specializing in the Windows95
environment and TCP/IP protocols he naturally embraced this opportunity to
develop CyPost into a competitive leader in the software industry. Carl has
completed secondary business courses in accounting and finance.
Robert Sendoh, 47, Director
Bob has successfully conceived and maintained three separate companies
and brings a wealth of business knowledge and financial understanding to the
Company. He spent twenty years with his first venture, KKG Incorporated, a
project planning and development firm, located in Tokyo, Japan, which was
responsible for the planning and construction of major shopping centers, golf
courses and residential complexes around the world. Dissatisfied with the lack
of spread sheet and product management software for businesses, Bob developed
his own, as well as implementing a highly efficient security and communication
system to maintain and expand the reputation of his company. After moving to
Vancouver, Canada, Bob started his own sailing school, Windvalley Sailing
School, which now has franchises located in Singapore and Japan. He is currently
an Instructor/Director, and Evaluation with the International Sail and Power
Association, a non-profit organization. Rounding
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out his business expertise, Bob is also a co-owner of EPPE Sportswear, which
markets their high quality snowboarding apparel internationally.
Item 6. Executive Compensation.
Steven M. Berry became Chief Executive Officer and Chief Operating Office
in January of 1999 and receives an annual salary of $120,000. Mr. Berry had
previously rendered consulting services to the Company prior to his formal
installation as Chief Executive Officer and President. Prior to that time, Carl
Whitehead exercised primary executive responsibilities. Neither Mr. Whitehead
nor any other executive officer received cash compensation in excess of $100,000
for the years 1997 and 1998.
All directors serve without pay.
Item 7. Certain Relationships and Related Transactions.
All directors serve without pay.
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Item 8. Description of Securities.
Common Stock
The Issuer is authorized to issue up to 20,000,000 shares of Common
Stock, par value US$0.001 per share, of which 10,233,000 shares have been issued
as of the date hereof. Holders of Common Stock are entitled to one vote for each
share held of record on each matter submitted to a vote of stockholders. There
is no cumulative voting for election of directors. Subject to the prior rights
of any series of preferred stock which may from time to time be outstanding, if
any, holders of Common Stock are entitled to receive ratably, dividends when,
as, and if declared by the Board of Directors out of funds legally available
therefor and, upon the liquidation, dissolution, or winding up of the Company,
are entitled to share ratably in all assets remaining after payment of
liabilities and payment of accrued dividends and liquidation preferences on the
preferred stock, if any. Holders of Common Stock have no preemptive rights and
have no rights to convert their Common Stock into any other securities. The
outstanding Common Stock is validly authorized and issued, fully paid, and
nonassessable.
Preferred Stock
Under the Company's Certificate of Incorporation, the Board of Directors
of the Company is authorized to designate, and cause the Company to issue, up to
Five Million (5,000,000) shares of preferred stock of any class or series,
having such rights, preferences, powers and limitations as the Board shall
determine. This form of preferred stock is often referred to as "blank check"
preferred stock and the Board could, therefore, in the future authorize and
cause the Company to issue up to 5,000,000 shares of preferred stock of one or
more series or classes, having rights, preferences and powers senior to those of
the Common Stock, including the right to receive dividends and/or preferences
upon liquidation, dissolution or winding-up of the Company in excess of, or
prior to, the rights of the holders of the Common Stock. This could have the
effect of materially impairing the rights of the holders of the Common Stock to
receive such dividends or preferential payments and/or of reducing, or
eliminating, the amounts that would otherwise have been available for payment to
the holders of the Common Stock. In addition, such preferred stock might feature
a conversion feature which might have the effect of diluting the per cent
ownership of common stock holders at the time when a conversion occurs.
The Company has not, to date, issued or authorized any shares of
preferred stock or authorized the creation of any class or series of preferred
stock.
PART II
15
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Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Related Shareholder Matters.
1. (a) The Issuer's Common Stock is listed on the National Association of
Securities Dealers, Inc. Electronic Bulletin Board under the trading symbol
of "POST". The Common Stock became listed on September 21, 1998. Prior to
that time, there has been no trading in the Issuer's Common Stock.
Accordingly, the high and low bid prices for the Issuer's Common Stock for
each quarter since its date of listing, as reported by National Quotation
Bureau, LLC, are as follows:
16
<PAGE>
QUARTER HIGH BID PRICE LOW BID PRICE
------- -------------- -------------
1999 Q2 (4/1 -6/30) $4.50 $2.60
1999 Q1 (01/01 - 03/31) $2.50 $1.25
1998 Q4 (10/01 - 12/31) $1.33 $0.07
These quotations reflect inter-dealer prices, without retail mark-
up, mark-down or commission, and may not represent actual transactions.
(b) The approximate number of record holders of the Issuer's Common
Stock according to its transfer agent is 36. Included in this number are
shares held by Cede & Co., the nominee for Depository Trust Company, a
stock clearing house for financial institutions. The Issuer has not
contacted stock brokerage firms shown on the Issuer's stock transfer
records to determine the number of beneficial holders whose stock is
held in "street name", or the name of the brokerage house with which a
shareholder's account is maintained.
(c) The Issuer has not paid any cash dividends on its Common Stock,
nor does it intend to do so in the foreseeable future. Under the General
Corporation Law of the State of Delaware, the Issuer may only pay
dividends out of capital and surplus, or out of certain delineated
retained earnings, all as defined in the General Corporation Law. There
can be no assurance that the Issuer will have such funds legally
available for the payment of dividends in the event that the Issuer
should decide to do so.
Item 2. Legal Proceedings.
The Issuer commenced a declaratory judgment action with respect to
certain trademarks in May 1999. Subsequently, the respondent filed a separate
action alleging trademark infringement. A trial with respect to the first action
has been scheduled for late August. Pleadings are not yet closed in the second
matter.
Item 3. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure.
None.
17
<PAGE>
Item 4. Recent Sales of Unregistered Securities.
Pursuant to an acquisition agreement dated September 17, 1997, the Company
issued, in a related party transaction, 2,000,000 shares of common stock to
Mushroom Innovations, Inc. in consideration for all of the issued and
outstanding shares of common stock of Mushroom Innovation Inc.'s wholly owned
subsidiary ePost Canada. The shares of common stock were valued at $.001 per
share for an aggregate consideration of $2,000.
Pursuant to a private placement under Regulation D, the Company offered on
October 27, 1997, 2,000,000 Units at $0.05 per Unit consisting of a share of
Common Stock and a Warrant exercisable for Common Stock. As of December 31,
1997, through the sale of these Units, the Company sold an aggregate 400,000
shares of common stock for an aggregate consideration of $20,000. For the period
of January through April 30, 1998, the Company sold an additional 1,600,000
Units for an aggregate additional consideration of $80,000 less offering expense
of $20,000 with net proceeds to the Company of $80,000 for the total offering.
Pursuant to a private placement pursuant to Rule 504 of Regulation D, the
Company offered on March 26, 1998, 38,000 shares of common stock at $0.50 per
share. As of April 30, 1998, the Company sold an aggregate 38,000 shares of
common stock for an aggregate consideration of $19,000.
On April 30, 1998, the Company sold 15,000 shares of common stock pursuant
to Rule 504 of Regulation D to Kaplan Gottbetter & Levenson, LLP in
consideration for $7,500 in legal fees valued at $0.50 per share.
For the year ended December 31, 1998, the Company issued 610,000 shares of
common stock through warrant exercise at $0.40 per share for an aggregate
consideration of $244,000.
On October 29, 1998, the Company issued 4,180,000 shares of common stock in
a related party transaction to Mushroom Innovations, Inc. for the acquisition of
Communication Exchange Management, Inc. ("CEM"), a British Columbia corporation.
Item 5. Indemnification of Directors and Officers.
The Issuer's Certificate and By-laws contain provisions eliminating the
personal liability of a director to the Issuer and its stockholders for certain
breaches of his or her fiduciary duty of care as a director. This provision does
not, however, eliminate or limit the personal liability of a director (i) for
any breach of such director's duty of loyalty to the Company or its
stockholders, (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, (iii) under Delaware
statutory provisions making directors personally liable, under a negligence
standard, for unlawful dividends or unlawful stock repurchases or redemptions,
or (iv) for any
18
<PAGE>
transaction from which the director derived an improper personal benefit. This
provision offers persons who serve on the Board of Directors of the Company
protection against awards of monetary damages resulting from breaches of their
duty of care (except as indicated above), including grossly negligent business
decisions made in connection with takeover proposals for the Company. As a
result of this provision, the ability of the Company or a stockholder thereof to
successfully prosecute an action against a director for a breach of his duty of
care has been limited. However, the provision does not affect the availability
of equitable remedies such as an injunction or rescission based upon a
director's breach of his duty of care. The Securities and Exchange Commission
(the "Commission") has taken the position that the provision will have no effect
on claims arising under the federal securities laws.
In addition, the Certificate and By-Laws provide mandatory indemnification
rights, subject to limited exceptions, to any person who was or is party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding by reason of the fact that such person is or was a director
or officer of the Company, or is or was serving at the request of the Company as
a director or officer of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. Such indemnification rights include
reimbursement for expenses incurred by such person in advance of the final
disposition of such proceeding in accordance with the applicable provisions of
the Delaware General Corporation Law.
PART F/S
Registrant's Consolidated Financial Statements as of December 31, 1998 and
for the period from September 5, 1997 (inception) to December 31, 1998, and the
independent auditor's report of Thomas P. Monahan, independent certified public
accountant, with respect thereto, appear on pages F-1 to F-13 of this Form 10-
SB.
PART III
Item 1. Index to Exhibits.
Exhibit No. Description
----------- -----------
2 Certificate of Incorporation of Registrant
2.1 Certificate of Amendment to Certificate of
Incorporation of Registrant
19
<PAGE>
2.2 By-laws of Registrant
8.1 Acquisition Agreement dated as of September 17,
1997 between the Issuer and ePost Canada
8.2 Share Purchase Agreement dated as of October 29,
1998 between the Issuer and Mushroom Innovations,
Inc.
10 Consent of Thomas P. Monahan, Certified Public
Accountant
21 List of Subsidiaries
20
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
CYPOST CORPORATION
Date: July 16, 1999 By: /s/
-----------------------------------
Steven Berry
Chief Executive Officer and Chief Operating
Officer
21
<PAGE>
THOMAS P. MONAHAN
CERTIFIED PUBLIC ACCOUNTANT
208 LEXINGTON AVENUE
PATERSON, NEW JERSEY 07502
(973) 790-8775
To The Board of Directors and Shareholders
of Cypost Corporation ( a development stage company)
I have audited the accompanying consolidated balance sheet of Cypost
Corporation ( a development stage company) as of December 31, 1998 and the
related consolidated statements of operations, cash flows and shareholders'
equity for the year ended December 31, 1998 and for the period from inception,
September 5, 1997, to December 31, 1998. These consolidated financial statements
are the responsibility of the company's management. My responsibility is to
express an opinion on these financial statements based on my audit.
I conducted my audit in accordance with generally accepted auditing
standards. Those standards require that I plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
I believe that my audit provides a reasonable basis for my opinion.
In my opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Cypost
Corporation ( a development stage company) as of December 31, 1998 and the
related consolidated statements of operations, cash flows and shareholders'
equity for the year ended December 31, 1998 and for the period from inception,
September 5, 1997, to December 31, 1997 in conformity with generally accepted
accounting principles.
The accompanying consolidated financial statements have been prepared
assuming that Cypost Corporation ( a development stage company) will continue as
a going concern. As more fully described in Note 2, the Company has incurred
operating losses since inception and requires additional capital to continue
operations. These conditions raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans as to these matters are
described in Note 2. The financial statements do not include any adjustments to
reflect the possible effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result from the
possible inability of Cypost Corporation (a development stage company) to
continue as a going concern.
Thomas P. Monahan, CPA
March 12, 1999
Paterson, New Jersey
F-1
<PAGE>
CYPOST CORPORATION
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period For the period
from inception, Quarter Quarter from inception,
September 5, 1997, For the year Ending Ending September 5,
to ended March 31, March 31, 1997, to
December 31, December 31, 1998 1999 March 31,
1997 1998 Unaudited Unaudited 1999
---- ---- --------- --------- ----
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net profit (loss) $-0- $(261,573) $(19,109) (275,761) $(537,334)
Depreciation and amortization -0- 6,233 609 1,500 7,733
Non cash expenses 33,680 7,500 33,680
Prepaid expenses (27,998) (7,200) 5,686 (22,313)
Accounts receivable (9,988) (9,988)
Accounts payable and accrued expenses 1,965 9,125 (1,965) 39,612 50,702
----- ------ ------- -------- ---------
TOTAL CASH FLOWS FROM OPERATIONS 1,965 (240,533) (20,165) (238,951) (477,519)
CASH FLOWS FROM FINANCING
ACTIVITIES
Sale of stock-net of offering costs 20,000 323,000 91,500 316,000 654,820
------ -------- ------- -------- ---------
TOTAL CASH FLOWS FROM FINANCING 20,000 323,000 91,500 316,000 654,820
ACTIVITIES
CASH FLOWS FROM INVESTING
ACTIVITIES
Security deposit (28,180) (2,400) (4,810) (28,810)
Capital asset purchases (852) (27,711) (6,973) (13,976) (42,539)
Organization expense (477) (1,500) (477)
Capitalized software costs (16,878) 16,878 (62,690)
------ ------- ------- -------- ---------
TOTAL CASH FLOWS FROM INVESTING (17,730) (39,490) (73,563) (18,786) (71,826)
ACTIVITIES
NET INCREASE (DECREASE) IN CASH 4,235 42,977 (2,228) 58,263 105,475
CASH BALANCE BEGINNING OF PERIOD -0- 4,235 4,235 47,212 -0-
------ ------- ------ -------- --------
CASH BALANCE END OF PERIOD $4,235 $47,212 $2,007 $105,475 $105,475
======= ======= ====== ======== ========
</TABLE>
See accompanying notes to financial statements
F-2
<PAGE>
CYPOST CORPORATION
(a development stage company)
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period For the period
from inception, Quarter Quarter from inception,
September 5, 1997 For the year Ending Ending September 5, 1997
to ended March 31, March 31, to
December 31, December 31, 1998 1999 March 31,
1997 1998 Unaudited Unaudited Unaudited
---- ---- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income $-0- $-0- $-0- $10,407 $10,407
Cost of goods sold -0- -0- -0- 2,290 2,290
--- --- --- ----- -----
Gross profit -0- -0- -0- 8,117 8,117
Operations:
General and administration -0- 257,263 18,500 282,378 539,641
Depreciation and amortization -0- 6,233 609 1,500 7,733
----- ---- ------ -----
Total operating expense -0- 263,496 19,109 283,878 547,374
-0-
Loss from operations (263,496) (19,109) (275,761) (539,257)
Other income
Gain on sale of assets 1,923 1,923
------ -----
Total other income 1,923 1,923
Net Profit (Loss) from $-0- $(261,573) $(19,109) $(275,761) $(537,334)
operations ==== ========== ========= ========= =========
Net income per share-primary $-0- $(0.03) $(0.03) $(0.01) $(0.06)
==== ======= ====== ========= ======
Weighted average number of 2,400,000 8,843,000 4,000,000 9,633,000 9,633,000
========= ========== ========== ========= =========
shares outstanding-primary
Net income per share fully
diluted
Weighted average number of 2,800,000 10,233,000 6,000,000 10,233,000 10,233,000
========= ========== ========== ========== ==========
shares outstanding-fully diluted
</TABLE>
F-3
<PAGE>
CYPOST CORPORATION
(a development stage company)
CONSOLIDATED STATEMENT OF STOCKHOLDERS EQUITY
<TABLE>
<CAPTION>
Date Additional Deficit
Preferred Preferred Common Common paid in accumulated during
Stock Stock Stock Stock capital development stage Total
----- ----- ----- ----- ------- ----------------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
09-17-1997(1) 2,000,000 $2,000 $2,000
12-31-1997(2) 400,000 400 19,600 20,000
-------- ------- ------ ------
12-31-1997 2,400,000 $2,400 19,600 $22,000
03-31-1998(2) 1,600,000 1,600 78,400 80,000
04-30-1998(3) 38,000 38 18,962 19,000
04-30-1998(4) 15,000 15 7,485 7,500
04-30-1998(5) (20,000) (20,000)
09-18-1998(6) 4,180,000 4,180 4,180
09-18-1998(8) 20,000 20,000
12-31-1998(7) 610,000 610 243,390 244,000
12-31-1998 Net loss (261,573) (261,573)
-------- --------- -------- ------- -------
12-31-1998 -0- $-0- 8,843,000 $8,843 $367,837 $(261,573) $115,107
Unaudited
03-31-1999(9) 790,000 790 315,210 316,000
03-31-1999 Net loss (275,761) (275,761)
-------- --------- -------- ------- -------
03-31-1999 -0- $-0- 9,633,000 $9,633 $683,047 $(537,334) $155,346
======== ======== ========= ====== ======== ======= =========
</TABLE>
(1) Issuance of shares of common stock for acquisition of technology at $.001
per share.
(2) Sale of shares of common stock pursuant to Rule 504 at $.05 per Unit. One
share and one warrant for the purchase of one share of common stock per Unit.
(3) Sale of shares of common stock pursuant to Rule 504 at $0.50 per share.
(4) Sale of common shares pursuant to Rule 504 in consideration for $7,500 in
legal fees valued at $0.50 per share.
(5) Write off of offering expenses
(6) Issuance of shares for acquisition at $0.001 per share
(7) Sale of shares pursuant to warrant exercise at $0.40 per share.
(8) To reflect the personal transfer of shares in consideration for the
contribution of consulting services valued at $.001 per share
F-4
<PAGE>
CYPOST CORPORATION
(a development stage company)
CONSOLIDATED BALANCE SHEET
<TABLE>
<CAPTION>
March 31,
December 31, 1999
1998 Unaudited
---- ---------
Assets
<S> <C> <C>
Current assets
Cash $47,212 $105,475
Accounts receivable 9,988
Prepaid expenses 27,998 22,312
------ ------
Total current assets 75,210 137,775
Capital assets 22,330 34,806
Other assets
License agreement 4,180 4,180
Organization expense 477 477
Security deposit 24,000 28,810
------ ------
Total other assets 28,657 33,467
------ ------
Total assets $126,197 $206,048
======== ========
Liabilities and stockholders equity
Current liabilities
Accounts payable and accrued expenses $11,090 $50,702
------- -------
Total liabilities 11,090 50,702
Stockholders equity
Preferred stock- $.001 par value , authorized 5,000,000 shares.
The number of shares outstanding at December 31, 1997 and
April 30, 1998 was -0- and -0- respectively.
Common stock-$.001 par value, authorized 20,000,000 shares.
The number of shares outstanding at December 31, 1997 and
1998 was 2,400,000 and 8,843,000 and respectively. 8,843 9,633
Additional paid in capital 367,837 683,047
Accumulated deficit during development stage (261,573) (537,334)
-------- --------
Total stockholders equity 115,107 155,346
-------- --------
Total liabilities and stockholders equity $126,197 $206,048
======== ========
</TABLE>
F-5
<PAGE>
CYPOST CORPORATION
(a development stage company)
Notes to Consolidated Financial Statements
December 31, 1998
Issuance of Common Stock
a. Creation of the Company
Cypost Corporation (the "Company") was formed on September 5, 1997 under the
laws of the State of Delaware with an authorized capitalization of 20,000,000
shares of common stock, $.001 par value per share and 5,000,000 shares of
preferred stock, $.001 par value per share.
b. Description of the Company
The Company develops and markets Internet privacy and protection systems. CyPost
specializes in making state-of-the-art encryption solutions accessible for both
business and personal use. CyPost's flagship product, Navaho Lock HYPERLINK
http://www.navaholock.com www.navaholock.com, is an easy to use application
using strong encryption. Navaho Lock permits both individual and business
clients to keep their electronic information, whether stored on a personal
computer, used on a network, or sent across the Internet, completely private and
protected.
c. Issuance of Capital Stock
Pursuant to an acquisition agreement dated September 17, 1997, the Company
issued, in a related party transaction, 2,000,000 shares of common stock to
Mushroom Innovations, Inc. ("Mushroom"), a British Columbia corporation in
consideration for all of the issued and outstanding shares of common stock of
Mushroom's wholly owned subsidiary ePOST Innovations, Inc. ("ePost Canada"), a
corporation formed under the laws of British Columbia. The shares of common
stock were valued at $.001 per share for an aggregate consideration of $2,000.
Pursuant to a private placement under Regulation D, the Company offered on
October 27, 1997, 2,000,000 Units at $0.05 per Unit. As of December 31, 1997,
through the sale of these Units, the Company sold an aggregate 400,000 shares of
common stock for an aggregate consideration of $20,000. For the period of
January through April 30, 1998, the Company sold an additional 1,600,000 Units
for an aggregate additional consideration of $80,000 less offering expense of
$20,000 with net proceeds to the Company of $80,000 for the total offering.
Pursuant to a private placement pursuant to Rule 504 of Regulation D, the
Company offered on March 26, 1998, 38,000 shares of common stock at $0.50 per
share. As of April 30, 1998, the Company sold an aggregate 38,000 shares of
common stock for an aggregate consideration of $19,000. On April 30, 1998, the
Company sold 15,000 shares of common stock pursuant to Rule 504 of Regulation D
to Kaplan Gottbetter and Levenson, LLP. in consideration for $7,500 in legal
fees valued at $0.50 per share.
On September 18, 1998, the Company issued 4,180,000 shares of common stock,
valued at $0.001 or $4,180 in a related party transaction to Mushroom
Innovations, Inc. for the acquisition of Communication Exchange Management,
Inc.("CEM") British Columbia company.
On September 18, 1998, Robert Sendoh and Carl Whitehead gifted an aggregate of
562,000 shares of common stock as follows: 400,000 shares to Steve Berry, 12,000
shares to Pezhman Sharifi and 150,000 shares to Miulet Technologies, Ltd. The
gifting was in consideration for an aggregate of $20,000 in services performed
valued at $0.036 per share.
For the year ended December 31, 1998, the Company issued 610,000 shares of
common stock through warrant exercise at $0.40 per share for an aggregate
consideration of $244,000. For the period of January 1, 1999 through March 31,
1999, the Company sold 790,000 shares of common through the exercise of 790,000
warrants at $0.40 each.
F-6
<PAGE>
Note 2-Summary of Significant Accounting Policies
a. Basis of Financial Statement Presentation
The accompanying financial statements have been prepared on a going concern
basis, which contemplates the realization of assets and the satisfaction of
liabilities in the normal course of business. The Company incurred net losses of
$261,573 for the period from inception September 5, 1997, to December 31, 1998.
These factors indicate that the Company's continuation as a going concern is
dependent upon its ability to obtain adequate financing. The Company is
anticipating that with the completion of the exercise of the balance of the
outstanding warrants and with the resulting increase in working capital, the
Company will be able to continue to develop the Company's software and
experience an increase in sales. The Company will require substantial additional
funds to finance its business activities on an ongoing basis and will have a
continuing long-term need to obtain additional financing. The Company's future
capital requirements will depend on numerous factors including, but not limited
to, continued progress developing its software, initiating marketing penetration
and signing distributors to software contracts. The Company plans to engage in
such ongoing financing efforts on a continuing basis.
The consolidated financial statements presented consist of the consolidated
balance sheet of the Company as at December 31, 1998 and the related
consolidated statements of operations, stockholders equity and cash flows for
the years ending December 31, 1997 and 1998.
The unaudited consolidated financial statements presented consist of the
unaudited consolidated balance sheet of the Company as at March 31, 1999 and the
related unaudited consolidated statements of operations, stockholders equity and
cash flows for the three months ending March 31, 1998 and 1999 and for the
period from inception, September 5, 1997, to March 31, 1999.
b. Cash and cash equivalents
The Company treats temporary investments with a maturity of less than three
months as cash.
c. Property and Equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is computed over the estimated useful lives using the straight line
methods over a period of five years. Maintenance and repairs are charged against
operations and betterment's are capitalized.
d. Earnings per share
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, EARNINGS PER SHARE ("Statement No.
128"). Statement No. 128 applies to entities with publicly held common stock or
potential common stock and is effective for financial statements issued for
periods ending after December 15, 1997. Statement No. 128 replaces APB Opinion
15, Earnings per Share ("EPS"). Statement No. 128 requires dual presentation of
basic and diluted earnings per share by entities with complex capital
structures. Basic EPS includes no dilution and is computed by dividing net
income by the total number of common shares outstanding for the period. Diluted
EPS reflects the potential dilution of securities that could share in the
earnings of the Company such as common stock which may be issuable upon exercise
of outstanding common stock options or the conversion of debt into common stock.
Pursuant to the requirements of the Securities and Exchange Commission, the
calculation of the shares used in computing basic and diluted EPS include the
shares of common stock that may be issued through the exercise of warrants.
Shares used in calculating basic and diluted net income per share were as
follows:
December 31, 1997 December 31, 1998 March 31, 1999
----------------- ----------------- --------------
________
Total number common
F-7
<PAGE>
shares issued 2,400,000 8,843,000
9,633,000
Effect of conversion of outstanding
warrants into shares of common stock 400,000 1,390,000
600,000
Total number shares outstanding
fully diluted 2,800,000 10,233,000
10,233,000
e. Revenue recognition
Revenue Recognition - Revenue is recognized at the time the software is
shipped, net of allowance for future estimated returns, provided that no
significant vendor obligations remain.
f. Selling and Marketing Costs
Selling and Marketing - Certain selling and marketing costs are
expensed in the period in which the cost pertains. Other selling and marketing
costs are expensed as incurred.
g. Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that effect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
h. Foreign Currency Translation
The Company's activities are conducted in the country of Canada and is
determined to be self-sustaining foreign entities and thus have been translated
into United States dollars using the current rate method. On December 31, 1998,
the exchange rate was $1.5333 for each $1.00 US.
As at December 31, 1998 and March 31, 1999, all assets, liabilities,
issuance's of stock and income statement items were realized in U.S. dollars.
The exchange rate was 1.5333 and 1.5087 respectively at March 31, 1999.
i. Significant Concentration of Credit Risk
At December 31, 1998, the Company has concentrated its credit risk by
maintaining deposits in several banks. The maximum loss that could have resulted
from this risk totaled $-0- which represents the excess of the deposit
liabilities reported by the banks over the amounts that would have been covered
by the federal insurance.
F-8
<PAGE>
j. Recent Accounting Standards
Accounting for Derivative Instruments and Hedging Activities
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" (SFAS 133) was issued in June
1998. It is effective for all fiscal years beginning after June 15, 1999. The
new standard requires companies to record derivatives on the balance sheet as
assets or liabilities, measured at fair value. Gains or losses resulting from
changes in the values of those derivatives would be accounted for depending on
the use of the derivatives and whether they qualify for hedge accounting. The
key criterion for hedge accounting is that the hedging relationship must be
highly effective in achieving offsetting changes in fair value or cash flows.
The Company does not currently engage in derivative trading or hedging activity.
The Company will adopt SFAS 133 in the fiscal year ending December 31, 2000,
although no impact on operating results or financial position is expected.
Accounting for the Costs of Computer Software Developed or Obtained for Internal
Use
In March of 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". SOP 98-1 requires computer
software costs associated with internal use software to be charged to operations
as incurred until certain capitalization criteria are met. SOP 98-1 is effective
beginning January 1, 1999. The Company is currently assessing the impact that
adoption of this statement will have on consolidated financial position and
results of operations.
k. Unaudited financial information
In the opinion of Management, the accompanying unaudited financial
statements contain all adjustments (consisting only of normal recurring items)
necessary to present fairly the financial position of the Company as of December
31, 1998 and the results of its operations and its cash flows for the three
months ended March 31, 1999. Certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted pursuant to the
SEC's rules and regulations of the Securities and Exchange Commission. The
results of operations for the periods presented are not necessarily indicative
of the results to be expected for the full year.
l. Stock-based compensation:
The Financial Accounting Standards Board has issued SFAS No.123, "Accounting
for Stock-Based Compensation", which encourages, but does not require, companies
to record compensation cost for stock-based employee compensation under a fair
value based method. The Company has elected to continue to account for its
stock-based employee compensation using the intrinsic value method prescribed by
Accounting Principles Board Opinion No.25 ("APB No.25"), "Accounting for Stock
Issued to Employees" and disclose the pro forma effects on net loss and loss per
share basic and diluted had the fair value of such compensation been expensed.
Under the provisions of APB No.25, compensation cost for stock options is
measured as the excess, if any, of the quoted market price of the Company's
common stock at the date of the grant over the amount an employee must pay to
acquire the stock.
F-9
<PAGE>
Note 3 - Private Placements
a. Sale of Units
The Company offered for sale to persons who qualified as "accredited
investors" as defined under Regulation D promulgated by the Securities and
Exchange Commission 2,000,000 Units at $0.05 per Unit. Each Unit consists of one
shares of the Company's common stock and one warrant to purchase one share of
common stock at $0.40 per share. Each warrant may be exercised at any time from
time to time after issuance and on or prior to May 11, 1999. The Company, at its
option, may redeem the warrants upon 30 days prior written notice in cash for
the sum of $0.10 per warrant.
The Company sold through a private placement 2,000,000 Units for an
aggregate consideration of $100,000 less offering expenses of $20,000.
As of April 30, 1998, the Board of Directors of the Company amended the
offering to reduce the warrant exercise price to $0.40 per share of common
stock.
As of December 31, 1998 and March 31, 1999, the Company has sold
610,000 and 1,400,000 shares respectively of common stock through the exercise
of 610,000 and 790,000 warrants respectively for an aggregate consideration of
$244,000 and $560,000 respectively.
As of December 31, 1998 and March 31, 1999, the Company has reserved 1,390,000
and 600,000 shares of common stock pending the conversion of warrants into
shares of common stock.
b. Sale of Common Shares
Pursuant to a private placement which was intended to be effected under
an exemption from registration and to persons who qualify as "accredited
investors" as defined under Regulation D promulgated by the Securities and
Exchange Commission under the Securities Act of 1933, the Company has sold an
aggregate of 38,000 shares of common stock at $0.50 per share in consideration
for $19,000.
Note 4 - Preferred Stock
The Company is authorized to issue 5,000,000 shares of preferred stock,
$.001 par value per share. The Board of Directors of the Company has the
authority, without further action by the holders of the outstanding shares of
common stock, to issue shares of preferred stock from time to time in one or
more classes or series, to fix the number of shares constituting any class or
series and the stated value, if different from the par value, and to fix the
terms of any such series or class, including dividend rights, dividend rates,
conversion or exchange rights, voting rights, rights and terms of redemption
(including sinking fund provisions), the redemption price and the liquidation
preference of such class or series. The designations, rights and preferences of
any Shares of Preferred Stock would be set forth in a Certificate of Designation
which would be filed with the Secretary of State of the State of Delaware. As of
December 31, 1998, the number of shares of preferred stock outstanding is -0-.
Note 5 - Acquisition of Assets
a. Acquisition of Mushroom Innovations, Inc.
Pursuant to an acquisition agreement dated September 17, 1997, the
Company issued 2,000,000 shares of common stock at $0.0001 per share for an
aggregate consideration of $2,000 to Mushroom Innovations, Inc. ("Mushroom"), a
British Columbia corporation in consideration for all of the issued and
outstanding shares of common stock of Mushroom's wholly owned subsidiary EPOST
Innovations, Inc. ("ePost Canada"), a corporation formed under the laws of
British Columbia. The shares of common stock were valued at $.001 per share for
an aggregate consideration of $2,000.
F-10
<PAGE>
Carl Whitehead, Bill Kaleta and Robert Sendoh are officers and
directors of the Company and Mushroom.
The Company acquired all the rights, title and interest to all the assets owned
by ePost Canada. Those assets consisted of proprietary knowledge of various
computer software products under development by ePost Canada.
b. Acquisition of Communication Exchange Management, Inc.
On September 18, 1998, the Company acquired an additional subsidiary of
Mushroom's, Communication Exchange Management, Inc.("CEM"), British Columbia
company. The Company issued 4,180,000 shares of common stock valued at $0.001
per share for an aggregate consideration of $4,180 in a related party
transaction to Mushroom Innovations, Inc. for all of the issued and outstanding
stock of CEM and its assets consisting of the source code written for data
encryption software, personal information management and electronic mail
functionality along with the intellectual rights to a number of other projects.
The transaction has been accounted for as an acquisition and using the purchase
method of accounting with historic costs being the basis of valuation, and
accordingly, the accompanying financial statements include the results of
operations of the consolidated operations from the effective date of the
acquisition September 18, 1998.
Note 6 - Capital Assets
Capital Assets consisted of the following at December 31, 1998 March 31, 1999
<TABLE>
<CAPTION>
<S> <C> <C>
Office equipment $28,563 $42,539
Accumulated depreciation 6,233 7,733
Balance $22,330 $34,806
</TABLE>
Note 7 - Related Party transactions
a. Issuance of Shares of Capital Stock
Pursuant to an acquisition agreement dated September 17, 1997, the
Company issued 2,000,000 shares of common stock to Mushroom in consideration for
all of the issued and outstanding shares of common stock of Mushroom's wholly
owned subsidiary ePost Canada. The shares of common stock were valued at $.001
per share for an aggregate consideration of $2,000.
Mushroom made a further distribution of the shares of common stock as follows:
1,020,000 to Robert Sendoh, 600,000 shares of common stock to Carl Whitehead,
200,000 shares of common stock to William Kaleta and 180,000 shares of common
stock to Chiyoko Asanuma. On September 18, 1998, the Company issued an
additional 4,180,000 shares of common stock to Mushroom for the acquisition of
CEM for an aggregate consideration of $4,180 or $0.001 value each share.
Mushroom made a further distribution of the shares of common stock as
follows: 480,000 to Robert Sendoh, 900,000 shares of common stock to Carl
Whitehead, 1,300,000 shares of common stock to William Kaleta and 1,500,000
shares of common stock to Kelly Shane Montalban.
b. Gifting of Shares of Common Stock
On September 18, 1998, Robert Sendoh and Carl Whitehead personally
gifted an aggregate of 562,000 shares of common stock as follows: 400,000 shares
to Steve Berry, 12,000 shares to Pezhman Sharifi, 150,000 shares to Miulet
Technologies, Inc.
c. Officer Compensation
F-11
<PAGE>
For the period from inception, September 5, 1997, to December 31, 1998, the
Company has not paid any officer in excess of $100,000.
Note 8 - Income Taxes
The Company provides for the tax effects of transactions reported in the
financial statements. The provision if any, consists of taxes currently due plus
deferred taxes related primarily to differences between the basis of assets and
liabilities for financial and income tax reporting. The deferred tax assets and
liabilities, if any represent the future tax return consequences of those
differences, which will either be taxable or deductible when the assets and
liabilities are recovered or settled. As of December 31, 1998, the Company had
no material current tax liability, deferred tax assets, or liabilities to impact
on the Company's financial position because the deferred tax asset related to
the Company's net operating loss carryforward and was fully offset by a
valuation allowance.
At December 31, 1998, the Company has net operating loss carry forwards for
income tax purposes of $241,573. This carryforward is available to offset future
taxable income, if any, and expires in the year 2010. The Company's utilization
of this carryforward against future taxable income may become subject to an
annual limitation due to a cumulative change in ownership of the Company of more
than 50 percent. The components of the net deferred tax asset as of December 31,
1998 are as follows:
Deferred tax asset:
Net operating loss carry forward $ 82,328
Valuation allowance $ (82,328)
Net deferred tax asset $ -0-
The Company recognized no income tax benefit for the loss generated in the
period from inception, September 5, 1997, to December 31, 1998. SFAS No. 109
requires that a valuation allowance be provided if it is more likely than not
that some portion or all of a deferred tax asset will not be realized. The
Company's ability to realize benefit of its deferred tax asset will depend on
the generation of future taxable income. Because the Company has yet to
recognize significant revenue from the sale of its products, the Company
believes that a full valuation allowance should be provided.
Note 9 - Commitments and Contingencies
a. Lease agreement for office space
The Company has leased 408.1 square meters of office space from the Minister of
Public Works and Government Services at #101-260 West Esplanade Street, North
Vancouver, British Columbia at a rent of $2,609 per month for an annual rent of
$31,305. The lease will begin February 1, 1998 and terminate December 30, 1999.
A security deposit of $2,609 was paid and a six month advance prepaid rental of
$16,836.
b. Stock Warrants
The Company has authorized 2,000,000 warrants to purchase an additional
2,000,000 shares of common stock as part of a private placement dated October
27, 1997. As of December 31, 1998 and March 31, 1999 the number of warrants
outstanding was 1,390,000 and 600,000 respectively. The Company has reserved
that many shares of common stock at December 31, 1998 and March 31, 1999.
c. Software Development Contracts
(1) The Company has entered into a one year employment agreement with
Marian Miulet though its wholly owned subsidiary ePost Innovations, Inc. for the
development of the Company proposed software products. The Company is required
to pay an annual salary of $25,200 beginning February 1, 1998.
F-12
<PAGE>
(2) The Company has entered into an employment agreement with Bill
Kaleta for a period of one year November 1, 1997 at a monthly fee of $1,800 for
the development of the Company's computer software products.
Note 11 - Non Cash Transactions
For the year ending December 31, 1998, the Company issued shares of
common stock as follows:
Acquisition of ePOST 2,000,000 shares of common stock $2,000
Issuance of 15,000 shares at $0.50 per share for legal expenses 7,500
Acquisition of CEM 4,180,000 shares at $0.001 4,180
Total non cash expenditures $13,180
Note 12 - Development Stage Company
The Company is considered to be a development stage company with little
operating history. The Company is dependent upon the financial resources of the
Company's management for its continued existence. The Company will also be
dependent upon its ability to raise additional capital to complete is marketing
program, acquire additional equipment, management talent, inventory and working
capital to engage in profitable business activity. Since its organization, the
Company's activities have been limited to determining the feasibility of the
software products and beginning initial programming and product development and
the conducting of marketing research, and the preparation of documentation and
the sale of a private placement offering.
F-13
<PAGE>
EXHIBIT 2
CERTIFICATE OF INCORPORATION
OF
EPOST CORPORATION
__________________
The undersigned, Adam S. Gottbetter on behalf of Kaplan Gottbetter &
Levenson, LLP, for the purpose of organizing a corporation for conducting the
business and promoting the purposes hereinafter stated, under the provisions and
subject to the requirements of the laws of the State of Delaware (particularly
Chapter 1, Title 8 of the Delaware Code and the acts amendatory thereof and
supplemental thereto, and known, identified, and referred to as the "General
Corporation Law of the State of Delaware"), hereby certifies that:
FIRST: The name of the corporation (hereinafter called the
-----
"corporation") is
ePost Corporation
SECOND: The address, including street, number, city, and county, of
------
the registered office of the corporation in the State of Delaware is 9 East
Loockerman, City of Dover 19901, County of Kent; and the name of the registered
agent of the corporation in the State of Delaware at such address is National
Corporate Research, Ltd.
THIRD: The nature of the business and the purpose to be conducted
-----
and promoted by the corporation which shall be in addition to the authority of
the corporation to conduct any lawful business, to promote any lawful purpose,
and to engage in any lawful act or activity for which corporations may be
organized under the General Corporation Law of the State of Delaware.
FOURTH: The total number of shares of stock which the corporation
------
shall have authority to issue is 25,000,000 of which 20,000,000 shares are
designated as common stock, par value $.001 per share and 5,000,000 shares of
blank check preferred stock, par value $.001 per share, none of which has been
designated.
FIFTH: The name and the mailing address of the incorporator are as
-----
follows:
NAME MAILING ADDRESS
---- ---------------
Kaplan Gottbetter Att: Adam S. Gottbetter
& Levenson, LLP 630 Third Avenue
New York, NY 10017
SIXTH: The corporation is to have perpetual existence.
-----
SEVENTH: Whenever a compromise or arrangement is proposed between
-------
this corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this corporation under
the
<PAGE>
provisions of (S)291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for this
corporation under the provisions of (S)279 of Title 8 of the Delaware Code order
a meeting of the creditors or class of creditors, and/or of the stockholders or
class of stockholders of this corporation, as the case may be, to be summoned in
such manner as the said court directs. If a majority in number representing
three fourths in value of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of this corporation, as the case may be,
agree to any compromise or arrangement and to any reorganization of this
corporation as consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of this corporation, as the case may be, and also on this
corporation.
EIGHTH: For the management of the business and for the conduct of the
------
affairs of the corporation, and in further definition, limitation, and
regulation of the powers of the corporation and of its directors and of its
stockholders or any class thereof, as the case may be, it is further provided:
1. The management for the business and the conduct
of the affairs of the corporation shall be vested in its
Board of Directors. The number of directors which shall
constitute the whole Board of Directors shall be fixed by, or
in the manner provided in, the Bylaws. The phrase "whole Board"
and the phrase "total number of directors" shall be deemed to
have the same meaning, to wit, the total number of directors
which the corporation would have if there were no vacancies. No
election of directors need be by written ballot.
2. After the original or other Bylaws of the corporation
have been adopted, amended, or repealed, as the case may be, in
accordance with the provisions of (S)109 of the General Corporation
Law of the State of Delaware, and, after the corporation has
received any payment for any of its stock, the power to adopt,
amend, or repeal the Bylaws of the corporation may be exercised by
the Board of Directors of the corporation; provided, however,
that any provision for the classification of directors of the
corporation for staggered terms pursuant to the provisions of
subsection (d) of (S)141 of the General Corporation Law of the
State of Delaware shall be set forth in an initial Bylaw or in
a Bylaw adopted by the stockholders entitled to vote of the
corporation unless provisions for such classification shall be
set forth in this certificate of incorporation.
2
<PAGE>
3. Whenever the corporation shall be authorized to issue
only one class of stock, each outstanding share shall entitle
the holder thereof to notice of, and the right to vote at, any
meeting of stockholders. Whenever the corporation shall be
authorized to issue more than one class of stock, no outstanding
share of any class of stock which is denied voting power under
the provisions of the certificate of incorporation shall entitle
the holder thereof to the right to vote at any meeting of
stockholders except as the provisions of paragraph (2) of subsection
(b) of (S)242 of the General Corporation Law of the State of
Delaware shall otherwise require; provided, that no share of
any such class which is otherwise denied voting power shall
entitle the holder thereof to vote upon the increase or decrease
in the number of authorized shares of said class.
NINTH: The personal liability of the directors of the corporation is
-----
hereby eliminated to the fullest extent permitted by the provisions of paragraph
(7) of subsection (b) of
(S)102 of the General Corporation Law of the State of Delaware, as the same may
be amended
and supplemented.
TENTH: The corporation shall, to the fullest extent permitted by the
-----
provisions of (S)145 of the General Corporation Law of the State of Delaware, as
the same may be amended and supplemented, indemnify any and all persons whom it
shall have power to indemnify under said section from and against any and all of
the expenses, liabilities, or other matters referred to in or covered by said
section, and the indemnification provided for herein shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any Bylaw, agreement, vote of stockbrokers or disinterested directors or
otherwise both as to action in his official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be a director, officer, employee, or agent and shall inure to the
benefit of the heirs, executors, and administrators of such a person.
ELEVENTH: From time to time any of the provisions of this certificate of
--------
incorporation may be amended, altered, or repealed, and other provisions
authorized by the laws of the State of Delaware at the time in force may be
added or inserted in the manner and at the time prescribed by said laws, and all
rights at any time conferred upon the stockholders of the corporation by this
certificate of incorporation are granted subject to the provisions of this
Article ELEVENTH.
Signed on September 5, 1997
KAPLAN GOTTBETTER & LEVENSON, LLP, Incorporator
/s/ Adam S. Gottbetter
-------------------------------------
By: Adam S. Gottbetter
Title: Partner
<PAGE>
EXHIBIT 2.1
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION
OF
EPOST CORPORATION
---------------------------
It is hereby certified that:
1. The name of the corporation (hereinafter called the "Corporation") is
ePost Corporation
2. The certificate of incorporation of the Corporation is hereby amended
by striking out Article First thereof and by substituting in lieu of said
Article the following new Article First:
"The name of the corporation (hereinafter called the "Corporation") is
CyPost Corporation"
3. The Corporation has not received any payment for any of its stock and
has not elected or named any directors. The sole incorporator of the
Corporation has duly adopted this Amendment pursuant to the provisions of
Section 241 of the General Corporation Law of the State of Delaware.
Signed on September 17, 1997.
KAPLAN GOTTBETTER & LEVENSON, LLP, Sole Incorporator
Incorporate
/s/ Adam S. Gottbetter
--------------------------
By: Adam S. Gottbetter
Title: Partner
5502.1
<PAGE>
EXHIBIT 2.2
BY-LAWS
OF
Cypost Corporation
A Delaware Corporation
ARTICLE I - OFFICES
-------------------
The registered office of the Corporation in the State of Delaware shall be
located in the City and State designated in the Certificate of Incorporation.
The Corporation may also maintain offices at such other places within or without
the State of Delaware as the Board of Directors may, from time to time,
determine.
ARTICLE 11 - MEETING OF SHAREHOLDERS
------------------------------------
Section I - Annual Meeting: (Section 211)
- --------------------------
The annual meeting of the shareholders of the Corporation shall be held at the
time fixed, from time to time, by the Directors, at the time fixed from time to
time by the Directors.
Section 2 - Special Meeting: (Section 211)
- ---------------------------
Special meetings of the shareholders may be called by the Board of Directors or
such person. or persons authorized by the Board of Directors shall be held
within or without the State of Delaware.
Section 3 - Court-ordered meeting: (Section 211)
- ---------------------------------
The Court of Chancery in this State where the Corporation's principal office is
located, or where the Corporation's registered office is located if its
principal office is not located in this state, may after notice to the
Corporation, order a meeting to be field on application of any Director or
shareholder of the Corporation entitled to vote in an annual meeting if an
annual meeting has not been held within any thirteen month period if there is a
failure by the Corporation to hold an annual meeting for a period of thirty days
after the date designated therefor, or if no date has been designated, for a
period of thirteen months after the organization of the Corporation or after its
last annual meeting. The court may fix the time and place of the meeting,
determine the shares entitled to participate in the meeting, specify a record
date for determining shareholders entitled to notice of and to vote at the
meeting, prescribe the form and content of the meeting notice, and enter other
orders a may be appropriate.
_______________________________________________________________________________
* All references to Sections in these By Laws refer to those sections contained
in the Delaware General Corporation Law
<PAGE>
Section 4 - Place of Meetings: (Section 211)
- -----------------------------
Meetings of shareholders shall be held at the registered office of the
Corporation, or at such other places, within or without the State of Delaware as
the Directors may from time to time fix. If no designation is made, the meeting
shall be held at the Corporation's registered office in the state of Delaware.
Section 5 - Notice of Meetings: (Section 222)
- ------------------------------
(a) Written or printed notice of each meeting of shareholders, whether annual or
special, stating the time when and place where it is to be held, shall be served
either personally or by first class mail, by or at the direction of the
president, the secretary, or the officer or the person calling the meeting, not
less than ten or more than sixty days before the date of the meeting, unless the
lapse of the prescribed time shall have been waived before or after the taking
of such action, upon each shareholder of record entitled to vote at such
meeting, and to any other shareholder to whom the giving of notice may be
required by law. Notice of a special meeting shall also state the business to be
transacted or the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. If, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to dissent and receive payment for
their shares pursuant to the Delaware General Corporation Law, the notice of
such meeting shall include a statement of that purpose and to that effect. If
mailed, such notice shall be deemed to be given when deposited in the United
States mail addressed to the shareholder as it appears on the share transfer
records of the Corporation.
Section 6 - Shareholders' List: (Section 219)
- ------------------------------
(a) After fixing a record date for a meeting, the officer who has charge of the
stock ledger of the Corporation, shall prepare an alphabetical list of the names
of all its shareholders entitled to notice of the meeting, arranged by voting
group with the address of, and the number, class, and series, if any, of shares
held by, each shareholder. The shareholders' list must be available for
inspection by any shareholder for a period of ten days before the meeting or
such shorter time as exists between the record date and the meeting and
continuing through the meeting at the Corporation's principal office, at a place
identified in the meeting notice in the city where the meeting will be held, or
at the office of the Corporation's transfer agent or registrar. Any shareholder
of the Corporation or the shareholder's agent or attorney is entitled on written
demand to inspect the shareholders' list during regular business hours and at
the shareholder's expense, during the period it is available for inspection.
(b) The Corporation shall make the shareholder's list available at the meeting
of shareholders, and any shareholder or the shareholder's agent or attorney is
entitled to inspect the list at any time during the meeting or any adjournment.
(c) Upon the willful neglect or refusal of the Directors to produce such a list
at any meeting for the election of Directors, such Directors shall be ineligible
for election for any office at such meeting.
<PAGE>
(d) The stock ledger shall be the only evidence as to who are the shareholders
entitled to examine the stock ledger, the list required by Section 219 of the
Delaware General Corporation Law or the books of the Corporation, or to vote in
person or by proxy at any shareholders' meeting.
Section 7 - Quorum: (Section 216)
- ------------------
(a) Except as otherwise provided herein, or by law, or in the Certificate of
Incorporation (such Articles and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), or for meetings
ordered by the Court of Chancery called pursuant to Section 211 of the Delaware
General Corporations Law, a quorum shall be present at all meetings of
shareholders of the Corporation, if the holders of a majority of the shares
entitled to vote on that matter are represented at the meeting in person or by
proxy.
(b) The subsequent withdrawal of any shareholder from the meeting, after the
commencement of a meeting, or the refusal of any shareholder represented in
person or by proxy to vote, shall have no effect on the existence of a quorum,
after a quorum has been established at such meeting.
(c) Despite the absence of a quorum at any meeting of shareholders, the
shareholders present may adjourn the meeting.
Section 8 - Voting: (Section 212 & 216)
- ------------------
(a) Except as otherwise provided by law, the Certificate of Incorporation, or
these Bylaws, for any corporate action, other than the election of Directors,
the affirmative vote of the majority of shares entitled to vote on that matter
and represented either in person or by proxy at a meeting of shareholders at
which a quorum is present shall be the act of the shareholders of the
Corporation.
(b) Unless otherwise provided for in the Articles of Incorporation of this
Corporation, directors will be elected by a plurality of the votes cast by the
shares entitled to vote in the election at a meeting at which a quorum is
present and each shareholder entitled to vote has the right to vote the number
of shares owned by him for a many persons as there are Directors to be elected.
Unless otherwise provided for in the Certificate of Incorporation of this
Corporation, Directors will be elected by a plurality of the votes by the
shares, present in person or by proxy, entitled to vote in the election at a
meeting at which a quorum is present and each shareholder entitled to vote has
the right to vote the number of shares owned by him/her for as may persons as
there are Directors to be elected.
(c) Except as otherwise provided by statute, the Certificate of Incorporation,
or these bylaws, at each meeting of shareholders, each shareholder of the
Corporation entitled to vote thereat, shall be entitled to one vote for each
share registered in his name on the books of the Corporation.
Section 9 - Proxies: (Section 212)
- -------------------
Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so either in person or by proxy, so long as such proxy is
executed in writing by the shareholder himself, or by his attorney-in-fact
thereunto duly authorized in writing. Every proxy shall be revocable at will
<PAGE>
unless the proxy conspicuously states that it is irrevocable and the proxy is
coupled with an interest. A telegram, telex, cablegram, or similar transmission
by the share- holder, or as a photographic, photostatic, facsimile, shall be
treated as a valid proxy, and treated as a substitution of the original proxy,
so long as such transmission is a complete reproduction executed by the
shareholder. No proxy shall be valid after the expiration of three years from
the date of its execution, unless otherwise provided in the proxy. Such
instrument shall be exhibited to the Secretary at the meeting and shall be filed
with the records of the Corporation.
Section 10 - Action Without a Meeting: (Section 228)
- -------------------------------------
Unless otherwise provided for in the Certificate of Incorporation of the
Corporation, any action to be taken at any annual or special shareholders'
meeting, may be taken without a meeting, without prior notice and without a vote
if a written consent or consents is/are signed by the shareholders of the
Corporation having not less than the minimum number of votes necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereat were present and voted is delivered by hand or by certified or
registered mail, return receipt requested, to the Corporation to its registered
office in the State of Delaware, its principal place of business or an officer
or agent of the Corporation having custody of the book in which proceedings of
shareholders' meetings are recorded.
Section 11 - Inspector: (Section 231)
- ----------------------
(a) The Corporation shall appoint one or more inspectors, and one or more
alternate inspectors, to act at any shareholders' meeting and make a written
report thereof, so long a such inspectors sign an oath to faithfully execute
their duties with impartiality and to the best of their ability before such
meeting. If no inspector or alternate is able to act a shareholders' meeting,
the presiding officer shall appoint one or more inspectors to act at the
meeting.
*(b) The inspector shall:
(I) ascertain the number of shares entitled to vote and the voting
power of each such shareholder;
(II) determine the shares represented at a meeting and the validity of
proxies and ballots;
(III) count all votes and ballots;
(IV) determine and retain for a reasonable time a disposition record of
any challenges made to any of the inspectors' determinations; and
(V) certify the inspectors' determinations of the number of shares
represented at the meeting and their count of all votes and ballots.
<PAGE>
ARTICLE III - BOARD OF DIRECTORS
- --------------------------------
Section I - Number, Tenn. Election and Qualifications: (Section 141)
- -----------------------------------------------------
(a) The first Board of Directors and all subsequent Boards of the Corporation
shall consist of two, unless and until otherwise determined by vote of a
---
majority of the entire Board of Directors. The Board of Directors or
shareholders shall have the power, in the interim between annual and special
meetings of the shareholders, to increase or decrease the number of Directors of
the Corporation. A Director need not be a shareholder of the Corporation unless
the Certificate of Incorporation of the Corporation or these Bylaws require.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the Corporation shall be
elected at the first annual shareholders' meeting and at each annual meeting
thereafter, unless their terms are staggered in the Certificate of Incorporation
of the Corporation or these Bylaws, by a majority of the votes cast at a meeting
of shareholders, by the holders of shares entitled to vote in the election.
(c) The first Board of Directors shall hold office until the first annual
meeting of shareholders and until their successors have been duly elected and
qualified or until there is a decrease in the number of Directors. Thereinafter,
Directors will be elected at the annual meeting of shareholders and shall hold
office until the annual meeting of the shareholders next succeeding his
election, or until his prior death, resignation or removal. Any Director may
resign at any time upon written notice of such resignation to the Corporation.
*NOTE. Article 11 Section I Subsection (b) of these Bylaws shall not be used
in the Corporation's Bylaws unless the Corporation has one or more classes of
voting stock that are:
(i) listed on a national exchange; (ii) authorized for quotation on an
interdealer quotation system of a registered national securities association; or
(iii) held by more than two thousand shareholders of record of the Corporation.
Section 2 - Duties and Powers: (Section 141)
- -----------------------------
The Board of Directors shall be responsible for the control and management of
the business and affairs, property and interests of the Corporation, and may
exercise all powers of the Corporation, except such as those stated under
Delaware state law, are in the Certificate of Incorporation or by these Bylaws,
expressly conferred upon or reserved to the shareholders or any other person or
persons named therein.
Section 3 - Regular Meetings, Notice:
- ------------------------------------
(a) A regular meeting of the Board of Directors shall be held either within or
without the State of Delaware at such time and at such place as the Board shall
fix.
(b) No notice shall be required of any regular meeting of the Board of Directors
and, if given, need
<PAGE>
not specify the purpose of the meeting; provided, however, that in case the
Board of Directors shall fix or change the time or place of any regular meeting
when such time and place was fixed before such change, notice of such action
shall be given to each director who shall not have been present at the meeting
at which such action was taken within the time limited, and in the manner set
forth in these Bylaws with respect to special meetings, unless such notice shall
be waived in the manner set forth in these Bylaws.
Section 4 - Special Meeting, Notice:
- -----------------------------------
(a) Special meetings of the Board of Directors shall be held at such time and
place as may be specified in the respective notices or waivers of notice
thereof.
(b) Except as otherwise required by statute, written notice of special meetings
shall be mailed directly to each Director, addressed to him at his residence or
usual place of business, or delivered orally, with sufficient time for the
convenient assembly of Directors thereat, or shall be sent to him at such place
by telegram, radio or cable, or shall be delivered to him personally or given to
him orally, not later than the day before the day on which the meeting is to be
held. If mailed, the notice of any special meeting shall be deemed to be
delivered on the second day after it is deposited in the United States mails, so
addressed, with postage prepaid. If notice is given by telegram, it shall be
deemed to be delivered when the telegram is delivered to the telegraph company.
A notice, or waiver of notice, except as required by these Bylaws, need not
specify the business to be transacted at or the purposes or purposes of the
meeting.
(c) Notice of any special meeting shall not be required to be given to any
Director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
(d) Unless otherwise stated in the Articles of Incorporation of the Corporation,
the Chairperson, President, Treasurer, Secretary or any two or more Directors of
the Corporation may call any special meeting of the Board of Directors.
Section 5 - Chairperson:
- -----------------------
The Chairperson of the Board, if any and if present, shall preside at all
meetings of the Board of Directors. If there shall be no Chairperson, or he or-
she shall be absent, then the President shall preside, and in his absence, any
other director chosen by the Board of Directors shall preside.
Section 6 - Quorum and Adjournments: (Section 141)
- -----------------------------------
(a) At all meetings of the Board of Directors, or any committee thereof, the
presence of a majority of the entire Board, or such committee thereof, shall
constitute a quorum for the transaction of business, except as otherwise
provided by law, by the Certificate of Incorporation, or these Bylaws. (Note: If
the Certificate of Incorporation authorize a quorum to consist of less than a
majority, but no fewer than one-third of the prescribed number of Directors as
permitted by law except that when
<PAGE>
a card of one Director is authorized under Section 141 of the Delaware General
Corporation Law, then one Director shall constitute a quorum or if the
Certificate of Incorporation and/or Bylaws require a greater number than a
majority as constituting a quorum then these Bylaws would state that this lesser
or greater amount, instead of a majority, will constitute a quorum.)
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, whether or not a quorum exists. Notice of such adjourned
meeting shall be given to Directors not present at time of the adjournment and,
unless the time and place of the adjourned meeting are announced at the time of
the adjournment, to the other Directors who were present at the adjourned
meeting.
Section 7 - Manner of Acting: (Section 141)
- ----------------------------
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by law, by the Certificate of Incorporation, or
these By Laws, action approved by a majority of the votes of the Directors
present at any meeting of the Board or any committee thereof, at which a quorum
is present shall be the act of the Board of Directors or any committee thereof.
(c) Any action authorized in writing made prior or subsequent to such action, by
all of the directors entitled to vote thereon and filed with the minutes of the
Corporation shall be the act of the Board of Directors, or any committee
thereof, and have the same force and effect as if the same had been passed by
unanimous vote at a duly called meeting of the Board or committee for all
purposes and may be stated as such in any certificate or document filed with the
Secretary of the State of Delaware.
(d) Where appropriate communications facilities are reasonably available, any or
all directors shall have the right to participate in any Board of Directors
meeting, or a committee of the Board of Directors meeting, by means of
conference telephone or any means of communications by which all persons
participating in the meeting are able to hear each other.
Section 8 - Vacancies: (Section 223)
- ---------------------
(a) Any vacancy in the Board of Directors occurring by reason of an increase in
the number of directors, or by reason of the death, resignation,
disqualification, removal or inability to act of any director, or other cause,
shall be filled by an affirmative vote of a majority of the remaining directors,
though less than a quorum of the Board or by a sole remaining Director, at any
regular meeting or special meeting of the Board of Directors called for that
purpose except whenever the shareholders of any class or classes or series
thereof are entitled to elect one or more Directors by the Certificate of
Incorporation of the Corporation. Vacancies and newly created directorships of
such class or classes or series may be filled by a majority of the Directors
elected by such class or classes or series thereof then in office, or by a sole
remaining Director so elected.
<PAGE>
(b) If at any time, by reason of death or resignation or other cause, the
Corporation shall have no Directors in office, then an officer or any
shareholder or an executor, administrator, trustee, or guardian of a
shareholder, or other fiduciary entrusted with like responsibility for the
person or estate of a shareholder, may call a special meeting of shareholders to
fill such vacancies or may apply to the Court of Chancery for a decree summarily
ordering an election.
(c) If the Directors of the Corporation constitute less than a majority of the
whole Board, the Court of Chancery may, upon application of any shareholder or
shareholders holding at least ten percent of the total number of shares entitled
to vote for Directors, order an election to be held to fill any such vacancies
or newly created directorships.
(d) Unless otherwise provided for by statute, the Certificate of Incorporation
or these Bylaws, when one or more directors shall resign from the board and such
resignation is 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 otherwise to take effect when such resignation or
resignation shall become effective.
Section 9 - Resignation:
- -----------------------
The shareholders may, at any meeting, vote to accept the resignation of any
Director.
Section 10 -Removal: (Section 141)
- -------------------
One or more or all the Directors of the Corporation may be removed with or
without cause at any time by the shareholders, at a special meeting of the
shareholders called for that purpose, unless the Certificate of Incorporation
provide that Directors may only be removed for cause, provided however, such
Director shall not be removed if the Corporation states in its Certificate of
Incorporation that its Directors shall be elected by cumulative voting and there
are a sufficient number of shares against his or her removal, which if
cumulatively voted at an election of Directors would be sufficient to elect him
or her. If a Director was elected by a voting group of shareholders, only the
shareholders of that voting group may participate in the vote to remove that
Director.
Section 11 - Compensation: (Section 141)
- -------------------------
The Board of Directors may authorize and establish reasonable compensation of
the Directors for services to the Corporation as Directors, including, but not
limited to attendance at any annual or special meeting of the Board.
Section 12 - Committees: (Section 141)
- -----------------------
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members one or more committees,
and alternate members thereof, as they deem desirable, each consisting of one or
more members, with such powers and authority (to the extent permitted by law and
these Bylaws) as may be provided in such resolution. Each such committee shall
serve at the pleasure of the Board and, unless otherwise stated by law, the
Certificate
<PAGE>
of Incorporation of the Corporation or these Bylaws, shall be governed by the
rules and regulations stated herein regarding the Board of Directors.
ARTICLE IV - OFFICERS
Section I - Number. Qualifications. Election and Term of Office: (Section 142)
- ---------------------------------------------------------------
(a) The Corporation's officers shall have such titles and duties as shall be
stated in these Bylaws or in a resolution of the Board of Directors which is not
inconsistent with these Bylaws. The officers of the Corporation shall consist of
an officer whose duty is to record proceedings of shareholders' and Directors'
meetings and such other officers as the Board of Directors may from time to time
deem advisable. Any officer other than the Chairman of the Board of Directors
may be, but is not required to be, a Director of the Corporation. Any two or
more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
duly elected and qualified, subject to earlier termination by his or her death,
resignation or removal.
Section 2 - Resignation: (Section 142)
- -----------------------
Any officer may resign at any time by giving written notice of such resignation
to the Corporation.
Section 3 - Removal: (Section 142)
- -------------------
Any officer elected by the Board of Directors may be removed, either with or
without cause, and a successor elected by the Board at any time and any officer
or assistant officers if appointed by another officer, may likewise be removed
by such officer.
Section 4 - Vacancies: (Section 142)
- ---------------------
A vacancy, however caused, occurring in the Board and any newly created
Directorships resulting from an increase in the authorized number of Directors
may be filled by the Board of Directors.
Section 5 - Bonds: (Section 142)
- -----------------
The Corporation may require any or all of its officers or Agents to post a bond,
or otherwise, to the Corporation for the faithful performance of their positions
or duties.
<PAGE>
Section 6 - Compensation:
- ------------------------
The compensation of the officers of the Corporation shall be fixed from time to
time by the Board of Directors.
ARTICLE V - SHARES OF STOCK
Section I - Certificate of Stock:
- --------------------------------
(a) The shares of the Corporation shall be represented by certificates or shall
be uncertificated shares.
(b) Certificated shares of the Corporation shall be signed, (either manually or
by facsimile), by the Chairperson, Vice-Chairperson, President or Vice-President
and Secretary or an Assistant Secretary or the Treasurer or Assistant Treasurer,
or any other Officer designated by the Board of Directors, provided however that
where such certificate is signed by a transfer agent or an assistant transfer
agent or by a transfer clerk acting on behalf of the Corporation and a
registrar, any such signature may be a facsimile thereof. In case any officer
who has signed or whose facsimile signature has been placed upon such
certificate, shall have ceased to be such officer before such certificate is
issued, it may be issued by the Corporation with the same effect as if he were
such officer at the date of its issue.
(c) Certificates shall be issued in such form not inconsistent with the
Certificate of Incorporation and as shall be approved by the Board of Directors.
Such certificates shall be numbered and registered on the books of the
Corporation, in the order in which they were issued.
(d) Except as otherwise provided by law, the rights and obligations of the
holders of uncertificated shares and the rights and obligations of the holders
of certificates representing shares of the same class and series shall be
identical.
Section 2 - Lost or Destroyed Certificates:
- ------------------------------------------
The Board of Directors may direct a new certificate or certificates to be issued
in place of any certificate or certificates theretofore issued by the
Corporation alleged to have been lost, stolen or destroyed if the owner:
(a) so requests before the Corporation has notice that the shares have been
acquired by a bona fide purchaser,
(b) files with the Corporation a sufficient indemnity bond; and
(c) satisfies such other requirements, including evidence of such loss,
theft or destruction, as may be imposed by the Corporation.
<PAGE>
Section 3 - Transfers of Shares: (Section 201)
- -------------------------------
(a) Transfers or registration of transfers of shares of the Corporation shall be
made on the stock transfer books of the Corporation by the registered holder
thereof, or by his attorney duly authorized by a written power of attorney; and
in the case of shares represented by certificates, only after the surrender to
the Corporation of the certificates representing such shares with such shares
properly endorsed, with such evidence of the authenticity of such endorsement,
transfer, authorization and other matters as the Corporation may reasonably
require, and the payment of all stock transfer taxes due thereon.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date: (Section 213)
- -----------------------
(a) The Board of Directors may fix, in advance, which shall not be more than
sixty, nor less than ten days before the meeting or action requiring a
determination of shareholders, the record date for the determination of
shareholders entitled to receive notice of, or to vote at, any meeting of
shareholders, or to consent to any proposal without a meeting, or for the
purpose of determining shareholders entitled to receive payment of any
dividends, or allotment of any rights, or for the purpose of any other action.
If no record date is fixed, the record date for shareholders entitled to notice
of meeting shall be at the close of business on the day preceding the day on
which notice is given, or, if no notice is given, the day on which the meeting
is held, or if notice is waived, at the close of business on the day before the
day on which the meeting is held.
(b) The Board of Directors may fix a record date, which shall not precede the
date upon which the resolution fixing the record date is adopted for
shareholders entitled to receive payment of any dividend or other distribution
or allotment of any rights, of shareholders entitled to exercise any rights in
respect of any change, conversion or exchange of stock, or for the purpose of
any other lawful action, provided that such record date shall not be more than
sixty days before such action.
(c) The Board of Directors may fix, in advance, a date which shall not precede
the date upon which the resolution fixing the record date is adopted by the
Board of Directors, and which date shall not be more than ten days after the
date upon which the resolution fixing the record date is adopted by the Board of
Directors. If no record date is fixed and no prior action is required by the
Board, the record date for determining shareholders entitled to consent to
corporate action in writing without a meeting, 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 by delivery by hand or by certified or
registered mail, return receipt requested, to its registered office in this
State, its principal place of business, or to an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
shareholders are recorded. If no record date is fixed by the Board of Directors
and prior action is required by law, the record date for determining
shareholders entitled to consent to
<PAGE>
corporate action in writing without a meeting shall be at the close of business
on the day on which the Board of Directors adopts the resolution taking such
prior action.
(d) A determination of shareholders entitled to notice of or to vote at a
shareholders' meeting is effective for any adjournment of the meeting unless the
Board of Directors fixes a new record date for the adjourned meeting.
ARTICLE VI - DIVIDENDS (Section 173)
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
-------------------------
The fiscal year of the Corporation shall be fixed, and shall be subject to
changed by the Board of Directors from time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
-----------------------------
The corporate seal, if any, shall be in such form as shall be Prescribed and
altered, from time to time, by the Board of Directors.
ARTICLE IX - AMENDMENTS
-----------------------
Section I - Initial Bylaws:
- --------------------------
The initial Bylaws of the Corporation shall be adopted by the Board of Directors
at its organizational meeting.
Section 2 - By Shareholders:
- ---------------------------
All by-laws of the Corporation shall be subject to alteration or repeal, and new
by-laws may be made, by a majority vote of the shareholders at the time entitled
to vote in the election of directors even though these Bylaws may also be
altered, amended or repealed by the Board of Directors.
Section 3 - By Directors:
- ------------------------
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; however, Bylaws made by the Board
may be altered or repealed, and new Bylaws made by the shareholders.
ARTICLE X - WAIVER OF NOTICE: (Section 229)
----------------------------
Whenever any notice is required to be given by law, the Certificate of
Incorporation or these Bylaws of any these Bylaws, meeting of shareholders,
Board of Directors, or committee thereof, or
<PAGE>
attendance at the meeting by any person, shall constitute a waiver of notice of
such meeting, except when the person attends the meeting for the express purpose
of objecting at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of
shareholders, Directors or committee thereof need by specified in any written
waiver of notice.
ARTICLE XI - INTERESTED DIRECTORS: (Section 144)
No contract or transaction shall be void or voidable if such contract or
transaction is between the corporation and one or more of its Directors or
officers, or between the Corporation and any other corporation, partnership,
association, or other organization in which one or more of its Directors or
officers, are directors or officers, or have a financial interest, when such
Director or officer is present at or participates in the meeting of the Board of
committee which authorizes the contract or transaction or his, her or their
votes are counted for such purpose, if:
(a) the material facts as to his, her or their relationship or interest
and as to the contract or transaction are disclosed or are known to the Board of
Directors or the committee, and the Board or committee in good faith authorizes
the contract or transaction by the affirmative votes of a majority of the
disinterested Directors, even though the disinterested Directors be less than a
quorum; or
(b) the material facts as to his, her or their relationship or
relationships or interest or interests and as to the contract or transaction are
disclosed or are known to the shareholders entitled to vote thereon, and the
contract or transaction is specifically approved in good faith by vote of the
shareholders; or
(c) the contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of Directors, a
committee or the shareholders. Such interested Directors may be counted when
determining the presence of a quorum at the Board of Directors' or committee
meeting authorizing the contract or transaction.
ARTICLE XII - FORM OF RECORDS: (Section 224)
-----------------------------
Any records maintained by the Corporation in its regular course of business,
including, but not limited to, its stock ledger, books of account and minute
book, may be kept on, or be in the form of punch cards, magnetic tape,
photographs, micro-photographs or any other information storage device, provided
that the records so kept may be converted into clearly legible written form
within a reasonable time. The Corporation shall so convert any of such records
so kept upon the request of any person entitled to inspect the same.
<PAGE>
EXHIBIT 8.1
ACQUISITION AGREEMENT
THIS ACQUISITION AGREEMENT, (hereinafter referred to as the "Agreement") is
made and entered into this 17th day of September, 1997 by and between CYPOST
CORPORATION, a Delaware corporation (hereinafter referred to as "CyPost") and
EPOST INNOVATIONS, INC., a corporation organized under the laws of British
Columbia (hereinafter referred to as "ePost Canada").
RECITALS
WHEREAS, CyPost desires to acquire all of the issued and outstanding shares
of ePost Canada capital stock in exchange for 2,000,000 shares of authorized but
previously unissued CyPost voting common stock, par value One Tenth of a Cent
($.001) per share pursuant to the terms and conditions set forth herein;
WHEREAS, Mushroom Innovations, Inc. ("Mushroom"), a British Columbia
corporation and the sole shareholder of ePost Canada, desires to exchange all of
its shares of ePost Canada capital stock for shares of CyPost common stock in
the respective amounts set forth herein;
NOW, THEREFORE, in consideration of the premises and mutual
representations, warranties and covenants herein contained, the parties hereby
agree as follows:
ARTICLE I
SECTION 1.1 Acquisition. The parties agree that CyPost shall acquire all
-----------
of the issued and outstanding shares of ePost Canada capital stock, in exchange
for Two Million (2,000,000) shares of authorized but previously unissued CyPost
common stock par value $.001 per share. It is also agreed to by the parties
hereto that by acquiring all of the shares of ePost Canada capital stock, CyPost
will acquire all rights, title and interest to all assets and property presently
owned by ePost Canada. Said assets and property may be subject to certain
interest, liens and/or encumbrances. The parties hereto hereby further agree
that at the Closing, hereinafter defined, ePost Canada shall become a wholly-
owned subsidiary of CyPost.
SECTION 1.2 Issuance of Shares.
-------------------
(a) Mushroom shall deliver to CyPost all of the certificates
representing all of the issued and outstanding stock of ePost Canada with
executed stock powers. CyPost shall cause to be issued and delivered to Mushroom
or its designees, stock certificates representing an aggregate of 2,000,000
shares (the "CyPost Shares") of CyPost voting common stock.
<PAGE>
(b) The CyPost Shares to be issued hereunder shall be authorized but
previously unissued shares of CyPost common stock, and shall be issued to those
persons and in the respective amounts specified by Mushroom as follows:
<TABLE>
<CAPTION>
Shareholder Number of Shares
----------- ----------------
<S> <C>
Robert Sendoh 1,020,000
Carl Whitehead 600,000
William Kaleta 200,000
Chiyoko Asanuma 180,000
</TABLE>
(c) All of the Shares to be issued hereunder are deemed "restricted
securities" as defined by Rule 144 of the Securities Act of 1933, as amended
(the "Securities Act"), and the recipients shall represent that they are
acquiring the CyPost Shares for investment purposes only and without the intent
to make a further distribution of the CyPost Shares. All CyPost Shares to be
issued under the terms of this Agreement shall be issued pursuant to an
exemption from the registration requirements of the Securities Act, under
Section 4(2) of the Securities Act and the rules and regulations promulgated
thereunder. Certificates representing the restricted CyPost Shares to be issued
hereunder shall bear the following, or similar legend:
The shares represented by this certificate have not been registered
under the Securities Act of 1933, as amended, and may not be offered
for sale, sold or otherwise transferred except in compliance with the
registration provisions of such Act or pursuant to an exemption from
such registration provisions, the availability of which is to be
established to the satisfaction of the Company.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF
CYPOST
CyPost hereby represents, warrants and agrees that:
SECTION 2.1 Organization of CyPost. CyPost is a corporation duly
-----------------------
organized, validly existing and in good standing under the laws of the State of
Delaware, is duly qualified and in good standing as a foreign corporation in
every jurisdiction in which such qualification is necessary, and has the
corporate power and authority to own its properties and assets and to transact
the business in which it is engaged. CyPost has all requisite corporate power
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. This Agreement is the legal, valid and
binding obligation of CyPost, enforceable against CyPost in accordance with its
respective terms except to the extent that such enforcement may be limited by
applicable bankruptcy, insolvency and other similar laws affecting creditors'
rights generally.
2
<PAGE>
SECTION 2.2 Capitalization of CyPost. The authorized capital stock of
------------------------
CyPost consists of 25,000,000 shares of which 20,000,000 are designated as
common stock, par value $.001 per share, and 5,000,000 are designated as blank
check preferred stock, par value $.001 per share. No shares are presently
issued and outstanding. Shares of CyPost common stock to be issued pursuant
to this Agreement, when so issued, will be duly authorized, validly issued,
fully paid and non-assessable.
SECTION 2.3 Corporate Documents. The CyPost shareholders' list and
-------------------
corporate minute books are complete and accurate as of the date hereof and the
corporate minute books contain the recorded minutes of all corporate meeting of
shareholders and directors.
SECTION 2.4 Litigation. There is no litigation, arbitration, proceeding
----------
or investigation pending or threatened to which CyPost is a party or which may
result in any material change in the business of condition, financial or
otherwise, of CyPost or in any of its properties or assets, or which might
result in any liability on the part of CyPost, or which questions the validity
of this Agreement or of any action taken or to be taken pursuant to or in
connection with the provisions of this Agreement, and to the best knowledge of
CyPost, there is no basis for any such litigation, arbitration, proceeding or
investigation.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
EPOST CANADA
ePost Canada hereby represents, warrants and agrees that:
SECTION 3.1 Organization of ePost Canada. ePost Canada is a corporation
----------------------------
duly organized, validly existing and in good standing under the laws of British
Columbia, is duly qualified and in good standing in every jurisdiction in which
such qualifications is necessary. There are no corporations or other entities
with respect to which (i) ePost Canada owns any of the outstanding stock or
other interests, or (ii) ePost Canada may be deemed to be in control because of
factors or relationships other than the quantity of stock or other interests
owned in such entity except as otherwise disclosed hereto. ePost Canada has all
requisite corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated hereby.
3
<PAGE>
SECTION 3.2 Capitalization. The authorized capital stock of ePost
--------------
Canada is 100,000 shares consisting of:
20,000 Class "A" Common shares (voting) without par value;
20,000 Class "B" Common shares (non-voting) without par value;
20,000 Class "C" Common shares (non-voting) without par value;
20,000 Class "D" Common shares (voting) without par value; and
20,000 Class "E" Common shares (non-voting) without par value;
of which only one hundred shares of Class "A" common stock are issued and
outstanding.
SECTION 3.3 Corporate Documents. The ePost Canada shareholders' list
-------------------
and corporate minute books are complete and accurate as of the date hereof and
the corporate minute books contain the recorded minutes of all corporate meeting
of shareholders and directors.
SECTION 3.4 Litigation. There is no litigation, arbitration, proceeding
----------
or investigation pending or threatened to which ePost Canada is a party or which
may result in any material change in the business of condition, financial or
otherwise, of ePost Canada or in any of its properties or assets, or which might
result in any liability on the part of ePost Canada, or which questions the
validity of this Agreement or of any action taken or to be taken pursuant to or
in connection with the provisions of this Agreement, and to the best knowledge
of ePost Canada, there is no basis for any such litigation, arbitration,
proceeding or investigation.
SECTION 3.5 Authority. ePost Canada and, its sole shareholder,
---------
Mushroom, have approved this Agreement and duly authorized the execution hereof.
ePost Canada has full power, authority and legal right to enter into this
Agreement on behalf of ePost Canada and its shareholder and to consummate the
transactions contemplated hereby, and all corporate action necessary to
authorize the execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby has been duly and validly taken. The
execution and delivery of this Agreement, the consummation of the transactions
contemplated hereby and compliance by ePost Canada with the provisions hereof
will not (a) conflict with or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute a default) under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the properties or assets of
ePost Canada under, any of the terms, conditions or provisions of the Articles
of Incorporation or By-Laws of ePost Canada, or any note, bond, mortgage,
indenture, license, agreement or any instrument or obligation to which ePost
Canada is a party or by which it is bound; or (b) violate any order, writ,
injunction, decree, statute, rule or regulation applicable to ePost Canada or
any of its properties or assets.
SECTION 3.6 Investment Purpose. ePost Canada has received
------------------
representations from its shareholder that the recipients of the restricted
CyPost Shares hereunder are acquiring the shares for investment purposes only
and acknowledges that the CyPost Shares issued hereunder are "restricted
securities" and may not be sold, traded or otherwise transferred without
registration under the Securities Act or exemption therefrom.
4
<PAGE>
ARTICLE IV
ADDITIONAL AGREEMENTS
SECTION 4.1 Expenses. Whether or not the transactions contemplated in
--------
this Agreement are consummated, all costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such expense or as otherwise agreed to herein.
SECTION 4.2. Brokers and Finders. Each of the parties hereto represents,
-------------------
as to itself, that no agent, broker, investment banker or firm or person is or
will be entitled to any broker's or finder's fee or any other commission or
similar fee in connection with any of the transactions contemplated by this
Agreement.
SECTION 4.3 Necessary Actions. Subject to the terms and conditions
-----------------
herein provided, each of the parties hereto agree to use all reasonable efforts
to take, or cause to be taken, all action, and to do or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the transactions contemplated by this Agreement.
In the event at any time after the closing, any further action is necessary or
desirable to carry out the purpose of this Agreement, the proper officers and/or
directors of CyPost or ePost Canada, as the case may be, shall take all such
necessary action.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 Parties in Interest. This Agreement shall inure to the
-------------------
benefit of and be binding upon the parties hereto and the respective successors
and assigns. Nothing in this Agreement is intended to confer, expressly or by
implication, upon any other person any rights or remedies under or by reason of
this Agreement.
SECTION 5.2 Severability. The parties hereto agree and affirm that none
------------
of the provisions herein is dependent upon the validity of any other provision,
and if any part of this Agreement is deemed to be unenforceable, the remainder
of the Agreement shall remain in full force and effect.
SECTION 5.3 Headings. The "Article" and "Section" headings are provided
--------
herein for convenience of reference only and do not constitute a part of this
Agreement.
5
<PAGE>
SECTION 5.4 Assignability. This Agreement shall not be assigned by any
-------------
of the parties hereto without the prior written consent of the other parties.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement in a manner legally binding upon them as of the date first above
written.
CYPOST CORPORATION
Attest:
By: ___________________________ _____________________________
Its: President Secretary
EPOST INNOVATION, INC.
Attest:
By: ___________________________ ____________________________
Its: President Secretary
MUSHROOM INNOVATION, INC.
Attest:
By: ___________________________ ____________________________
Its: President Secretary
6
<PAGE>
Exhibit 8.2
SHARE PURCHASE AGREEMENT
THIS AGREEMENT dated for reference 29 October 1998
BETWEEN:
MUSHROOM INNOVATIONS INC., a British Columbia company with a
registered office at 800 - 885 West Georgia Street, Vancouver, British Columbia,
Canada V6C 3H1 (the "Vendor")
AND:
CYPOST CORPORATION, a Delaware corporation with an address at ., 101
260 West Esplanade, North Vancouver, British Columbia, Canada. (the "Purchaser")
WITNESSES THAT WHEREAS:
A. The Vendor is the registered and beneficial owner of all of the issued
and outstanding shares (the "Shares") in the capital of Communication Exchange
Management Inc. (the "Company"), a British Columbia company incorporated under
No. 524357, as described in Schedule "A"; and
B. The Vendor has agreed to sell and the Purchaser has agreed to purchase
the Shares on the terms and conditions hereinafter set forth;
NOW THEREFORE in consideration of the premises and the mutual covenants and
agreements herein contained, and other good and valuable consideration (the
receipt and sufficiency of which are hereby acknowledged by the parties), the
parties covenant and agree each with the others as follows:
1. WARRANTIES AND REPRESENTATIONS
1.1 The Vendor warrants and represents to the Purchaser with the intent
that the Purchaser will rely thereon in entering into this Agreement and in
concluding the purchase and sale contemplated herein, that:
(a) the Vendor is the registered and beneficial owner of the Shares and
the Vendor has no interest, legal or beneficial, direct or indirect, in any
shares of, or the assets or business of the Company other than the Shares;
(b) the Shares are validly issued and outstanding as fully paid and non-
assessable in the capital of the Company and are free and clear of all liens,
charges and encumbrances;
(c) the Vendor has the power and capacity and good and sufficient right
and authority to enter into this Agreement on the terms and conditions herein
set forth and to transfer the legal and beneficial title and ownership of the
Shares to the Purchaser; and
<PAGE>
(d) no person, firm, corporation or entity of any kind has or will have on
or after the Closing Date (as hereinafter defined) any agreement, right or
option, consensual or arising by law, present or future, contingent, pre-emptive
or absolute, or capable of becoming an agreement, right or option:
(i) to require the Company to issue any further or other shares in
its capital or any other security or interest convertible or exchangeable into
shares in its capital or to convert or exchange any securities into or for
shares in the capital of the Company;
(ii) for the issue or allotment of any of the authorized but unissued
shares in the capital of the Company;
(iii) to require the Company to purchase, redeem or otherwise acquire
any of the issued and outstanding shares in the capital of the Company; or
(iv) to purchase or otherwise acquire any shares in the capital of
the Company.
1.2 The Purchaser warrants and represents to the Vendor with the intent
that the Vendor will rely thereon in entering into this Agreement and in
concluding the purchase and sale herein, that the Purchaser:
(a) is a company duly incorporated in Delaware and is in good standing
with respect to the filing of annual reports; and
(b) has the corporate capacity to enter into this Agreement and has taken
the necessary steps to authorize the execution thereof.
2. PURCHASE AND SALE
2.1 The purchaser agrees to purchase from the Vendor and the Vendor agrees
to sell to the Purchaser the Shares on the Closing Date.
3. PURCHASE PRICE
3.1 On the date of this agreement the market value of the Cypost shares
was $.07 per share (the "Purchase Price").
3.2 The Purchaser will pay the Vendor or its assigns the Purchase Price by
delivering, on the Closing Date:
(a) certificates in the aggregate amount of 4,180,000 Cypost shares
The Vendor hereby acknowledges and agrees that payment of the Purchase Price as
stipulated in Clause 3.2 will constitute full satisfaction of the Purchaser's
obligation to pay the Purchase Price to the Vendor.
3.4 The Vendor hereby acknowledges the following:
the Cypost shares have not been registered under the Act or the securities laws
of any state, based upon an exemption from such registration requirements
pursuant to Section 4(2) of the Securities Act of 1933, as ammended (the "Act");
the Cypost Shares are and will be "restricted securities", as said term is
defined in Rule 144 of the Rules and Regulations promulgated under the Act;
<PAGE>
the Cypost shares may not be sold or otherwise transferred unless they have been
first registered under the Act and all applicable state securities laws, or
unless exemptions from such registration provisions are available with respect
to said resale or transfer;
the certificates for the Cypost Shares bear a legend to the effect that the
transfer of the securities represented thereby is subject to the provisions
hereof; and
stop transfer instructions will be placed with the transfer agent for the Cypost
Shares;
The Vendor is aquiring the Cypost Shares solely for the account of the
Vendor, for investment purposes only, and not with a view towards the resale or
distribution thereof;
The Vendor will not sell or otherwise transfer any of the Cypost Shares, or any
interest therein, unless and until;
(a) said Cypost Shares shall have first been registered under the Act and
all applicable state securities laws; or
(b) the Vendor shall have first delivered to the Purchaser a written
opinion of counsel (which counsel and opinion (in form and substance) shall be
reasonably satisfactory to the Purchaser), to the effect that the proposed sale
or transfer is exempt from the registration provisions of the Act and all
applicable state securities laws;
CONDITIONS
4.1 The obligation of the Purchaser to carry out the terms of this
Agreement and to complete the purchase referred to in clause 2.1 hereof is
subject to the condition that, on the Closing Date, the Vendor will have
delivered to the Purchaser, the following documents:
(a) a Directors Resolution of the Company authorizing the transfer of the
Shares to the Purchaser;
(b) share certificates representing the Shares, duly endorsed by the
Vendor for transfer to the Purchaser;
(c) new share certificates representing the Shares, issued in the name of
the Purchaser;
(d) all of the consents and approvals in writing necessary to the transfer
contemplated herein; and
(e) all other documents and instruments as the Purchaser may reasonably
require.
4.2 This is a valid and binding Agreement whether or not the foregoing
conditions are satisfied; however, the obligation of the Purchaser to complete
the purchase and sale is subject to waiver or satisfaction of these conditions
precedent. The condition set forth in clause 4.1 of this Agreement is for the
exclusive benefit of the Purchaser and may be waived by the Purchaser in writing
in whole or in part on or before the Closing Date, but save as so waived, the
completion of the purchase referred to in clause 2.1 hereof by the Purchaser
will not prejudice or affect in any way the rights of the Purchaser in respect
of the warranties and representations of the Vendor as set forth in clause 1.1
of this Agreement, and the said warranties and representations will survive the
Closing Date and the payment of the Purchase Price.
<PAGE>
4.3 Notwithstanding anything to the contrary contained herein, the Vendor
acknowledges receipt of and will retain, as outright and non-refundable
consideration, the sum of $10.00 and in consideration therefor the Vendor
covenants and agrees not to withdraw its acceptance of the offer constituted by
this Agreement, prior to the time for removal of any subject conditions
contained herein.
5. CLOSING DATE
5.1 The Closing Date is __________________, 1998, or such other date as
the parties hereto may agree in writing.
6. NOTICE
6.1 Any notice required or permitted to be given to any of the parties to
this Agreement will be in writing and may be given by electronic facsimile
transmission or other means of electronic communication capable of producing a
printed copy to the address of such party first above stated or such other
address as any party may specify by notice in writing to the other parties and
any such notice will be deemed to have been given and received by the party to
whom it was addressed, if by facsimile or other electronic communication, on
successful transmission, or, if delivered, on delivery.
7. GENERAL PROVISIONS
7.1 Time is of the essence of this Agreement.
7.2 This Agreement and the rights, duties, and obligations of any party
hereunder will not be assigned by any party hereto without the prior written
consent of the other party.
7.3 The parties will execute and deliver all such further documents and
instruments and do all acts and things as may be necessary or convenient to
carry out the full intent and meaning of and to effect the transactions
contemplated by this Agreement.
7.4 This Agreement is the whole agreement between the parties hereto in
respect of the purchase and sale contemplated hereby and there are no
warranties, representations, terms, conditions, or collateral agreements
expressed or implied, statutory or otherwise, other than expressly set forth in
this Agreement.
7.5 This Agreement will enure to the benefit of and be binding upon the
parties hereto, and their respective successors and permitted assigns.
7.6 This Agreement will be governed by and construed in accordance with
the law of British Columbia, and the parties hereby attorn to the non-exclusive
jurisdiction of the Courts of competent jurisdiction of British Columbia in any
proceeding hereunder.
IN WITNESS WHEREOF the parties have executed and delivered this Agreement this
_____ day of _______________ , 1998.
MUSHROOM INNOVATIONS INC.
Per: _________________________________
Authorized Signatory
CYPOST CORPORATION
<PAGE>
Per: _________________________________
Authorized Signatory
<PAGE>
SCHEDULE "A"
Class of Shares No. of Shares Certificate No.
Class "A" Common 100 2-A
<PAGE>
Exhibit 10
CONSENT OF INDEPENDENT ACCOUNTANT
I hereby consent to the use of my report, dated March 12, 1999, on the
balance sheet of Cypost Corporation as of December 31, 1998 and for the related
statements of operations, cash flows and shareholders' equity for the year ended
December 31, 1998 and for the period from inception, September 5, 1997, to
December 31, 1998.
Thomas P. Monahan
July 15, 1999
<PAGE>
Exhibit 21
The Issuer has two wholly-owned subsidiaries, (i) ePost Innovations, Inc.
("ePost Canada") which was organized under the laws of British Columbia on
March 27, 1997 and (ii) CyPostUSA, Inc., a Delaware corporation formed on
September 5, 1997.
