U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the fiscal year ended December 31, 1999
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________.
Commission file number: 000-27213
POPSTAR COMMUNICATIONS, INC.
(Name of Small Business Issuer in Its Charter)
NEVADA 88-0385920
(State or Other Jurisdiction of (I.R.S. Employer Identification No.)
Incorporation or Organization)
107 EAST 3RD AVENUE
VANCOUVER, BC, CANADA V5T 1C7
(Address of Principal Executive Office) (Zip Code)
604-872-6608
(Issuer's Telephone Number, Including Area Code)
Securities registered pursuant to Section 12(b) of the Exchange Act:
None None
Title of Each Class Name of Each Exchange on Which Registered
Securities registered pursuant to Section 12(g) of the Exchange Act:
COMMON STOCK,
PAR VALUE $.001 PER SHARE
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(Title of Class)
Check whether the issuer: (1) filed all reports required to be filed by
Section13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorterperiod that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for past 90 days. Yes [X] No [_]
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. [_]
The Issuer's revenues for the 12 months ended December 31, 1999 were $61,708.
The aggregate market value of the voting common stock held by non-affiliates of
the Issuer, based on the most recent private placement of common stock of the
Issuer on February 18, 2000 of $2.00 per share, was $16,545,000. As of March 24,
2000, the Issuer had 20,047,500 shares of its common stock, par value $.001 per
share (the "Common Stock"), outstanding.
Transitional Small Business Disclosure Format (check one): Yes [_] No [X]
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TABLE OF CONTENTS
ITEM Page
PART I
ITEM 1. BUSINESS........................................................1
ITEM 2. PROPERTIES.....................................................10
ITEM 3. LEGAL PROCEEDINGS..............................................10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS............10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS..........................................11
ITEM 6. PLAN OF OPERATION..............................................12
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS..............................16
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE.......................16
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND
CONTROL PERSONS; COMPLIANCE WITH SECTION 16(A) OF
THE EXCHANGE ACT.............................................17
ITEM 10. EXECUTIVE COMPENSATION.........................................19
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT...............................................21
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.................22
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K...............................24
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FORWARD-LOOKING STATEMENTS
This report includes "forward-looking statements" within the meaning of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). All statements
other than statements of historical fact included in this report are
forward-looking statements. These statements are based on management's current
beliefs and assumptions about the Company and the industry in which the Company
competes and on information currently available to management. Such
forward-looking statements include, without limitation, the information
concerning possible or assumed future results of operations of the Company set
forth under the headings "Business", "Plan of Operations", and "Consolidated
Financial Statements". Forward-looking statements also include statements in
which words such as "expect", "anticipate", "intend", "plan", "believe",
"estimate", "consider", or similar expressions are used. Forward-looking
statements are not guarantees of future performance. They involve risks,
uncertainties and assumptions. The Company's future results and shareholder
values may differ materially from those expressed or implied in these
forward-looking statements. Although the Company believes the expectations
reflected in such forward-looking statements are reasonable, it can give no
assurance that such expectations reflected in such forward-looking statements
will prove to have been correct. Readers are cautioned not to put undue reliance
on any forward-looking statements. The ability to achieve the Company's
expectations is contingent upon a number of factors which include (i) the
Company's ability to market its products in the industry, (ii) effect of any
current or future competitive products, (iii) ongoing cost of research and
development activities, (iv) the retention of key personnel, and (v) capital
market conditions.
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PART I
ITEM 1. BUSINESS
Company Overview
POPstar Communications, Inc. (the "Company" or "POPstar"), is a development
stage Internet technology company currently in the process of developing
Internet-based facsimile transmission technology. The Company field-tested its
technology in 1999 and began to commercially launch its fax-over-IP services in
March 2000. The Company is marketing its services to Internet Service Providers
("ISPs") around the world. POPstar's technology equips ISPs with the ability to
provide Internet-based facsimile transmission services to their end-users.
POPstar provides its Enroute software free of charge to ISPs in return for a
share of all revenue generated from the use of its software.
The Company was originally incorporated under the laws of the State of Nevada on
June 19, 1995 as Cherokee Leather, Inc. Between 1995 to 1999, the Company was
inactive. On May 17, 1999, in contemplation of acquiring POPstar Global
Communications Inc., a British Virgin Islands company ("POPstar-BVI"), the
Company changed its name to POPstar Communications, Inc. On July 20, 1999, the
Company acquired all of the outstanding common and preferred stock of
POPstar-BVI in a transaction described as a "recapitalization". As the Company
had no operations prior to the acquisition, the acquisition has been treated for
accounting purposes as the acquisition of POPstar (the Registrant) by
POPstar-BVI for the net book value of POPstar's net monetary liabilities in the
amount of $2,517.00. Immediately prior to its acquisition by POPstar,
POPstar-BVI was in the business of developing Internet-based facsimile
transmission technology.
Immediately prior to the acquisition, POPstar had 5,800,000 shares of Common
Stock outstanding, of which 2,400,000 shares of Common Stock were cancelled as
part of the acquisition. Also as part of POPstar's acquisition of POPstar-BVI,
POPstar issued 12,875,000 shares of its Common Stock to the shareholders of
POPstar-BVI. Additionally, management of POPstar had no affiliation with
management of POPstar-BVI prior to the acquisition. Following the acquisition of
POPstar-BVI, the entire former management and Board of Directors of POPstar
resigned and was replaced by the management of POPstar-BVI.
POPstar is a developer of Internet-based facsimile transmission technology which
allows ISPs in various parts of the world to cooperate in the transport and
delivery of documents, using the Internet instead of conventional long distance
telephone networks ("LD"). POPstar's Enroute technology allows ISPs to offer to
their end-users, the ability to transmit and receive documents from a personal
computer to or from any conventional facsimile ("Fax") machine located
throughout the world using the Internet as opposed to LD networks. Management
believes that the Company's technology offers end-users several significant
advantages over conventional Fax machine and computer Fax modem transmission of
Faxes over LD networks, in that POPstar's technology allows end-users to
transmit Faxes through the use of a simple browser interface (such as Microsoft
Explorer or Netscape Navigator) without the need or costs for conventional
telephone lines or additional hardware. Management believes that these features
offer competitive advantages for businesses that use personal computers
connected to the Internet via local area networks ("LANs"), as well as the
growing number of small office / home office users connected to the Internet via
cable or digital subscriber line access (known as "Broadband"
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connections) and for business travelers desiring to transmit Fax documents while
traveling throughout the world.
POPstar's products include a Web-based user Graphic User Interface (GUI)and a
File Conversion Server ("FCS"). The FCS permits text, HTML and PostScript
formatted documents (all common formats), as well as Microsoft documents, such
as Word, Excel and Access, to be "attached" to the fax message and converted to
Fax format. Without the FCS, competitors' browser-based offerings require users
to undertake a complicated and error prone step to "save" or "translate" their
document to one of the more common formats before it can be transmitted. Thus,
POPstar's browser-based entry screen supports full conversion without the need
for the user to download and maintain a "printer driver", which has been the
traditional method of preparing and sending Fax documents.
One reason for the continued popularity of Fax, in Asian markets in particular,
is the compatibility with Chinese, Japanese, Korean and other character sets -
Fax documents are "image based". POPstar's FCS supports conversion of Microsoft
documents using these localized character-sets to image format, such that these,
too, can be directly transmitted from the computer to the destination Fax
machine.
POPstar's "localized character" support of Fax documents has enjoyed an
enthusiastic reception in trials undertaken in Japan, Taiwan, Hong Kong, China
and elsewhere.
Although current Internet users are capable of transmitting documents through
the use of electronic mail ("e-mail") from one computer to another, the majority
of businesses still receive and transmit their documents via Fax. Management
believes that POPstar's technology allows companies to combine the convenience
and costs savings provided by the Internet with the compatibility of
conventional Fax machines.
Transmission of Fax documents using POPstar's network will be priced at rates
competitive with those of long distance rates. Management believes that
POPstar's primary advantages stem from ease of use, savings in avoiding the need
for installation of additional telephone lines for Fax transmission and receipt,
elimination of hard copies of documents at the point of origin, electronic
filing of documents and elimination of manual handling of documents.
POPstar's technology will allow the growing number of Internet users to
capitalize on the lower costs and convenience offered by Internet technology
while allowing them to further utilize their Internet connection for the
transmission or receipt of documents without the need of purchasing additional
telephone connections (which require monthly and per use fees). Management
believes that such benefits are even more significant to European and Asian
end-users where the installation of additional telephone connections are
significantly higher than Internet connectivity costs.
POPstar's Fax over Internet Protocol technology ("Internet Fax") is provided to
ISPs on a royalty-free basis. POPstar's Internet Fax software also includes
support for inter-ISP settlements, user authentication functions, billing data
generation and other management and operation-related activities that allow ISPs
to manage and charge their customers for the Internet Fax service. POPstar will
derive revenue by receiving a portion of the payments made to ISPs by their
customers who use the Internet Fax service. ISPs who use the POPstar technology
are charged a wholesale price for all Fax traffic submitted by users; POPstar
and the ISP delivering the Fax to the recipient conventional Fax
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machine each receives portions of this wholesale price, according to a
prearranged formula. Distribution of respective parties' portions of the
wholesale price ("Settlements") is consigned to an independent, specialist firm.
Management believes that a major obstacle standing in the way of widespread use
of the Internet for the transmission of commercial traffic such as Internet
Faxes, has been the inability of the ISP to collect fees on a pay-for-use basis.
While the world's traditional telephone companies have long shared LD revenue
under terms of settlements agreements (using billing data generated by the
telephone exchange serving the originating telephone company), no equivalent
mechanism for inter-ISP settlements on Internet-based communication has existed
until very recently. In most cases, Internet Fax and Internet Voice
transmissions do not originate through a telephone exchange, making it necessary
to develop new methods of calculating, apportioning and distributing respective
revenue shares between participants, along with corresponding Settlements.
In response to the need for Settlements on Internet-based value-added services
such as Internet Fax and Internet Voice transmissions, the European
Telecommunications Standards Institute ("ETSI"), a body governing
inter-operability between telephone companies in Europe, sponsored the
development of the Open Settlement Protocol ("OSP"), a key component of
POPstar's inter-ISP settlements strategy. The OSP allows for call clearing and
settlement between independent partners. POPstar has been informed by
TransNexus, LLP, ("TransNexus"), one of the firms contributing to OSP, that it
is the first commercial user of OSP for Internet Fax transmission settlements.
Traditionally, ISPs have needed only billing systems which handle monthly,
flat-fee billings, as most Internet services were provided on a flat-fee basis.
However, ISPs desiring to generate additional revenue by offering value-added
services billed on a usage basis, are required to implement billing systems that
accommodate usage billing. Usage billing for services such as Voice-Over-IP and
Fax-Over-IP is required not only by POPstar's technology but by any service
which the ISP desires to offer their users on a usage basis as opposed to a
flat-rate basis. Management believes that implementation of usage billing
systems for value-added services will be required if ISPs are to remain
profitable. Implementation of usage billing varies from between two to six
months depending on the ISPs' current billing system and whether the ISP is able
to modify their system or needs to replace it entirely. Alternatively, ISPs may
contract with third party billing companies to supply usage billing service.
Costs of implementing or utilizing third-party systems varies considerably.
POPstar assists ISPs with system integration of the ISPs' billing system to work
with POPstar's Internet Fax technology.
Management believes that Settlements should be done by independent trusted third
parties, and not by POPstar or by any of the ISPs or other carriers associated
with POPstar. As a consequence, TransNexus of Atlanta, Georgia, was selected by
POPstar as a qualified settlements house, and subsequently contracted to provide
settlements services to POPstar and to the respective POPstar partnering ISP
offering origination ("Onramp") and termination ("Offramp") services. An
additional service rendered by TransNexus is the provision of least-cost routing
information permitting POPstar's software to route Fax traffic to the Offramp
able to deliver each Fax document for the lowest cost.
OSP is an open protocol which is provided royalty free to all users. However, in
order to ensure the confidentiality of routing and user verification information
transmitted between Onramp and Offramp ISPs, TransNexus, and
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POPstar, POPstar employs an encryption protocol known as BSAFE provided by RSA
Data Security, Inc. for such transmissions. POPstar is required to pay royalties
equivalent to 2% of POPstar's service revenue for the use of the BSAFE
encryption protocol. Aside from normal incremental improvements in the POPstar
software to comply with evolving industry standards, POPstar is not aware of any
licensing or other significant costs associated with implementing current or
anticipated protocols to the POPstar technology.
POPstar's products and services, therefore, consist of an integrated technology
comprising of Internet Fax software, file conversion server, least cost routing,
inter-ISP settlements and support for full accounting, audit trail and activity
monitoring.
Additionally, the Company anticipates introducing enhancements to its technology
in the form of "Unified Messaging" service support, in which text, voice and
other messages are accessible from a single, unified mailbox, and deliverable
over the Internet and other facilities to the intended recipient(s). The
Internet Engineering Task Force ("IETF"), the International Telecommunications
Union ("ITU") and a number of other bodies are developing standards and
recommendations for message exchange and conversion; POPstar's activities are
directed toward compliance with these evolving standards, and product
enhancements will be released as these standards mature. There are no
assurances, however, that the Company will be able to introduce these
enhancements as intended or that it will not face technical and market obstacles
which may prevent the Company from introducing such enhancements.
Industry Overview
POPstar's immediate market consists of ISPs who provide Internet connectivity
and other services to enterprise "seats", Small Office/Home Office ("SOHO")
business users, and residential users. POPstar's technology offers the ISPs'
customers a value-added service which allows them to transmit documents
throughout the world at a significant discount to traditional long distance
telephone network.
Fax usage continues to rise. The Fax portion of LD traffic billed in 2000 is
estimated to be in excess of $30 billion (approximately 30% of the world total).
The number of Fax messages is expected to be between 10 and 20 times the number
of email messages sent in the same year. An "enterprise" PC-Fax user may send as
many as 800 pages of Fax per year, according to some estimates, and the number
of new Fax machines purchased, especially outside Western world, continues to
grow at 20% per year or more. Additionally, "outsourced" (third party Fax
carriers) Fax traffic, largely "broadcast" Fax, will generate in excess of $2
billion next year. (All statistics courtesy Davidson Consulting.)
POPstar's Fax methods are "Internet ready". Both Internet Voice and "real-time"
Internet Fax transmissions suffer from the Internet's inherent problem in that
the Internet transmits data in small blocks ("packets"). These packets often get
delayed or lost due to traffic. Such delays may approach many tens of seconds or
even minutes on some international routes, and may be experienced first hand
when "surfing" web sites in Asia and other countries. In contrast, POPstar's
technology transmits the Fax document in its entirety to the Offramp ISP. The
Offramp ISP waits and stores the document until it has received the complete
document and then immediately forwards it to the end-user using conventional
telephone lines. POPstar's "immediate" store and forward
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transport avoids the Internet's inherent problems while providing virtually the
same speed of delivery as conventional and real-time services.
International Operations
Internet Fax services that span international boundaries are most attractive to
potential users, due to the high usage of Fax traffic and higher LD rates to and
from Asian and other non-Western countries. The establishment of POPstar
operations in key international markets already includes a sales and support
office in Canada, operated by the Company's wholly owned subsidiary POPstar
Communications Canada Corp. as well as a sales and support office in Asia,
operated by the Company's wholly owned subsidiary POPstar Communications Asia
Pacific Ltd., a Hong Kong corporation ("POPstar-Asia") with other key locations
to be established and staffed as growth dictates.
One objective of POPstar's program is the recruitment of at least one ISP in
each major Fax traffic location (originating or terminating), the "territory"
handled by a location being defined by LD cost boundaries. It can be more costly
to transmit a Fax message from a major city to a remote town in the same
country, than to transmit the same message at discounted rates from North
America. This is due in part to high domestic LD rates in some countries.
POPstar is recruiting ISPs with lines terminating in high traffic destination
areas as POPstar partners.
Generally, end-users are "conventional" customers of an ISP that legally offers
Internet connectivity services for a fee in the host country. POPstar's Fax
traffic originates in a manner similar to that of e-mail traffic, in that the
sender keys in "form" data corresponding to his or her identity, the address to
which the item is to be delivered, and the identity of the sender and of any
"attachment" to be sent as part of the transmission. In the case of a
terminating ISP (Offramp), Internet message traffic arrives at the ISP
facilities in a manner similar to that of e-mail, and in fact may be delivered
as an e-mail document to a recipient. Therefore, POPstar's actual transmission
of Faxes between ISPs is performed much like e-mail, which is currently free of
regulation. In the case of a delivering a Fax document to a conventional Fax
machine, however, the local telephone network must be used. The ISP must then
contract with the local telephone service provider, for outgoing lines. (Normal
"dial- in" Internet service does not need outgoing lines). At that point, the
ISP would normally be required to state the use to which the lines would be put,
and to comply with local regulations. In both cases, the ISP is required to make
a statement of compliance in the contract binding the ISP with POPstar and with
TransNexus, as a condition of becoming part of the POPstar network.
POPstar is not aware of regulatory bars to the transport of Fax traffic into or
out of any country using Internet facilities, but as a precaution, requires each
participating ISP to assume responsibility for compliance with all regulations
affecting them with respect to POPstar operations. POPstar does not operate as a
common carrier in any country and to the knowledge of POPstar management, is not
subject to rules governing common carrier operations in any country.
ISPs providing Internet Fax services to their end-users collect fees for such
services in accordance with each ISPs' billing policies. Onramp or originating
ISPs are required to maintain a credit balance with TransNexus, POPstar's
settlement house, and their accounts are charged a wholesale rate for the
transmission of their end-user's Fax with the Onramp ISP being free to charge
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end-users whatever rate it deems appropriate. A portion of revenue generated
from message traffic originating in a given jurisdiction is retained by the
Onramp ISP partner in that jurisdiction, with the balance being collected using
Electronic Funds Transfer methods, where available, by TransNexus for subsequent
distribution to POPstar and to the ISP partners through whose facilities the
traffic is eventually delivered to the destination Fax machines (the Offramp
ISP). Distribution of such revenue to POPstar and the Offramp ISP occurs on a
monthly basis.
The respective ISP partners' operations are subject to rules and regulations of
their respective jurisdictions, including those applicable to funds transfers or
other currency controls. ISPs in each jurisdiction are responsible for
compliance with such rules and regulations.
It is possible that taxation, licensing, interconnection fees or political or
regulatory barriers could limit the viability of a given ISP's operations as
part of POPstar's program, thus limiting POPstar's revenue associated with the
region in question. POPstar is currently not aware of any major market area
having such circumstances. However, there can be no assurances that such
barriers may not develop in the future.
Research and Development
The design and development of the Enroute Version 2.3 software was the core
focus for the Company's research and development activities during the year
ended December 1999. Version 2.3 involved changes to the base architecture of
the Enroute product to meet the needs of the commercial market. The earlier
versions of Enroute were designed for the business enterprise and the corporate
Intranet markets. The market focus for Enroute Version 2.3 is the commercial
Internet market.
Enroute Version 2.3 incorporates the following functionality:
- Call clearing and settlement;
- Call billing;
- Double-byte language support;
- Increased throughput and scalability;
- Improvements in security methods; and
- Support of third party hardware products.
Version 2.3 now fully supports the Open Settlement Protocol (OSP) standard
recently established by the International Manufacturers Standards Committee. The
OSP provides a secure, irrefutable method of tracking the ownership to messages
carried by the network and uses this ability to produce call records for the
billing and payment for said messages. During the development process interfaces
were provided to third party billing systems for the generation of end user
invoices.
Version 2.3 has been designed for the global IP messaging market. Accordingly,
support of Asian and other double-byte languages is mandatory. IP fax is the
first format supported. Other formats such as voice and data will follow. The
typical fax message is made up of a cover-page and an attachment and the fax
submission is from a web browser. The conversion of the documents to a
double-byte image required the development of a new File Conversion Server to
handle the attachments and changes were required throughout the server to
support double-byte and Unicode.
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Major software modules within Enroute Version 2.3 were rewritten in C++ using
threaded technology to support the expected heavy traffic within the commercial
IP network. Modules included the FCS, the Cover-Page Generator (CPG) and the
Messenger. Each of these modules would have created traffic bottlenecks within
the network and rewrite was again considered mandatory. At year end Version 2.3
was ready for commercial testing.
The Company incurred software development expenditures of $403,438 for the year
ended December 31, 1999.
Competition
Internet Fax competitors include UUNet (Worldcom), NetCentric, NetXchange,
Net2Fax, and JFax. These competitors typically charge ISPs an up front
acquisition fee and continued royalty for using their proprietary software and
hardware. In contrast, POPstar does not charge ISPs a fee for the acquisition of
its technology but rather charges ISPs a wholesale rate on a usage basis for the
transmission of the ISPs' end-user's Faxes using POPstar's technology.
Management believes that POPstar, at the time of writing, is the only firm
offering a revenue-sharing based plan to ISPs, and the only firm using a
third-party, independent settlement firm. POPstar's services are provided to
ISPs at rates competitive or lower than those of its competitor's published
rates. Management believes that these factors provide POPstar with advantages in
recruiting both large and small ISP partners.
Other types of competitors include Fax "outsourcing" providers such as Xpedite.
Such outsourcing is directed to major enterprises having larger numbers of LAN
"seats", where Fax "server" functionality (PC document transmission, bulk
broadcast transmissions, etc.) benefits can be realized without the overhead and
complication of supporting an in-house Fax server. Such firms generally charge
premium prices for such services, and often require the enterprise to provide
significant numbers of phone lines or other special facilities associated with
the service.
Management believes that POPstar's technology provides a number of advantages
over the traditional outsourcing model, including the joint marketing of the
service by both POPstar and the ISP serving the enterprise. The firm providing
Internet connectivity to the enterprise's LAN users becomes the natural provider
of Fax outsourcing, including such value added aspects as cost accounting
(assignment of costs to the sender and the sender's department), authorization
and control of users by the enterprise's LAN manager, and many others.
The Company also faces competition from the transmission of computer generated
documents via the Internet as attachments to conventional e-mail. Transmission
by e-mail is currently generally free to end-users (aside from Internet access
charges). Transmission by e-mail, however, requires both sender and recipient to
possess computer and e-mail capability. POPstar's technology, however, allows
end-users to reach the millions of already installed Fax machines located
throughout the world. Additionally, transmission using POPstar's technology
allows users to preserve a paper trail of document transmission, including
signatures and file stamps.
POPstar's management believe that the advantages of independent settlements, ISP
partner-driven recruitment of users, and web-page entry of Fax traffic from the
desktop will permit POPstar to effectively compete with its competitors.
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Many of the Company's existing competitors, as well as a number of potential new
competitors, have longer operating histories, greater name recognition, larger
customer bases and significantly greater financial, technical and marketing
resources than the Company. Such competitors may be able to undertake more
extensive marketing campaigns, adopt more aggressive pricing policies and make
more attractive offers to potential employees and distribution partners.
Further, there can be no assurance that the Company's competitors will not
develop Internet Fax services that are equal or superior to those of the Company
or that achieve greater market acceptance than the Company's offerings.
Dependence Upon Key Customers
POPstar's success will depend upon the number of destinations served
economically by POPstar affiliated ISPs, and the number of Internet users served
by POPstar partner ISPs operating Internet Fax Offramps. POPstar's ability to
deliver Internet Fax services more economically than traditional LD services is
dependent on soliciting sufficient numbers of ISP partners throughout the world.
Therefore, POPstar will focus on partnering with large, multi-city ISPs. Failure
to obtain sufficient ISP partners will limit POPstar's ability to deliver its
services at lower costs than traditional LD services and therefore may have a
materially adverse effect on the Company's results of operations.
Major Suppliers
POPstar uses Internet Fax software developed by TGI Technologies Ltd. ("TGI"), a
Canadian corporation affiliated with POPstar and with whom exclusive, long-term
supply and development contracts exist. The Internet Fax software that POPstar
uses is provided by TGI under an exclusive license pursuant to a Licensing
Agreement dated January 11, 1999 by and between the Company's wholly owned
subsidiary, POPstar-BVI and TGI. All of the officers and directors of TGI are
also officers and directors of the Company. See Item 12 - "Certain Relationships
and Related Transactions."
Under the terms of the Licensing Agreement, POPstar-BVI is obliged to pay TGI,
until the fourth quarter, 2002, a portion of all net sales generated from the
use of TGI's software. For the year 1999, POPstar-BVI was obliged to pay TGI 8%
of net sales derived from the use of the Internet Fax software, or a minimum of
$400,000. The actual amount paid was $391,074, which was less than the $400,000
due to the Licensing Agreement being entered into during 1999. POPstar-BVI is
obliged to pay TGI 6% of net sales or a minimum of $600,000 for the year 2000.
For the year 2001, POPstar-BVI is obliged to pay TGI 4% of net sales of a
minimum of $500,000. For the year 2002, POPstar-BVI is obliged to pay TGI 2% of
net sales or a minimum of $500,000. POPstar-BVI is not obliged to pay any
additional licensing fees following the end of the year 2002.
In addition to the Licensing Agreement with TGI, POPstar-BVI has also entered
into a Services Agreement with TGI, whereby TGI has agreed to provide
POPstar-BVI with technical assistance, software development, marketing,
management, and other services related to the enhancements and use of the
Internet Fax technology. All fees for services provided by TGI to POPstar-BVI
under the Services Agreement are to be billed to POPstar-BVI on the basis of
TGI's direct and indirect costs of the services provided plus 15%. In 1999,
amounts paid under the Services Agreement totaled $1,062,139.
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POPstar's ability to accurately bill ISPs for its Internet Fax services is
dependent on settlement services provided by TransNexus, of Atlanta, Georgia.
Although POPstar believes that its relationship with TransNexus is strong and
will remain so with continued contract compliance, the termination of POPstar's
contract with TransNexus, the loss of TransNexus' settlement service, or a
reduction in the quality of service the Company receives from TransNexus could
have a material adverse effect on the Company's results of operations. In
addition, the accurate and prompt billing of the Company's customers is
dependent upon the timeliness and accuracy of settlement details provided to the
Company by TransNexus.
In order to service areas without local ISP termination access, POPstar operates
a "global Offramp" (a server used for delivery of Fax traffic over traditional
LD facilities to locations in the world having no local POPstar affiliated ISP)
in Los Angeles, California. POPstar has contracted with Innosys Communications,
Inc. ("Innosys"), to forward Internet Fax transmissions through traditional LD
networks to countries having no local POPstar affiliated ISP. Terms of the
service agreements with Innosys permit POPstar to seek and employ other
facilities and carriers, as conditions may dictate. Although POPstar believes
that its relationship with Innosys is strong and will remain so with continued
contract compliance, the termination of POPstar's contract with Innosys, the
loss of Innosys' Offramp service, or a reduction in the quality of service the
Company receives from Innosys could have a material adverse effect on the
Company's results of operations. However, Management believes that its
dependence upon this global Offramp will lessen with time, as more terminating
POPstar ISPs begin operations in different countries around the world.
Trademarks
The Company has made application to the U.S. Patent and Trademarks Office for
the registration of the Company's trade name POPstar and its logo. The Company
has also made application to the European Patent and Trademark Office and the
relevant authorities in 14 other countries in the world for the Company's trade
name POPstar. The Company's applications are currently undergoing review. No
assurances, however, can be given as to successfulness of the Company's
application.
Employees
As of March 24, 2000, the Company had 19 full-time employees. Of these, 14 are
located in North America, 2 at the Company's Hong Kong facility and 3 at the
Company's facility in Beijing, the People's Republic of China. Of the 14
employees in North American, 8 are administrative and management, 4 are
technical support and the balance are in sales and marketing. Of the 2 employees
at the Company's Hong Kong office, 1 is technical support and the other is sales
and marketing. Of the 3 employees at the Beijing facility, 1 is sales and
marketing, 1 is technical support and 1 is administrative.
In addition, pursuant to a Services Agreement dated January 11, 1999 entered
into between the Company's wholly-owned subsidiary, POPstar-BVI, and TGI,
pursuant to which TGI provides POPstar-BVI with technical assistance, software
development, marketing, management and other services, as required. Through this
Services Agreement, the Company indirectly has access to the pool of
approximately 15 programming and technical staff of TGI.
9
<PAGE>
None of the Company's employees are represented by a labor union and the Company
considers its relations with its employees to be good.
ITEM 2. PROPERTIES
As present, the Company does not own any real property. Nor does the Company
maintain a physical office in the United States. The Company's current
administrative facility in Vancouver, BC, Canada is made available to the
Company and its wholly owned subsidiary POPstar-BVI from Trageglobe Consulting
Ltd. pursuant to an oral month-to-month lease for approximately 4,800 square
feet of office space located at 107 East 3rd Avenue, Vancouver, British
Columbia, Canada. The monthly rental rate is currently $4,000. See Item 12 -
"Certain Relationships and Related Transactions."
Additionally, POPstar Communications Asia Pacific Limited, a wholly owned
subsidiary of POPstar-BVI, maintains a sales, marketing and technical support
facility in Hong Kong for its Asian operations pursuant to an oral,
month-to-month lease for approximately 1,000 square feet of executive offices
located at Westlands Centre, Room 908, 20 Westlands Road, Quarry Bay, Hong Kong.
The monthly rental rate is currently $2,000. The owner of the office space is
Easewell Management Ltd., a company beneficially owned by Thompson Chu, the
Company's Chairman of the Board. See Item 12 - "Certain Relationships and
Related Transactions."
To assist POPstar Communications Asia Pacific Limited in its business in China,
POPstar Communications Asia Pacific Limited maintains a representative office at
Room 405A, 11 Fu Cheng Men Wai Street, Xi Cheng District, Beijing. The 1,830
square feet of executive office space used by the Beijing representative office
is leased at a monthly rental rate of $2,200 pursuant to an oral month-to-month
lease. The owner of the office space is Thompson Chu, the Company's Chairman of
the Board. See Item 12 - "Certain Relationships and Related Transactions."
Arrangements are being made for all of the above oral month-to-month leases to
be formalized into written leases.
ITEM 3. LEGAL PROCEEDINGS
The Company may from time to time be involved in various claims, lawsuits,
disputes with third parties, actions involving allegations of discrimination, or
breach of contract actions incidental to the operation of its business. The
Company is not currently involved in any such litigation which it believes could
have a materially adverse effect on its financial condition or results of
operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters during the fourth quarter of the year
covered by this report to a vote of the security holders through the
solicitation of proxies or in any other manner.
10
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PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
Since June 11, 1998, the Company's Common Stock was admitted for trading on the
Over-The-Counter Bulletin Board (the "OTCBB") under the symbol "CHRK." On May
17, 1999 the Company's Board of Directors voted to change the Company's name to
POPstar Communications, Inc. to reflect its new focus on Internet communications
services. Additionally, the Company changed its ticker symbol to POPS on June 3,
1999. Although the Company ultimately complied with the OTCBB Eligibility Rule
on January 13, 2000, the Company was unable to meet the OTCBB Eligibility Rule
requirements by October 7, 1999. As a result, the Company's common stock was
delisted from the OTCBB on October 8, 1999.
The following table shows, for the periods indicated, the high and low closing
bid prices of the Company common stock as reported by the OTCBB. Any market for
the common stock should be considered sporadic, illiquid and highly volatile.
Prices reflect inter-dealer quotations, without adjustment for retail markup,
markdowns or commissions, and may not represent actual transactions. The stock's
trading range on the OTCBB was as follows:
1998 HIGH LOW
---- ---- ---
1st Quarter -- --
2nd Quarter -- --
3rd Quarter -- --
4th Quarter -- --
1999 HIGH LOW
---- ---- ---
1st Quarter -- --
2nd Quarter -- --
3rd Quarter $3.00 $0.25
4th Quarter $3.00 $3.00
-------------------
* There were no inside quote activities reported
during 1998 and the first two quarters of 1999.
As of March 24, 2000 there were 20,047,500 shares of Common Stock issued and
outstanding and approximately 62 holders of record of the Common Stock. The
Company has neither declared nor paid any dividends on the Common Stock since
its inception and presently anticipates that no dividends will be declared in
the foreseeable future. Any future dividends will be subject to the discretion
of the Company's Board of Directors and will depend upon, among other things,
future earnings, the operating and financial condition of the Company, its
capital requirements, debt obligation agreements, general business conditions
and other pertinent facts. Therefore, there can be no assurance that any
dividends on the Common Stock will be paid in the future.
Recent Sales of Unregistered Securities
All sales of unregistered securities occurring during the year ended December
31, 1999 in private transactions have been previously reported in a Form 10-QSB.
The following sales of unregistered securities in private transactions have
occurred since January 1, 2000:
11
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Common Stock
Pursuant to a Share Subscription Agreement dated February 2, 2000, the Company
issued 1,500,000 shares of common stock to Innovestor.com Limited, resulting in
net cash proceeds of $3,000,000 to the Company. The issuance was conducted under
an exemption provided by Rule 506 of Regulation D promulgated under Securities
Act of 1933 and Section 4(2) of the Securities Act of 1993.
Pursuant to a Share Subscription Agreement dated February 11, 2000, the Company
issued 750,000 shares of common stock to Prime Star Asia Limited, resulting in
net cash proceeds of $1,500,000 to the Company. The issuance was conducted under
an exemption provided by Rule 506 of Regulation D promulgated under Securities
Act of 1933 and Section 4(2) of the Securities Act of 1993.
Pursuant to a Share Subscription Agreement dated February 11, 2000, the Company
issued 750,000 shares of common stock to iTELEWAY Inc., resulting in net cash
proceeds of $1,500,000 to the Company. The issuance was conducted under an
exemption provided by Rule 506 of Regulation D promulgated under Securities Act
of 1933 and Section 4(2) of the Securities Act of 1993.
Stock Options
On January 1, 1999, the Company granted to a group of employees and contractors
options to purchase 217,500 shares of the Company's common stock, each with an
exercise price of $0.01.
On January 1, 1999, the Company granted to John McDermott, President and Chief
Executive Officer of the Company, options to purchase in aggregate 250,000
shares of the Company's common stock, each with an exercise price of $0.01.
Between March 12, 1999 and July 21, 1999, the Company granted to a group of
employees and contractors options to purchase in aggregate 290,000 shares of the
Company's common stock, each with an exercise price of $1.00.
ITEM 6. PLAN OF OPERATION
The Company is at the implementation phase of its business plan. The market
launch of the POPstar Global Partnership Program is currently in process. The
Company plans to introduce key, value-added services, beginning with fax over
IP, into the North American, Asia Pacific and Western Europe markets initially.
Other services planned to be introduced include fax-to-email and email-to-fax
services in the second quarter of 2000, voice over IP integration and unified
messaging services in the third quarter of 2000. The Company's current initial
partners are located in North America, Europe and Asia and provide the Company
with an early global presence. The Company aims to provide a full range of IP
products and services to the global, business-to-business, sector of the market.
Throughout the fiscal period ended December 31, 1999, the Company focused its
efforts on the development of its Enroute Version 2.3 software product. The
development of the Company's Enroute Version 2.3 software product was completed
and released for commercial service at the end of January 2000. The Company's
Enroute Version 2.3 product takes advantage of POPstar's distributed fax server
technology to deliver fax traffic across the public Internet to users around the
globe. The server runs on Solaris UNIX platform, the clients are Web based and
file conversion utilities to convert documents to image (TIFF) format runs
12
<PAGE>
on NT operating systems. The Enroute Version 2.3 product development supports
both single and double byte characters, making it suitable for use also in the
Asian language markets. Other Enroute Version 2.3 developments provide secure
compatibility with the IP Open Settlement Protocol standards. The Open
Settlement Protocol allows for call clearing and settlement between independent
partners.
Management anticipates that research and development expenditures for the fiscal
period ending December 31, 2000 will be approximately $1,000,000.
The current research and development focus will be as follows:
o Version 2.4 of Enroute in the short term.
o Version 3.0 of Enroute in the long term.
The Enroute Version 2.4 development will focus on needed enhancements to Version
2.3, which will include the development of a new gatekeeper to replace the least
cost routing daemon used in Version 2.3, the implementation of a secure socket
(SSL) program throughout the server to provide security features, a change in
user authorization procedures, a real-time call record reporting gateway to
established IP billing systems and a secure e-mail to fax service. Management
anticipates that the Enroute Version 2.4 product will be released before the end
of the second quarter of 2000 and add e-commerce functionality to the Company's
product.
The development of the Enroute Version 3.0 IP unified messaging product will
continue throughout 2000. Management anticipates that the first prototype of
Version 3.0 of Enroute will be built and tested at the end of the first quarter
in 2000. Management expects the prototype to support the storage and retrieval
of voice, fax and e-mail messages in and from one mailbox, access to and from
the mailbox via the PSTN and the Internet. POPstar products are Web based so
that all messages are accessible to authorized users from any place in the world
with Internet access.
The Version 3.0 IP unified messaging product is being developed to run across
all platforms and operating systems. Management anticipates this development to
include a series of applications to run on UNIX, NT, Linux and other operating
systems and platforms without having to make operating system specific changes
to the applications. The development targets the carrier and backbone markets:
the product will be designed to scale to meet the needs of the target carriers.
The cross-platform development is supported by an in-house developed library of
universal messaging objects (UMO) written in C++ computing language. The UMO is
being developed to allow the Company to adapt quickly to the rapid changes
taking place in the exploding Internet market. The UMO is designed to allow all
applications to be written just once for UNIX, NT and Linux compatibility.
The first major release of the new series will be Version 3.1, which is
scheduled for the end of the third quarter in 2000. The Company anticipates this
release to provide commercial grade unified messaging services to PSTN and
desktop users. The Version 3.1 product will take advantage of the outgoing
services provided through the Version 2.4 product.
The capital purchases scheduled for the fiscal period ending December 31, 2000
are expected to be in the order of $1,000,000, split between hardware and
software at $750,000 and office furniture and equipment at $250,000. The
hardware is needed to support primarily POPstar's own global gateways in Los
13
<PAGE>
Angeles and Vancouver and on a lower scale to help seed the market in other
countries.
The number of employees is expected to grow rapidly over the course of the
fiscal period ending December 31, 2000 from the current 19 to a projected number
of 45. Global offices are to be staffed in the UK, Canada and the US, also in
Hong Kong, China and Singapore. Major growth is expected in customer sales and
support services on a 7 days a week, 24 hours a day basis.
Overview
During 1999, the Company's business plan and efforts focused on the development
of its Enroute Version 2.3 product and the recruitment of ISP partners. The
Company began to commercially launch its fax-over-IP services in March 2000 and,
therefore, did not generated any commercial revenue in fiscal 1999, apart from
$61,708 of interest income.
The Company has increased its spending in research and development, sales and
marketing, and general and administrative expenses. To the extent that such
expenditures do not result in commercial revenues, the Company's business,
results of operations and financial condition could be materially and adversely
affected.
Due to the evolution of the Company's business strategy, the Company believes
that its historical results of operations for the periods presented may not be
directly comparable. The Company believes the historical results of operations
do not fully reflect the operating results that are expected to be achieved
following the commercial launch of the Company's value-added IP services.
The following discussion should be read in conjunction with the consolidated
financial statements and the related notes thereto and other detailed
information appearing elsewhere herein.
Liquidity and Capital Resources
At December 31, 1999 the Company had cash and cash equivalents of $23,745. This
compares to cash and cash equivalents of $nil as of December 31, 1998. Net cash
used by operating activities increased from $nil for the period from December
17, 1998 to December 31, 1998 to $1,828,923 for the twelve months ended December
31, 1999. The increased use of cash is primarily attributable to the increase in
the operating loss, of approximately $2,041,736. This increase was offset by
increased 1999 financing activities, of $2,864,792, attributable to increase in
payables to common controlled companies of $230,227 and increase in issuance of
capital stock of $2,634,565. The balance of the difference is attributable to
net changes in investing activities.
Investing activities for the twelve months ended December 31, 1999 totaled
$1,012,124. The Company's investing activities included a note receivable from a
company with common controlling shareholders of $1,000,000 and purchase of
equipment of $12,124.
Net cash provided by financing activities amounted to $2,864,792. This is
comprised of an increase of $230,277 in payables to common controlled companies
and issuance of $2,634,565 of capital stock as follows:
o On January 1, 1999, the Company's wholly owned subsidiary, POPstar-BVI
issued an aggregate of 10,500,000 shares of Common Stock for gross
proceeds
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<PAGE>
of $9,565.50. Those 10,500,000 shares of Common Stock of POPstar-BVI
were exchanged for Common Stock of the Company as a result of the
recapitalization of the Company in July 1999 as described in Item 1 -
"Business".
o On March 30, 1999, POPstar-BVI completed a private placement of
1,750,000 shares of Preferred Stock at a purchase price of $0.833333
per share for gross proceeds of $1,458,333. Those 1,750,000 shares of
Preferred Stock of POPstar-BVI were exchanged for Common Stock of the
Company as a result of the recapitalization of the Company in July
1999 as described in Item 1 - "Business".
o On June 30, 1999, POPstar-BVI completed a private placement of 625,000
shares of Preferred Stock at a purchase price of $0.833333 per share
for gross proceeds of $520,833. Those 625,000 shares of Preferred
Stock of POPstar-BVI were exchanged for Common Stock of the Company as
a result of the recapitalization of the Company in July 1999 as
described in Item 1 - "Business".
o On July 20, 1999, the Company completed a private placement of 125,000
shares of Common Stock at a purchase price of $1.00 per share for
gross proceeds of $125,000.
o On September 10, 1999, the Company issued 22,500 shares of Common
Stock at a price of $1.00 per share to the Company's then legal
counsel for legal services rendered.
o On November 12, 1999, the Company completed a private placement of a
further 625,000 shares of Common Stock at a purchase price of
$0.833333 per share for gross proceeds of $520,833.
Subsequent to the 1999 year end, the Company completed the following private
placements:
o On February 9, 2000, the Company completed a private placement of
1,500,000 shares of Common Stock at a purchase price of $2.00 per
share for gross proceeds of $3,000,000.
o On February 18, 2000, the Company completed a private placement of a
further aggregate of 1,500,000 shares of Common Stock at a purchase
price of $2.00 per share for gross proceeds of $3,000,000.
In addition, pursuant to share purchase agreements entered into on January 12,
1999, as amended by supplemental agreements dated March 29, 1999 and Investor
Exchange Agreements dated July 13, 1999, the Company, through its wholly owned
subsidiary, POPstar-BVI, contracted to sell in a private placement an aggregate
of 3,000,000 shares of the Company's "restricted" Common Stock on or before
March 31, 2000 at $0.833333 per share for gross proceeds anticipated to be in
the amount of $2,500,000.
The Company's cash position less known commitments and contingencies as of
yearend 1999 plus outside financing received through March 24, 2000 is expected
to be adequate to fund the Company's on going operations during the 2000 fiscal
year.
The Company's liquidity will be reduced as amounts are expended for continuing
research and development, expansion of sales and marketing activities and
development of its administrative functions. Additionally, the Company's
liquidity will also be reduced as amount are used for purchases of capital
15
<PAGE>
assets. In addition, the Company continues to incur operating losses and will
continue to need additional working capital to fund its operations, research and
development, and marketing efforts for the 2001 fiscal year. As a result, the
Company will be required to raise additional capital to finance its operations
for the 2001 fiscal year and beyond. The Company intends to raise such
additional funding through the sale of equity or convertible debt securities.
However, there can be no assurance that the Company will be able to raise such
additional capital when needed, or on terms commercially favorable to the
Company, if at all. Such option will result in additional material dilution to
the Company's stockholders.
If the company chooses to speed up its current growth by acquiring additional
unified messaging companies, then significant additional capital in addition to
the amounts detailed above will be required to meet these objectives. In that
case, the Company will be required to raise additional funding though the sale
of equity or convertible debt securities. There can be no assurance the Company
will be able to raise sufficient capital necessary for the continuation of its
acquisition strategy when needed, or on terms commercially favorable to the
Company, if at all.
Year 2000 Issues
Because many computer applications have been written using two digits rather
than four to define the applicable year, some data-sensitive software may
recognize a date using "00" as the year 1900 rather than the year 2000. The Year
2000 Issue could result in system failures or miscalculations that could disrupt
our operations.
To our knowledge, we have not experienced any system failures or disruptions of
our operations resulting from the Year 2000 Issue, although we continue to
monitor our systems.
To date, we have spent approximately $50,000 on year 2000 compliance. At this
time, we do not expect to incur future expenditures relating to year 2000
compliance matters.
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
Information with respect to this item is set forth in the "Index" to
Consolidated Financial Statements on Page F-1.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Prior to the acquisition of POPstar-BVI by the Company as previously described,
the Company engaged Barry L. Friedman, P.C., Certified Public Accountants
("BLF"), to audit the Company's financial statements for the fiscal years ended
December 31, 1998, and December 31, 1997.
Subsequent to the acquisition of POPstar-BVI by the Company, the Company's newly
appointed Board of Directors elected to retain KPMG LLP ("KPMG"), as their
principal accountant to audit the Company's financial statements effective
August 1, 1999. KPMG were previously the auditors of POPstar-BVI. There have
been no disagreements between BLF, KPMG and Management of the type required to
be reported under this Item since the date of their engagement.
16
<PAGE>
On August 1, 1999, the Company's board of directors determined to replace Barry
L. Friedman, P.C. ("BLF") as its auditors with KPMG LLP ("KPMG"), effective
August 1, 1999.
The report of BLF on the Company's financial statements for the last two fiscal
years did not contain an adverse opinion or a disclaimer of opinion, nor was
such opinion qualified or modified as to certainty, audit scope, or accounting
principles. During the periods preceding the replacement of BLF, the Company had
no disagreements with BLF on any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or procedure.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Directors, Executive Officers, Promoters and Control Persons
The following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person and the date such person became a director or
executive officer of the Company. The executive officers of the Company are
elected annually by the Board of Directors. The directors serve one year terms
until their successors are elected. The executive officers serve terms of one
year or until their death, resignation or removal by the Board of Directors.
There are no family relationships between any of the directors and executive
officers. In addition, there was no arrangement or understanding between any
executive officer and any other person pursuant to which any person was selected
as an executive officer.
The directors and executive officers of the Company are as follows:
Name Age Positions
- ---- --- ---------
John McDermott 63 President and Director
Thompson Chu 42 Chairman of the Board of Directors
Don Lau 42 Secretary and Treasurer
William Wing Yan Lo 39 Director
Yong Kiat Rickie Tang 41 Director
John McDermott has served as the Company's President and a member of its Board
of Directors since July 13, 1999. Since August 1989, Mr. McDermott has been
President of TGI Technologies Ltd., a high technology manufacturing and research
and development company. From 1978 to 1986, Mr. McDermott was an Executive Vice
President at Glenayre Electronics in Vancouver, a Radio Paging, Radio Telephone
and Voice Mail company. Prior to that, Mr. McDermott was Vice President of
Marketing at Rockwell Wescom in Chicago. Mr. McDermott also held an engineering
position with British Telecom and Alberta Government Telecom. He holds an
engineering degree from Liverpool UK and is registered as a Professional
Engineer in Canada since 1969. Mr. McDermott is expected to
17
<PAGE>
contribute the whole of his time to the operations of Company and its
subsidiaries.
Thompson Chu has served as the Company's Chairman of the Board of Directors
since July 13, 1999. Prior to that date, Mr. Chu has been the Chairman and a
Director of POPstar-BVI since its inception. Since 1989, Mr. Chu has been the
Chief Executive Officer of TGI. Mr. Chu has considerable management experience
in the trading and telecommunications industries in North America, China and
South East Asia. Mr. Chu has an MBA with distinction from INSEAD in France, a
MSc in Science-Business Administration from the University of British Columbia,
a Bachelors degree in Business Administration from Acadia University in Nova
Scotia, a diploma in International Business from the Institute of Pacific Asian
Management of the University of Hawaii and a diploma in French from the
Universite Sainte-Anne in Nova Scotia. Mr. Chu is expected to contribute
approximately 50% of his time to the operations of the Company and its
subsidiary.
Don Lau has served as the Company's Secretary & Treasurer since July 13, 1999.
Since January 1, 1999, Mr. Lau has been Vice President, Corporate Finance of
POPstar-BVI. Between September 1995 to December 1998, Mr. Lau was Vice
President, Corporate Finance for Tradeglobe Consulting Ltd., an international
trade consulting and management company. Between November 1991 to July 1995, Mr.
Lau was Managing Director, Corporate Finance of The Nikko Securities Co. Limited
in Hong Kong, where he was responsible for the equity origination, merger, and
acquisition business of Nikko Securities in Hong Kong. Mr. Lau has over 15 years
experience in senior corporate finance positions with Bankers Trust, Nikko
Securities and Schroders in Asia. Mr. Lau holds an MBA degree from the
University of British Columbia and a Bachelors degree in Business Administration
from Acadia University in Canada. Mr. Lau is expected to contribute the whole of
his time to the operations of Company and its subsidiaries.
William Wing Yan Lo, J.P., joined the Company's Board of Directors on February
15, 2000. Dr. William Wing Yan Lo, J.P., has served as the Chairman and Chief
Executive Officer of Netalone.com Ltd., a company listed on the Stock Exchange
of Hong Kong, since December 1999. Netalone.com Ltd. is an integrated Internet
investment, operation and service company. Before becoming the Chairman and
Chief Executive Officer of Netalone.com Ltd., Dr. Lo was the Chief Executive
Officer of Citibank's Global Consumer Banking business for Hong Kong, Macau and
China from October 1998 to October 1999. Prior to his appointment at Citibank,
Dr. Lo was with Hongkong Telecom since 1990. He was the Founder and became the
first Managing Director of Hongkong Telecom's wholly-owned interactive
multimedia subsidiary, Hongkong Telecom IMS Ltd. (HKTIMS) in 1995, and was
responsible for developing the world's first commercial broadband Interactive TV
(iTV) service and Netvigator - the leading internet access and portal service
provider in Hong Kong.
Dr. Lo is a prominent and respected person in Hong Kong and serves on a number
of public-sector and private-sector committees. Dr. Lo is a member of the Stock
Exchange of Hong Kong's Growth Enterprise Market Listing Committee. Dr. Lo was
selected as a "1996 Global Leader for the Tomorrow" by the global organization
World Economic Forum for his contributions in bringing multimedia technology and
services to the people of Asia. He was appointed as a Justice of the Peace of
the Hong Kong Special Administrative Region Government on July 1, 1999. Dr. Lo
started his business career as a management consultant with McKinsey and
Company, specializing in competitive strategy formulation, organization
effectiveness and mergers and acquisitions. Dr. Lo holds a M.
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Phil. Degree in Molecular Pharmacology and a Ph. D. degree in Genetic
Engineering, both from Cambridge University.
Yong Kiat Rickie Tang has served as a member of the Company's Board of Directors
since July 13, 1999. Prior to that date, Mr. Tang has been a Director of
POPstar-BVI since March 29, 1999. Since July 1992, Mr. Tang has been the
President and Chief Executive Officer of Kemayan Corporation Berhad, a
conglomerate listed on the Main Board of the Kuala Lumpur Stock Exchange in
Malaysia. Mr. Tang holds a Bachelor of Science degree with Honors in Estate
Management from the National University of Singapore and a Graduate Diploma in
Marketing from the Marketing Institute of Singapore.
Compliance with Section 16(A) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires the
Company's Directors and officers, and persons who own more than 10% of a
registered class of the Company's securities, to file with the Securities and
Exchange Commission initial reports of changes in ownership of Common Stock and
other equity securities of the Company. Officers, Directors and greater-than-10%
shareholders are required by Securities and Exchange Commission regulations to
furnish the Company with copies of all Section 16(a) forms they file.
To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company and written representations that no other
reports were required, the Company believes that during the year ended December
31, 1999, its officers, Directors and greater-than-10% shareholders complied
with all Section 16(a) filing requirements.
ITEM 10. EXECUTIVE COMPENSATION
Summary Compensation Table
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities for the years ended December 31, 1999, 1998
and 1997. Other than as set forth herein, no executive officer's salary and
bonus exceeded $100,000 in any of the applicable years. The following
information includes the dollar value of base salaries, bonus awards, the number
of stock options granted and certain other compensation, if any, whether paid or
deferred.
<TABLE>
SUMMARY COMPENSATION TABLE
Annual Compensation Long Term Compensation
------------------- ----------------------
Awards Payouts
------ -------
Restricte Securities
Other Annual Stock Underlying LTIP All Other
Name and Principal Salary Bonus Compensation Awards ($) Options Payouts Compensation
Position Year ($) ($) ($) SARs (#) ($) ($)
- ------------------ ------ ----- ------------ ---------- ------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
John McDermott 1999 83,333 -0- 5,600(1) -0- 250,000 -0- -0-
(President)
1998 0 -0- -0- -0- -0- -0- -0-
1997 0 -0- -0- -0- -0- -0- -0-
Thompson Chu 1999 50,000 -0- -0- -0- -0- -0- -0-
(Chairman of the
Board)
1998 0 -0- -0- -0- -0- -0- -0-
1997 0 -0- -0- -0- -0- -0- -0-
Don Lau 1999 48,000 -0- -0- -0- 50,000 -0- -0-
(Secretary &
Treasurer)
1998 0 -0- -0- -0- -0- -0- -0-
1997 0 -0- -0- -0- -0- -0- -0-
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Denotes sums paid to Mr. McDermott pursuant to his employment agreement for
car allowance.
19
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<TABLE>
OPTION/SAR GRANTS IN 12- MONTH
PERIOD ENDED DECEMBER 31, 1999
(Individual Grants)
Number of Securities Percent of Total
Underlying Options/SAR's Granted
Options/SAR's Granted to Employees In Exercise or Base
Name (#) Fiscal Year Price ($/Sh) Expiration Date
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
John McDermott 250,000 33% $0.01 March 31, 2002
Thompson Chu 0 0 0 0
Don Lau 50,000 6.6% $1.00 June 30, 2002
</TABLE>
<TABLE>
AGGREGATED OPTION/SAR EXERCISES IN 12- MONTH
PERIOD ENDED DECEMBER 31, 1999
AND DECEMBER 31, 1999 OPTIONS/SAR VALUES
Number of Unexercised
Securities Underlying Value of Unexercised
Options/SARs At In-The-Money Option/SARs
Shares Acquired On Value Realized December 31, 1999 (#) At December 31, 1999 ($)
Name Exercise (#) ($) Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ------------ --- ------------------------- -------------------------
<S> <C> <C> <C> <C>
John McDermott -0- -0- 0 / 250,000 247,500
Thompson Chu n/a n/a n/a n/a
Don Lau -0- -0- 0 / 50,000 -0-
</TABLE>
Compensation of Directors
During the 1999 fiscal period, no Directors received any compensation for their
services as Directors. Commencing March 1, 2000, Directors of the Company who
are not officers will each receive a director's fee of $15,000 per annum.
Employment Contracts
On July 20, 1999, the Company entered into a three-year Employment Agreement
with John McDermott, the Company's President, whereby the Company will pay Mr.
McDermott an annual salary of $83,333. The Agreement also requires the Company
to provide, at its expense, complete health insurance coverage for Mr. McDermott
and his family and annual automobile allowance of $5,600 for business use. With
effect from January 1, 2000, Mr. McDermott's annual salary was revised to
$103,450.
On July 20, 1999, the Company entered into a two-year Employment Agreement with
Thompson Chu, the Company's Chairman of the Board, whereby the Company will pay
Mr. Chu an annual salary of $50,000 as compensation for his duties as executive
chairman of the Company. The Agreement also requires the Company to provide, at
its expense, complete health insurance coverage for Mr. Chu and his family. With
effect from January 1, 2000, Mr. Chu's annual salary was revised to $103,450.
20
<PAGE>
On July 20, 1999, the Company entered into a two-year Employment Agreement with
Don Lau, the Company's Secretary and Treasurer, whereby the Company will pay Mr.
Lau an annual salary of $48,000. The Agreement also requires the Company to
provide, at its expense, complete health insurance coverage for Mr. Lau and his
family. With effect from January 1, 2000, Mr. Lau's annual salary was revised to
$59,600.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of December 31, 1999, certain information
with respect to the Company's equity securities owned of record or beneficially
by (i) each Officer and Director of the Company; (ii) each person who owns
beneficially more than 5% of each class of the Company's outstanding equity
securities; and (iii) all Directors and Executive Officers as a group.
<TABLE>
Title Common Stock Percent of
of Class Name and Address of Beneficial Owner Outstanding Outstanding
- -------- ------------------------------------ ----------- -----------
<S> <C> <C> <C>
Common Stock John McDermott 0 0%
107 East 3rd Avenue
Vancouver, BC Canada
Common Stock Don Lau 0 0%
107 East 3rd Avenue
Vancouver, BC Canada
Common Stock Thompson Chu 0 0%
107 East 3rd Avenue
Vancouver, BC Canada
Common Stock Yong Kiat Rickie Tang1 1,750,000 9.00%
335 Bukit Timah Road #10-02
Singapore 259718
Common Stock Pang Lin Choi2 8,525,000 43.84%
2702-6 Lucky Commercial Centre
103-9 Des Voeux Road West
Hong Kong
All Directors and Officers as 1,750,000 9.00%
a Group (4 Persons in total)
- ---------------------------------
</TABLE>
(1) Denotes shares beneficially owned by Mr. Tang but held by Kemayan E.C.
Hybrid Ltd. Mr. Tang is a principal of Kemayan E.C. Hybrid Ltd.
(2) Denotes shares held by Mr. Pang Lin Choi as trustee of the John McDermott
and Thompson Chu Family Trust. The John McDermott Family trust holds
2,000,000 shares of the Company's Common Stock (the "McDermott Shares").
The Thompson Chu Family Trust holds 6,525,000 shares of the Company's
Common Stock (the "Chu Shares"). Mr. Choi, as trustee, holds sole voting
and investment rights with respect to the McDermott and Chu shares.
The Company believes that the beneficial owners of securities listed above,
based on information furnished by such owners, have sole investment and voting
power with respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of
the Commission and generally includes voting or investment power with respect to
securities. Shares of stock subject to options or warrants currently
exercisable, or exercisable within 60 days, are deemed outstanding for purposes
21
<PAGE>
of computing the percentage of the person holding such options or warrants, but
are not deemed outstanding for purposes of computing the percentage of any other
person.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On January 11, 1999, the Company's wholly owned subsidiary, POPstar-BVI, entered
into a Licensing Agreement and a Services Agreement with TGI Technologies Ltd.,
for the licensing and service of the Internet Fax Technology, as previously
described. Mr. John McDermott and Mr. Thompson Chu, officers of the Company are
also officers of TGI. In addition, Mr. McDermott, Mr. Chu and Mr. Yong Kiat
Rickie Tang are directors of TGI.
On March 30, 1999, the Company's wholly owned subsidiary, POPstar-BVI, entered
into an unsecured promissory note with TGI whereby POPstar-BVI agreed to lend
TGI the sum of $1,000,000. Said note provided interest terms of eight (8)
percent per annum, compounded annually. The principal and interest are due on
either the earlier of a demand by the Company or on March 30, 2001. Mr. John
McDermott and Mr. Thompson Chu, officers of the Company are also officers of
TGI. In addition, Mr. McDermott, Mr. Chu and Mr. Yong Kiat Rickie Tang are
directors of TGI.
As previously discussed, on July 20, 1999, the Company acquired all of the
outstanding common and preferred stock of POPstar-BVI in a business combination
described as a "recapitalization." For accounting purposes, the acquisition has
been treated as the acquisition of POPstar (the Registrant) by POPstar-BVI. Such
shares include the shares owned by officers and directors of the Company as set
forth in the Section "Security Ownership of Certain Beneficial Owners and
Management" hereunder.
On March 15, 1999, the Company's wholly owned subsidiary, POPstar-Asia, entered
into an oral month-to-month lease for the lease of approximately 1,000 square
feet of executive offices located at Westlands Centre, Room 908, 20 Westlands
Road, Quarry Bay, Hong Kong to serve as a sales, marketing, and technical
support facility for the Company's Asian operations at a rental rate of $2,000
per month. The leased premises are owned by Easewell Management Ltd., a company
beneficially owned by Mr. Thompson Chu, the Company's Chairman of the Board.
On January 1, 2000, the Company entered into an oral month-to-month lease for
the lease of approximately 4,800 square feet of administrative space located at
107 East 3rd Avenue, Vancouver, British Columbia, Canada to serve as the
Company's temporary headquarters at a rental rate of $4,000 per month. The
leased premises are owned by Tradeglobe Consulting Ltd. Mr. McDermott and Mr.
Chu, officers and directors of the Company, are also officers and directors of
Tradeglobe Consulting Ltd.
On January 1, 2000, POPstar Communications Asia Pacific Limited entered into an
oral month-to-month lease for approximately 1,830 square feet of executive
office space at Room 405A, 11 Fu Cheng Men Wai Street, Xi Cheng District,
Beijing to serve as its representative office in Beijing, at a rental rate of
$2,200 per month. The owner of the office space is Mr. Thompson Chu, the
Company's Chairman of the Board.
On January 12, 1999, as amended by a supplemental agreement dated March 29, 1999
and an Investor Exchange Agreement dated July 13, 1999, the Company,
22
<PAGE>
through its wholly owned subsidiary, POPstar-BVI, contracted to sell, and
Kemayan E.C. Hybrid Ltd. (a company beneficially owned by Mr. Yong Kiat Rickie
Tang, a director of the Company) contracted to purchase, 250,000 shares of the
Company's "restricted" Common Stock on or before March 31, 2000 at $0.833333 per
share for gross proceeds anticipated to be in the amount of $208,333.
On February 2, 2000, the Company entered into a Share Subscription Agreement
with Netalone.com(BVI) Ltd. for the subscription by Netalone.com(BVI) Ltd. of
1,500,000 shares of the Company's restricted Common Stock at $2.00 per share for
gross proceeds of $3,000,000. As further consideration for the Share
Subscription Agreement, the Company granted Netalone.com(BVI) Ltd. an option to
purchase an additional 1,500,000 shares of restricted Common Stock of the
Company at an exercise price of $2.00 per share at any time prior to the date
which is 3 months subsequent the date on which the Company's Common Stock are
relisted and/or quoted on the OTCBB. The Share Subscription Agreement was
subsequently assigned from Netalone.com(BVI) Ltd. to Rich Income International
Limited (which later changed its name to Innovestor.com Ltd.) pursuant to an
Assignment Agreement dated February 9, 2000. Dr. William Wing Yan Lo, who joined
the Company's Board of Director on February 15, 2000, is the Chairman and Chief
Executive Officer of Netalone.com Ltd., the parent company of Netalone.com(BVI)
Ltd. and Innovestor.com Ltd.
On February 2, 2000, the Company's wholly owned subsidiary, POPstar-BVI, entered
into a Set Off Agreement with TGI pursuant to which POPstar-BVI may set off
amounts owing to TGI pursuant to provisions of the Licensing Agreement dated
January 11, 1999 against any amounts owing by TGI to POPstar-BVI pursuant to
provisions of the promissory note owed by TGI to POPstar-BVI dated March 30,
1999. At December 31, 1999, no amounts were set off. Mr. McDermott and Mr. Chu,
officers of the Company are also officers of TGI. In addition, Mr. McDermott,
Mr. Chu and Mr. Tang are directors of TGI.
On February 2, 2000, the Company entered into a Nominee Directors Agreement with
Kemayan E.C. Hydrid Ltd., Netalone.com(BVI) Ltd., trustee of the Thompson Chu
Family Trust and trustee of the John McDermott Family Trust giving them certain
entitlements regarding the appointment of their respective nominees to serve as
directors of the Company. Kemayan E.C. Hybrid Ltd. is a company beneficially
owned by Mr. Yong Kiat Rickie Tang, a director of the Company. Dr. William Lo, a
director of the Company, is the Chairman and Chief Executive Officer of the
parent company of Netalone.com(BVI) Ltd. Mr. Thompson Chu, a director of the
Company, is a beneficiary of the Thompson Chu Family Trust. Mr. John McDermott,
a director of the Company, is a beneficiary of the John McDermott Family Trust.
On February 2, 2000, the Company and POPstar-BVI entered into a Termination
Agreement with Kemayan E.C. Hybrid Ltd., Sunfield Industries Limited, Uprising
Overseas Limited, Golden Harvest Overseas Limited, trustee of the Thompson Chu
Family Trust and trustee of the John McDermott Family Trust pursuant to which
certain rights entitled to by Kemayan E.C. Hybrid Ltd., Sunfield Industries
Limited, Uprising Overseas Limited and Golden Harvest Overseas Limited were
terminated. Kemayan E.C. Hybrid Ltd. is a company beneficially owned by Mr. Yong
Kiat Rickie Tang, a director of the Company. Mr. Thompson Chu, a director of the
Company, is a beneficiary of the Thompson Chu Family Trust. Mr. John McDermott,
a director of the Company, is a beneficiary of the John McDermott Family Trust.
23
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1* Acquisition Agreement between POPstar Communications, Inc. and
POPstar Global Communications Inc., dated July 13, 1999
3.1* Articles of Incorporation
3.2* Amended Articles of Incorporation, filed with the Nevada
Secretary of State on May 19, 1999
3.3* Bylaws of the Company
10.1* Telecommunications Services Agreement by and between INNOSYS
COMMUNICATIONS, INC. and POPstar Global Communications Inc.,
dated December 18, 1998
10.2* Licensing Agreement between TGI Technologies Ltd. and POPstar
Global Communications Inc., dated January 11, 1999
10.3* Services Agreement by and between TGI Technologies Ltd. and
POPstar Global Communications Inc., dated January 11, 1999
10.4* Promissory Note in the amount of U.S. $1,000,000 between TGI
Technologies Ltd. and POPstar Global Communications Inc., dated
March 30, 1999
10.5*+ Employment agreement by and between POPstar Global Communications
Inc. and Don Lau, dated July 20, 1999
10.6*+ Employment agreement by and between POPstar Global Communications
Inc. and John McDermott, dated July 20, 1999
10.7*+ Employment agreement by and between POPstar Global Communications
Inc. and Thompson Chu, dated July 20, 1999
10.8* Services Agreement by and between TransNexus, LLC and POPstar
Global Communications Inc., dated August 10, 1999
10.9 Share Subscription Agreement by and between POPstar
Communications, Inc. and Netalone.com (BVI) Ltd. dated February
2, 2000
10.10 Set Off Agreement dated February 2, 2000
10.11 Nominee Directors Agreement dated February 2, 2000
10.12 Termination Agreement dated February 2, 2000
10.13 Assignment Agreement dated February 9, 2000
24
<PAGE>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.14 Share Subscription Agreement by and between POPstar
Communications, Inc. and Prime Star Asia Limited dated February
11, 2000
10.15 Share Subscription Agreement by and between POPstar
Communications, Inc. and iTELEWAY, Inc. dated February 11, 2000
16* Letter by former auditor Barry L. Friedman
27 Financial Data Schedule
- ------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB (File No. 0-27213).
+ Indicates management contract.
(b) Reports on Form 8-K.
At the request of the Commission, the Company filed a Current Report on Form 8-K
on January 31, 2000, to file a copy of its audited financial statements as of
and for the period from December 17, 1998 (inception date) to December 31, 1998.
These financial statements give effect to the reverse acquisition by the Company
of Cherokee Leather, Inc.
25
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
March 29, 2000 POPSTAR COMMUNICATIONS, INC.
/s/ JOHN McDERMOTT
-------------------------------------
JOHN McDERMOTT
Chief Executive Officer
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities indicated on
the 29th day of March, 1999.
/s/ Thompson Chu
- --------------------------- Chairman of the Board and Director
Thompson Chu
/s/ John McDermott
- --------------------------- Chief Executive Officer
John McDermott
/s/ Yong Kiat Rickie Tang
- --------------------------- Director
Yong Kiat Rickie Tang
/s/ William Wing Yan Lo
- --------------------------- Director
William Wing Yan Lo
/s/ Don Lau
- --------------------------- Secretary and Treasurer
Don Lau
26
<PAGE>
POPSTAR COMMUNICATIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
Report of Independent Auditors .............................................F-2
Consolidated Balance Sheets as of December 31, 1999 and 1998 ...............F-3
Consolidated Statements of Operations and Deficit for
the Year Ended December 31, 1999 and for the Period from
Incorporation on December 17, 1998 to December 31, 1998 ..................F-4
Consolidated Statements of Cash Flow for the Year Ended
December 31, 1999 and for the Period from Incorporation
on December 17, to December 31, 1998 .....................................F-5
Notes to Consolidated Financial Statements .................................F-6
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors
POPstar Communications, Inc.
We have audited the consolidated balance sheets of POPstar Communications, Inc.
(a Development Stage Company) as at December 31, 1999 and 1998 and the
consolidated statements of operations and deficit and cash flows for the year
ended December 31, 1999, the period from incorporation on December 17 1998 to
December 31, 1998 and for the period from incorporation on December 17, 1998 to
December 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of the Company as at
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the year ended December 31, 1999, the period from incorporation on December
17 1998 to December 31, 1998 and for the period from incorporation on December
17, 1998 to December 31, 1999 in accordance with generally accepted accounting
principles in the United States.
The accompanying consolidated financial statements have been prepared assuming
the Company will continue as a going concern. As discussed in note 2 to the
consolidated financial statements, the Company has suffered losses from
operations and has no established source of revenue. This raises substantial
doubt about its ability to continue as a going concern. Management's plan in
regard to these matters is described in note 2. These consolidated financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
KPMG LLP
Chartered Accountants
Vancouver, Canada
March 17, 2000
F-2
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Balance Sheets
(Expressed in U.S. Dollars)
December 31, 1999 and 1998
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
1999 1998
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Current assets:
Cash $ 23,745 $ -
Note receivable from a company with common controlling
shareholders (note 4) 1,000,000 -
Prepaid expenses 2,739 -
- ---------------------------------------------------------------------------------------------------------------------------
Total current assets 1,026,484 -
Equipment 12,124 -
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $ 1,038,608 $ -
- ---------------------------------------------------------------------------------------------------------------------------
Liabilities and Shareholders' Equity
Current liabilities:
Accounts payable $ 160,505 $ -
Accrued liabilities 35,064 -
Payable to companies with common controlling shareholders
(note 5) 230,227 -
- ---------------------------------------------------------------------------------------------------------------------------
Total current liabilities 425,796 -
Shareholders' equity:
Capital stock (note 6)
Authorized: 50,000,000 common voting shares, par
value of $0.001 per share
Issued and outstanding: 19,447,500 common voting
shares 2,654,548 -
Deficit accumulated in the development stage (2,041,736) -
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 612,812 -
Going concern (note 2)
Commitment (note 9)
Contingency (note 10)
Subsequent events (note 13)
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $ 1,038,608 $ -
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Operations and Deficit
(Expressed in U.S. Dollars)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
Period from Period from
incorporation on incorporation on
December 17, December 17,
Year ended 1998 to 1998 to
December 31, December 31, December 31,
1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenues:
Interest income (note 4) $ 61,708 $ - $ 61,708
Expenses:
Accounting and audit fees 20,234 - 20,234
Bank interest and charges 2,575 - 2,575
Commission 72,916 - 72,916
Foreign exchange loss 1,086 - 1,086
Legal and professional fees 296,190 - 296,190
License fee 25,000 - 25,000
Management fee 1,950 - 1,950
Office 21,352 - 21,352
Rent 28,576 - 28,576
Salaries and wages 93,371 - 93,371
Sales and marketing 33,263 - 33,263
Travel and entertainment 38,692 - 38,692
Related party transactions:
License fee (note 7(a)) 391,074 - 391,074
Management fees (note 7(b)) 366,578 - 366,578
Administrative and office salaries
(note 7(b)) 72,352 - 72,352
Sales and marketing fees (note 7(b)) 100,027 - 100,027
Software development (note 7(b)) 403,438 - 403,438
Travel and entertainment (note 7(b)) 119,744 - 119,744
- ---------------------------------------------------------------------------------------------------------------------------
Total expenses 2,088,418 - 2,088,418
- ---------------------------------------------------------------------------------------------------------------------------
Net loss before income taxes 2,026,710 - 2,026,710
Income taxes 15,026 - 15,026
- ---------------------------------------------------------------------------------------------------------------------------
Net loss 2,041,736 - 2,041,736
Deficit accumulated during the development
stage, beginning of period - - -
- ---------------------------------------------------------------------------------------------------------------------------
Deficit accumulated during the development
stage, end of period $ 2,041,736 $ - $ 2,041,736
- ---------------------------------------------------------------------------------------------------------------------------
Basic and diluted loss per weighted
share (note 3(g)) $ 0.14 $ - $ 0.14
- ---------------------------------------------------------------------------------------------------------------------------
Weighted average number of common shares
outstanding 14,111,343 - 14,111,343
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Consolidated Statements of Cash Flows
(Expressed in U.S. Dollars)
<TABLE>
- ---------------------------------------------------------------------------------------------------------------------------
Period from Period from
incorporation on incorporation on
December 17, December 17,
Year ended 1998 to 1998 to
December 31, December 31, December 31,
1999 1998 1999
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (2,041,736) $ - $ (2,041,736)
Non-cash transactions:
Common shares issue in consideration
for legal services rendered 22,500 - 22,500
Net costs deemed to be issued on
recapitalization (2,517) - (2,517)
Changes in non-cash operating
working capital:
Prepaid expenses (2,739) - (2,739)
Accounts payable 160,505 - 160,505
Accrued liabilities 35,064 - 35,064
- ---------------------------------------------------------------------------------------------------------------------------
Total cash flows from operating activities (1,828,923) - (1,828,923)
Cash flows from financing activities:
Payable to common controlled companies 230,227 - 230,227
Issuance of capital stock 2,634,565 - 2,634,565
- ---------------------------------------------------------------------------------------------------------------------------
Total cash flows from financing activities 2,864,792 - 2,864,792
Cash flows from investing activities:
Note receivable from a company with
common controlling shareholders (1,000,000) - (1,000,000)
Purchase of equipment (12,124) - (12,124)
- ---------------------------------------------------------------------------------------------------------------------------
Total cash flows from investing activities (1,012,124) - (1,012,124)
- ---------------------------------------------------------------------------------------------------------------------------
Increase in cash 23,745 - 23,745
Cash, beginning of period - - -
- ---------------------------------------------------------------------------------------------------------------------------
Cash, end of period $ 23,745 $ - $ 23,745
- ---------------------------------------------------------------------------------------------------------------------------
Supplementary information:
Income taxes paid (note 8) $ 15,026 $ - $ 15,026
Interest expense paid 2,575 - 2,575
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
1. Operations:
The Company was incorporated on June 19, 1995 under the laws of the State
of Nevada as Cherokee Leather, Inc. On May 17, 1999, the Company changed
its name to POPstar Communications, Inc. The Company is a provider of
Internet based facsimile transmission technology and is in the process of
field testing its services, as such, it is considered a development stage
company.
On July 20, 1999, the Company acquired all the issued and outstanding
common and preferred shares of POPstar Global Communications Inc.
("POPstar") in exchange for 12,875,000 common shares of the Company with
the management of POPstar continuing to manage operations for the combined
entity. The common shares of the Company issued in exchange for the shares
of POPstar cannot be sold until July 20, 2000 except pursuant to an
effective registration statement under the United State laws or upon the
express written agreement of the Company. As the Company had no significant
operations to the date of the acquisition, the transaction was accounted
for as a capital transaction, whereby POPstar was considered to have issued
common shares for consideration equal to the net monetary assets of the
Company. Accordingly, these consolidated financial statements reflect the
assets, liabilities, revenues and expenses of POPstar for all periods prior
to July 20, 1999 consolidated with those of the Company from the date of
the capital transaction.
2. Going concern:
The Company's financial statements are prepared using generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and liquidation of liabilities in the normal course
of business. However, the Company does not have an established source of
revenue sufficient to cover its operating costs and to allow it to generate
sufficient cash flows to fund operations and meet its liabilities as they
become due. During 1999, the Company issued shares for cash (note 6(a)) and
commenced development of certain licensed software (note 7(a)). Subsequent
to December 31, 1999, the Company issued additional shares for cash
consideration (note 13). Management anticipates that cash will continue to
be available from its shareholders, the company with the common controlling
shareholders (note 4), or from additional security issuances to fund
operating requirements for the next fiscal year. There is no guarantee that
the licensed software will generate revenues sufficient to cover its
operating costs or that proceeds received from the issuance of shares or
other sources will maintain the Company until that time.
F-6
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 2
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies:
(a) Basis of presentation:
The consolidated financial statements include the accounts of the
Company and its wholly-owned subsidiaries, POPstar, POPstar
Communications Asia Pacific Ltd. ("POPstar Asia") and POPstar
Communications Canada Corp. All intercompany balances and transactions
have been eliminated.
As the Company has not commenced commercial operations at December 31,
1999, for accounting purposes it is considered to be a development
stage enterprise.
(b) Foreign operations:
The functional currency of the Company's wholly-owned subsidiaries
outside of the United States is the United States dollar. Monetary
items of those operations that are originally denominated in foreign
currencies are translated into United States dollars at the rate of
exchange in effect of the balance sheet date and non-monetary items
are translated at historical exchange rates. Revenues and expenses are
translated at the rate of exchange in effect on the dates they occur.
Depreciation or amortization of assets translated at historical
exchange rates are translated at the same exchange rates as the assets
to which they relate.
Exchange gains and losses arising on the translation of monetary items
are included in income for the current period.
(c) Equipment:
Equipment is stated at cost. Depreciation is provided on a
straight-line basis at a rate of 25% per annum.
(d) Software development:
Software development costs are expensed as incurred unless they meet
generally accepted accounting criteria for deferral and amortization.
The Company assesses whether it has met the relevant criteria for
deferral and amortization at each reporting date. No such expenditures
have met these criteria to December 31, 1999.
(e) Income taxes:
Income taxes are provided for using the asset and liability method of
accounting. A deferred tax asset or liability is recorded for all
temporary differences between the carrying values of assets and
liabilities for financial and tax reporting purposes and of tax loss
carryforwards based on the enacted tax rates in the expected period of
reversal of the difference.
F-7
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 3
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(e) Income taxes (continued):
A valuation allowance is provided to the extent that it is not
considered more likely than not that the deferred tax assets arising
due to loss carryforwards or temporary differences will be realized.
(f) Use of estimates:
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingencies at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period.
Assumptions underlying these estimates are limited by the availability
of reliable data and the uncertainty of predictions concerning future
events. Consequently, the estimates and assumptions made do not
necessarily result in a precise determination of reported amounts.
Actual results could differ from those estimates.
(g) Loss per share:
Basic loss per share is computed by dividing losses attributable to
the common shareholders by the weighted average number of common
shares outstanding during the period. Under the capitalization
accounting described in note 1, the shares issued to the former
shareholders of POPstar are considered to have been outstanding for
all periods presented proportionate to their date of issuance. Diluted
loss per share reflects per share amounts that would have resulted if
dilutive securities, such as the common share options, had been
converted to common stock at the later of the beginning of the period
or their date of issuance.
The losses attributable to the common shareholders is represented by
the net loss of $2,041,736. The weighted average number of common
shares outstanding during the period is calculated as follows:
<TABLE>
Weighted
Number number of
of common of shares
shares issued outstanding
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares outstanding, December 31, 1998 5,800,000 2,621,918
Shares issued on recapitalization 12,875,000 11,338,425
Shares issued subsequent to recapitalization 772,500 151,000
- ---------------------------------------------------------------------------------------------------------------------
19,447,500 14,111,343
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
F-8
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 4
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
3. Significant accounting policies (continued):
(g) Loss per share (continued):
As at December 31, 1999, the 757,500 issued and outstanding options to
acquire common shares of the Company (note 6(b)) and the subscriptions
to issue 3,000,000 common shares of the Company (note 6(c)) are not
included in the computation of diluted loss per share because to do so
would have been anti-dilutive for the periods presented.
(h) Stock based compensation:
Stock based compensation awarded as a result of stock options granted
to non-employees are accounted for using the fair value based method
of accounting. The fair value is determined using the option-pricing
model that takes into account the stock price at the grant date, the
exercise price, the expected life of the option, the volatility of the
underlying stock and the expected dividends on it, and the risk-free
interest rate over the expected life of the option. Any compensation
is recognized over the service period of the stock options being
granted, represented by the vesting period.
Stock options granted in exchange for employee services rendered have
been accounted for using the intrinsic value based method whereby the
excess, if any, of the quoted market price of the stock at the grant
date over the exercise price is recognized in the period of granting.
The Company has elected to adopt the disclosure only provision of
Statement of Financial Accounting Standards No. 123 ("FAS 123") with
respect to option grants to employees.
Stock issued in exchange for services rendered have been accounted for
based on the estimated fair value of the equity instruments at the
date of issuance.
4. Note receivable from a company with common controlling shareholders:
The note receivable from TGI Technologies Ltd. ("TGI") is unsecured and
bears interest at 8% per annum. Both TGI and the Company have greater than
50% of their respective voting shares owned by the same group of
shareholders. The funds were loaned to TGI on March 30, 1999 from monies
received on the issuance of shares of the Company. The principal and any
outstanding accrued interest are due on the earlier of demand by the
Company or March 30, 2001. During the year, the Company received interest
income of $60,703 from TGI.
5. Payable to companies with common controlling shareholders:
The payables to companies with common controlling shareholders are
non-interest bearing, unsecured and have no specific terms of repayment.
F-9
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 5
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
6. Capital stock:
(a) Common shares:
<TABLE>
------------------------------------------------------------------------------------------------------
Shares Amount
------------------------------------------------------------------------------------------------------
<S> <C> <C>
POPstar Global Communications Inc.:
Common share issued for cash - $ -
------------------------------------------------------------------------------------------------------
Balance, December 31, 1998 - -
Common shares issued for cash at $0.000911 per share 10,500,000 9,565
Preferred shares issued for cash at $0.833333 per share 2,375,000 1,979,167
------------------------------------------------------------------------------------------------------
Capital stock prior to recapitalization 12,875,000 $ 1,988,732
------------------------------------------------------------------------------------------------------
POPstar Communications, Inc.:
Balance, January 1, 1998 and December 31, 1998 5,800,000 $ 5,800
Adjustment on recapitalization:
Common shares of POPstar Global Communications
Inc. deemed to have been outstanding prior to
recapitalization that were issued, net of costs 12,875,000 1,988,732
Net costs deemed to be issued on recapitalization
equaling the deficit of POPstar Communications, Inc. - (8,317)
------------------------------------------------------------------------------------------------------
Capital stock subsequent to recapitalization 18,675,000 1,986,215
Common shares issued for cash at $1.00 per share 125,000 125,000
Common shares issued in consideration for legal
services rendered 22,500 22,500
Common shares issued for cash at $0.833333 per share 625,000 520,833
------------------------------------------------------------------------------------------------------
Balance, December 31, 1999 19,447,500 $ 2,654,548
------------------------------------------------------------------------------------------------------
</TABLE>
F-10
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 6
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
6. Capital stock (continued):
(b) Options:
During the year, the Company adopted a stock option plan (the "Plan")
pursuant to which the Company may grant stock options to management,
employees and contractors. The Plan authorizes grants of options to
purchase up to 757,500 shares of authorized but unissued common stock.
Subsequent to year end, the Company authorized an additional 1,247,250
common shares under the Plan to be eligible to be granted as options.
Stock options are granted with an exercise price equal to the stock's
market value at the date of the grant. The stock options have various
periods to expiry as noted in the tables below.
------------------------------------------------------------------------
1999 1998
options Exercise options
outstanding price outstanding
------------------------------------------------------------------------
Outstanding, beginning
balance - $ - -
Granted 467,500 0.01 -
Granted 290,000 1.00 -
------------------------------------------------------------------------
Outstanding and
exercisable, December 31 757,500 $ 0.39 -
------------------------------------------------------------------------
The fair value of options granted during 1999 averaged $0.10 per
share, calculated by applying the Black Scholes model as discussed
below.
The following table summarizes options outstanding and exercisable at
December 31, 1999:
------------------------------------------------------------------------
Outstanding
--------------------------------
Weighted
Exercise average period Exercisable
prices Number remaining to expiry number
------------------------------------------------------------------------
(months)
$0.01 467,500 21.1 127,500
$1.00 290,000 28.0 40,000
------------------------------------------------------------------------
757,500 167,500
------------------------------------------------------------------------
517,500 of the stock options were originally granted as options to
acquire common shares of POPstar. Upon acquisition of POPstar by the
Company on July 20, 1999 (note 1), the options were converted into
options to acquire common shares of the Company at the same exercise
price. The remaining 240,000 were granted by the Company subsequent to
the acquisition.
F-11
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 7
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
6. Capital stock (continued):
(b) Options:
The grant date fair value price has been calculated using the Black
Scholes option pricing model with the following weighted average
assumptions: volatility of 8%, expected dividend yield of 0%,
risk-free interest rate of 5% and an expected life of three years.
Total compensation recognized in income for stock based compensation
awards as a result of stock options granted for the year is nil (1998
- nil). Based on these factors, had compensation expense for the
Company's stock options been recognized based on a fair value
methodology as prescribed by FAS 123, the Company's net loss and loss
per share would have been as follows:
------------------------------------------------------------------------
1999 1998
------------------------------------------------------------------------
Net loss $ 2,041,736 $ -
Fair value of options granted 37,700 -
------------------------------------------------------------------------
Pro forma net loss $ 2,079,436 $ -
------------------------------------------------------------------------
Pro forma loss per share $ 0.15 $ -
------------------------------------------------------------------------
(c) Subscriptions:
On March 31, 1999, the Company received subscriptions to issue
3,000,000 common shares of the Company at a price of $0.833333 per
common share. The transaction will close on March 31, 2000 with cash
being received and shares being issued on that date.
F-12
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 8
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
7. Related party transactions:
Related party transactions not disclosed elsewhere in these consolidated
financial statements are as follows:
(a) On January 11, 1999, the Company entered into a Licensing Agreement
with TGI, a company with common controlling shareholders, whereby the
Company has been granted the exclusive commercial exploitation rights
to certain Internet fax server software (the "Software"). Under this
license, the Company has agreed to pay a percentage of the net
revenues resulting from the commercial activities of the Software,
subject to a specified annual minimum, as follows:
-------------------------------------------------------------------
Calendar Percentage Annual
year of net sales minimum
-------------------------------------------------------------------
1999 8% $ 400,000
2000 6% 600,000
2001 4% 500,000
2002 2% 500,000
-------------------------------------------------------------------
The agreement provides that the Company can offset any amounts owing
to TGI against the note receivable disclosed in note 4. At December
31, 1999, no setoffs have been applied. During 1999, the Company
recorded expenditures of $391,074 in license fees to TGI, being the
annual minimum prorated from the start date of agreement.
(b) The Company has also entered into an agreement with TGI, a company
under common control, whereby TGI will provide technical assistance,
software development, marketing, management and other services, as
required. The charge is based on TGI's direct and indirect costs of
the services provided plus 15%.
During the year, the Company incurred service fees, including the 15%,
under this agreement totalling $1,062,139.
(c) During the year, POPstar Asia entered into a leasing arrangement with
Easewell Management Ltd., a company with a common director as the
Company. The office space is rented on a month to month basis for
$2,000 per month.
F-13
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 9
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
8. Income taxes:
There is no provision for income taxes for the period ended December 31,
1999, due to the loss and no state income tax in Nevada. Income taxes
recorded on the consolidated statements of operations and deficit
represents withholding taxes on interest income. The Company's total
deferred tax asset as of December 31, 1999 is as follows:
Deferred tax asset $ 306,673
Valuation allowance (306,673)
- ---------------------------------------------------------------------------
Net deferred tax asset $ -
- ---------------------------------------------------------------------------
9. Commitment:
On August 10, 1999, the Company entered into a non-exclusive, royalty free
Service Agreement with TransNexus, LLC, a company incorporated under the
laws of the State of Georgia. Under the terms of the Agreement, TransNexus,
LLC will provide financial transaction settlement services and billing
information to Internet Service Providers using the Company's technology in
exchange for a percentage of the billings. The charging rates for these
arrangement have been established through negotiation subsequent to year
end.
10. Uncertainty due to the Year 2000 Issue:
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize
the year 2000 as 1900 or some other date, resulting in errors when
information using year 2000 dates is processed. In addition, similar
problems may arise in some systems which use certain dates in 1999 to
represent something other than a date. Although the change in date has
occurred, it is not possible to conclude that all aspects of the Year 2000
Issue that may affect the Company, including those related to customers,
suppliers, contractors or other third parties, have been fully resolved.
11. Financial instruments:
The carrying values of cash, notes receivable from a company with common
controlling shareholders, accounts payable, accrued liabilities and payable
to companies with common controlling shareholders approximate their fair
value due to the relatively short periods to maturity of the instruments.
F-14
<PAGE>
POPSTAR COMMUNICATIONS, INC.
(A Development Stage Company)
Notes to Consolidated Financial Statements, page 10
(Expressed in U.S. Dollars)
Year ended December 31, 1999 and
Period from incorporation on December 17, 1998 to December 31, 1998
- --------------------------------------------------------------------------------
12. Segmented information:
The assets and revenue of the Company have been classified for segmented
information purposes based on the location of the Company's operations. In
1999, the majority of the assets and revenue were located and earned in
Canada.
13. Subsequent events:
Subsequent to December 31, 1999:
(a) the Company issued 3,000,000 common shares for total proceeds of
$6,000,000. The Company also granted the purchasers options to acquire
3,000,000 common shares of the Company exercisable at $2 per common
share. The options expire three months subsequent to the date on which
the Company's shares are relisted and/or quoted on the NASDAQ
Over-The-Counter Bulletin Board; and
(b) 2,400,000 previously issued common shares were cancelled by the
Company for no consideration.
F-15
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
2.1* Acquisition Agreement between POPstar Communications, Inc. and
POPstar Global Communications Inc., dated July 13, 1999
3.1* Articles of Incorporation
3.2* Amended Articles of Incorporation, filed with the Nevada
Secretary of State on May 19, 1999
3.3* Bylaws of the Company
10.1* Telecommunications Services Agreement by and between INNOSYS
COMMUNICATIONS, INC. and POPstar Global Communications Inc.,
dated December 18, 1998
10.2* Licensing Agreement between TGI Technologies Ltd. and POPstar
Global Communications Inc., dated January 11, 1999
10.3* Services Agreement by and between TGI Technologies Ltd. and
POPstar Global Communications Inc., dated January 11, 1999
10.4* Promissory Note in the amount of U.S. $1,000,000 between TGI
Technologies Ltd. and POPstar Global Communications Inc., dated
March 30, 1999
10.5*+ Employment agreement by and between POPstar Global Communications
Inc. and Don Lau, dated July 20, 1999
10.6*+ Employment agreement by and between POPstar Global Communications
Inc. and John McDermott, dated July 20, 1999
10.7*+ Employment agreement by and between POPstar Global Communications
Inc. and Thompson Chu, dated July 20, 1999
10.8* Services Agreement by and between TransNexus, LLC and POPstar
Global Communications Inc., dated August 10, 1999
10.9 Share Subscription Agreement by and between POPstar
Communications, Inc. and Netalone.com (BVI) Ltd. dated February
2, 2000
10.10 Set Off Agreement dated February 2, 2000
10.11 Nominee Directors Agreement dated February 2, 2000
10.12 Termination Agreement dated February 2, 2000
10.13 Assignment Agreement dated February 9, 2000
<PAGE>
EXHIBIT DESCRIPTION OF EXHIBIT
- ------- ----------------------
10.14 Share Subscription Agreement by and between POPstar
Communications, Inc. and Prime Star Asia Limited dated February
11, 2000
10.15 Share Subscription Agreement by and between POPstar
Communications, Inc. and iTELEWAY, Inc. dated February 11, 2000
16* Letter by former auditor Barry L. Friedman
27 Financial Data Schedule
- ------------------
* Incorporated by reference to the Registrant's Registration Statement on
Form 10-SB (File No. 0-27213).
+ Indicates management contract.
EXHIBIT 10.9
Dated: The 2nd day of February, 2000
POPSTAR COMMUNICATIONS, INC.
and
NETALONE.COM (BVI) LTD.
AGREEMENT
for Subscription of Shares
of
POPstar Communications, Inc.
GOODMAN PHILLIPS & VINEBERG
In Association with Fong & Ng
8th Floor, Aon China Building
29 Queens Road Central
Hong Kong
<PAGE>
SHARE SUBSCRIPTION AGREEMENT
POPstar Communications, Inc.
THIS SHARE SUBSCRIPTION AGREEMENT is dated the 2nd day of February, 2000.
B E T W E E N:
(1) POPSTAR COMMUNICATIONS, INC., a corporation incorporated under the laws of
the State of Nevada, the United States of America whose principal office
address is located at 107 East 3rd Avenue, Vancouver, British Columbia,
Canada (the "Company");
and
(2) NETALONE.COM (BVI) LTD., a corporation incorporated under the laws of the
British Virgin Islands whose registered address is Akara Building, 24 De
Castro Street, Wickhams Cay I, Road Town, Tortola, the British Virgin
Islands (the "Investor");
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares.
1.1 Sale and Issuance of Restricted Common Shares. Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the
Closing (as defined in Section 2.1) and the Company agrees to sell and
issue to the Investor at the Closing 1,500,000 shares of common stock of
the Company at a price per share of US$2.00 (the "Shares").
1.2 Option. As further consideration for the aggregate amount paid to the
Company pursuant to Section 1.1, the Company hereby grants to the Investor,
or its permitted assigns or transferees, an option to purchase from the
Company at any time prior to the date which is three months subsequent the
date on which the Company's shares are relisted and/or quoted on the OTC
Bulletin Board ("OTCBB"), subject to prior termination in accordance with
Section 8.2, 1,500,000 Shares (such underlying shares, as increased or
decreased in accordance herewith, are hereinafter referred to collectively
as the "Option Stock"). Such option will be exercisable from time to
<PAGE>
time, in whole or in part, for a price per Share set forth in the
immediately preceding Section 1.1 (as modified from time to time in
accordance herewith, the "Exercise Price"). Such option shall be assignable
by the Investor without restriction (except for applicable securities
laws). The Investor may exercise its option by the delivery of written
notice to the Company. The Company will issue the Shares that are the
subject of the option, and the Investor will pay the price therefor to the
Company in cash, on the third (3rd) business day following any exercise of
the option. Prior to an exercise of the option granted it pursuant to this
Section 1.2, the Investor shall not have any rights or obligations as a
shareholder hereunder with respect to the Option Stock (the rights as a
holder of the Shares acquired pursuant to Section 1.1 being unaffected).
1.3 Anti-Dilution. With respect to the option described in Section 1.2 and the
rights of the Investor in connection therewith:
(a) Subdivision and Combination.
(i) In case the Company shall at any time subdivide or combine
the outstanding Shares, the Exercise Price shall forthwith
be proportionately decreased in the case of subdivision or
increased in the case of combination. Such (combination)
subdivision may consist of (reverse) stock splits, stock
dividends, reclassifications or any other comparable
transaction by which Shares or other capital stock are
(combined into a smaller number of shares or) issued to
holders of such Shares or other capital stock by virtue of
such share ownership.
(ii) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 1.3, the number of shares of
Option Stock issuable upon the exercise at the adjusted
exercise price of the Investor's option shall be adjusted to
the nearest whole number of shares by multiplying the number
of shares of Option Stock issuable upon exercise of such
option prior to the adjustment by a fraction, the numerator
of which is the Exercise Price in effect immediately prior
to such adjustment and the denominator of which is the
adjusted Exercise Price.
(iii) For the purpose of this Section 1.3, the term "Shares "
shall mean (i) the Shares as defined in the recitals hereto,
or (ii) any other class of stock resulting from successive
changes or reclassifications of such Shares consisting
solely of changes in par value, or from par value to no par
value, or from no par value to par value.
(b) Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with or into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Shares), the entity
formed by such consolidation or merger shall execute and deliver to
the Investor a supplemental option providing that the Investor shall
have the right thereafter (until the expiration of such option) to
receive, upon exercise of such option, the kind and amount of shares
of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Option
Stock of the Company for which such option might have been exercised
immediately prior to such
-2-
<PAGE>
consolidation, merger, sale or transfer. Such supplemental option
shall provide for adjustments which shall be identical to the
adjustments provided above. The above provision of this subsection
shall similarly apply to successive consolidations or mergers.
(c) Notices of Adjustments. After each adjustment of the Exercise Price or
the number of Shares issuable upon exercise of any of the
aforementioned option pursuant to this Section 1.3, the Company will
promptly (but in all cases within seven (7) days) prepare a notice to
the Investor setting forth: (i) the Exercise Price, as so adjusted,
(ii) the number of shares of Option Stock purchasable upon exercise of
the option after such adjustment, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will cause such
notice to be sent by overnight courier to the Investor at his last
address as it shall appear on the registry books of the Company.
2. The Closing.
2.1 Closing. The closing of the purchase and sale of the Shares (the "Closing")
shall take place at 107 East 3rd Avenue, Vancouver, BC, V5T 1C7, Canada no
later than the close of business (Vancouver time) on February 9, 2000 or at
such other time, date and place as the Company and the Investor mutually
agree upon orally or in writing (the "Closing Date").
2.2 Deliveries by the Company. At the Closing, the Company shall deliver to the
Investor a certificate or certificates representing 1,500,000 Shares
against payment of the aggregate purchase price of US$3,000,000 therefor by
certified cheque, irrevocable wire transfer or any combination thereof.
2.3 Deliveries by the Investor. At the Closing, the Investor shall deliver a
certified cheque or such evidence of irrevocable wire transfer reasonably
satisfactory to the Company.
3. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Investor, as
representations and warranties that will be true and correct as of the
Closing Date:
3.1. Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada with full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action of the Company and this
Agreement constitutes a valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
3.2. Capitalization. The authorized capital stock of the Company consists of
50,000,000 shares of common stock, par value US$0.001 per share, and no
shares of preferred stock. As of the date of this Agreement, the Company
has 17,047,500 shares of common stock issued and outstanding. No shares
have otherwise been registered under state or federal securities laws. As
of the Closing Date, all of the issued and
-3-
<PAGE>
outstanding shares of common stock of the Company are validly issued, fully
paid and non-assessable. Except with respect to the Shares and Option Stock
which are the subject of this Agreement, the employee stock options for an
aggregate of 757,500 common shares having an average strike price of
US$0.389 per employee option share, an aggregate of up to 3,000,000
restricted common shares reserved to be issued pursuant to certain Investor
Exchange Agreements all dated July 13, 1999, and an aggregate of up to
1,500,000 restricted common shares and an aggregate of up to 1,500,000
option stock to be issued to other accredited purchasers, as of the Closing
Date there will not be outstanding any other warrants, options or other
agreements on the part of the Company obligating the Company to issue any
additional Shares or any of its securities of any kind. Save for the above,
the Company will not issue any shares of capital stock from the date of
this Agreement through the Closing Date.
3.3. Subsidiaries. Except as described in Exhibit B, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. Except as disclosed in
Exhibit C, the Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.4. Authorization. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and
delivery of this Agreement, and the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance, sale and
delivery of the Shares being sold hereunder has been taken or will be taken
prior to the Closing Date, and this Agreement constitutes valid and legally
binding obligations of the Company, enforceable in accordance with its
terms.
3.5. Ownership of Shares. The delivery of certificates to the Investor will
result in the Investor's immediate acquisition of record and beneficial
ownership of the Shares, free and clear of all encumbrances other than
restrictions on transfer imposed by Federal and State securities laws. Save
as disclosed herein, there are no outstanding warrants, options, rights
(pre-emptive, conversion or otherwise), agreements or commitments of any
kind relating to the issuance, sale or transfer of any equity securities or
other securities of the Company.
3.6 Litigation. There is no action, suit, proceeding or investigation of which
the Company has notice pending or, to the best of the Company's knowledge,
currently threatened before any court, administrative agency or other
governmental body against the Company which questions the validity of this
Agreement or the right of the Company to enter hereinto, or to consummate
the transactions contemplated hereby, or which could result, either
individually or in the aggregate, in any material adverse change in the
condition (financial or otherwise), business, property, assets or
liabilities of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or, to the best of
the Company's knowledge, threatened involving the prior employment of any
of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with
prior employers. Except as disclosed in writing to the Investor, to the
best of the Company's knowledge, the Company is not a party or subject to,
and none of its assets is bound by, the provisions of any order, writ,
injunction, judgment
-4-
<PAGE>
or decree of any court or government agency or instrumentality which
materially adversely affects the condition (financial or otherwise),
business, property, assets or liabilities of the Company. Except as
disclosed in writing to the Investor, there is no action, suit or
proceeding initiated by the Company currently pending or that the Company
intends to initiate.
3.7. Title to Property and Assets. The Company has good and marketable title to
all of its properties and assets free and clear of all mortgages, liens and
encumbrances, except liens for current taxes and assessments not yet due
for which adequate reserves have been set aside and that do not, in any
case, individually or in the aggregate, materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or security interests or encumbrances disclosed to the Investor.
All liens and encumbrances affecting the Company's assets are summarized in
Exhibit D hereto, which is hereby incorporated by reference. With respect
to the property and assets it leases, the Company is in compliance with
such leases and, to the best of the Company's knowledge, holds a valid
leasehold interest free of all liens, claims or encumbrances. The Company's
properties and assets and the properties and assets leased by the Company
are in good condition and repair in all material respects, reasonable wear
and tear excepted.
3.8. Brokers or Finders. The Company has not agreed to incur, directly or
indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or
any of the transactions contemplated hereby.
3.9. Meaning of Company's Knowledge. Where used herein, the expression
"Company's knowledge" means information that is within the actual knowledge
of the directors or officers of the Company after due and careful enquiry,
acting in their capacity as such in the course of their activities, duties
and responsibilities on behalf of the Company.
3.10.U.S. and other Applicable Securities Representations. The Company has
taken all necessary procedural steps and measures to offer its securities
only to "accredited investors" (as defined in Section 501(a) of Regulation
D under the U.S. Securities Act of 1933, as amended, hereinafter the
"Securities Act") or to persons that are not "U.S. persons" (as defined in
Regulation S under the Securities Act), and to otherwise ensure that the
offering of the Shares to the Investor (and to all other persons whose
purchases of Shares may be integrated with the Investor's purchase
hereunder) is exempt from the registration requirements under the
Securities Act and from all other applicable securities laws, including
without limitation the laws of the Province of British Columbia.
3.11.Books of Account Accurate. The books of account and financial records of
the Company accurately and correctly set out and disclose, in all material
respects, the current financial position of the business of the Company and
all transactions of or relating to therein have been accurately recorded in
such books and records.
3.12.No Undisclosed Liabilities. The Company has not been nor is now subject to
any liabilities or obligations, direct, indirect or contingent (including,
without limitation, any outstanding guarantees) other than those disclosed
in this Agreement and those arising in the ordinary course of business
(none of which, on an individual basis, exceed US$25,000.00).
-5-
<PAGE>
3.13.No Guarantees. Neither the Company nor its subsidiaries has guaranteed or
otherwise given security for or agreed to guarantee or give security for
any liability, debt or obligation of any person, firm or corporation.
3.14.No Union. The Company has not made any arrangements with any labour union
or employee association or made commitments to or conducted any
negotiations with any union or employee association with respect to any
future agreements and is not aware of any current attempts to organise or
establish any labour union or employee association relating to the business
of the Company.
3.15.Material Contracts. Save as disclosed in Exhibit E, the Company is not a
party to or bound by any contracts, agreements, arrangements, leases or
other documents (oral or written) other than those entered into in the
ordinary course of business or which involve a costs, expenditure or
liability of less than US$25,000.00 for each such contract or document.
3.16.Income and Other Taxes. The Company has duly filed on a timely basis all
tax returns required to be filed by them in connection with the business of
the Company and have paid all taxes that are due and payable and all
assessments, reassessments, governmental charges, penalties, interest and
fines due and payable by them. The Company has made adequate provision for
taxes payable in respect of the business of the Company for the current
fiscal period and any previous periods for which tax returns are not yet
required to be filed. The Company has withheld from each payment made to
any of its past or present employees, officers or directors, with respect
to the business, the amounts of all taxes and other deductions required to
be withheld therefrom and has paid the same to the proper tax or other
receiving authorities or officers within the time required under any
applicable legislation.
3.17.Financial Statements. The Company has delivered to the Investor
consolidated balance sheets of the Company and its subsidiaries as at
December 31, 1999, and statements of income and changes in financial
position for the twelve-month period then ended. Such financial statements
are internally prepared and unaudited but fairly present the consolidated
financial condition and results of operations of the Company and its
subsidiaries as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United Stated
accounting principles consistently applied throughout the periods involved,
except as set forth in the notes thereto.
3.18.No Material Adverse Change. Since the date of the Company's financial
statements, being December 31, 1999, there has not been any material
adverse change in the business or financial condition of the Company and
its subsidiaries taken as a whole.
3.19.Transactions with Directors and Officers. Except as disclosed in Exhibit
F, the Company and its subsidiaries do not engage in business with any
person in which any of the Company's directors or officers has a material
equity interest. No director or officer of the Company owns any property,
asset or right which is material to the business of the Company and its
subsidiaries, taken as a whole.
3.20.Borrowing and Guarantee. The Company and its subsidiaries (a) do not have
any
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<PAGE>
indebtedness for borrowed money, (b) are not lending or committed to lend
any money (except for advances to employees in the ordinary course of
business).
3.21.The Company has caused to be terminated, including any obligations
thereunder, each of the following agreements:
(a) Shareholders' Agreement dated January 12, 1999 between Kemayan E. C.
Hybrid Ltd. ("KECH"), Sunfield Industries Limited ("Sunfield"),
Uprising Overseas Limited ("Uprising"), Golden Harvest Overseas Ltd.
("Golden Harvest"), Philip P. L. Choi in his capacity as trustee of
the Thompson Chu Family Trust, Philip P. L. Choi in his capacity as
trustee of the John McDermott Family Trust and POPstar Global
Communications Inc. ("POPstar-BVI");
(b) Investors' Rights Agreement dated January 12, 1999 between POPstar-BVI
and KECH;
(c) Investors' Rights Agreement dated January 12, 1999 between POPstar-BVI
and Sunfield;
(d) Investors' Rights Agreement dated January 12, 1999 between POPstar-BVI
and Uprising;
(e) Investors' Rights Agreement dated January 12, 1999 between POPstar-BVI
and Golden Harvest; and
(f) Registration Rights Agreement dated January 12, 1999 between
POPstar-BVI, and each of KECH, Sunfield, Uprising and Golden Harvest.
3.22 A legal opinion or legal opinions, in form satisfactory to the Investor,
has been provided to the Investor from counsel for the Company as to the
due authorization by the Company and legal effect of the termination of the
agreements by the Company referred to in Section 3.21 above.
4. Representations and Warranties of the Investor.
The Investor hereby represents and warrants, as representations and
warranties that will be true and correct as of the date of this Agreement
and will be true and correct as of the Closing Date, that:
4.1 No Qualification. The Investor understands and acknowledges that (i) none
of the Shares have been qualified by a prospectus or registration statement
or otherwise qualified for sale under the securities laws of any
jurisdiction; (ii) absent an exemption from registration or prospectus
requirements of applicable Federal and State securities laws of the United
States of America, the issuance and sale of the Shares would require the
involvement of a registered dealer and the filing of a prospectus and
registration statement (if applicable); (iii) the Company is and will be
issuing such securities in reliance upon exemptions from the registration
and prospectus requirements of such securities laws; and (iv) the
availability of such exemptions depends upon, among other things, the
Investor's representations,
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<PAGE>
warranties and agreements contained in this Agreement, including, without
limitation, the bona fide nature of the investment intent as expressed
herein. The Investor further understands and acknowledges that the Company,
subject to its obligations under Section 8 hereof, is under no obligation
to register or qualify the Shares under any applicable securities law, or
to comply with any exemptions under any applicable securities law in
connection with any resale of such Shares.
4.2 No Regulatory Review. The Investor understands and acknowledges that no
securities commission or similar regulatory authority has made any finding
or determination regarding the fairness of the offer, sale or issuance of
the securities described herein, has made any recommendation or endorsement
of the offer and sale of the securities described herein or has reviewed or
passed in any way upon this Agreement or upon the merits of the securities
described herein.
4.3 Investment. The Investor is acquiring the Shares as principal, for
investment purposes only, for Investor's own account and not with the view
to or for resale.
4.4 Speculative Investment. The Investor is aware that the acquisition of the
securities herein is a speculative investment involving a high degree of
risk and that there is no guarantee that the Investor will realize any gain
from an investment in such securities. The Investor further understands
that it could lose the entire amount of the Investor's investment herein.
The Investor is financially able to bear the economic risk of an investment
in the securities described herein, including the ability to hold such
securities indefinitely and to afford a complete loss of the Investor's
investment in such securities.
4.5 Resale Restrictions. The Investor acknowledges that it's rights to transfer
the Shares will be restricted, including restrictions under applicable
securities laws, and that the Investor has been independently advised as to
such restrictions, and, without limiting the generality of the foregoing,
the fact that the Investor will not be able to trade in such securities
except where an exemption is available under relevant securities laws and
the Investor understands such restrictions. The Investor covenants that it
will not sell, transfer or otherwise dispose of the Shares except in
compliance with all applicable securities laws. In connection therewith,
the Investor acknowledges that the Company may make a notation on its share
registers and records regarding the restrictions on transfers set forth in
this Section 4.5 and will transfer securities on the books of the Company
only to the extent not inconsistent therewith.
4.6 No Advertising. The offering and sale of the Shares were not made through
an advertisement of the securities in the printed media of general and
regular unpaid circulation, radio or television or any other form of
advertisement or as part of a general solicitation. The Investor
acknowledges that the information received by it does not, individually or
collectively, constitute an offering memorandum or similar document
describing the business or affairs of the Company which has been, or
appears or purports to have been, prepared for delivery to, and review by,
prospective purchasers in order to assist them in making an investment
decision in respect of securities of the Company; provided, however, that
nothing contained in this sentence shall be construed as an acknowledgement
of any kind that the Investor has not relied on the accuracy of such
information.
-8-
<PAGE>
4.7 Brokers or Finders. No finder, broker, agent, financial advisor or other
intermediary has acted on behalf of the Investor in connection with the
transactions contemplated by this Agreement.
4.8 Authorization. This Agreement when executed and delivered by the Investor
will constitute a valid and legally binding obligation of the Investor,
enforceable in accordance with its terms.
4.9 Accredited Investors. The Investor acknowledges that it has read and is
familiar with and understands Rule 501 of Regulation D under the Securities
Act. The Investor acknowledges that it is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act and has the
financial means and the business, financial and investment experience and
acumen to evaluate the merits and risks of this investment, to conduct such
investigations as is considered appropriate and to bear the risk inherent
in this investment.
4.10 Certificate Legending. The certificates evidencing the Shares may contain a
legend similar to the following or substantially as follows:
THE SHARE OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS A COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT HAS BEEN MADE, OR UNLESS
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION PROVISIONS HAS
BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
4.11 No Representation. Other than as set forth herein and those included in the
documents to be delivered with the Closing contemplated hereby, the
Investor acknowledges that it has not received and will not receive any
representations or warranties from the Company or any of its affiliates or
any of its employees or agents in making an investment decision related to
the acquisition of the securities described herein.
5. Conditions of Investor's Obligations at the Closing.
The obligations of the Investor to complete the transaction contemplated by
this Agreement are subject to the fulfillment on or before the time of
closing on the Closing Date of each of the following conditions, the waiver
of which shall not be effective against the Investor if the Investor does
not consent in writing thereto:
5.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 3 shall be true on and as of the time of
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
-9-
<PAGE>
6. Conditions of the Company's Obligations at the Closing.
The obligations of the Company to complete the transactions contemplated by
this Agreement are subject to the fulfillment on or before the time of
closing on the Closing Date of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties of the
Investor contained in Section 4 shall be true on and as of the time of
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
6.2 Payment of Purchase Price. The Investor shall have paid the purchase price
specified in Section 2.1 payable at such Closing against delivery of a
certificate or certificates representing the Shares issuable at such
Closing.
6.3 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby, and
all documents and instruments incidental to these transactions, shall be
reasonably satisfactory in substance to the Company.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, the United States of
America, without regard to any provisions thereof relating to conflicts of
laws principles thereof.
7.2 Survival. The representations, warranties, covenants and agreements made
herein shall survive any investigation made by the Company or the Investor
and the closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of the Investor to purchase Shares shall
not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto or contemplated hereby constitute the full and
entire understanding and agreement among the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
7.5 Notices, Etc. All notices and other communications required or permitted
hereunder, shall be in writing and shall be personally delivered, sent by
facsimile, or delivered by a nationally recognized overnight courier,
addressed (a) if to the Investor, at the Investor's address or facsimile
number set forth in Exhibit A, or at such other address or facsimile number
as the Investor shall have furnished to the Company in writing, or
-10-
<PAGE>
(b) if to the Company, at its address or facsimile number set forth in
Exhibit A, or at such other address or facsimile number as the Company
shall have furnished to the Investor. Any such notice or communication
shall be deemed to have been received (A) in the case of personal delivery
or delivery by telecopier, on the date of such delivery, and (B) in the
case of a nationally-recognized overnight courier, on the next business day
after the date when sent.
7.6 Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to any holder of any Shares upon any breach or default of
the Company under this Agreement shall impair any such right, power or
remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach
or default under this Agreement, or any waiver on the part of any holder of
any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 NO QUALIFICATION. THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY OTHER COUNTRY, STATE OR PROVINCE, IN
RELIANCE UPON CERTAIN EXEMPTIONS FORM SUCH QUALIFICATION OR REGISTRATION TO
THE EXTENT APPLICABLE. ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE. AS
A RESULT, THIS OFFERING WILL NOT BE REVIEWED OR APPROVED BY THE U.S.
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER SECURITIES REGULATORY
AGENCY.
7.8 Expenses. The Company and the Investor shall bear its own expenses and
legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
7.9 Counterparts. This Agreement may be executed in any number of counterparts
(including by facsimile), each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together
shall constitute one instrument.
7.10 Severability. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement
to any party.
7.11 Currency. All references to money in this Agreement and the Exhibits
hereto, except where otherwise indicated, are to amounts in lawful currency
of the United States of America.
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<PAGE>
7.12 Amendments to Comply. The parties will execute such documents and
instruments as they may each approve, acting reasonably, in order to amend
this Agreement to the extent necessary to ensure that the provisions of
this Agreement will comply with the law of the State of Nevada.
7.13 Public Announcements. The parties will make such public announcements with
respect to the transactions contemplated herein as are (a) required by
applicable law (provided that the parties consult with each other in
preparation thereof) or (b) as may be agreed to by the parties from time to
time.
8. Registration.
8.1 Quoting on OTCBB. The Company covenants that its shares will be relisted
and/or be quoted on the OTCBB within the end of the forty-five (45) days
subsequent to the date of this Agreement, all parties hereby acknowledging
that there will be no grace period for any defaults in relation to this
covenant.
8.2 Breach or Default. If the Company should be in breach under its obligation
in Section 8.1 above, the Company shall repurchase the Shares from the
Investor for the same amount of consideration that was paid by the Investor
to the Company for such Shares. The Investor shall return any instruments
evidencing the Option Stock issued pursuant to Section 1.2, marked as
"Cancelled" and do all such things and execute all such documents and
instruments as are necessary or reasonably requested by the Company to
indicate that its rights under Section 1.2 hereof are terminated.
8.3 Spending Restriction. The Company hereby covenants and agrees that until
such date that is the earlier of (a) the date on which its shares are
relisted and/or are quoted on the OTCBB as provided in Section 8.1 hereof
and (b) 45 days from the date hereof, the Company shall spend a maximum of
US$125,000 of the aggregate purchase price payable pursuant to Section 2.1
hereof by the Investor.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
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<PAGE>
POPSTAR COMMUNICATIONS, INC.
By /s/ John McDermott
----------------------------------
President and CEO
---------------------------------
Title
NETALONE.COM (BVI) LIMITED
By: /s/ Esmond Li
---------------------------------
Director
---------------------------------
Title
-13-
<PAGE>
EXHIBIT A
NOTICES (Section 8.5)
THE INVESTOR
Name of Investor: NETALONE.COM (BVI) LIMITED
Address: Akara Building
24 De Castro Street
Wickhams Cay I
Road Town, Tortola
British Virgin Islands
Telephone No: (852) 2330-0336
Facsimile No: (853) 2296-6886
THE COMPANY
Name of the Company: POPstar Communications, Inc.
Address: 107 East 3rd Avenue
Vancouver, BC V5T 1C7
Canada
Telephone No: (604) 872-6608
Facsimile No: (604) 872-6601
<PAGE>
EXHIBIT B
SUBSIDIARIES
(Section 3.3)
The following is the only subsidiary of the Company:
POPstar Global Communications Inc. ("POPstar-BVI")
(wholly-owned)
Form of legal entity: International Business Company, limited liability
Place of incorporation: The British Virgin Islands
Date of incorporation: December 17, 1998
The following are the only subsidiaries of POPstar-BVI:
POPstar Communications Asia Pacific Limited
(wholly-owned)
Form of legal entity: Limited liability company
Place of incorporation: Hong Kong
Date of incorporation: June 20, 1991
Former name: Echelon International Limited
Date of name change: June 2, 1999
POPstar Communications Canada Corp.
(wholly-owned)
Form of legal entity: Unlimited liability company
Place of incorporation: The Province of Nova Scotia, Canada
Date of incorporation: September 17, 1999
-1-
<PAGE>
EXHIBIT C
JOINT VENTURES, PARTNERSHIP OR SIMILAR ARRANGEMENT ENTERED
INTO BY THE COMPANY
(Section 3.3)
Nil.
-1-
<PAGE>
EXHIBIT D
LIENS AND ENCUMBRANCES AFFECTING COMPANY ASSETS
(Section 3.2)
Nil.
-1-
<PAGE>
EXHIBIT E
MATERIAL CONTRACTS
(Section 3.15)
1. Licensing Agreement dated January 11, 1999 between POPstar-BVI and TGI
Technologies Ltd. ("TGI")
2. Services Agreement dated January 11, 1999 between POPstar-BVI and TGI.
3. Assignment of Trademark dated January 11, 1999 by TGI in favour of
POPstar-BVI.
4. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and KECH.
5. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Sunfield.
6. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Uprising.
7. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Golden Harvest.
8. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and KECH.
9. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Sunfield.
10. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Uprising.
11. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Golden Harvest.
12. Promissory Note (in the amount of US$1,000,000) dated March 30, 1999 by TGI
in favour of POPstar-BVI.
13. Legal Retainer Agreement dated April 29, 1999 between POPstar-BVI and the
Law Offices of M. Richard Cutler regarding securities laws services and
issue of restricted common shares in lieu of portion of fees.
14. Investor Relations Agreement dated May 1, 1999 between POPstar-BVI and The
Michelson Group, Inc. regarding the provision by the latter party of
investor relations services to POPstar-BVI.
15. Further Supplemental Agreement dated May 1, 1999 between POPstar-BVI and
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<PAGE>
Sunfield.
16. Acquisition Agreement dated July 13, 1999 between the Company and
POPstar-BVI.
17. Investor Exchange Agreement dated July 13, 1999 between the Company and
KECH.
18. Investor Exchange Agreement dated July 13, 1999 between the Company and
Sunfield.
19. Investor Exchange Agreement dated July 13, 1999 between the Company and
Uprising.
20. Investor Exchange Agreement dated July 13, 1999 between the Company and
Golden Harvest.
21. Share Purchase Agreement dated July 16, 1999 between the Company and Robert
Potter (100,000 restricted common shares).
22. Share Purchase Agreement dated July 20, 1999 between the Company and Donald
Farnell (10,000 restricted common shares).
23. Share Purchase Agreement dated July 20, 1999 between the Company and Donald
Roth (10,000 restricted common shares).
24. Share Purchase Agreement dated July 20, 1999 between the Company and Thomas
Halzack (5,000 restricted common shares).
25. Amendment Agreement dated August 24, 1999 between the Company and Sunfield.
26. Amendment to Licensing Agreement dated August 24, 1999 between POPstar-BVI
and TGI.
27. Amendment to Services Agreement dated August 24, 1999 between POPstar-BVI
and TGI.
-2-
<PAGE>
EXHIBIT F
TRANSACTIONS WITH DIRECTORS AND OFFICERS
(Section 3.19)
1. Material Contracts numbers 1, 2, 3, 4, 8, 12, 16, 17, 26 and 27 listed in
Exhibit E to this Agreement are also applicable to this Exhibit F.
2. Employment agreements, all dated July 20, 1999, between the Company and
each of John McDermott, Thompson Chu and Don Lau.
3. On December 17, 1998, the Company's wholly-owned subsidiary, POPstar-BVI,
entered into an oral month to month lease for the lease of approximately
4,800 square feet of administrative space located at 107 East 3rd Avenue,
Vancouver, British Columbia, Canada to serve as the Company's temporary
headquarters at a rate of US$4,000.00 per month. The leased premises are
owned by Tradeglobe Consulting Ltd. John McDermott and Thompson Chu,
directors and officers of the Company, are also directors and officers of
Tradeglobe Consulting Ltd.
4. On March 15, 1999, the POPstar-BVI's wholly-owned subsidiary, POPstar
Communications Asia Pacific Limited, entered into an oral month-to-month
lease for the lease of approximately 1,000 square feet of executive offices
located at Westlands Centre, Room 908, 20 Westlands Road, Quarry Bay, Hong
Kong to serve as a sales, marketing, and technical support facility for the
the Company's Asian operations at a rate of US$2,000.00 per month. The
leased premises are owned by Easewell Management Ltd., a company
beneficially owned by Thompson Chu, a director and officer of the Company.
EXHIBIT 10.10
SET OFF AGREEMENT
THIS AGREEMENT is made on the 2nd day of February, 2000.
B E T W E E N:
TGI Technologies Ltd., a corporation incorporated under the laws of
the province of British Columbia, Canada, with its principal offices
located at 107 East Third Avenue, Vancouver, British Columbia, Canada
("TGI")
- and -
POPstar Global Communications Inc., a corporation incorporated undet
the laws of the British Virgins Islands with its principal offices
located at P.O. Box 3443, KPMG Centre, Tortola, British Virgin Islands
("POPstar-BVI")
- and -
POPstar Communications, Inc., a corporation incorporated under the
laws of the State of Nevada, the United States of America, with its
principal offices located at 107 East Third Avenue, Vancouver, British
Columbia, Canada ("POPstar")
- and -
netalone.com (BVI) Limited., a corporation incorporated under the laws
of the British Virgin Islands whose registered address is Akara
Building, 24 De Castro Street, Wickhams Cay I, Road Town, Tortola, the
British Virgin Islands ("netalone").
RECITALS:
A. Netalone has agreed to subscribe for certain shares in the capital of
POPstar;
B. POPstar-BVI is a wholly owned subsidiary of POPstar;
C. POPstar-BVI and TGI are parties to a certain licensing agreement dated as
of the 11th day of January, 1999, as amended by a certain amendment
agreement dated the 24th day of August, 1999 (the "Licensing Agreement")
pursuant to which TGI has agreed to exclusively license certain core
software to POPstar-BVI;
D. TGI has issued in favour of POPstar-BVI a promissory note in the aggregate
amount of US$1,000,000 dated the 30th day of March, 1999 (the "Promissory
Note");
<PAGE>
E. POPstar has agreed to cause TGI to set off any amounts owing by POPstar-BVI
to TGI pursuant to provisions of the Licensing Agreement against amounts
which may be owing by TGI to POPstar-BVI pursuant to provisions of the
Promissory Note; and
F. In consideration of the purchase of the subscription shares by netalone,
POPstar has agreed to cause POPstar-BVI to enter into this agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements hereinafter contained, the parties covenant and agree
with one another as follows:
1. TGI covenants and agrees that POPstar-BVI may, at any time and from time to
time, set off any amounts owing to TGI pursuant to provisions of the
Licensing Agreement against any amounts owing by TGI to POPstar-BVI
pursuant to provisions of the Promissory Note. All such amounts owing to
POPstar-BVI shall be credited by POPstar-BVI as payment of the Promissory
Note and the principal amount outstanding and owing by TGI to POPstar-BVI
under the Promissory Note shall be reduced accordingly.
2. The foregoing provision shall be without prejudice to the rights of payment
of POPstar-BVI pursuant to the provisions of the Promissory Note and shall
be notwithstanding any provisions to the contrary contained in the
Licensing Agreement. Other than as amended by this agreement, the Licensing
Agreement shall remain in full force of effect, and amended provided that
in the event that there is any conflict between the terms of the Licensing
Agreement or of the Promissory Note and this agreement, the terms of this
agreement shall prevail and be binding upon the parties.
3. This agreement shall be governed by and construed in accordance with the
laws of the State of Nevada.
4. This agreement may be executed by the parties in separate counterparts,
each of which, when so executed and delivered (including by facsimile)
shall be an original, and all of which when taken together shall together
constitute one and the same instrument. This agreement will not be binding
upon any party until it has been executed by each of the parties (including
by facsimile) and delivered to all other parties.
IN WITNESS WHEREOF the parties have duly executed this agreement this 2nd
day of February, 2000
TGI TECHNOLOGIES LTD.
By: /s/ Thompson Chu
-----------------------------------
Thompson Chu
-----------------------------------
Title: Chairman
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<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
By: /s/ Thompson Chu
-----------------------------------
Thompson Chu
-----------------------------------
Title: Director
POPSTAR COMMUNICATIONS, INC.
By: /s/ Thompson Chu
-----------------------------------
Thompson Chu
-----------------------------------
Title: Chairman
NETALONE.COM (BVI) LIMITED
By: /s/ [illegible]
---------------------------------
Director
---------------------------------
Title
-3-
EXHIBIT 10.11
NOMINEE DIRECTORS AGREEMENT
THIS AGREEMENT is made on the 2nd day of February, 2000.
B E T W E E N:
POPstar Communications, Inc., a corporation incorporated under
the laws of the State of Nevada, United States of America, with
its principal offices located at 107 East Third Avenue,
Vancouver, British Columbia, Canada (the "Company");
-and-
Kemayan E.C. Hybrid Ltd., a corporation incorporated under the
laws of the British Virgin Islands, with its principal offices
located at 10th Floor, Menara Kemayan, 160 Jalan Ampang, 50450
Kuala Lumpur, Malaysia (the "First Investor");
-and-
netalone.com (BVI) Ltd., a corporation incorporated under the
laws of the British Virgin Islands whose registered address is
Akara Building, 24 De Castro Street, Wickhams Cay I, Road Town,
Tortola, British Virgin Islands (the "Second Investor");
(the First Investor and the Second Investor being herein
collectively referred to as the "Investors")
-and-
Trustee of the Thompson Chu Family Trust, who is presently Philip
Pang Lin Choi of 2702-6 Lucky Commercial Building, 103-9 Des
Voeux Road West, Hong Kong SAR (the "First Substantial
Shareholder");
-and-
Trustee of the John McDermott Family Trust, who is presently
Philip Pang Lin Choi of 2702-6 Lucky Commercial Building, 103-9
Des Voeux Road West, Hong Kong SAR (the "Second Substantial
Shareholder")
(the First Substantial Shareholder and the Second Substantial
Shareholder being herein collectively referred to as the
"Substantial Shareholders").
<PAGE>
RECITALS:
A. Each of the Substantial Shareholders is a holder of common shares of the
Company.
B. Each of the Investors is a holder of, or has agreed to subscribe for,
common shares of the Company.
C. Each of the Investors and the Substantial Shareholders wish to grant each
of the Investors and the Substantial Shareholders, as a shareholder of the
Company, the right to appoint a nominee or nominees to serve as a director
or directors on the board of directors of the Company.
D. As of the date hereof, the directors of the Company are Yong Kiat Rickie
Tang, Thompson Chu and John McDermott.
E. In consideration of the termination of the Shareholders' Agreement of
POPstar Global Communications Inc. ("POPstar-BVI"), the Investor Rights
Agreements and the Registration Rights Agreements, all dated January 12,
1999 (assigned to the Company by POPstar-BVI by Investor Exchange
Agreements dated July 13, 1999) by the First Investor, each of the
Investors, the Company and the Substantial Shareholders have agreed to
enter into this agreement.
E. In consideration of the purchase of certain subscription shares pursuant to
the Share Subscription Agreement dated February 2, 2000 between the Company
and the Second Investor, the Company and the Substantial Shareholders have
agreed to enter into this agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements hereinafter contained, the parties covenant and agree
with one another as follows:
1. The Company, the Substantial Shareholders, and the Second Investor covenant
and agree that for so long as the First Investor owns or has the right to
acquire at least 5% of the Company's issued and outstanding common stock,
the First Investor shall be entitled to appoint one person (the "First
Nominee Director") as its nominee to serve as a director of the Company.
The Company, the Substantial Shareholders and the Second Investor shall
exercise their votes and influence and do all such acts and things as may
be required, from time to time, to ensure the due appointment of the First
Nominee Director as a director of the Company.
2. The Company, the Substantial Shareholders, and the First Investor covenant
and agree that for so long as the Second Investor owns or has the right to
acquire at least 5% of the
-2-
<PAGE>
Company's issued and outstanding common stock, the Second Investor shall be
entitled to appoint one person (the "Second Nominee Director") as its
nominee to serve as a director of the Company. The Company, the Substantial
Shareholders and the First Investor shall exercise their votes and
influence and do all such acts and things as may be required, from time to
time, to ensure the due appointment of the Second Nominee Director as a
director of the Company.
3. The Company, the First Investor and the Second Investor covenant and agree
that for so long as the Substantial Shareholders own or have the right to
acquire at least 10% of the Company's issued and outstanding common stock,
the Substantial Shareholders shall be entitled to appoint two persons (the
"Substantial Shareholders' Nominee Directors") as their nominees to serve
as directors of the Company. The Company, the First Investor and the Second
Investor shall exercise their votes and influence and do all such acts and
things as may be required, from time to time, to ensure the due appointment
of the Substantial Shareholders' Nominee Directors as directors of the
Company.
4. Each of the First Nominee Director, the Second Nominee Director, or either
of the Substantial Shareholders' Nominee Directors, may by written
notification to the Company nominate any other person to act as alternate
director in his or her place and, at his discretion, in similar manner
remove such alternate director.
5. The terms and conditions of this agreement shall inure to the benefit of
and be binding upon the respective successors and assigns of the parties.
This agreement shall not be assigned by any of the parties without the
prior written consent of each of the parties.
6. This agreement shall be governed by and construed in accordance with the
laws of the State of Nevada, United States of America.
7. This agreement may be executed by the parties in separate counterparts,
each of which, when so executed and delivered (including by facsimile)
shall be an original, and all of which when taken together shall together
constitute one and the same instrument. This agreement will not be binding
upon any party until it has been executed by each of the parties (including
by facsimile) and delivered to all other parties.
IN WITNESS WHEREOF the parties have duly executed this agreement this 2nd
day of February, 2000
POPSTAR COMMUNICATIONS, INC.
By: /s/ Thompson Chu
---------------------------------
Thompson Chu
-----------------------------------
Title Chairman
-3-
<PAGE>
KEMAYAN E.C. HYBRID LTD.
By: /s/ Yong Kiat Rickie Tang
---------------------------------
Yong Kiat Rickie Tang
-----------------------------------
Title Director
NETALONE.COM (BVI) LTD.
By: Esmond Li
---------------------------------
Director
---------------------------------
Title
PHILIP PANG LIN CHOI in his capacity as
trustee of the Thompson Chu Family Trust
By: /s/ illegible
---------------------------------
---------------------------------
Title
-2 FEB 2000
PHILIP PANG LIN CHOI in his capacity as
trustee of the John McDermott Family Trust
By: /s/ illegible
---------------------------------
---------------------------------
Title
-2 FEB 2000
-4-
EXHIBIT 10.12
TERMINATION AGREEMENT
THIS AGREEMENT is made on the 2nd day of February, 2000.
BETWEEN:
POPstar Communications, Inc., a corporation incorporated under the
laws of the State of Nevada, the United States of America, with its
principal offices located at 107 East Third Avenue, Vancouver, British
Columbia, Canada ("POPstar");
- and -
POPstar Global Communications Inc., a corporation incorporated under
the laws of the British Virgins Islands with its registered offices
located at P.O. Box 3443, KPMG Centre, Tortola, British Virgin Islands
("POPstar-BVI");
- and -
Kemayan E.C. Hybrid Ltd., a corporation incorporated under the laws of
the British Virgin Islands with its principal offices located at c/o
10th Floor, Menara Kemayan, 160 Jalan Ampang, 50450 Kuala Lumpur,
Malaysia ("KECH");
- and -
Sunfield Industries Limited, a corporation incorporated under the laws
of the British Virgin Islands with its principal offices located at
3-18-2 Jade Tower, Seri Mas, Jalan 4/89A, 3-1/2 Mile Cheras, 56000
Kuala Lumpur, Malaysia ("Sunfield");
- and -
Uprising Overseas Limited, a corporation incorporated under the laws
of the British Virgin Islands with its principal offices located at 40
Jalan
<PAGE>
SS2/28, 47300 Petaling Jaya, Selangor, Malaysia ("Uprising");
- and -
Golden Harvest Overseas Limited, a corporation incorporated under the
laws of the British Virgin Islands with its principal offices located
at 28 USJ 2/5K, 47600 Subang Jaya, Selangor, Malaysia "Golden
Harvest");
- and -
Trustee of the Thompson Chu Family Trust, who is presently Philip Pang
Lin Choi of 2702-6 Lucky Commercial Building, 103-9 Des Voeux Road
West, Hong Kong SAR ("Trustee A");
-and-
Trustee of the John McDermott Family Trust, who is presently Philip
Pang Lin Choi of 2702-6 Lucky Commercial Building, 103-9 Des Voeux
Road West, Hong Kong SAR ("Trustee B").
RECITALS
WHEREAS:
A. A certain Shareholders' Agreement dated January 12, 1999 was entered into
among KECH, Sunfield, Uprising, Golden Harvest, Trustee A, Trustee B and
POPstar-BVI;
B. Four certain Investor Rights Agreements, all dated January 12, 1999, were
entered into between POPstar-BVI and each of KECH, Sunfield, Uprising and
Golden Harvest;
C. A certain Registration Rights Agreement dated January 12, 1999 was entered
into between POPstar-BVI and each of KECH, Sunfield, Uprising and Golden
Harvest;
D. Four certain Investor Exchange Agreements, all dated July 13, 1999, were
2
<PAGE>
entered into between POPstar and each of KECH, Sunfield, Uprising and
Golden Harvest;
E. A certain Share Subscription Agreement is proposed to be entered into on
February 2, 2000 between POPstar and netalone.com (BVI) Ltd.; and
F. A certain Nominee Director Agreement is proposed to be entered into on
February 2, 2000 among POPstar, KECH, netalone.com (BVI) Ltd., Trustee A
and Trustee B;
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and agreements hereinafter contained, the parties covenant and agree
with one another as follows:
1. Subject to the entering into and becoming effective of the Share
Subscription Agreement and the Nominee Director Agreement referred to in
Recitals E and F above, the parties hereto each irrevocably agree to
terminate, release, discharge and quit claims the Shareholders' Agreement
referred to in Recital A, the Investor Rights Agreements referred to in
Recital B and the Registration Rights Agreement referred to in Recital C.
2. This agreement shall be governed by and construed in accordance with the
laws of the State of Nevada.
3. This agreement may be executed by the parties in separate counterparts,
each of which, when so executed and delivered (including by facsimile)
shall be an original, and all of which when taken together shall together
constitute one and the same instrument. This agreement will not be binding
upon any party until it has been executed by each of the parties (including
by facsimile) and delivered to all other parties.
IN WITNESS WHEREOF the parties have duly executed this agreement as of the
date first above written.
POPSTAR COMMUNICATIONS, INC.
/s/ Thompson Chu
- ------------------------------------
Name: Thompson Chu
Title: Chairman
3
<PAGE>
POPSTAR GLOBAL COMMUNICATIONS INC.
/s/ Thompson Chu
- ------------------------------------
Name: Thompson CHU
Title: Director
KEMAYAN E.C. HYBRID LTD.
/s/ Yong Kiat Rickie Tang
- ------------------------------------
Name: Yong Kiat Rickie TANG
Title: Director
SUNFIELD INDUSTRIES LIMITED
/s/ Wong Kok Mun
- ------------------------------------
Name: WONG Kok Mun
Title: Director
UPRISING OVERSEAS LIMITED
/s/ Chan Kwei Ching
- ------------------------------------
Name: CHAN Kwei Ching
Title: Director
4
<PAGE>
GOLDEN HARVESR OVERSEAS LIMITED
/s/ Tai Boon Tatt
- ------------------------------------
Name: TAI Boon Tatt
Title: Director
PHILIP PANG LIN CHOI (in his capacity as
trustee of the Thompson Chu Family Trust)
/s/ Philip Pang Lin Choi
- ------------------------------------
Philip Pang Lin CHOI, as trustee - 2 FEB 2000
PHILIP PANG LIN CHOI (in his capacity as
trustee of the John McDermott Family Trust)
/s/ Philip Pang Linchoi
- ------------------------------------
Philip Pang Lin CHOI, as trustee - 2 FEB 2000
5
EXHIBIT 10.13
ASSIGNMENT AGREEMENT
THIS AGREEMENT is made on the 9th day of February, 2000.
B E T W E E N:
netalone.com (BVI) Limited., a corporation incorporated under the
laws of the British Virgin Islands whose registered address is
Akara Building, 24 De Castro Street, Wickhams Cay I, Road Town,
Tortola, the British Virgin Islands (the "Assignor")
- and -
Rich Income International Limited, a corporation incorporated
under the laws of the British Virgin Islands with its principal
office located at 68th Floor, The Center, 99 Queen's Road
Central, Central, Hong Kong SAR (the "Assignee")
- and -
POPstar Communications, Inc., a corporation incorporated under
the laws of the State of Nevada, the United States of America,
with its principal offices located at 107 East Third Avenue,
Vancouver, British Columbia, Canada ("POPstar")
- and -
TGI Technologies Ltd., a corporation incorporated under the laws
of the province of British Columbia, Canada, with its principal
offices located at 107 East Third Avenue, Vancouver, British
Columbia, Canada ("TGI")
- and -
POPstar Global Communications Inc., a corporation incorporated
under the laws of the British Virgins Islands with its principal
offices located at P.O. Box 3443, KPMG Centre, Tortola, British
Virgin Islands ("POPstar-BVI")
- and -
Kemayan E.C. Hybrid Ltd., a corporation incorporated under the
laws of the British Virgin Islands, with its principal offices
<PAGE>
located at 10th Floor, Menara Kemayan, 160 Jalan Ampang, 50450
Kuala Lumpur, Malaysia ("KECH")
- and -
Trustee of the Thompson Chu Family Trust, who is presently Philip
Pang Lin Choi of 2702-6 Lucky Commercial Building, 103-9 Des
Voeux Road West, Hong Kong SAR (the "First Substantial
Shareholder")
- and -
Trustee of the John McDermott Family Trust, who is presently
Philip Pang Lin Choi of 2702-6 Lucky Commercial Building, 103-9
Des Voeux Road West, Hong Kong SAR (the "Second Substantial
Shareholder")
(the First Substantial Shareholder and the Second Substantial
Shareholder being herein collectively referred to as the
"Substantial Shareholders")
RECITALS:
A. The Assignor has entered into a share subscription agreement with POPstar
dated the 2nd day of February, 2000 (the "Share Subscription Agreement");
B. The Assignor, POPstar, POPstar-BVI and TGI entered into a set off agreement
dated the 2nd day of February, 2000 (the "Set Off Agreement");
C. The Assignor, POPstar, KECH, and the Substantial Shareholders entered into
a nominee directors agreement dated the 2nd day of February, 2000 (the
"Nominee Directors Agreement");
D. The Assignor wishes to assign all its rights, title, interests and
obligations under each of the Share Subscription Agreement, the Set Off
Agreement and the Nominee Directors Agreement to the Assignee; and
E. Each of the other parties to the Share Subscription Agreement, the Set Off
Agreement and the Nominee Directors Agreement hereby consents and
acknowledges the Assignor's transfer of its rights, title, interests and
obligations to the Assignee.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the sum of
One ($1.00) Dollar of lawful money of the United States of America
-2-
<PAGE>
now paid by the Assignee to the Assignor and in consideration of the mutual
covenants and agreements hereinafter contained, the parties covenant and agree
with one another as follows:
1. The Assignor hereby irrevocably transfers and assigns to the Assignee, all
of the rights, title, interests and obligations of the Assignor under each
of the Subscription Agreement, the Set Off Agreement and the Nominee
Directors Agreement (collectively the "Purchase Agreements"). The Assignee
hereby acknowledges and agrees to such assignment and to assume the rights,
title, interests and obligations of the Assignor under the Purchase
Agreements and to be bound by the terms of each.
2.
(a) POPstar hereby acknowledges and consents to the assignment in respect
of the Share Subscription Agreement;
(b) POPstar, POPstar-BVI and TGI each hereby acknowledge and consent to
the assignment pursuant to in respect of the Set Off Agreement; and
(c) POPstar, KECH, the First Substantial Shareholder and the Second
Substantial Shareholder each hereby acknowledge and consent to the
assignment in respect of the Nominee Directors Agreement;
in accordance with the provisions of this agreement and the assumption by
the Assignee of all rights, title, interests and obligations of the
Assignor under the Purchase Agreements.
3. The Assignee and the Assignor covenant and agree, if required, to sign such
further and other documents and do and perform and cause to be done and
performed such further and other acts and things as may be necessary or
desirable in order to give full effect to this agreement.
4. The Assignor hereby directs POPstar and POPstar hereby acknowledges that
any and all notices and other communications, to be made now and in the
future, in accordance with Section 7.5 of the Share Subscription Agreement,
shall be delivered and made to the Assignee effective as of the date of
this Agreement at:
Name: Rich Income International Limited
Address: 68th Floor,
The Center
99 Queen's Road Central
Central
Hong Kong SAR
Telephone No.: (852) 2330-0336
Facsimile No.: (852) 2296-6886
-3-
<PAGE>
5. The parties acknowledge and agree that in the event of any conflict between
the terms of this agreement and the terms of the Purchase Agreements, the
terms of this agreement shall prevail. The parties confirm that, other than
the amendments set out in this agreement, each of the Purchase Agreements
remain in full force and effect.
6. This agreement shall be governed by and construed in accordance with the
laws of the State of Nevada, the United States of America, without regard
to any provisions thereof relating to conflicts of laws principles thereof.
7. This assignment shall inure to the benefit and be binding upon the parties
hereto and their respective heirs, executors, administrators and assigns.
8. This agreement may be executed in any number of counterparts (including by
facsimile), each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
IN WITNESS WHEREOF the parties have duly executed this agreement this 9th
day of February, 2000.
NETALONE.COM (BVI) LTD.
By: /s/ Esmond Li
---------------------------------
Director
---------------------------------
Title
RICH INCOME INTERNATIONAL LIMITED
By: /s/ Esmond Li
---------------------------------
Director
---------------------------------
Title
POPSTAR COMMUNICATIONS, INC.
By: /s/ John McDermott
---------------------------------
John McDermott
---------------------------------
Title President
-4-
<PAGE>
TGI TECHNOLOGIES LTD.
By: /s/ Thompson Chu
---------------------------------
Thompson Chu
---------------------------------
Title Chairman
POPSTAR GLOBAL COMMUNICATIONS INC.
By: /s/ Thompson Chu
---------------------------------
Thompson Chu
---------------------------------
Title Director
KEMAYAN E.C. HYBRID LTD.
By: /s/ Yong Kiat Rickie Tang
---------------------------------
YONG KIAT RICKIE TANG
---------------------------------
Title Director
PHILIP PANG LIN CHOI in his capacity as
trustee of the Thompson Chu Family Trust
By: /s/ [illegible]
---------------------------------
---------------------------------
Title
PHILIP PANG LIN CHOI in his capacity as
trustee of the John McDermott Family Trust
By: /s/ [illegible]
---------------------------------
---------------------------------
Title
-5-
EXHIBIT 10.14
Dated: The 11th day of February, 2000
POPSTAR COMMUNICATIONS, INC.
and
PRIME STAR ASIA LIMITED
AGREEMENT
for Subscription of Shares
of
POPstar Communications, Inc.
GOODMAN PHILLIPS & VINEBERG
In Association with Fong & Ng
8th Floor, Aon China Building
29 Queens Road Central
Hong Kong
<PAGE>
SHARE SUBSCRIPTION AGREEMENT
POPstar Communications, Inc.
THIS SHARE SUBSCRIPTION AGREEMENT is dated the 11th day of February, 2000.
B E T W E E N:
(1) POPSTAR COMMUNICATIONS, INC., a corporation incorporated under the laws of
the State of Nevada, the United States of America whose principal office
address is located at 107 East 3rd Avenue, Vancouver, British Columbia,
Canada (the "Company");
and
(2) PRIME STAR ASIA LIMITED, a corporation incorporated under the laws of the
British Virgin Islands whose registered address is Sea Meadow House,
Blackburne Highway, Road Town, Tortola, the British Virgin Islands (the
"Investor");
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares.
1.1 Sale and Issuance of Restricted Common Shares. Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the
Closing (as defined in Section 2.1) and the Company agrees to sell and
issue to the Investor at the Closing 750,000 shares of common stock of the
Company at a price per share of US$2.00 (the "Shares").
1.2 Option. As further consideration for the aggregate amount paid to the
Company pursuant to Section 1.1, the Company hereby grants to the Investor,
or its permitted assigns or transferees, an option to purchase from the
Company at any time prior to the date which is three months subsequent the
date on which the Company's shares are relisted and/or quoted on the OTC
Bulletin Board ("OTCBB"), subject to prior termination in accordance with
Section 8.2, 750,000 Shares (such underlying shares, as increased or
decreased in accordance herewith, are hereinafter referred to collectively
as the "Option Stock"). Such option will be exercisable from time to time,
in whole or in part, for a price per Share set forth in the immediately
preceding
<PAGE>
Section 1.1 (as modified from time to time in accordance herewith, the
"Exercise Price"). Such option shall be assignable by the Investor without
restriction (except for applicable securities laws). The Investor may
exercise its option by the delivery of written notice to the Company. The
Company will issue the Shares that are the subject of the option, and the
Investor will pay the price therefor to the Company in cash, on the third
(3rd) business day following any exercise of the option. Prior to an
exercise of the option granted it pursuant to this Section 1.2, the
Investor shall not have any rights or obligations as a shareholder
hereunder with respect to the Option Stock (the rights as a holder of the
Shares acquired pursuant to Section 1.1 being unaffected).
1.3 Anti-Dilution. With respect to the option described in Section 1.2 and the
rights of the Investor in connection therewith:
(a) Subdivision and Combination.
(i) In case the Company shall at any time subdivide or combine
the outstanding Shares, the Exercise Price shall forthwith
be proportionately decreased in the case of subdivision or
increased in the case of combination. Such (combination)
subdivision may consist of (reverse) stock splits, stock
dividends, reclassifications or any other comparable
transaction by which Shares or other capital stock are
(combined into a smaller number of shares or) issued to
holders of such Shares or other capital stock by virtue of
such share ownership.
(ii) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 1.3, the number of shares of
Option Stock issuable upon the exercise at the adjusted
exercise price of the Investor's option shall be adjusted to
the nearest whole number of shares by multiplying the number
of shares of Option Stock issuable upon exercise of such
option prior to the adjustment by a fraction, the numerator
of which is the Exercise Price in effect immediately prior
to such adjustment and the denominator of which is the
adjusted Exercise Price.
(iii) For the purpose of this Section 1.3, the term "Shares "
shall mean (i) the Shares as defined in the recitals hereto,
or (ii) any other class of stock resulting from successive
changes or reclassifications of such Shares consisting
solely of changes in par value, or from par value to no par
value, or from no par value to par value.
(b) Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with or into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Shares), the entity
formed by such consolidation or merger shall execute and deliver to
the Investor a supplemental option providing that the Investor shall
have the right thereafter (until the expiration of such option) to
receive, upon exercise of such option, the kind and amount of shares
of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Option
Stock of the Company for which such option might have been exercised
immediately prior to such consolidation, merger, sale or transfer.
Such supplemental option shall
-2-
<PAGE>
provide for adjustments which shall be identical to the adjustments
provided above. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
(c) Notices of Adjustments. After each adjustment of the Exercise Price or
the number of Shares issuable upon exercise of any of the
aforementioned option pursuant to this Section 1.3, the Company will
promptly (but in all cases within seven (7) days) prepare a notice to
the Investor setting forth: (i) the Exercise Price, as so adjusted,
(ii) the number of shares of Option Stock purchasable upon exercise of
the option after such adjustment, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will cause such
notice to be sent by overnight courier to the Investor at his last
address as it shall appear on the registry books of the Company.
2. The Closing.
2.1 Closing. The closing of the purchase and sale of the Shares (the "Closing")
shall take place at 107 East 3rd Avenue, Vancouver, BC, V5T 1C7, Canada no
later than the close of business (Vancouver time) on February 18, 2000 or
at such other time, date and place as the Company and the Investor mutually
agree upon orally or in writing (the "Closing Date").
2.2 Deliveries by the Company. At the Closing, the Company shall deliver to the
Investor a certificate or certificates representing 750,000 Shares against
payment of the aggregate purchase price of US$1,500,000 therefor by
certified cheque, irrevocable wire transfer or any combination thereof.
2.3 Deliveries by the Investor. At the Closing, the Investor shall deliver a
certified cheque or such evidence of irrevocable wire transfer reasonably
satisfactory to the Company.
3. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Investor, as
representations and warranties that will be true and correct as of the
Closing Date:
3.1. Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada with full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action of the Company and this
Agreement constitutes a valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
3.2. Capitalization. The authorized capital stock of the Company consists of
50,000,000 shares of common stock, par value US$0.001 per share, and no
shares of preferred stock. As of the date of this Agreement, the Company
has 18,547,500 shares of common stock issued and outstanding. No shares
have otherwise been registered under state or federal securities laws. As
of the Closing Date, all of the issued and outstanding shares of common
stock of the Company are validly issued, fully paid and
-3-
<PAGE>
non-assessable. Except with respect to the Shares and Option Stock which
are the subject of this Agreement, the employee stock options for an
aggregate of 757,500 common shares having an average strike price of
US$0.389 per employee option share, an aggregate of up to 3,000,000
restricted common shares reserved to be issued pursuant to certain Investor
Exchange Agreements all dated July 13, 1999, 750,000 restricted common
shares and up to 750,000 option stock to be issued to iTeleway Inc.
pursuant to a share subscription agreement dated February 11, 2000 and an
aggregate of up to 1,500,000 option stock issued to netalone.com (BVI)
Limited (and/or its assignee), as of the Closing Date there will not be
outstanding any other warrants, options or other agreements on the part of
the Company obligating the Company to issue any additional Shares or any of
its securities of any kind. Save for the above, the Company will not issue
any shares of capital stock from the date of this Agreement through the
Closing Date.
3.3. Subsidiaries. Except as described in Exhibit B, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. Except as disclosed in
Exhibit C, the Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.4. Authorization. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and
delivery of this Agreement, and the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance, sale and
delivery of the Shares being sold hereunder has been taken or will be taken
prior to the Closing Date, and this Agreement constitutes valid and legally
binding obligations of the Company, enforceable in accordance with its
terms.
3.5. Ownership of Shares. The delivery of certificates to the Investor will
result in the Investor's immediate acquisition of record and beneficial
ownership of the Shares, free and clear of all encumbrances other than
restrictions on transfer imposed by Federal and State securities laws. Save
as disclosed herein, there are no outstanding warrants, options, rights
(pre-emptive, conversion or otherwise), agreements or commitments of any
kind relating to the issuance, sale or transfer of any equity securities or
other securities of the Company.
3.6 Litigation. There is no action, suit, proceeding or investigation of which
the Company has notice pending or, to the best of the Company's knowledge,
currently threatened before any court, administrative agency or other
governmental body against the Company which questions the validity of this
Agreement or the right of the Company to enter hereinto, or to consummate
the transactions contemplated hereby, or which could result, either
individually or in the aggregate, in any material adverse change in the
condition (financial or otherwise), business, property, assets or
liabilities of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or, to the best of
the Company's knowledge, threatened involving the prior employment of any
of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with
prior employers. Except as disclosed in writing to the Investor, to the
best of the Company's knowledge, the Company is not a party or subject to,
and
-4-
<PAGE>
none of its assets is bound by, the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which materially adversely affects the condition (financial
or otherwise), business, property, assets or liabilities of the Company.
Except as disclosed in writing to the Investor, there is no action, suit or
proceeding initiated by the Company currently pending or that the Company
intends to initiate.
3.7. Title to Property and Assets. The Company has good and marketable title to
all of its properties and assets free and clear of all mortgages, liens and
encumbrances, except liens for current taxes and assessments not yet due
for which adequate reserves have been set aside and that do not, in any
case, individually or in the aggregate, materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or security interests or encumbrances disclosed to the Investor.
All liens and encumbrances affecting the Company's assets are summarized in
Exhibit D hereto, which is hereby incorporated by reference. With respect
to the property and assets it leases, the Company is in compliance with
such leases and, to the best of the Company's knowledge, holds a valid
leasehold interest free of all liens, claims or encumbrances. The Company's
properties and assets and the properties and assets leased by the Company
are in good condition and repair in all material respects, reasonable wear
and tear excepted.
3.8. Brokers or Finders. The Company has not agreed to incur, directly or
indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or
any of the transactions contemplated hereby.
3.9. Meaning of Company's Knowledge. Where used herein, the expression
"Company's knowledge" means information that is within the actual knowledge
of the directors or officers of the Company after due and careful enquiry,
acting in their capacity as such in the course of their activities, duties
and responsibilities on behalf of the Company.
3.10.U.S. and other Applicable Securities Representations. The Company has
taken all necessary procedural steps and measures to offer its securities
only to "accredited investors" (as defined in Section 501(a) of Regulation
D under the U.S. Securities Act of 1933, as amended, hereinafter the
"Securities Act") or to persons that are not "U.S. persons" (as defined in
Regulation S under the Securities Act), and to otherwise ensure that the
offering of the Shares to the Investor (and to all other persons whose
purchases of Shares may be integrated with the Investor's purchase
hereunder) is exempt from the registration requirements under the
Securities Act and from all other applicable securities laws, including
without limitation the laws of the Province of British Columbia.
3.11.Books of Account Accurate. The books of account and financial records of
the Company accurately and correctly set out and disclose, in all material
respects, the current financial position of the business of the Company and
all transactions of or relating to therein have been accurately recorded in
such books and records.
3.12.No Undisclosed Liabilities. The Company has not been nor is now subject to
any liabilities or obligations, direct, indirect or contingent (including,
without limitation, any outstanding guarantees) other than those disclosed
in this Agreement and those arising in the ordinary course of business
(none of which, on an individual basis,
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exceed US$25,000.00).
3.13.No Guarantees. Neither the Company nor its subsidiaries has guaranteed or
otherwise given security for or agreed to guarantee or give security for
any liability, debt or obligation of any person, firm or corporation.
3.14.No Union. The Company has not made any arrangements with any labour union
or employee association or made commitments to or conducted any
negotiations with any union or employee association with respect to any
future agreements and is not aware of any current attempts to organise or
establish any labour union or employee association relating to the business
of the Company.
3.15.Material Contracts. Save as disclosed in Exhibit E, the Company is not a
party to or bound by any contracts, agreements, arrangements, leases or
other documents (oral or written) other than those entered into in the
ordinary course of business or which involve a costs, expenditure or
liability of less than US$25,000.00 for each such contract or document.
3.16.Income and Other Taxes. The Company has duly filed on a timely basis all
tax returns required to be filed by them in connection with the business of
the Company and have paid all taxes that are due and payable and all
assessments, reassessments, governmental charges, penalties, interest and
fines due and payable by them. The Company has made adequate provision for
taxes payable in respect of the business of the Company for the current
fiscal period and any previous periods for which tax returns are not yet
required to be filed. The Company has withheld from each payment made to
any of its past or present employees, officers or directors, with respect
to the business, the amounts of all taxes and other deductions required to
be withheld therefrom and has paid the same to the proper tax or other
receiving authorities or officers within the time required under any
applicable legislation.
3.17.Financial Statements. The Company has delivered to the Investor
consolidated balance sheets of the Company and its subsidiaries as at
December 31, 1999, and statements of income and changes in financial
position for the twelve-month period then ended. Such financial statements
are internally prepared and unaudited but fairly present the consolidated
financial condition and results of operations of the Company and its
subsidiaries as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United Stated
accounting principles consistently applied throughout the periods involved,
except as set forth in the notes thereto.
3.18.No Material Adverse Change. Since the date of the Company's financial
statements, being December 31, 1999, there has not been any material
adverse change in the business or financial condition of the Company and
its subsidiaries taken as a whole.
3.19.Transactions with Directors and Officers. Except as disclosed in Exhibit
F, the Company and its subsidiaries do not engage in business with any
person in which any of the Company's directors or officers has a material
equity interest. No director or officer of the Company owns any property,
asset or right which is material to the business of the Company and its
subsidiaries, taken as a whole.
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<PAGE>
3.20.Borrowing and Guarantee. Save as disclosed herein, the Company and its
subsidiaries (a) do not have any indebtedness for borrowed money, (b) are
not lending or committed to lend any money (except for advances to
employees in the ordinary course of business).
4. Representations and Warranties of the Investor.
The Investor hereby represents and warrants, as representations and
warranties that will be true and correct as of the date of this Agreement
and will be true and correct as of the Closing Date, that:
4.1 No Qualification. The Investor understands and acknowledges that (i) none
of the Shares have been qualified by a prospectus or registration statement
or otherwise qualified for sale under the securities laws of any
jurisdiction; (ii) absent an exemption from registration or prospectus
requirements of applicable Federal and State securities laws of the United
States of America, the issuance and sale of the Shares would require the
involvement of a registered dealer and the filing of a prospectus and
registration statement (if applicable); (iii) the Company is and will be
issuing such securities in reliance upon exemptions from the registration
and prospectus requirements of such securities laws; and (iv) the
availability of such exemptions depends upon, among other things, the
Investor's representations, warranties and agreements contained in this
Agreement, including, without limitation, the bona fide nature of the
investment intent as expressed herein. The Investor further understands and
acknowledges that the Company, subject to its obligations under Section 8
hereof, is under no obligation to register or qualify the Shares under any
applicable securities law, or to comply with any exemptions under any
applicable securities law in connection with any resale of such Shares.
4.2 No Regulatory Review. The Investor understands and acknowledges that no
securities commission or similar regulatory authority has made any finding
or determination regarding the fairness of the offer, sale or issuance of
the securities described herein, has made any recommendation or endorsement
of the offer and sale of the securities described herein or has reviewed or
passed in any way upon this Agreement or upon the merits of the securities
described herein.
4.3 Investment. The Investor is acquiring the Shares as principal, for
investment purposes only, for Investor's own account and not with the view
to or for resale.
4.4 Speculative Investment. The Investor is aware that the acquisition of the
securities herein is a speculative investment involving a high degree of
risk and that there is no guarantee that the Investor will realize any gain
from an investment in such securities. The Investor further understands
that it could lose the entire amount of the Investor's investment herein.
The Investor is financially able to bear the economic risk of an investment
in the securities described herein, including the ability to hold such
securities indefinitely and to afford a complete loss of the Investor's
investment in such securities.
4.5 Resale Restrictions. The Investor acknowledges that it's rights to transfer
the Shares will be restricted, including restrictions under applicable
securities laws, and that the
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<PAGE>
Investor has been independently advised as to such restrictions, and,
without limiting the generality of the foregoing, the fact that the
Investor will not be able to trade in such securities except where an
exemption is available under relevant securities laws and the Investor
understands such restrictions. The Investor covenants that it will not
sell, transfer or otherwise dispose of the Shares except in compliance with
all applicable securities laws. In connection therewith, the Investor
acknowledges that the Company may make a notation on its share registers
and records regarding the restrictions on transfers set forth in this
Section 4.5 and will transfer securities on the books of the Company only
to the extent not inconsistent therewith.
4.6 No Advertising. The offering and sale of the Shares were not made through
an advertisement of the securities in the printed media of general and
regular unpaid circulation, radio or television or any other form of
advertisement or as part of a general solicitation. The Investor
acknowledges that the information received by it does not, individually or
collectively, constitute an offering memorandum or similar document
describing the business or affairs of the Company which has been, or
appears or purports to have been, prepared for delivery to, and review by,
prospective purchasers in order to assist them in making an investment
decision in respect of securities of the Company; provided, however, that
nothing contained in this sentence shall be construed as an acknowledgement
of any kind that the Investor has not relied on the accuracy of such
information.
4.7 Brokers or Finders. No finder, broker, agent, financial advisor or other
intermediary has acted on behalf of the Investor in connection with the
transactions contemplated by this Agreement.
4.8 Authorization. This Agreement when executed and delivered by the Investor
will constitute a valid and legally binding obligation of the Investor,
enforceable in accordance with its terms.
4.9 Accredited Investors. The Investor acknowledges that it has read and is
familiar with and understands Rule 501 of Regulation D under the Securities
Act. The Investor acknowledges that it is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act and has the
financial means and the business, financial and investment experience and
acumen to evaluate the merits and risks of this investment, to conduct such
investigations as is considered appropriate and to bear the risk inherent
in this investment.
4.10 Certificate Legending. The certificates evidencing the Shares may contain a
legend similar to the following or substantially as follows:
THE SHARE OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS A COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT HAS BEEN MADE, OR UNLESS
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION PROVISIONS HAS
BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
4.11 No Representation. Other than as set forth herein and those included in the
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<PAGE>
documents to be delivered with the Closing contemplated hereby, the
Investor acknowledges that it has not received and will not receive any
representations or warranties from the Company or any of its affiliates or
any of its employees or agents in making an investment decision related to
the acquisition of the securities described herein.
5. Conditions of Investor's Obligations at the Closing.
The obligations of the Investor to complete the transaction contemplated by
this Agreement are subject to the fulfillment on or before the time of
closing on the Closing Date of each of the following conditions, the waiver
of which shall not be effective against the Investor if the Investor does
not consent in writing thereto:
5.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 3 shall be true on and as of the time of
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
6. Conditions of the Company's Obligations at the Closing.
The obligations of the Company to complete the transactions contemplated by
this Agreement are subject to the fulfillment on or before the time of
closing on the Closing Date of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties of the
Investor contained in Section 4 shall be true on and as of the time of
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
6.2 Payment of Purchase Price. The Investor shall have paid the purchase price
specified in Section 2.1 payable at such Closing against delivery of a
certificate or certificates representing the Shares issuable at such
Closing.
6.3 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby, and
all documents and instruments incidental to these transactions, shall be
reasonably satisfactory in substance to the Company.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, the United States of
America, without regard to any provisions thereof relating to conflicts of
laws principles thereof.
7.2 Survival. The representations, warranties, covenants and agreements made
herein
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<PAGE>
shall survive any investigation made by the Company or the Investor and the
closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of the Investor to purchase Shares shall
not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto or contemplated hereby constitute the full and
entire understanding and agreement among the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
7.5 Notices, Etc. All notices and other communications required or permitted
hereunder, shall be in writing and shall be personally delivered, sent by
facsimile, or delivered by a nationally recognized overnight courier,
addressed (a) if to the Investor, at the Investor's address or facsimile
number set forth in Exhibit A, or at such other address or facsimile number
as the Investor shall have furnished to the Company in writing, or (b) if
to the Company, at its address or facsimile number set forth in Exhibit A,
or at such other address or facsimile number as the Company shall have
furnished to the Investor. Any such notice or communication shall be deemed
to have been received (A) in the case of personal delivery or delivery by
telecopier, on the date of such delivery, and (B) in the case of a
nationally-recognized overnight courier, on the next business day after the
date when sent.
7.6 Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to any holder of any Shares upon any breach or default of
the Company under this Agreement shall impair any such right, power or
remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach
or default under this Agreement, or any waiver on the part of any holder of
any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 NO QUALIFICATION. THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY OTHER COUNTRY, STATE OR PROVINCE, IN
RELIANCE UPON CERTAIN EXEMPTIONS FORM SUCH QUALIFICATION OR REGISTRATION TO
THE EXTENT APPLICABLE. ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE. AS
A RESULT, THIS OFFERING WILL NOT BE REVIEWED OR APPROVED BY THE U.S.
SECURITIES AND EXCHANGE
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<PAGE>
COMMISSION OR ANY OTHER SECURITIES REGULATORY AGENCY.
7.8 Expenses. The Company and the Investor shall bear its own expenses and
legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
7.9 Counterparts. This Agreement may be executed in any number of counterparts
(including by facsimile), each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together
shall constitute one instrument.
7.10 Severability. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement
to any party.
7.11 Currency. All references to money in this Agreement and the Exhibits
hereto, except where otherwise indicated, are to amounts in lawful currency
of the United States of America.
7.12 Amendments to Comply. The parties will execute such documents and
instruments as they may each approve, acting reasonably, in order to amend
this Agreement to the extent necessary to ensure that the provisions of
this Agreement will comply with the law of the State of Nevada.
7.13 Public Announcements. The parties will make such public announcements with
respect to the transactions contemplated herein as are (a) required by
applicable law (provided that the parties consult with each other in
preparation thereof) or (b) as may be agreed to by the parties from time to
time.
8. Registration.
8.1 Quoting on OTCBB. The Company covenants that its shares will be relisted
and/or be quoted on the OTCBB within the end of the forty-five (45) days
subsequent to the date of this Agreement, all parties hereby acknowledging
that there will be no grace period for any defaults in relation to this
covenant.
8.2 Breach or Default. If the Company should be in breach under its obligation
in Section 8.1 above, the Company shall repurchase the Shares from the
Investor for the same amount of consideration that was paid by the Investor
to the Company for such Shares. The Investor shall return any instruments
evidencing the Option Stock issued pursuant to Section 1.2, marked as
"Cancelled" and do all such things and execute all such documents and
instruments as are necessary or reasonably requested by the Company to
indicate that its rights under Section 1.2 hereof are terminated.
8.3 Spending Restriction. The Company hereby covenants and agrees that until
such date that is the earlier of (a) the date on which its shares are
relisted and/or are quoted on the OTCBB as provided in Section 8.1 hereof
and (b) 45 days from the date hereof, the Company shall spend a maximum of
US$62,500 of the aggregate purchase price payable pursuant to Section 2.1
hereof by the Investor.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
POPSTAR COMMUNICATIONS, INC.
By: /s/ John McDermott
---------------------------------
John McDermott
President
---------------------------------
Title
PRIME STAR ASIA LIMITED
By: /s/ Ngan Kwai Kwok
---------------------------------
Director
---------------------------------
Title
For and on behalf of
PRIME STAR ASIA LIMITED
/s/ illegible
------------------------------
Authorized Signature(s)
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EXHIBIT A
NOTICES (Section 8.5)
THE INVESTOR
Name of Investor: PRIME STAR ASIA LIMITED
Address: 25 Floor, Flat A, Block 7
Provident Centre, Wharf Road
North Point
Hong Kong
Telephone No: (852) 2811-9982
Facsimile No: (852) 2811-9881
Attention: Mr. Ngan Kwai Kwok
THE COMPANY
Name of the Company: POPstar Communications, Inc.
Address: 107 East 3rd Avenue
Vancouver, BC V5T 1C7
Canada
Telephone No: (604) 872-6608
Facsimile No: (604) 872-6601
<PAGE>
EXHIBIT B
SUBSIDIARIES
(Section 3.3)
The following is the only subsidiary of the Company:
POPstar Global Communications Inc. ("POPstar-BVI")
(wholly-owned)
Form of legal entity: International Business Company, limited liability
Place of incorporation: The British Virgin Islands
Date of incorporation: December 17, 1998
The following are the only subsidiaries of POPstar-BVI:
POPstar Communications Asia Pacific Limited
(wholly-owned)
Form of legal entity: Limited liability company
Place of incorporation: Hong Kong
Date of incorporation: June 20, 1991
Former name: Echelon International Limited
Date of name change: June 2, 1999
POPstar Communications Canada Corp.
(wholly-owned)
Form of legal entity: Unlimited liability company
Place of incorporation: The Province of Nova Scotia, Canada
Date of incorporation: September 17, 1999
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<PAGE>
EXHIBIT C
JOINT VENTURES, PARTNERSHIP OR SIMILAR ARRANGEMENT ENTERED
INTO BY THE COMPANY
(Section 3.3)
Nil.
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<PAGE>
EXHIBIT D
LIENS AND ENCUMBRANCES AFFECTING COMPANY ASSETS
(Section 3.2)
Nil.
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<PAGE>
EXHIBIT E
MATERIAL CONTRACTS
(Section 3.15)
1. Licensing Agreement dated January 11, 1999 between POPstar-BVI and TGI
Technologies Ltd. ("TGI")
2. Services Agreement dated January 11, 1999 between POPstar-BVI and TGI.
3. Assignment of Trademark dated January 11, 1999 by TGI in favour of
POPstar-BVI.
4. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and KECH.
5. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Sunfield.
6. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Uprising.
7. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Golden Harvest.
8. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and KECH.
9. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Sunfield.
10. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Uprising.
11. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Golden Harvest.
12. Promissory Note (in the amount of US$1,000,000) dated March 30, 1999 by TGI
in favour of POPstar-BVI.
13. Legal Retainer Agreement dated April 29, 1999 between POPstar-BVI and the
Law Offices of M. Richard Cutler regarding securities laws services and
issue of restricted common shares in lieu of portion of fees.
14. Investor Relations Agreement dated May 1, 1999 between POPstar-BVI and The
Michelson Group, Inc. regarding the provision by the latter party of
investor relations services to POPstar-BVI.
15. Further Supplemental Agreement dated May 1, 1999 between POPstar-BVI and
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<PAGE>
Sunfield.
16. Acquisition Agreement dated July 13, 1999 between the Company and
POPstar-BVI.
17. Investor Exchange Agreement dated July 13, 1999 between the Company and
KECH.
18. Investor Exchange Agreement dated July 13, 1999 between the Company and
Sunfield.
19. Investor Exchange Agreement dated July 13, 1999 between the Company and
Uprising.
20. Investor Exchange Agreement dated July 13, 1999 between the Company and
Golden Harvest.
21. Share Purchase Agreement dated July 16, 1999 between the Company and Robert
Potter (100,000 restricted common shares).
22. Share Purchase Agreement dated July 20, 1999 between the Company and Donald
Farnell (10,000 restricted common shares).
23. Share Purchase Agreement dated July 20, 1999 between the Company and Donald
Roth (10,000 restricted common shares).
24. Share Purchase Agreement dated July 20, 1999 between the Company and Thomas
Halzack (5,000 restricted common shares).
25. Amendment Agreement dated August 24, 1999 between the Company and Sunfield.
26. Amendment to Licensing Agreement dated August 24, 1999 between POPstar-BVI
and TGI.
27. Amendment to Services Agreement dated August 24, 1999 between POPstar-BVI
and TGI.
28. Share Subscription Agreement dated February 2, 2000 between the Company and
netalone.com (BVI) Limited ("netalone") (1,500,000 restricted common shares
and option for up to another 1,500,000 restricted common shares).
29. Set Off Agreement dated February 2, 2000 between the Company, POPstar-BVI,
TGI and netalone.
30. Nominee Directors Agreement dated February 2, 2000 between the Company,
KECH, netalone, the trustee of the Thompson Chu Family Trust and the
trustee of the John McDermott Family Trust.
31. Termination Agreement dated February 2, 2000 between the Company,
POPstar-BVI, KECH, Sunfield, Uprising, Golden Harvest, the trustee of the
Thompson Chu Family Trust and the trustee of the John McDermott Family
Trust.
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<PAGE>
32. Assignment Agreement dated February 9, 2000 between the Company, netalone,
Rich Income International Limited, TGI, POPstar-BVI, KECH, the trustee of
the Thompson Chu Family Trust and the trustee of the John McDermott Family
Trust.
33. Share Subscription Agreement dated February 11, 2000 between the Company
and iTeleway Inc. (750,000 restricted common shares and option for up to
another 750,000 restricted common shares).
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<PAGE>
EXHIBIT F
TRANSACTIONS WITH DIRECTORS AND OFFICERS
(Section 3.19)
1. Material Contracts numbers 1, 2, 3, 4, 8, 12, 16, 17, 26, 27, 29, 30, 31
and 32 listed in Exhibit E to this Agreement are also applicable to this
Exhibit F.
2. Employment agreements, all dated July 20, 1999, between the Company and
each of John McDermott, Thompson Chu and Don Lau.
3. On December 17, 1998, the Company's wholly-owned subsidiary, POPstar-BVI,
entered into an oral month to month lease for the lease of approximately
4,800 square feet of administrative space located at 107 East 3rd Avenue,
Vancouver, British Columbia, Canada to serve as the Company's temporary
headquarters at a rate of US$4,000.00 per month. The leased premises are
owned by Tradeglobe Consulting Ltd. John McDermott and Thompson Chu,
directors and officers of the Company, are also directors and officers of
Tradeglobe Consulting Ltd.
4. On March 15, 1999, the POPstar-BVI's wholly-owned subsidiary, POPstar
Communications Asia Pacific Limited, entered into an oral month-to-month
lease for the lease of approximately 1,000 square feet of executive offices
located at Westlands Centre, Room 908, 20 Westlands Road, Quarry Bay, Hong
Kong to serve as a sales, marketing, and technical support facility for the
the Company's Asian operations at a rate of US$2,000.00 per month. The
leased premises are owned by Easewell Management Ltd., a company
beneficially owned by Thompson Chu, a director and officer of the Company.
EXHIBIT 10.15
Dated: The 11th day of February, 2000
POPSTAR COMMUNICATIONS, INC.
and
iTELEWAY INC.
AGREEMENT
for Subscription of Shares
of
POPstar Communications, Inc.
GOODMAN PHILLIPS & VINEBERG
In Association with Fong & Ng
8th Floor, Aon China Building
29 Queens Road Central
Hong Kong
<PAGE>
SHARE SUBSCRIPTION AGREEMENT
POPstar Communications, Inc.
THIS SHARE SUBSCRIPTION AGREEMENT is dated the 11th day of February, 2000.
B E T W E E N:
(1) POPSTAR COMMUNICATIONS, INC., a corporation incorporated under the laws of
the State of Nevada, the United States of America whose principal office
address is located at 107 East 3rd Avenue, Vancouver, British Columbia,
Canada (the "Company");
and
(2) iTELEWAY INC., a corporation incorporated under the laws of the British
Virgin Islands whose registered address is Sea Meadow House, Blackburne
Highway, Road Town, Tortola, the British Virgin Islands (the "Investor");
THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Purchase and Sale of Shares.
1.1 Sale and Issuance of Restricted Common Shares. Subject to the terms and
conditions of this Agreement, the Investor agrees to purchase at the
Closing (as defined in Section 2.1) and the Company agrees to sell and
issue to the Investor at the Closing 750,000 shares of common stock of the
Company at a price per share of US$2.00 (the "Shares").
1.2 Option. As further consideration for the aggregate amount paid to the
Company pursuant to Section 1.1, the Company hereby grants to the Investor,
or its permitted assigns or transferees, an option to purchase from the
Company at any time prior to the date which is three months subsequent the
date on which the Company's shares are relisted and/or quoted on the OTC
Bulletin Board ("OTCBB"), subject to prior termination in accordance with
Section 8.2, 750,000 Shares (such underlying shares, as increased or
decreased in accordance herewith, are hereinafter referred to collectively
as the "Option Stock"). Such option will be exercisable from time to time,
in whole or in part, for a price per Share set forth in the immediately
preceding
<PAGE>
Section 1.1 (as modified from time to time in accordance herewith, the
"Exercise Price"). Such option shall be assignable by the Investor without
restriction (except for applicable securities laws). The Investor may
exercise its option by the delivery of written notice to the Company. The
Company will issue the Shares that are the subject of the option, and the
Investor will pay the price therefor to the Company in cash, on the third
(3rd) business day following any exercise of the option. Prior to an
exercise of the option granted it pursuant to this Section 1.2, the
Investor shall not have any rights or obligations as a shareholder
hereunder with respect to the Option Stock (the rights as a holder of the
Shares acquired pursuant to Section 1.1 being unaffected).
1.3 Anti-Dilution. With respect to the option described in Section 1.2 and the
rights of the Investor in connection therewith:
(a) Subdivision and Combination.
(i) In case the Company shall at any time subdivide or combine
the outstanding Shares, the Exercise Price shall forthwith
be proportionately decreased in the case of subdivision or
increased in the case of combination. Such (combination)
subdivision may consist of (reverse) stock splits, stock
dividends, reclassifications or any other comparable
transaction by which Shares or other capital stock are
(combined into a smaller number of shares or) issued to
holders of such Shares or other capital stock by virtue of
such share ownership.
(ii) Upon each adjustment of the Exercise Price pursuant to the
provisions of this Section 1.3, the number of shares of
Option Stock issuable upon the exercise at the adjusted
exercise price of the Investor's option shall be adjusted to
the nearest whole number of shares by multiplying the number
of shares of Option Stock issuable upon exercise of such
option prior to the adjustment by a fraction, the numerator
of which is the Exercise Price in effect immediately prior
to such adjustment and the denominator of which is the
adjusted Exercise Price.
(iii) For the purpose of this Section 1.3, the term "Shares "
shall mean (i) the Shares as defined in the recitals hereto,
or (ii) any other class of stock resulting from successive
changes or reclassifications of such Shares consisting
solely of changes in par value, or from par value to no par
value, or from no par value to par value.
(b) Merger or Consolidation. In case of any consolidation of the Company
with, or merger of the Company with or into, another corporation
(other than a consolidation or merger which does not result in any
reclassification or change of the outstanding Shares), the entity
formed by such consolidation or merger shall execute and deliver to
the Investor a supplemental option providing that the Investor shall
have the right thereafter (until the expiration of such option) to
receive, upon exercise of such option, the kind and amount of shares
of stock and other securities and property receivable upon such
consolidation or merger, by a holder of the number of shares of Option
Stock of the Company for which such option might have been exercised
immediately prior to such consolidation, merger, sale or transfer.
Such supplemental option shall
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provide for adjustments which shall be identical to the adjustments
provided above. The above provision of this subsection shall similarly
apply to successive consolidations or mergers.
(c) Notices of Adjustments. After each adjustment of the Exercise Price or
the number of Shares issuable upon exercise of any of the
aforementioned option pursuant to this Section 1.3, the Company will
promptly (but in all cases within seven (7) days) prepare a notice to
the Investor setting forth: (i) the Exercise Price, as so adjusted,
(ii) the number of shares of Option Stock purchasable upon exercise of
the option after such adjustment, and (iii) a brief statement of the
facts accounting for such adjustment. The Company will cause such
notice to be sent by overnight courier to the Investor at his last
address as it shall appear on the registry books of the Company.
2. The Closing.
2.1 Closing. The closing of the purchase and sale of the Shares (the "Closing")
shall take place at 107 East 3rd Avenue, Vancouver, BC, V5T 1C7, Canada no
later than the close of business (Vancouver time) on February 18, 2000 or
at such other time, date and place as the Company and the Investor mutually
agree upon orally or in writing (the "Closing Date").
2.2 Deliveries by the Company. At the Closing, the Company shall deliver to the
Investor a certificate or certificates representing 750,000 Shares against
payment of the aggregate purchase price of US$1,500,000 therefor by
certified cheque, irrevocable wire transfer or any combination thereof.
2.3 Deliveries by the Investor. At the Closing, the Investor shall deliver a
certified cheque or such evidence of irrevocable wire transfer reasonably
satisfactory to the Company.
3. Representations and Warranties of the Company.
The Company hereby represents and warrants to the Investor, as
representations and warranties that will be true and correct as of the
Closing Date:
3.1. Organization, Good Standing and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada with full corporate power and authority to execute and
deliver this Agreement and to perform its obligations hereunder. The
execution, delivery and performance of this Agreement have been duly
authorized by all necessary corporate action of the Company and this
Agreement constitutes a valid and binding obligation of the Company,
enforceable against it in accordance with its terms.
3.2. Capitalization. The authorized capital stock of the Company consists of
50,000,000 shares of common stock, par value US$0.001 per share, and no
shares of preferred stock. As of the date of this Agreement, the Company
has 18,547,500 shares of common stock issued and outstanding. No shares
have otherwise been registered under state or federal securities laws. As
of the Closing Date, all of the issued and outstanding shares of common
stock of the Company are validly issued, fully paid and
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non-assessable. Except with respect to the Shares and Option Stock which
are the subject of this Agreement, the employee stock options for an
aggregate of 757,500 common shares having an average strike price of
US$0.389 per employee option share, an aggregate of up to 3,000,000
restricted common shares reserved to be issued pursuant to certain Investor
Exchange Agreements all dated July 13, 1999, 750,000 restricted common
shares and up to 750,000 option stock to be issued to Prime Star Asia
Limited pursuant to a share subscription agreement dated February 11, 2000
and an aggregate of up to 1,500,000 option stock issued to netalone.com
(BVI) Limited (and/or its assignee), as of the Closing Date there will not
be outstanding any other warrants, options or other agreements on the part
of the Company obligating the Company to issue any additional Shares or any
of its securities of any kind. Save for the above, the Company will not
issue any shares of capital stock from the date of this Agreement through
the Closing Date.
3.3. Subsidiaries. Except as described in Exhibit B, the Company does not
presently own or control, directly or indirectly, any interest in any other
corporation, association, or other business entity. Except as disclosed in
Exhibit C, the Company is not a participant in any joint venture,
partnership, or similar arrangement.
3.4. Authorization. All corporate action on the part of the Company, its
officers and directors necessary for the authorization, execution and
delivery of this Agreement, and the performance of all obligations of the
Company hereunder and thereunder, and the authorization, issuance, sale and
delivery of the Shares being sold hereunder has been taken or will be taken
prior to the Closing Date, and this Agreement constitutes valid and legally
binding obligations of the Company, enforceable in accordance with its
terms.
3.5. Ownership of Shares. The delivery of certificates to the Investor will
result in the Investor's immediate acquisition of record and beneficial
ownership of the Shares, free and clear of all encumbrances other than
restrictions on transfer imposed by Federal and State securities laws. Save
as disclosed herein, there are no outstanding warrants, options, rights
(pre-emptive, conversion or otherwise), agreements or commitments of any
kind relating to the issuance, sale or transfer of any equity securities or
other securities of the Company.
3.6 Litigation. There is no action, suit, proceeding or investigation of which
the Company has notice pending or, to the best of the Company's knowledge,
currently threatened before any court, administrative agency or other
governmental body against the Company which questions the validity of this
Agreement or the right of the Company to enter hereinto, or to consummate
the transactions contemplated hereby, or which could result, either
individually or in the aggregate, in any material adverse change in the
condition (financial or otherwise), business, property, assets or
liabilities of the Company, nor is the Company aware that there is any
basis for the foregoing. The foregoing includes, without limitation,
actions, suits, proceedings or investigations pending or, to the best of
the Company's knowledge, threatened involving the prior employment of any
of the Company's employees, their use in connection with the Company's
business of any information or techniques allegedly proprietary to any of
their former employers, or their obligations under any agreements with
prior employers. Except as disclosed in writing to the Investor, to the
best of the Company's knowledge, the Company is not a party or subject to,
and
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none of its assets is bound by, the provisions of any order, writ,
injunction, judgment or decree of any court or government agency or
instrumentality which materially adversely affects the condition (financial
or otherwise), business, property, assets or liabilities of the Company.
Except as disclosed in writing to the Investor, there is no action, suit or
proceeding initiated by the Company currently pending or that the Company
intends to initiate.
3.7. Title to Property and Assets. The Company has good and marketable title to
all of its properties and assets free and clear of all mortgages, liens and
encumbrances, except liens for current taxes and assessments not yet due
for which adequate reserves have been set aside and that do not, in any
case, individually or in the aggregate, materially detract from the value
of the property subject thereto or materially impair the operations of the
Company or security interests or encumbrances disclosed to the Investor.
All liens and encumbrances affecting the Company's assets are summarized in
Exhibit D hereto, which is hereby incorporated by reference. With respect
to the property and assets it leases, the Company is in compliance with
such leases and, to the best of the Company's knowledge, holds a valid
leasehold interest free of all liens, claims or encumbrances. The Company's
properties and assets and the properties and assets leased by the Company
are in good condition and repair in all material respects, reasonable wear
and tear excepted.
3.8. Brokers or Finders. The Company has not agreed to incur, directly or
indirectly, any liability for brokerage or finders' fees, agents'
commissions or other similar charges in connection with this Agreement or
any of the transactions contemplated hereby.
3.9. Meaning of Company's Knowledge. Where used herein, the expression
"Company's knowledge" means information that is within the actual knowledge
of the directors or officers of the Company after due and careful enquiry,
acting in their capacity as such in the course of their activities, duties
and responsibilities on behalf of the Company.
3.10.U.S. and other Applicable Securities Representations. The Company has
taken all necessary procedural steps and measures to offer its securities
only to "accredited investors" (as defined in Section 501(a) of Regulation
D under the U.S. Securities Act of 1933, as amended, hereinafter the
"Securities Act") or to persons that are not "U.S. persons" (as defined in
Regulation S under the Securities Act), and to otherwise ensure that the
offering of the Shares to the Investor (and to all other persons whose
purchases of Shares may be integrated with the Investor's purchase
hereunder) is exempt from the registration requirements under the
Securities Act and from all other applicable securities laws, including
without limitation the laws of the Province of British Columbia.
3.11.Books of Account Accurate. The books of account and financial records of
the Company accurately and correctly set out and disclose, in all material
respects, the current financial position of the business of the Company and
all transactions of or relating to therein have been accurately recorded in
such books and records.
3.12.No Undisclosed Liabilities. The Company has not been nor is now subject to
any liabilities or obligations, direct, indirect or contingent (including,
without limitation, any outstanding guarantees) other than those disclosed
in this Agreement and those arising in the ordinary course of business
(none of which, on an individual basis,
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exceed US$25,000.00).
3.13.No Guarantees. Neither the Company nor its subsidiaries has guaranteed or
otherwise given security for or agreed to guarantee or give security for
any liability, debt or obligation of any person, firm or corporation.
3.14.No Union. The Company has not made any arrangements with any labour union
or employee association or made commitments to or conducted any
negotiations with any union or employee association with respect to any
future agreements and is not aware of any current attempts to organise or
establish any labour union or employee association relating to the business
of the Company.
3.15.Material Contracts. Save as disclosed in Exhibit E, the Company is not a
party to or bound by any contracts, agreements, arrangements, leases or
other documents (oral or written) other than those entered into in the
ordinary course of business or which involve a costs, expenditure or
liability of less than US$25,000.00 for each such contract or document.
3.16.Income and Other Taxes. The Company has duly filed on a timely basis all
tax returns required to be filed by them in connection with the business of
the Company and have paid all taxes that are due and payable and all
assessments, reassessments, governmental charges, penalties, interest and
fines due and payable by them. The Company has made adequate provision for
taxes payable in respect of the business of the Company for the current
fiscal period and any previous periods for which tax returns are not yet
required to be filed. The Company has withheld from each payment made to
any of its past or present employees, officers or directors, with respect
to the business, the amounts of all taxes and other deductions required to
be withheld therefrom and has paid the same to the proper tax or other
receiving authorities or officers within the time required under any
applicable legislation.
3.17.Financial Statements. The Company has delivered to the Investor
consolidated balance sheets of the Company and its subsidiaries as at
December 31, 1999, and statements of income and changes in financial
position for the twelve-month period then ended. Such financial statements
are internally prepared and unaudited but fairly present the consolidated
financial condition and results of operations of the Company and its
subsidiaries as at the respective dates thereof and for the periods therein
referred to, all in accordance with generally accepted United Stated
accounting principles consistently applied throughout the periods involved,
except as set forth in the notes thereto.
3.18.No Material Adverse Change. Since the date of the Company's financial
statements, being December 31, 1999, there has not been any material
adverse change in the business or financial condition of the Company and
its subsidiaries taken as a whole.
3.19.Transactions with Directors and Officers. Except as disclosed in Exhibit
F, the Company and its subsidiaries do not engage in business with any
person in which any of the Company's directors or officers has a material
equity interest. No director or officer of the Company owns any property,
asset or right which is material to the business of the Company and its
subsidiaries, taken as a whole.
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<PAGE>
3.20.Borrowing and Guarantee. Save as disclosed herein, the Company and its
subsidiaries (a) do not have any indebtedness for borrowed money, (b) are
not lending or committed to lend any money (except for advances to
employees in the ordinary course of business).
4. Representations and Warranties of the Investor.
The Investor hereby represents and warrants, as representations and
warranties that will be true and correct as of the date of this Agreement
and will be true and correct as of the Closing Date, that:
4.1 No Qualification. The Investor understands and acknowledges that (i) none
of the Shares have been qualified by a prospectus or registration statement
or otherwise qualified for sale under the securities laws of any
jurisdiction; (ii) absent an exemption from registration or prospectus
requirements of applicable Federal and State securities laws of the United
States of America, the issuance and sale of the Shares would require the
involvement of a registered dealer and the filing of a prospectus and
registration statement (if applicable); (iii) the Company is and will be
issuing such securities in reliance upon exemptions from the registration
and prospectus requirements of such securities laws; and (iv) the
availability of such exemptions depends upon, among other things, the
Investor's representations, warranties and agreements contained in this
Agreement, including, without limitation, the bona fide nature of the
investment intent as expressed herein. The Investor further understands and
acknowledges that the Company, subject to its obligations under Section 8
hereof, is under no obligation to register or qualify the Shares under any
applicable securities law, or to comply with any exemptions under any
applicable securities law in connection with any resale of such Shares.
4.2 No Regulatory Review. The Investor understands and acknowledges that no
securities commission or similar regulatory authority has made any finding
or determination regarding the fairness of the offer, sale or issuance of
the securities described herein, has made any recommendation or endorsement
of the offer and sale of the securities described herein or has reviewed or
passed in any way upon this Agreement or upon the merits of the securities
described herein.
4.3 Investment. The Investor is acquiring the Shares as principal, for
investment purposes only, for Investor's own account and not with the view
to or for resale.
4.4 Speculative Investment. The Investor is aware that the acquisition of the
securities herein is a speculative investment involving a high degree of
risk and that there is no guarantee that the Investor will realize any gain
from an investment in such securities. The Investor further understands
that it could lose the entire amount of the Investor's investment herein.
The Investor is financially able to bear the economic risk of an investment
in the securities described herein, including the ability to hold such
securities indefinitely and to afford a complete loss of the Investor's
investment in such securities.
4.5 Resale Restrictions. The Investor acknowledges that it's rights to transfer
the Shares will be restricted, including restrictions under applicable
securities laws, and that the
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<PAGE>
Investor has been independently advised as to such restrictions, and,
without limiting the generality of the foregoing, the fact that the
Investor will not be able to trade in such securities except where an
exemption is available under relevant securities laws and the Investor
understands such restrictions. The Investor covenants that it will not
sell, transfer or otherwise dispose of the Shares except in compliance with
all applicable securities laws. In connection therewith, the Investor
acknowledges that the Company may make a notation on its share registers
and records regarding the restrictions on transfers set forth in this
Section 4.5 and will transfer securities on the books of the Company only
to the extent not inconsistent therewith.
4.6 No Advertising. The offering and sale of the Shares were not made through
an advertisement of the securities in the printed media of general and
regular unpaid circulation, radio or television or any other form of
advertisement or as part of a general solicitation. The Investor
acknowledges that the information received by it does not, individually or
collectively, constitute an offering memorandum or similar document
describing the business or affairs of the Company which has been, or
appears or purports to have been, prepared for delivery to, and review by,
prospective purchasers in order to assist them in making an investment
decision in respect of securities of the Company; provided, however, that
nothing contained in this sentence shall be construed as an acknowledgement
of any kind that the Investor has not relied on the accuracy of such
information.
4.7 Brokers or Finders. No finder, broker, agent, financial advisor or other
intermediary has acted on behalf of the Investor in connection with the
transactions contemplated by this Agreement.
4.8 Authorization. This Agreement when executed and delivered by the Investor
will constitute a valid and legally binding obligation of the Investor,
enforceable in accordance with its terms.
4.9 Accredited Investors. The Investor acknowledges that it has read and is
familiar with and understands Rule 501 of Regulation D under the Securities
Act. The Investor acknowledges that it is an "accredited investor" as
defined in Rule 501(a) of Regulation D under the Securities Act and has the
financial means and the business, financial and investment experience and
acumen to evaluate the merits and risks of this investment, to conduct such
investigations as is considered appropriate and to bear the risk inherent
in this investment.
4.10 Certificate Legending. The certificates evidencing the Shares may contain a
legend similar to the following or substantially as follows:
THE SHARE OF STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE SOLD OR OTHERWISE TRANSFERRED UNLESS A COMPLIANCE WITH THE
REGISTRATION PROVISIONS OF SUCH ACT HAS BEEN MADE, OR UNLESS
AVAILABILITY OF AN EXEMPTION FROM SUCH REGISTRATION PROVISIONS HAS
BEEN ESTABLISHED, OR UNLESS SOLD PURSUANT TO RULE 144 UNDER THE
SECURITIES ACT OF 1933.
4.11 No Representation. Other than as set forth herein and those included in the
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documents to be delivered with the Closing contemplated hereby, the
Investor acknowledges that it has not received and will not receive any
representations or warranties from the Company or any of its affiliates or
any of its employees or agents in making an investment decision related to
the acquisition of the securities described herein.
5. Conditions of Investor's Obligations at the Closing.
The obligations of the Investor to complete the transaction contemplated by
this Agreement are subject to the fulfillment on or before the time of
closing on the Closing Date of each of the following conditions, the waiver
of which shall not be effective against the Investor if the Investor does
not consent in writing thereto:
5.1 Representations and Warranties. The representations and warranties of the
Company contained in Section 3 shall be true on and as of the time of
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
5.2 Performance. The Company shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing.
6. Conditions of the Company's Obligations at the Closing.
The obligations of the Company to complete the transactions contemplated by
this Agreement are subject to the fulfillment on or before the time of
closing on the Closing Date of each of the following conditions:
6.1 Representations and Warranties. The representations and warranties of the
Investor contained in Section 4 shall be true on and as of the time of
Closing with the same effect as though such representations and warranties
had been made on and as of the Closing Date.
6.2 Payment of Purchase Price. The Investor shall have paid the purchase price
specified in Section 2.1 payable at such Closing against delivery of a
certificate or certificates representing the Shares issuable at such
Closing.
6.3 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby, and
all documents and instruments incidental to these transactions, shall be
reasonably satisfactory in substance to the Company.
7. Miscellaneous.
7.1 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Nevada, the United States of
America, without regard to any provisions thereof relating to conflicts of
laws principles thereof.
7.2 Survival. The representations, warranties, covenants and agreements made
herein
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shall survive any investigation made by the Company or the Investor and the
closing of the transactions contemplated hereby.
7.3 Successors and Assigns. Except as otherwise provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the successors,
assigns, heirs, executors and administrators of the parties hereto;
provided, however, that the rights of the Investor to purchase Shares shall
not be assignable without the consent of the Company.
7.4 Entire Agreement; Amendment. This Agreement and the other documents
delivered pursuant hereto or contemplated hereby constitute the full and
entire understanding and agreement among the parties with regard to the
subjects hereof and thereof. Neither this Agreement nor any term hereof may
be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
7.5 Notices, Etc. All notices and other communications required or permitted
hereunder, shall be in writing and shall be personally delivered, sent by
facsimile, or delivered by a nationally recognized overnight courier,
addressed (a) if to the Investor, at the Investor's address or facsimile
number set forth in Exhibit A, or at such other address or facsimile number
as the Investor shall have furnished to the Company in writing, or (b) if
to the Company, at its address or facsimile number set forth in Exhibit A,
or at such other address or facsimile number as the Company shall have
furnished to the Investor. Any such notice or communication shall be deemed
to have been received (A) in the case of personal delivery or delivery by
telecopier, on the date of such delivery, and (B) in the case of a
nationally-recognized overnight courier, on the next business day after the
date when sent.
7.6 Delays or Omissions. No delay or omission to exercise any right, power or
remedy accruing to any holder of any Shares upon any breach or default of
the Company under this Agreement shall impair any such right, power or
remedy of such holder, nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring. Any waiver, permit, consent or
approval of any kind or character on the part of any holder of any breach
or default under this Agreement, or any waiver on the part of any holder of
any provisions or conditions of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in such
writing or as provided in this Agreement. All remedies, either under this
Agreement or by law or otherwise afforded to any holder, shall be
cumulative and not alternative.
7.7 NO QUALIFICATION. THE SECURITIES WHICH ARE THE SUBJECT OF THIS AGREEMENT
HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAWS OF ANY OTHER COUNTRY, STATE OR PROVINCE, IN
RELIANCE UPON CERTAIN EXEMPTIONS FORM SUCH QUALIFICATION OR REGISTRATION TO
THE EXTENT APPLICABLE. ANY REPRESENTATION TO THE CONTRARY IS AN OFFENSE. AS
A RESULT, THIS OFFERING WILL NOT BE REVIEWED OR APPROVED BY THE U.S.
SECURITIES AND EXCHANGE
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COMMISSION OR ANY OTHER SECURITIES REGULATORY AGENCY.
7.8 Expenses. The Company and the Investor shall bear its own expenses and
legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
7.9 Counterparts. This Agreement may be executed in any number of counterparts
(including by facsimile), each of which shall be enforceable against the
parties actually executing such counterparts, and all of which together
shall constitute one instrument.
7.10 Severability. In the event that any provision of this Agreement becomes or
is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and
effect without said provision; provided that no such severability shall be
effective if it materially changes the economic benefit of this Agreement
to any party.
7.11 Currency. All references to money in this Agreement and the Exhibits
hereto, except where otherwise indicated, are to amounts in lawful currency
of the United States of America.
7.12 Amendments to Comply. The parties will execute such documents and
instruments as they may each approve, acting reasonably, in order to amend
this Agreement to the extent necessary to ensure that the provisions of
this Agreement will comply with the law of the State of Nevada.
7.13 Public Announcements. The parties will make such public announcements with
respect to the transactions contemplated herein as are (a) required by
applicable law (provided that the parties consult with each other in
preparation thereof) or (b) as may be agreed to by the parties from time to
time.
8. Registration.
8.1 Quoting on OTCBB. The Company covenants that its shares will be relisted
and/or be quoted on the OTCBB within the end of the forty-five (45) days
subsequent to the date of this Agreement, all parties hereby acknowledging
that there will be no grace period for any defaults in relation to this
covenant.
8.2 Breach or Default. If the Company should be in breach under its obligation
in Section 8.1 above, the Company shall repurchase the Shares from the
Investor for the same amount of consideration that was paid by the Investor
to the Company for such Shares. The Investor shall return any instruments
evidencing the Option Stock issued pursuant to Section 1.2, marked as
"Cancelled" and do all such things and execute all such documents and
instruments as are necessary or reasonably requested by the Company to
indicate that its rights under Section 1.2 hereof are terminated.
8.3 Spending Restriction. The Company hereby covenants and agrees that until
such date that is the earlier of (a) the date on which its shares are
relisted and/or are quoted on the OTCBB as provided in Section 8.1 hereof
and (b) 45 days from the date hereof, the Company shall spend a maximum of
US$62,500 of the aggregate purchase price
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payable pursuant to Section 2.1 hereof by the Investor.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
POPSTAR COMMUNICATIONS, INC.
By: /s/ John McDermott
---------------------------------
John McDermott
President
---------------------------------
Title
iTELEWAY INC.
By: /s/ Wong Kin On
---------------------------------
President
---------------------------------
Title
For and on behalf of
iTeleway Inc.
/s/ [illegible]
--------------------------------
Authorized Signature(s)
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EXHIBIT A
NOTICES (Section 8.5)
THE INVESTOR
Name of Investor: iTELEWAY Inc.
Address: Room 802, Tower I
Harbour Centre, 1 Hok Cheung Street
Hunghom, Kowloon
Hong Kong
Telephone No: (852) 2764-5663
Facsimile No: (852) 2764-5466
Attention: Mr. Wong Chun Keung
THE COMPANY
Name of the Company: POPstar Communications, Inc.
Address: 107 East 3rd Avenue
Vancouver, BC V5T 1C7
Canada
Telephone No: (604) 872-6608
Facsimile No: (604) 872-6601
<PAGE>
EXHIBIT B
SUBSIDIARIES
(Section 3.3)
The following is the only subsidiary of the Company:
POPstar Global Communications Inc. ("POPstar-BVI")
(wholly-owned)
Form of legal entity: International Business Company, limited liability
Place of incorporation: The British Virgin Islands
Date of incorporation: December 17, 1998
The following are the only subsidiaries of POPstar-BVI:
POPstar Communications Asia Pacific Limited
(wholly-owned)
Form of legal entity: Limited liability company
Place of incorporation: Hong Kong
Date of incorporation: June 20, 1991
Former name: Echelon International Limited
Date of name change: June 2, 1999
POPstar Communications Canada Corp.
(wholly-owned)
Form of legal entity: Unlimited liability company
Place of incorporation: The Province of Nova Scotia, Canada
Date of incorporation: September 17, 1999
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EXHIBIT C
JOINT VENTURES, PARTNERSHIP OR SIMILAR ARRANGEMENT ENTERED
INTO BY THE COMPANY
(Section 3.3)
Nil.
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EXHIBIT D
LIENS AND ENCUMBRANCES AFFECTING COMPANY ASSETS
(Section 3.2)
Nil.
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EXHIBIT E
MATERIAL CONTRACTS
(Section 3.15)
1. Licensing Agreement dated January 11, 1999 between POPstar-BVI and TGI
Technologies Ltd. ("TGI")
2. Services Agreement dated January 11, 1999 between POPstar-BVI and TGI.
3. Assignment of Trademark dated January 11, 1999 by TGI in favour of
POPstar-BVI.
4. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and KECH.
5. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Sunfield.
6. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Uprising.
7. Preferred Share Purchase Agreement dated January 12, 1999 between
POPstar-BVI and Golden Harvest.
8. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and KECH.
9. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Sunfield.
10. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Uprising.
11. Supplemental Preferred Share Purchase Agreement dated March 29, 1999
between POPstar-BVI and Golden Harvest.
12. Promissory Note (in the amount of US$1,000,000) dated March 30, 1999 by TGI
in favour of POPstar-BVI.
13. Legal Retainer Agreement dated April 29, 1999 between POPstar-BVI and the
Law Offices of M. Richard Cutler regarding securities laws services and
issue of restricted common shares in lieu of portion of fees.
14. Investor Relations Agreement dated May 1, 1999 between POPstar-BVI and The
Michelson Group, Inc. regarding the provision by the latter party of
investor relations services to POPstar-BVI.
15. Further Supplemental Agreement dated May 1, 1999 between POPstar-BVI and
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<PAGE>
Sunfield.
16. Acquisition Agreement dated July 13, 1999 between the Company and
POPstar-BVI.
17. Investor Exchange Agreement dated July 13, 1999 between the Company and
KECH.
18. Investor Exchange Agreement dated July 13, 1999 between the Company and
Sunfield.
19. Investor Exchange Agreement dated July 13, 1999 between the Company and
Uprising.
20. Investor Exchange Agreement dated July 13, 1999 between the Company and
Golden Harvest.
21. Share Purchase Agreement dated July 16, 1999 between the Company and Robert
Potter (100,000 restricted common shares).
22. Share Purchase Agreement dated July 20, 1999 between the Company and Donald
Farnell (10,000 restricted common shares).
23. Share Purchase Agreement dated July 20, 1999 between the Company and Donald
Roth (10,000 restricted common shares).
24. Share Purchase Agreement dated July 20, 1999 between the Company and Thomas
Halzack (5,000 restricted common shares).
25. Amendment Agreement dated August 24, 1999 between the Company and Sunfield.
26. Amendment to Licensing Agreement dated August 24, 1999 between POPstar-BVI
and TGI.
27. Amendment to Services Agreement dated August 24, 1999 between POPstar-BVI
and TGI.
28. Share Subscription Agreement dated February 2, 2000 between the Company and
netalone.com (BVI) Limited ("netalone") (1,500,000 restricted common shares
and option for up to another 1,500,000 restricted common shares).
29. Set Off Agreement dated February 2, 2000 between the Company, POPstar-BVI,
TGI and netalone.
30. Nominee Directors Agreement dated February 2, 2000 between the Company,
KECH, netalone, the trustee of the Thompson Chu Family Trust and the
trustee of the John McDermott Family Trust.
31. Termination Agreement dated February 2, 2000 between the Company,
POPstar-BVI, KECH, Sunfield, Uprising, Golden Harvest, the trustee of the
Thompson Chu Family Trust and the trustee of the John McDermott Family
Trust.
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<PAGE>
32. Assignment Agreement dated February 9, 2000 between the Company, netalone,
Rich Income International Limited, TGI, POPstar-BVI, KECH, the trustee of
the Thompson Chu Family Trust and the trustee of the John McDermott Family
Trust.
33. Share Subscription Agreement dated February 11, 2000 between the Company
and Prime Star Asia Limited (750,000 restricted common shares and option
for up to another 750,000 restricted common shares).
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EXHIBIT F
TRANSACTIONS WITH DIRECTORS AND OFFICERS
(Section 3.19)
1. Material Contracts numbers 1, 2, 3, 4, 8, 12, 16, 17, 26, 27, 29, 30, 31
and 32 listed in Exhibit E to this Agreement are also applicable to this
Exhibit F.
2. Employment agreements, all dated July 20, 1999, between the Company and
each of John McDermott, Thompson Chu and Don Lau.
3. On December 17, 1998, the Company's wholly-owned subsidiary, POPstar-BVI,
entered into an oral month to month lease for the lease of approximately
4,800 square feet of administrative space located at 107 East 3rd Avenue,
Vancouver, British Columbia, Canada to serve as the Company's temporary
headquarters at a rate of US$4,000.00 per month. The leased premises are
owned by Tradeglobe Consulting Ltd. John McDermott and Thompson Chu,
directors and officers of the Company, are also directors and officers of
Tradeglobe Consulting Ltd.
4. On March 15, 1999, the POPstar-BVI's wholly-owned subsidiary, POPstar
Communications Asia Pacific Limited, entered into an oral month-to-month
lease for the lease of approximately 1,000 square feet of executive offices
located at Westlands Centre, Room 908, 20 Westlands Road, Quarry Bay, Hong
Kong to serve as a sales, marketing, and technical support facility for the
the Company's Asian operations at a rate of US$2,000.00 per month. The
leased premises are owned by Easewell Management Ltd., a company
beneficially owned by Thompson Chu, a director and officer of the Company.
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<PERIOD-END> DEC-31-1999
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