File No. 0-27753
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Amendment No. 1
to
FORM 10
GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF THE
SECURITIES EXCHANGE ACT OF 1934
FIRST ECOM.COM, INC.
(Exact Name of Registrant as Specified in its Charter)
NEVADA 98-0206967
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
902, Henley Building 5,
Queen's Road Central
Hong Kong SAR
(Address of principal offices)
Registrant's Telephone Number, Including Area Code: 852 2801 5181
Securities to be Registered under Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.001 Per Share
(Title of class)
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ITEM 1. BUSINESS
The Company was formed on September 16, 1998 and is in its development
stage. It has had no operating revenues to date. The Company's auditors have
expressed substantial doubt as to its ability to continue as a going concern.
See Independent Auditors' Report to the Board of Directors and Stockholders of
the Company on page F-2. The Company incurred operating losses of $3.9 million
in the nine-month period ended September 30, 1999 and on September 30, 1999 the
Company's accumulated deficit was $3.9 million. The Company expects its
accumulated deficit to grow for the foreseeable future.
The Internet
The Internet consists of an inter-connected web of computers around the
world. Having started as a source of information and communication for a limited
number of government departments, the Internet has been transformed through
improvements in both computer hardware and software. It has grown from a web of
1.3 million computers at the end of 1992 to approximately 56.2 million computers
today. It is now a key economic resource, serving commerce worldwide. New
commercial services and products brought about as a result of this
transformation demand that payments be processed in electronic form quickly,
securely and cheaply. Merchants are recognizing the Internet as a viable
alternative to mail and telephone order business. From a base of $2.7 billion in
1996, on-line purchases of goods and services by consumers and businesses are
expected to grow 150% through 1999 and 138%. through 2000 and to reach $1.3
trillion by 2003.
Selling Goods Through the Internet
Many goods and services may now be purchased over the Internet, an
inter-connected web of computers around the world. To do this, a customer
accesses the Internet and visits a merchant's web site, where he is able to
view, select and purchase an item of merchandise (or a service), paying by way
of credit card. Before shipping the goods or providing the service, the merchant
would request the relevant credit card company to authorize the consumer's
credit card to be charged with the cost. Although largely invisible to the
customer, the authorization and payment mechanisms are complex and involve the
merchant and his bank, and the consumer and his bank.
The authorization to charge any particular credit card may only be granted
by the bank that actually issued it, which is known as the "issuing bank." In
order to obtain authorization to charge merchandize to a customer's credit card,
a merchant designs its web site to prompt the customer to enter his credit card
number and other necessary information and to transmit the same via the Internet
to a "gateway." A gateway is one or more servers that convert the information
into a format that can be read by banks and other participants in the processing
chain. After converting the information, the gateway transmits it to the
merchant's bank, which uses a "switch" to transmit it to the appropriate credit
card network, such as Visa, MasterCard or American Express. A switch is one or
more servers that determine which credit card network the data should be sent
to. A switch must be certified by the credit card networks to which it sends
data and is audited by them periodically. Switches are almost exclusively
operated by or on behalf of financial institutions. Using a portion of the
credit card number, the card network determines the identity of the issuing bank
and sends the information to it for authorization. If granted, the authorization
is communicated back up the chain to the merchant and the issuing bank "blocks,"
or reserves, the amount of the purchase to the credit card. This process usually
takes from five to ten seconds. If authorization for a credit card charge is
granted, the merchant may complete the transaction and ship the merchandize to
the customer.
The payment for the goods may be collected by the merchant only after they
have been shipped. Each day (or at some other interval), the merchant sorts
through its authorized transactions to determine which ones have been filled.
That information is transmitted to the issuing bank in the same way as an
authorization request and, upon receiving it, the issuing bank pays the merchant
(through the credit card network and the merchant's bank).
Because each credit card network deals with many banks, most of whom are
both issuing and merchant's banks, the networks offset each bank's receivables
(on behalf of the bank's merchants) with its payables (due on cards it has
issued) and computes a net amount that the bank owes to or is owed by the
network.
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The Company's Operations to Date
The Company presently owns and operates a payment gateway. On May 6, 1999
the Company agreed with the Bank of Bermuda to connect its payment gateway to
that bank's switch which provides access to VISA, MasterCard and American
Express. The Bank of Bermuda is regarded by the Company as a leading bank in the
field of e-commerce since 1995. It is capable of processing credit card
transactions in multiple currencies. The Bank agreed to engage the Company as a
"master merchant" with authority to act on behalf of one or more merchants, each
of whom have separate agreements with the Company. The bank has other master
merchants besides the Company. Being a master merchant allows the Company to
connect individual merchants to the Bank of Bermuda without their having to
establish a presence in Bermuda as would otherwise be required. This makes it
easier for merchants to process their credit card transactions through the Bank
of Bermuda.
The Company is a principal in transactions with the Bank of Bermuda and is
liable for any payment made by the bank to a merchant that uses the Company's
gateway if the bank is unable to collect the payment from a cardholder because
of a dispute. While the merchant would have a corresponding liability to the
Company, the Company may ultimately be unable to collect the payment from the
merchant. The Company plans to adopt procedures that are in its opinion adequate
to prevent liability for disputed transactions. These will include evaluating
the creditworthiness of merchants initially and on an on-going basis and
monitoring the number of disputed transactions by any merchant. The Company has
not yet formulated any procedures designed to prevent liability for disputed
transactions.
The gateway began operation in late October 1999. At present, only two
merchants are connected to the Company's gateway. Through November 30, 1999, 342
transactions representing an aggregate value of over $7000 had been processed
through the Company's gateway. The Company charges the merchants fees equal to a
percentage of value of the transaction. The percentage is greater for smaller
transactions than for larger ones. In October and November 1999, the average
transaction size was approximately $20. Currently, the average transaction is
$60.
The Company's gateway consists of two servers (which are powerful personal
computers) located on the premises of the Bank of Bermuda. If one server fails,
the other will process all the gateway's transactions until the failed server
has been restored to service. The Company maintains engineers at all times to
monitor the gateway and repair any server failure. The servers are connected to
the Internet through separate Internet service providers, one in London and one
in New York, to protect against Internet outages.
All the transactions that are processed through the gateway are collected
and stored on a database. Merchants may access this information by web browser
to review their transactions and submit for payment those for which the
merchandise has been shipped.
The gateway, together with the Bank of Bermuda, allows transactions to be
processed in multiple currencies. Thus, for example, a merchant whose web site
is connected to the Company's gateway can offer to sell its products around the
world over the internet priced in Yen, Pounds Sterling and U.S. Dollars.
The Company has provided software to the merchants that use its gateway to
assist them in connecting their web sites to it. This software encrypts the
information sent over the Internet to the gateway, which in turn encrypts the
information that it sends to the Bank of Bermuda's switch. This encryption is
128-bit key length.
The software used by the gateway was created for the Company by Asia
Internet Limited, an independent contractor that is 30% owned by one of the
Company's directors (see "Item 7 - Certain Relationships and Related
Transactions"). The Company may request that this contractor create additional
software meeting specifications and for fees to be negotiated at that time. The
Company may also elect to retain other persons to create software for it.
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The Company's Strategy for the Future
The Company plans to add merchants to its gateway to better utilize its
capacity. To facilitate this plan, the Company aims to simplify the software
needed to connect a merchant with its gateway and make it easier to install and
use. Towards this end, the Company engaged Microsoft to develop software that
can be used in web sites to connect them to the Company's gateway. Microsoft has
completed this project and delivered the software to the Company. Recently,
People's Telephone, a cellular telephone operator in Hong Kong, agreed to
connect its web site to the Company's gateway so that customers could pay their
phone bills with a credit card over the Internet. The Company has completed the
software necessary to make this connection. People's Telephone has agreed to pay
the Company a percentage of the value of the credit card payments processed
through the Company's gateway plus a fixed additional fee per transaction for
credit cards other than VISA International and MasterCard International.
The Company will seek to add other merchant banks besides the Bank of
Bermuda that need gateway services to its gateway. If the numbers warrant, the
Company plans to add gateways in countries where there are sufficient banks or
merchants to use it. Recently, Hana Bank of Korea expressed its intentions in a
memorandum of understanding (which is not a binding agreement) to use the
Company's gateway if the terms of a contract can be agreed to by the parties.
Assuming an agreement with Hana Bank is reached, the Company will have the
software necessary for this bank to provide e-commerce services to its merchants
in the first quarter of 2000. However, it is possible that an agreement with
Hana Bank will never be reached.
The Company also plans to develop a switch and have it certified by the
appropriate credit card networks so it can be used by many banks, enabling each
to avoid having to maintain a switch of its own to connect to credit card
networks. The switch would also be able to process traditional (non-Internet)
point-of-sale and ATM transactions. As with gateways, switches will be installed
in multiple locations if the demand warrants. The Company has not commenced the
development of a switch.
The gateways and switches planned by the Company are expected to be
suitable for transactions in multiple currencies using credit cards, debit cards
and "smart cards," which are cards that contain a microprocessor that can be
programmed for multiple functions.
Finally, the Company intends to create software that a shipper can use to
inform the gateway's database of which merchandise it has shipped. By so doing,
the merchant will automatically be made aware of the accounts for which payment
may be collected. The Company has not commenced the development of this
software. The Company and Federal Express have entered into a memorandum, which
is not a binding agreement, which sets out possible objectives that an agreement
between them might have. This memorandum is solely to facilitate discussions
between the parties, however, and they may never actually reach an agreement.
Whether the Company can achieve any of the goals set forth in this section
depends on whether it can raise the capital necessary to purchase the hardware
and software required and to hire the personnel to pursue each of them. The
Company estimates that approximately $30,000,000 will be needed to accomplish
all of the goals described above. For 2000, the Company presently plans to spend
approximately $1.5 million on sales and marketing, which would include promoting
its services to merchants and banks as set forth above. Each switch will cost,
the Company presently estimates, approximately $3.5 million. The Company will
install these as demand, in its judgement, warrants. The cost of developing the
software to integrate a shipper to its gateway will depend upon the number of
functions it is finally intended to perform. At this time, the Company cannot
estimate this cost. Because the Company has had no significant earnings to date
and does not expect to have any in the foreseeable future, the full amount
needed to pursue its plans will have to be raised by issuing and selling equity
in the Company. This will result in dilution to all the then-existing
shareholders.
Sources of Revenue
Through September 30, 1999, the Company had received no revenues from
operations. In October and November 1999, the Company earned insignificant
revenues from the operation of its gateway. If the Company can realize its goals
as set forth above, revenue could potentially come from fees that merchants and
merchant banks would pay to connect to the
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Company's gateway. Fees would also potentially be charged for each transaction
processed through the gateway. These fees could be fixed for each transaction or
variable based upon the size of the transactions. See Item 2. Financial
Information - Management's Discussion and Analysis of Financial Position and
Results of Operations - General.
Employees
The Company has established its core base of developers and project
managers in Hong Kong and intends to hire additional project managers in-house.
So far the Company has outsourced the development of software to connect its
gateway to merchants' web-sites but is evaluating the benefits and cost savings
of hiring an internal development group. The Company's network operations and
e-commerce payment gateway and processing center located on the premises of Bank
of Bermuda is staffed seven days a week, 24 hours a day by qualified network and
transaction processing personnel employed by the Company.
The Company currently employs 34 full-time personnel and employee
relationships are good. None of the Company's employees is a member of a labor
union. The Company is in the process of building its management team by adding
senior executives with a track record in the information technology industry,
e-commerce, or transaction processing. These will include an experienced chief
financial officer, legal officer, regional sales managers and sales executives,
administrative managers and support personnel. Each major new project will be
headed by a project manager, technical support staff and administrative support
staff. Over the next twelve months, the Company expects to hire 60 new
employees.
Market
The immediate market for the Company's services is facilitating electronic
payment processing of e-commerce transactions for merchants and their banks. To
date, two industry sectors have dominated e-commerce: computer hardware and
software sales, and supporting functions within the travel business. The
majority of remaining online commerce consists of the sale of miscellaneous
consumables, including books, music, videocassettes, apparel, gifts, flowers,
food and beverages. Several service sectors are now emerging to further fuel the
demand for e-commerce. These include on-line stockbroking, banking, insurance,
telecommunications, education, and technical and professional publications and
information.
The number and nature of commercial websites changes daily, with portals
becoming increasingly sophisticated and easier to use. There were 414,000 such
sites at the beginning of 1998 and this figure has been projected to rise to 1.6
million by end 2002. These websites offer an increasing array of goods and
services, including computer hardware and software, travel arrangements,
entertainment, financial services, and education. In order to sell these goods
and services, banks and their e-merchant customers must be able to accept and
process transactions on widely-held credit cards such as MasterCard, Visa and
American Express, and in as many currencies as possible.
Nearly 50% of households in the United States today have access to
e-commerce via the Internet. Although the penetration is lower in Asia, it is
growing rapidly. In Hong Kong, for example, only 20% of households have Internet
access, but this figure is increasing at an annual rate of 20%. Of total
e-commerce, however, 92% is currently generated through websites hosted in the
United States.
Sales and Marketing
The Company plans to be the third party processor of electronic
transactions for many of the world's financial institutions and their merchants.
The Company will initially focus its efforts in Hong Kong and other Asian target
markets. The Company plans to establish marketing offices in Taiwan, Korea and
the Philippines by the first quarter of 2000; in Europe and Japan by the second
quarter of 2000; and in Brazil, Canada and the United States by 2001.
The Company may selectively invest in key strategic customers but has no
firm plans to do so at this time and is not involved in any negotiations about
any such investment at this time. In Hong Kong, the Company has already secured
an agreement with People's Telephone whereby it uses the Company's gateway
together with the Bank of Bermuda to offer its customers the option of paying
their telephone bills online. The Company will pursue similar relationships with
airlines,
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telecom service providers, utilities, established e-commerce retailers, and
major traditional retailers looking to build an e-commerce presence,
particularly on a global basis.
The Company has begun the process of marketing to banks, many of whom are
unable to process credit card transactions and serve e-merchants. The Company
plans to extend this effort throughout Asia.
Websites, portals and Internet service providers are also potentially
important sources of merchants. Internet Service Providers have begun offering
e-commerce services and hosting storefronts and e-malls. The Company plans to
target a select number of websites, portals and Internet Service Providers with
particular regional or global profiles.
E-commerce website designers are also in a key position to refer business
to the Company since they are responsible for designing and integrating payment
links. The Company has retained US Web/CKS Corporation, a large web-site design
company to assist the Company in marketing to merchants. Mr. Cody Cain, a
director of the Company, is an employee of US Web/CKS Corporation.
Integral to all of these strategies is the hiring of experienced business
development and sales employees, which the Company intends to do. The Company
retained two sales consultants in July 1999 located in Korea and the
Philippines.
Competition
The most dominant participant in credit card processing is First Data
Corporation, Atlanta, Georgia, which enjoys a near monopoly of the industry in
North America. Outside of North America, however, First Data is not dominant. In
Asia, the Company's principal market, competition will come from three sources:
o Large merchants having their own gateways;
o Merchant banks maintaining their own gateways;
o Internet service providers and similar businesses that host merchant
web sites maintaining their own gateways.
Many of these competitors are substantially larger than the Company and have
much greater resources at their disposal.
The Company believes that competition will be on the basis of price and
quality of service. Because the Company's gateway and planned switch are to be
shared by many merchants and banks, the Company believes that its prices will be
competitive because of economies of scale. It should be cheaper for each bank
and merchant to share the cost of the Company's gateway and (if developed)
switch rather than maintain its own. Since operating gateways and switches will
be the core business of the Company, it believes that it will have an advantage
over merchants and banks in maintaining the highest quality of service possible.
The Company's gateway presently has a database that collects information a
merchant can use to determine which transactions are ready for collection. The
Company will endeavor to develop services that enhance the value of its product,
such as software that connects a shipper to the Company's gateway in order to
allow the shipper to inform merchants when goods have been sent in response to a
customer's order so that the merchant can collect the amount owing. To the best
knowledge of Company, no other vendor presently offers access to a gateway
combined with a bank and switch as well as the software to assist a merchant in
connecting to it. Competitors of the Company, however, will have greater
resources to allocate to the development and maintenance of a gateway and switch
should they choose to do so.
The Company's ability to offer, together with the Bank of Bermuda, the
processing of transactions in multiple currencies should prove attractive to
merchants including U.S. merchants by allowing, for example, purchasers in Japan
to transact in Yen rather than United States dollars. At the moment, a US
merchant looking to offer e-commerce to foreign purchasers must establish a
banking relationship (and in many cases a local presence) in each foreign
country, which in turn forces the merchant to integrate its systems with many
banks, and may require payment of taxes in some jurisdictions where it has
established a presence. However, the Company's system will enable e-merchants to
meet the requirement to
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transact in the currency of the customer's choice. Further, as the processing of
the transaction will take place in Bermuda, this will not require the payment of
taxes.
The Company
The Company was incorporated on February 12, 1999 in the state of Nevada in
the United States. On February 12, 1999, before issuing any shares of capital
stock, the Company consummated an agreement and plan of merger with JRL
Resources Corp., a Florida corporation, whereby JRL's 12,040,000 outstanding
shares of common stock were converted into 12,040,000 shares of the Company's
common stock on a one-for-one basis. JRL was incorporated in Florida on November
13, 1996 and was inactive from the time of its formation until its merger with
the Company. Before August 18, 1998, JRL was named Vantage Sales Corp. Shortly
before this merger, JRL had acquired all the outstanding capital stock of First
Ecommerce Asia Limited, now the Company's only direct subsidiary, which is
located in Hong Kong. First Ecommerce Asia Limited was incorporated in Hong Kong
on September 16, 1998. Before December 10, 1998, it was named Gold Pacific
Management Limited. On January 28, 1999 all of First Ecommerce Asia Limited's
outstanding shares of common stock were exchanged for 985,000 of JRL's 1,025,000
then-outstanding shares plus 3,015,000 newly issued shares, and it became a
wholly owned subsidiary of JRL. For accounting purposes, this transaction was
treated as an acquisition of JRL by First Ecommerce Asia Limited, and therefore
the financial information contained herein is only presented from September 16,
1998, the date on which First Ecommerce Asia Limited was formed. JRL had no
operations before this date. When JRL was merged into the Company, First
Ecommerce Asia Limited became the subsidiary of the Company.
The Company's headquarters are presently located at 8th Floor, Henley
Building, 5, Queen's Road Central, Hong Kong SAR.
Risk Factors
An investment in the Company's common stock involves a high degree of risk.
Investors should consider the following risk factors and the other information
in this registration statement carefully before investing in the Company's
common stock. The Company's business and results of operations could be
seriously harmed and the trading price of the Company's common stock could
decline should any of these risks come to fruition.
The Company's Limited Operating History May Prevent it From Achieving
Success
The Company's date of inception was September 16, 1998. It has a limited
operating history, which may prevent it from achieving success. The Company's
revenue and income potential are unproven. It will encounter challenges and
difficulties frequently encountered by early-stage companies in new and rapidly
evolving markets.
Chief among these challenges and difficulties are:
o persuading banks to outsource their internet credit card processing;
o finding and hiring personnel with an expertise in:
- computer software and hardware technology;
- banking;
- internet strategy for merchants; and
- credit card processing.
It may fail to address any of these challenges and the failure to do so
would seriously harm the Company's business and operating results. In addition,
because of the Company's limited operating history, it has limited insight into
trends that may emerge and affect the Company's business.
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The Company has Incurred Losses and Expects Future Losses
The Company has experienced operating losses in each period since inception
and expects to incur significant losses in the future. On September 30, 1999,
the Company had an accumulated deficit of $3.9 million. The Company expects to
increase its operating expenses significantly. As a result, the Company will
need to increase its revenues significantly to achieve profitability. The
Company's failure to increase its revenues significantly would seriously harm
the Company's business and operating results. In fact, the Company may not have
any revenue growth.
Future Operating Results Will Likely Fluctuate
The Company's quarterly operating results will likely vary significantly in
the future. As a result, period-to-period comparisons of the Company's operating
results will not be meaningful and should not be relied upon as indicators of
the Company's future performance. In the future, the Company's operating results
may be below the expectations of securities analysts and investors. The
Company's failure to meet these expectations would likely depress the market
price of the Company's common stock. To date, the Company has not had sufficient
operating results to gauge any period-to-period fluctuations. In the future, the
Company expects to receive revenues from one-time initiation fees when banks or
merchants connect to the Company's system and from ongoing fees that will be a
fixed amount per transaction and a variable amount based upon the size of the
transaction. The revenues received in any period will vary with the number and
size of transactions that are processed through the Company's system. The number
and size of transactions processed by each bank or merchant will be outside the
control of the customer. The Company may be able to add to its number of banks
and merchants by increasing its marketing efforts and thereby expand the overall
number of transactions and generate more initiation fees. However, its ability
to add banks and merchants will depend in part upon the speed with which they
wish to begin transacting business over the Internet, a factor over which the
Company has no control.
The Company Expects Significant Increases in Operating Expenses
The Company intends to increase operating expenses as it:
o Increases sales and marketing activities, including expanding the
Company's sales force;
o Increases technical support and development; and
o Expands customer support.
The amount of this increase will depend entirely upon the extent to which
the Company undertakes the above activities given its resources at the time.
With these additional expenses, the Company must significantly increase its
revenues in order to continue as a going concern and ultimately to become
profitable. These expenses will be incurred before the Company generates any
significant revenues by this increased spending. If the Company does not
significantly increase revenues from these efforts, the Company's business and
operating results would be seriously harmed.
The Company Depends on the Growth of Its Customer Base
The Company's success is substantially dependent on the growth of its customer
base of merchants and banks that use its gateway (and, if it develops one, its
switch). If it fails to increase its customer base, its business and operating
prospects would be seriously harmed. The Company's ability to attract customers
will depend on a variety of factors, including the price and quality of the
Company's services as well as the Company's ability to market its products and
services effectively.
The Company's Markets Are Highly Competitive
The Company's markets are new, rapidly evolving and highly competitive, and it
expects this competition to persist and intensify in the future. The Company's
failure to maintain and enhance its competitive position could seriously harm
its business and operating prospects. It will encounter competition from a
number of sources.
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The Company's competitors have longer operating histories and significantly
greater financial, technical, marketing and other resources than the Company.
Many of these competitors have extensive customer bases and strong customer
relationships that they could leverage, including relationships with the
Company's current and potential customers. These competitors also have
significantly more established customer service organizations than the Company
does. In addition, these competitors may adopt aggressive pricing policies.
Having processed over $4 billion credit card transactions in 1998, First Data
Corporation of Atlanta, Georgia is regarded by the Company as dominating credit
card processing in North America.
The Company Needs to Develop and Expand Its Sales and Marketing
Capabilities
The Company needs to expand its marketing and sales operations in order to
increase market awareness of the Company's services and generate increased
revenues. Competition for qualified sales personnel is intense, however, and the
Company may not be able to hire enough qualified individuals in the future. The
Company plans to establish marketing offices in Europe and Asia by 2000, and in
North and South America by 2001. One office will be opened in each region
initially, and additional offices will be opened if demand requires. The
Company's services require sophisticated sales effort targeted at senior
management of the Company's prospective customers. The Company has only been
marketing its services since early 1999.
The Company Must Manage Its Growth and Expansion
The Company's historical growth has placed, and any future growth is likely
to continue to place, a significant strain on the Company's resources. Any
failure to manage growth effectively could seriously harm the Company's business
and operating results. To be successful, the Company will need to implement
management information systems, improve operating, administrative, financial and
accounting systems and controls, train new employees and maintain close
coordination among executive, technical, accounting, finance, marketing, sales
and operations organizations. In addition, the Company's growth has resulted,
and any future growth will result, in increased responsibilities for management
personnel.
The Company Must Retain and Attract Key Personnel
The Company's success depends largely on the skills, experiences and
performance of the members of its senior management and other key personnel. The
Company needs employees with knowledge of Internet and computer technology,
banking, Internet marketing strategy and credit card processing. The Company may
not be successful in attracting, assimilating or retaining qualified personnel.
In addition, the Company's future success will depend on the Company's ability
to continue attracting and retaining highly skilled personnel. Like other
companies in Hong Kong the Company faces intense competition for qualified
personnel.
Reliance On Key Personnel
The Company considers Gregory M. Pek and Ravi K. Daswani to be key
employees. The loss of either of them could seriously harm the Company's
business. The Company does not maintain key man life insurance for either of
these employees.
The Company Will Be Liable For Certain Accounts Receivable That Banks Are
Unable to Collect From Credit Cardholders
If a merchant that uses the Company's gateway receives payment from a bank
for a transaction that a purchaser is not obligated to pay because of fraud,
failure of the merchant to ship the purchased goods, sales return or other
dispute, the Company will be obligated to reimburse the bank for the amount of
the payment and the Company may be unable to collect the amount of the
reimbursement from the merchant.
Year 2000 Issues Could Affect The Company's Business
If the Company's systems do not operate properly with respect to date
calculations involving the Year 2000 and subsequent dates, it could incur
unanticipated expenses to remedy any problems, which could seriously harm the
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Company's business. The Company has identified all third parties with which it
deals that present a material risk to the Company if they experience Year 2000
problems.
The reasonable worst case Year 2000 scenario for the Company would include
the substantial or complete shutdown of the Internet or the Bank of Bermuda or
the major credit card companies. This eventuality would cause the Company to
cease operations until the Year 2000 problems were corrected. The Company has no
contingency plan for dealing with this scenario and is not planning to develop
one.
The Company Needs Future Capital
The Company needs to raise funds, and funds may not be available on
favorable terms or at all. Failure to obtain funds on favorable terms could
seriously harm the Company's business and operating results. Futhermore, if the
Company issues additional equity securities, stockholders will experience
dilution, and the new equity securities could have rights senior to those of the
holders of the Company's common stock. If the Company cannot raise funds on
acceptable terms it will not be able to continue. See "Management's Discussion
and Analysis of Financial Position and Results of Operation - Liquidity and
Capital Resources."
The Company Depends on Continued Use of the Internet and Growth of
E-commerce
Rapid growth in the use of the Internet has occurred only recently. As a
result, its acceptance and use may not continue to develop at historical rates,
and a sufficiently broad base of consumers may not adopt, and continue to use,
the Internet and other online services as a medium of commerce. Demand and
market acceptance for recently introduced services and products over the
Internet are subject to a high level of uncertainty, and there exist few proven
services and products.
The Internet may not be accepted as a long-term commercial marketplace for
a number of reasons, including potentially inadequate development of the
necessary network infrastructure or delayed development of enabling technologies
and performance improvements. The Company's success will depend, in large part,
upon third parties maintaining the Internet infrastructure to provide a reliable
network backbone with the necessary speed, data capacity, security and hardware
for reliable Internet access and services.
Thin Public Market for The Company's Common Stock; Stock Price May
Fluctuate
The Company's common stock is very thinly traded. Its trading price may not
be an accurate reflection of the Company's value. The market price of the
Company's common stock may fluctuate significantly in response to a number of
factors, some of which (such as interest rates, general economic conditions and
trading multiples of comparable companies) are beyond the Company's control, and
some of which (such as operating results and announcements of new products) are
within the Company's control.
Future Sales of Shares Could Affect The Company's Stock Price
If the Company's stockholders sell substantial amounts of the Company's
common stock in the public market, the market price of the Company's common
stock could fall. Of the Company's outstanding common stock, 59% is eligible for
sale in the public market immediately.
Shareholders Will Receive No Dividends
The Company has never paid dividends and has no current plans to do so.
Given the Company's financial position, it is unlikely that it will pay any
dividends in the foreseeable future. The Company plans instead to retain
earnings, if any, to fund internal growth.
9
<PAGE>
Special Note Regarding Forward-Looking Statements
This document contains forward-looking statements. These statements relate
to future events or the Company's future financial performance. In some cases,
one can identify forward-looking statements by terminology. For example, "may",
"will", "should", "expect.., "plan", "anticipate", "believe", "estimate",
"predict", "potential" or "continue", or the negative of these terms or other
comparable terminology, indicate forward-looking statements. These statements
are only predictions. Actual events or results may differ materially. In
evaluating these statements, one should specifically consider various factors,
including the risks outlined in the Risk Factors section. These factors may
cause the Company's actual results to differ materially from any forward-looking
statement.
Although it believes that the expectations reflected in the forward-looking
statements are reasonable, the Company cannot guarantee future results, levels
of activity, performance or achievements. Accordingly, neither the Company nor
any other person assumes responsibility for whether the forward-looking
statements ultimately prove accurate. The Company will not update any of the
forward-looking statements after the date of this registration statement to
conform them to actual results or to changes in the Company's expectations that
occur after the date of this registration statement.
10
<PAGE>
ITEM 2. FINANCIAL INFORMATION
Selected Financial Data.
<TABLE>
<CAPTION>
From September 16, 1998 Nine Months ended
(date of inception) to September 30, 1999 and
Statement of Operations Data December 31, 1998 cumulative since inception
- - - - - - - - - - - - - - - - - --------------------------------------------------------------- ----------------------- --------------------------
<S> <C> <C>
Revenues $-- $--
General and administration expenses -- $3,691,067
Other income (expense)
Interest income -- 14,073
Interest expense -- (216,474)
------------
Loss on disposal of equipment -- (3,804)
------------
(206,205)
Net loss for the period -- (3,897,272)
------------------ ------------
Basic and diluted loss per share applicable to common
stockholders $-- $(0.34)
------------------ ------------
Weighted average shares used in computing per share amounts -- 11,352,924
------------------ ------------
Balance Sheet Data December 31, 1998 September 30, 1999
- - - - - - - - - - - - - - - - - --------------------------------------------------------------- ------------------ ------------
Current Assets $-- $1,302,166
Property and Equipment -- $1,102,762
Total Assets -- 2,404,928
Deferred Rent -- 77,466
Obligations under capital lease (including current instalments) -- 4,194
</TABLE>
Management's Discussion and Analysis of Financial Position and Results Of
Operations
General.
The only material financial transactions have been capital raising and
paying costs of forming the Company and commencing limited operations. The
Company is a corporation with a limited operating history. Its date of inception
was September 16, 1998. It is a development stage company with no operating
revenues to date. The Company expects to derive revenues from one-time
initiation fees when merchants or banks connect to the Company's system and from
ongoing transaction fees that will be both fixed and variable with the size of
the transaction being processed. The Company has insufficient operating history
on which to base an evaluation of its business and prospects. Any such
evaluation must be made in light of the risks frequently encountered by
companies in their early states of development, particularly for companies in
the rapidly evolving sector related to the Internet. See "Item 1. Business -
Risk Factors". There is no assurance that the Company will be successful in
addressing these risks and if it fails to do so its financial condition and
results of operations would be materially adversely affected.
In instances where a bank is unable to collect from a cardholder because of
fraud, failure of the merchant to ship goods, sales returns or other disputes,
the merchant is liable for the uncollected amount. If the amount cannot be
collected from the merchant, however, then the Company will have to reimburse
the bank for the uncollected amount. The Company will adopt procedures aimed at
evaluating the credit of merchants initially and on an ongoing basis and at
monitoring each merchant's transactions for excessive disputes.
Its agreement with the Bank of Bermuda gives the bank the right to retain a
percentage (determined solely by the bank) of any day's remittances as security
for disputed items. It can hold this amount for up to 180 days, at which time it
must release it to the Company unless a dispute over it has developed. Amounts
so retained by the bank will not have to be
11
<PAGE>
paid to the merchant until they are received by the Company. Alternatively, the
bank at its sole option may require the company to deposit with it an amount,
determined solely by the bank, that the bank will hold as security for disputed
items. The amount of the deposit must be evaluated by the bank at least every
180 days and, if necessary, increased or reduced to reflect more or less risk
from disputed items as a result of greater or lesser volume of transactions or
otherwise. Although its present arrangements with merchants do not presently so
provide, the Company plans to require that the merchant whose disputed
transactions cause the Bank of Bermuda to require the Company to put up a
security deposit reimburse the Company and agree to be repaid only when the bank
refunds the security deposit. The Company believes that this measure will
prevent the requirement that it post a security deposit from having any material
impact on its financial position or its liquidity.
Results of Operations.
Because the Company's date of inception was September 16, 1998, no period
to period comparison of operations is possible. Operating expenses incurred
through September 30, 1999 were $3,691,067, and represent the cost of forming
the Company, building its infrastructure, hiring and paying employees, and
advertising and marketing. As of September 30, 1999, the Company had an
accumulated deficit of $ 3.9 million.
The expenses (and one mitigating revenue source) that make up the
accumulated deficit are:
Expense (Revenue) Amount
----------------- ------
Interest Income $(14,073)
Staff costs 901,754
Stock compensation 330,116
Organizational costs 300,000
Advertising and promotion 186,670
Legal and professional fees 1,167,678
Travelling costs 273,246
Interest 244,191
Depreciation 134,307
Loss on equipment disposal 3,804
Others 471,285
-----------
3,998,978
===========
Liquidity and Capital Resources.
On March 3, 1999, the Company issued 500,000 shares of Common Stock at
$4.00 per share to raise $2,000,000 in working capital. On August 10, 1999, the
Company issued a promissory note in principal amount of $1,000,000 at par to
Private Investment Company Ltd. to raise working capital. This note bears
interest at the rate of 12% per annum, had an original maturity date of November
10, 1999 and is convertible into Common Stock at the option of the holder at
$8.00 per share. This Note was accompanied by separable five-year warrants to
purchase 100,000 shares of Common Stock at $8.50 per share, the last trade price
on August 6, 1999. The maturity of the note was subsequently extended to January
10, 2000. On September 8, 1999, the Company issued 166,667 shares of Common
Stock at $9 per share to raise $1,500,000 of working capital. On October 27,
1999 the Company borrowed $250,000 and on November 12, 1999 it borrowed $500,000
from Pacific Capital Markets, which is owned by Richard N. Jeffs, James R. King,
Jr. and Robert Smith, all shareholders of the Company. These loans are evidenced
by demand promissory notes. On November 26, 1999, the Company issued 1,000,000
units, each of which consisted of one share of common stock and a warrant to
purchase one share of common stock for $7.80 at any time for five years, to the
Bank of Bermuda Limited to raise $6,500,000 of working capital. These financings
represent the sole source of the Company's working capital to date. In September
1999, the Company paid $1,500,000 to a consultant in full satisfaction of an
obligation under a Consulting Agreement dated for reference March 5, 1999
pursuant to which the consultant will render services to the Company through
August 31, 2000.
12
<PAGE>
These services are:
o introducing the Company to investment banks, institutional investors,
and high net worth individual investors and assisting in negotiating
the terms of debt, equity or convertible debt financing as required by
the Company;
o designing and implementing a public relations program for the Company
to broaden exposure to the Company's services, and introducing the
Company to potential customers and partners and helping to negotiate
the terms of any arrangement with them;
o designing and implementing a program to broaden the Company's exposure
to financial industry analysts, financial institutions, brokerage
firms, individual brokers and the investing public;
o developing an advertising strategy for the Company that may involve
electronic, print or broadcast advertising to promote the development
and marketing of the Company's products and services.
The consultant is required to bear all costs (including out-of-pocket expenses)
incurred in connection with providing the above-described services.
On November 30, 1999, the Company had $6,317,680 of cash, cash equivalents
and marketable securities available to fund operations. At the rate the Company
is currently using cash (approximately $500,000 per month), this amount would be
sufficient to enable the Company to maintain its current operations for
approximately eleven months and repay the $1 million note referred to above. The
Company's auditors have expressed substantial doubt as to its ability to
continue as a going concern. See Independent Auditors' Report to the Board of
Directors and Stockholders of the Company on page F-2.
In order to implement its growth plans through June 30, 2000, the Company
estimates that it will require a further $30,000,000. Failure to raise this
amount will have a material adverse effect on the financial position and results
of operation of the Company. There can be no assurance that the Company will be
able to raise any more working capital, and any such financing will be dilutive
to the existing shareholders.
The Company has retained a placement agent and plans to complete a private
offering before March 31, 2000. The offering will consist of common stock and
warrants to purchase common stock and will be restricted securities. The selling
price of the common stock will likely be, and the exercise price of the warrants
may be, below then-prevailing market prices.
Year 2000 Issues.
Many currently installed computer systems are not capable of distinguishing
21st century dates from 20th century dates. As a result, beginning on January 1,
2000, computer systems and software may produce erroneous results or fail unless
they have been modified or upgraded to process date information correctly.
Significant uncertainty exists in the software industry and other industries
concerning the scope and magnitude of problems associated with the century
change. The Company recognizes the need to ensure that its operations will not
be adversely affected by Year 2000 software problems.
The Company has completed its assessment of the Year 2000 issues in the
software and hardware contained in its internal systems. Based on its current
assessment, the Company has determined that its internal systems are Year 2000
compliant. The cost of this assessment to the Company was not material. All
software and hardware installed hereafter will be tested and verified for Year
2000 readiness at the time of installation at no additional cost.
The Company has identified all third parties with which it deals that
present a material risk to the Company if they experience Year 2000 problems. Of
these parties, nearly all have web sites that discuss their Year 2000 readiness.
All of these have stated on their web site that they are Year 2000 compliant.
The Company has contacted all material third parties
13
<PAGE>
that did not have a web site discussing their Year 2000 readiness. All of these
responded in writing that they are Year 2000 compliant.
The reasonable worst case Year 2000 scenario for the Company would include
the substantial or complete shutdown of the Internet or the Bank of Bermuda or
the major credit card companies. This eventuality would cause the Company to
cease operations until the Year 2000 problems were corrected. The Company has no
contingency plan for dealing with this scenario and is not planning to develop
one.
ITEM 3. PROPERTIES.
The Company does not own any real property. It leases 8,740 square feet of
office space at the address of its headquarters in Hong Kong for $41,890 per
month. This lease expires on March 21, 2001. The Company also occupies office
space for network operations and processing centre rent-free on the premises of
the Bank of Bermuda in Bermuda. The Company believes that its present facilities
are adequate to meet its current business requirements and that suitable
facilities for expansion will be available when necessary.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth the current beneficial ownership of the
Company's common stock by (i) each person known by the Company to beneficially
own five percent or more of the Company's outstanding common stock, (ii) the
Company's Chief Executive Officer and Directors and (iii) all of the Company's
Executive officers and Directors as a group. Except as otherwise indicated, all
shares of Common Stock are beneficially owned, and investment and voting power
is held, by the person named as owner.
Name and Address of Number of Shares Percentage
Beneficial Owner Beneficially Owned Ownership
Bank of Bermuda Limited 2,000,000(1) 14.0%
Gregory M. Pek 1,750,000(2) 13.0%
Ravi K. Daswani 1,750,000(2) 13.0%
Ermanno Pascutto 450,000(2) 3.2%
Cody Cain 100,000(2) 0.7%
Douglas Moore 100,000(2) 0.7%
Executive Officers and
Directors as a group 4,620,000(3) 33.1%
- - - - - - - - - - - - - - - - - ----------
(1) Includes options to purchase 1,000,000 shares of common stock.
(2) Includes options to purchase 100,000 shares of common stock.
(3) Includes options to purchase 970,000 shares of common stock.
14
<PAGE>
ITEM 5. DIRECTORS AND EXECUTIVE OFFICERS
The names, ages, and terms of office of directors and executive officers of
the Company are set forth below:
Name Position With Company
Gregory M. Pek(1) Director, President, and Chief Executive Officer
Ravi K. Daswani(1) Director, Senior Vice President, Chief Operating Officer
Ermanno Pascutto(1) Director
Cody Cain(1) Director
Douglas Moore(1) Director
Raymond Chan Director of Payment Processing Systems
Christopher M. Fox Chief Technology Officer
Paul W. Fok Project Director
Anders Green Country Manager-Philippines
Lee Choong Wan Country Manager-Korea
John R. Brewer Corporate Secretary
- - - - - - - - - - - - - - - - - ----------
(1) Member of the Company's Board of Directors
Gregory M. Pek, 44, has been a Director of the Company and the President
and Chief Executive Officer of the Company since March 3, 1999 and has been a
Director of First Ecommerce Asia Limited since its inception. He was from March
1994 to February 1999 an executive officer of David Resources Company Limited,
Kong Tai International Holdings Company Limited and from 1998 to February 1999 a
director of Singapore Hong Kong Properties Investment Limited. Before 1994, Mr.
Pek was a director and officer of a number of public companies in Canada.
Ravi K. Daswani, 32, has been a Director of the Company and Senior vice
President and Chief Operating Officer of the Company since March 3, 1999 and has
been a Director of First Ecommerce Asia Limited since its inception. He was from
December 1997 to February 1999 the managing director and co-owner of Asia
Internet Limited, a Hong Kong Internet service provider. For more than three
years before December 1997, he resided in Panama where he was managing director
of a wholesale and retail apparel business.
Ermanno Pascutto, 46, has been a Director of the Company since March 3,
1999. He is a Canadian and Hong Kong lawyer with extensive experience in
securities regulation and corporate governance. Mr. Pascutto has been for more
than five years a partner with Goodman Phillips & Vineberg working in the in
Toronto and Hong Kong offices of the firm. Before that Mr. Pascutto was deputy
chairman and executive director of the Hong Kong Securities and Futures
Commission where, among other things, he was involved in the regulation of
listed companies. Prior to his joining the HRSFC, he was executive director and
chief operating officer of the Ontario Securities Commission
Cody Cain, 31, has been a Director of the Company since May 31, 1999. He is
the Partner for the Asia Pacific Region of USWeb/CKS Corporation, an Internet
consulting company. Mr. Cain joined Gray Peak Technologies, a computer network
infrastructure consulting company where he was the managing Director and founder
of the Hong Kong office in January 1998. Grey Peak was acquired by USWeb/CKS in
July 1998. Prior to joining Gray Peak, Mr. Cain was a National Sales manager of
China for Nike from January 1997 to December 1997, and prior to that he was the
Business Development Director for Icon CMT Corp., an Internet service provider
based in New York, from February 1996 to January 1997. In 1995, prior to joining
Icon CMT Corp., Mr. Cain was a founder and Director of Find Publishing, an
online marketing database company based in the United Kingdom and was the sole
proprietor of Peak Performance International, a health and fitness consultant
based in the United Kingdom, from January 1995 to December 1995.
15
<PAGE>
Douglas Moore, 41, has been a Director of the Company since October 27,
1999. Since 1994, Mr. Moore has worked for Credit Suisse in Hong Kong and is
currently the director of Credit Suisse Investment Advisory (Hong Kong) Limited,
a wholly owned subsidiary of Credit Suisse. Before joining Credit Suisse, Mr.
Moore practiced international tax law with the Hong Kong office of McMillan
Binch, a Canadian law firm. He is a Canadian and a Hong Kong lawyer.
Raymond Chan, 59, has been director of Payment Processing Systems since
June 1, 1999. Before joining the Company on that date, he spent 17 years at visa
international where he was ultimately promoted to Executive Vice President and
General Manager of Greater China Region.
Christopher M. Fox, 34, joined the Company in April 1999. Before that from
January to March 1999, he was a Practice Director of China.com and consulted
with its large clients regarding their Internet business strategies. During
November 1998 and December 1998 he was employed by Interim Technology, an
information technology company, in its Hong Kong office to set up a professional
services division. From June 1998 to November 1998, he was a technical architect
for Hong Kong Telecom. Mr. Fox was a technical director in charge of ecommerce
projects for Computerland in New Zealand from October 1996 to June 1998, and
before that was a strategy consultant for ecommerce projects for the National
Bank, Wellington, New Zealand from January 1996 to September 1996. From October
1994 to January 1996 he was a technical architect for the New Zealand Police
Force's Integrated National Crime Information System.
Paul W. Fok, 46, joined the Company in May 1999. Before that, he was head
of technical development at the Stock Market Channel, a subsidiary of Reuters
located in Hong Kong that distributes stock market information, from October
1997 to April 1999. From October 1989 to September 1997, he was the senior
manager of the cost center of Cable and Wireless Hong Kong Telecom.
Anders Green, 43, joined the Company in August 1999. Before that for more
than ten years he was the proprietor and chief executive officer of Sky
International Consultancy, a Hong Kong company that represented European
businesses seeking to do business in Asia.
Lee Choong Wan, 46, joined the Company in September 1999. From 1990 to
August 1998, he worked for Visa International where he was promoted to president
of Visa Korea, a wholly owned subsidiary of Visa International. From August 1998
until he joined the Company, he attended to personal matters.
John R. Brewer, 43, joined the company in September 1999. Before that, he
was the corporate secretary of Astec (BSR)(PLC) in Hong Kong from June 1996 to
August 1999. He was the proprietor of East Asia Trust, a registered investment
advisor in Hong Kong, from May 1993 until May 1996.
ITEM 6. EXECUTIVE COMPENSATION.
Directors are not paid any fees in connection with their so acting. They
are reimbursed for out-of-pocket expenses incurred in connection with attending
board meetings. Directors have been granted options to purchase the Company's
common stock for $7.65 per share (85% of the fair market value on the date of
grant for all but Mr. Moore; 100% of fair market value on date of grant for Mr.
Moore) as set forth below:
Name Number of Options
------------------ -------------------
Gregory M. Pek 100,000
Ravi K. Daswani 100,000
Ermanno Pascutto 100,000
Cody Cain 100,000
Douglas Moore 100,000
16
<PAGE>
In addition to the options set forth above, senior management as a group
has been granted options to purchase 775,000 shares for $7.65 per share (85% of
the fair market value on the date of grant.) Half of these vest in June 2000 and
half vest in June 2001.
The Company paid no Executive officer more than $10,000 in 1998. The law
firm of which Mr. Pascutto is a partner renders legal services to the Company
from time to time and charges the Company its usual rates plus out of pocket
disbursements for doing so. During the nine months ended September 30, 1999, the
Company paid that firm $131,169.
Mr. Pek's employment agreement, which became effective January 1, 1999,
provides for a monthly salary of 100,000 Hong Kong dollars (one Hong Kong dollar
equaled approximately 12.9 U.S. cents on December 2, 1999) and a year-end bonus
equal to one month's salary. The agreement is for an indefinite term. Mr. Pek is
required to devote his full time efforts to being the Company's President and
Chief Executive Officer. The Company may terminate Mr. Pek without any payment
for cause or disability or for having reached mandatory retirement age or, by
paying him one month's salary, at its complete discretion. Mr. Pek may resign at
any time upon one month's notice. Following his employment, Mr. Pek has agreed
not to compete with the Company for periods ranging from six to 12 months
depending upon the geographic region at issue.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Messrs. Pek and Daswani formed First Ecommerce Asia Limited in 1998. Mr.
Pek contributed $1,507 to that company and Mr. Daswani contributed $1,507. In
return, each received one-half of the outstanding common stock of that company
(one share each). On January 28, 1999, JRL Resources Corp. acquired that company
for 3, 015,000 newly issued shares of the common stock of JRL and 985,000
already-outstanding shares of common stock of JRL (from JRL shareholders), of
which Messrs. Pek and Daswani each received half. These 4,000,000 shares
represent all but 40,000 of JRL's issued and outstanding shares after this
issuance. On February 12, 1999, JRL merged with and into the Company and in
connection with the merger the JRL common stock of each of Messrs. Pek and
Daswani was converted into 2,000,000 shares of the Company's common stock.
Asia Internet Limited, of which Mr. Daswani is a director and shareholder,
received $154,543 from the Company for providing technical support, system
maintenance and other professional services for the Company during the nine
months ended September 30, 1999.
The Directors and management of the Company have been granted options to
purchase the Company's common stock. A law firm of which a director is a partner
has received legal fees. See Item 6 Executive Compensation.
On July 21, 1999, the Company entered into an agreement with US Web/CKS
Corporation pursuant to which the Company will pay $231,000 for technology
development services for one year. Mr. Cain is an employee of US Web/CKS
Corporation.
The Company believes that the above transactions are on terms at least as
favorable to it as could have been obtained in an arm's length transaction.
ITEM 8. LEGAL PROCEEDINGS.
At the date of this registration statement, the Company is not involved in
any litigation and does not have any pending claims. The Company's management is
not aware of any threatened claims or the basis therefor.
17
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS.
The Company's common stock has traded on the OTC Bulletin Board under the
symbol "FECC" since March 8, 1999. The following table sets forth the high and
low closing prices for the common stock for the periods indicated.
1999 High Low
- - - - - - - - - - - - - - - - - ----------------------------------- ---------------- -------------------
Fourth Quarter(through November 30) $ 8.69 $ 6.69
Third Quarter 11.38 6.69
Second Quarter 12.13 5.88
First Quarter 7.25 2.25
As of November 30, 1999, there were approximately 35 holders of record of
the common stock. On December 7, 1999, the closing sales price of the Company's
common stock was $7.50 per share.
The Company has not paid any cash dividends on its Common Stock and does
not presently intend to do so. Future dividend policy will be determined by its
Board of Directors on the basis of its earnings, capital requirements, financial
condition and other factors deemed relevant.
The transfer agent and registrar of the Company's Common stock is Nevada
Agency and Trust Company, 50 West Liberty, Suite 880, Reno, Nevada 89SO1.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
JRL Resources Corp. (then known as Vantage Sales Corp.) issued 1,025,000
shares of its common stock to 26 persons on November 14, 1996 for an aggregate
of $5,025. These persons, and the number of shares issued to each, were:
Shares
------
Eric P. Littman 1,000,000
Lane Abraham 1,000
Mark Bryn 1,000
Isabel Cantera 1,000
Stephanie Fisch 1,000
Michael Fridovich 1,000
Lori Halpern 1,000
Bernard Halpern 1,000
Ronnie Halpern 1,000
Susan Hershkowitz 1,000
18
<PAGE>
Wendy Heckleman 1,000
Rob Hedeman 1,000
Marc Kuperman 1,000
Alan Leibowitz 1,000
James Littman 1,000
Leona Littman 1,000
Daryl Merl 1,000
Robert Oosterwyk 1,000
S. Ronald Pallot 1,000
Sophie Romano 1,000
Lawrence Schwartz 1,000
Nancy Schwartz 1,000
Cindy Singer 1,000
Bernice Steiner 1,000
Samuel Steiner 1,000
Gertrude Weiner 1,000
This issuance was exempt from the registration requirements of the
Securities Act of 1933 pursuant to Rule 504.
JRL Resources Corp. issued 3,015,000 shares of its common stock to the
shareholders of First Ecommerce Asia Limited (Messrs. Pek and Daswani) on
January 28, 1999 in return for all the outstanding equity of that company. This
issuance was exempt from registration pursuant to Regulation S. On the same
date, JRL Resources Corp. issued 8,000,000 shares of its common stock in a
transaction exempt from registration under Regulation S to financial advisors
for services rendered in connection with organizational activities at a deemed
value of $308,000, which includes $8,000 of cash received. These advisors, and
the number of shares issued to each, were:
Shares
------
Beaconsfield Corporation
Nassau, Bahamas 450,000
Claritas Trading Ltd.
Turks & Caicos Islands, BWI 480,000
Crescent Group SA
Nassau, Bahamas 480,000
19
<PAGE>
Ermine Overseas Ltd.
British Virgin Islands 500,000
Gastinough Incorporated
Nassau, Bahamas 500,000
Georgina Industries limited
British Virgin Islands 450,000
Hawk Management Ltd
Turks & Caicos Islands 450,000
Hildesheim Kapital GmbH
Alofi, Niue 450,000
Inversiones Arturo S. A
Republic of Panama 450,000
Richard N. Jeffs
Vancouver, British Columbia 300,000
Kaleyard Corp.
Nassau, Bahamas 480,000
James R. King, Jr
Vancouver, British Columbia 300,000
Marble Hall Investments Ltd
Douglas, Isle of Man 480,000
Minglow Management S.A
Republic of Panama 500,000
Octavia Kapital GmbH
Alofi, Niue 500,000
Rockridge Estates Ltd.
Nassau, Bahamas 450,000
Robert Smith
North Vancouver, British Columbia 300,000
Wherry Trading S. A
Republic of Panama 480,000
20
<PAGE>
The services they rendered were in the nature of financial and business
advice related to finding, evaluating, financing and negotiating the acquisition
of First Ecommerce Asia Limited. In connection with rendering these services,
they paid for their own out-of-pocket expenses, including attorneys' fees.
On February 12, 1999 the Company (which had not previously issued any
capital stock) issued 12,040,000 shares of its common stock to the shareholders
of JRL Resources Corp. in connection with merging JRL into the Company. These
issuances were exempt from registration under Regulation S and Rule 504.
The Company issued 500,000 shares of its common stock to Gera Unternehmen
GmbH, Alofi, Nive outside the United States on March 3, 1999 at a price of $4.00
per share. This issuance was exempt from registration pursuant to Regulation S.
The Company issued its 12% promissory note due November 10, 1999 in
principal amount of $1,000,000 at par to Private Investment Company Ltd.,
Nassau, Bahamas on August 10, 1999. This note is convertible into shares of the
Company's common stock at the rate of $8 per share. The note was accompanied by
five-year warrants to purchase 100,000 shares of the Company's common stock for
$8.50 per share. These issuances were exempt from registration pursuant to
Regulation S.
On September 8, 1999, the Company issued 166,667 shares of its Common Stock
to Tradewinds Investments Ltd., Nassau, Bahamas outside the United States at a
price of $9 per share. The issuance was exempt from registration pursuant to
Regulation S.
On November 26, 1999 the Company issued 1,000,000 units, each of which
consisted of one share of common stock and a five-year warrant to purchase one
share of common stock for $7.80, to The Bank of Bermuda Limited, Hamilton,
Bermuda outside the United States for $6.50 per unit. This issuance was exempt
from registration pursuant to Regulation S.
ITEM 11. DESCRIPTION OF SECURITIES
The authorized common stock of the Company consists of 200,000,000 shares
at a par value of one mill ($0.001) per share. A total of 13,706,667 shares of
common stock are presently issued and outstanding. Also outstanding are options
held by the Company's Directors and management and warrants held by a two third
parties to purchase an aggregate of 2,612,500 shares of common stock.
Holders of common stock are each entitled to vote for each share standing
in his or her name in the books of the Company. Holders of the common stock do
not have subscription, redemption, conversion or pre-emptive rights. The
outstanding shares of common stock are fully paid and non-assessable. Each share
of common stock is entitled to participate pro rata in distribution upon
liquidation and to one vote on all matters submitted to a vote of stockholders.
The holders of common stock may receive cash dividends as declared by the Board
of Directors out of funds legally available therefor. Holders of the common
stock are entitled to elect all Directors. The holders of the common stock do
not have cumulative voting rights, which means that the holders of more than
half of the shares voting can elect all of the Directors and the remaining
holders will not be able to elect any Directors.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company will indemnify and hold harmless its directors and officers
from any action, suit or proceeding whether civil, criminal, or administrative,
or investigative, to the fullest extent legally permissible under the General
Corporate Law of the State of Nevada. No director or officer shall have any
personal liability to the Company or its stockholders from damages for breach of
fiduciary duty as a Director or officer, except that Directors and Officers may
be held liable to the Company or its stockholders for acts or omissions which
involve intentional misconduct, fraud or knowing violation of law, or the
payment of dividends in violation of the Nevada Revised Statutes. The Directors
may
21
<PAGE>
cause the Company to purchase and maintain insurance on behalf of any person who
is or was a Director or Officer of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to Directors, officers or third parties controlling the
Company pursuant to Nevada law, the Company has been informed that in the
opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is therefore unenforceable.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
See attached financial statements beginning on page F-1
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS.
(a) See Index to Financial Statements on page F-1
(b) Exhibits
3.1 Articles of Incorporation*
3.2 By-laws*
4.1 Specimen Stock Certificate*
10.1 Service Level Agreement with People's Telephone
10.2 Ecommerce Merchant Agreement with People's Telephone
10.3 Memorandum of Understanding with Hana Bank
10.4 Memorandum of Understanding with Federal Express
11.1 Computation of Earnings per Share*
21.1 List of Subsidiaries*
27.1 Financial Data Schedule*
-----------------------------
* Previously filed
22
<PAGE>
SIGNATURES
Pursuant to the requirements of section 12 of the securities Exchange Act
of 1934, the registrant has duly caused this registration statement to be signed
on its behalf by the undersigned, thereunto duly authorized.
FIRST ECOM.COM, INC.
By: /s/ Gregory M. Pek
---------------------------------------
Dated: December 23, 1999 Gregory M. Pek, Chief Executive Officer
23
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors' report to the Board of Directors and
Stockholders of First Ecom.com, Inc.................................F-2
Consolidated balance sheet at September 30, 1999 (unaudited) and
at December 31, 1998 (audited)......................................F-3
Consolidated Statement of operations for the nine months
ended September 30, 1999 (unaudited) and for the period
from September 16, 1998 (date of inception) to December
31, 1998 (audited)......................................................F-5
Consolidated Statement of Stockholders Equity for the nine months
ended September 30, 1999 (unaudited) and for the period
from September 16, 1998 (date of inception) to December
31, 1998 (audited)......................................................F-6
Consolidated Statement of Cash Flows for the nine months
ended September 30, 1999 (unaudited) and for the period
from September 16, 1998 (date of inception) to December
31, 1998 (audited)......................................................F-7
Notes to Consolidated Financial Statements for the nine months ended
September 30, 1999 (unaudited) and for period from
September 16, 1998 (date of inception) to December 31,
1998 (audited)..........................................................F-9
F-1
<PAGE>
Independent Auditors' Report
To the Board of Directors and Stockholders
First Ecom.com, Inc.
We have audited the accompanying consolidated balance sheet of First
Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
(together "the Group") as of December 31, 1998 and the related consolidated
statements of operations, stockholders' equity, and cash flows for the period
from September 16, 1998 (date of inception) to December 31, 1998. These
financial statements are the responsibility of the Group's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards in Hong Kong and 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 First
Ecom.com, Inc. and subsidiaries (a group of companies in development stage) as
of December 31, 1998, and the results of their operations and their cash flows
for the period from September 16, 1998 (date of inception) to December 31, 1998
in conformity with generally accepted accounting principles in the United States
of America.
The accompanying consolidated financial statements have been prepared
assuming that the Group will continue as a going concern. As discussed in Note 2
to the consolidated financial statements, the Group is not generating cash flows
from operations and does not have adequate working capital sufficient to fund
expected capital and operating requirements through its development stage. This
condition raises substantial doubt about the Group's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG
Hong Kong, August 12, 1999
F-2
<PAGE>
<TABLE>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Consolidated balance sheet at September 30, 1999 and
December 31, 1998
(Expressed in United States Dollars)
September 30,
1999 December 31,
Note (unaudited) 1998
US$ US$
Assets
Current assets
Cash and cash equivalents 20,009 --
Advances to employees 76,762 --
Amounts due from stockholders 3,478 --
Prepaid financial advisory fees 5 922,504
Other receivables and prepaid expenses 279,413 --
---------- ----------
Total current assets 1,302,166 --
Property and equipment 6 1,102,762 --
---------- ----------
Total assets 2,404,928 --
========== ==========
F-3
<PAGE>
<TABLE>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Consolidated balance sheet at September 30, 1999
and December 31, 1998 (continued)
(Expressed in United States Dollars)
September 30,
1999 December 31,
Note (unaudited) 1998
US$ US$
Liabilities and stockholders' equity
Current liabilities
Short term loan 9 817,282 --
Current instalments of obligations under
capital lease 7 1,624 --
Accounts payable 790,280 --
Accrued expenses 167,468 --
---------- ----------
Total current liabilities 1,776,654 --
Deferred rent 77,466 --
Obligations under capital lease, excluding
current instalments 7 2,570 --
---------- ----------
Total liabilities 1,856,690 --
Stockholders' equity
Common stock, $0.001 par value
Authorised
2 and 200,000,000 shares at December 31,
1998 and September 30, 1999 respectively;
Issued and outstanding shares
As of December 31, 1998 - 2 shares
As of September 30, 1999 - 12,706,667
shares 12,707 --
Additional paid-in capital 4,534,509 --
Deficit accumulated during the development
stage
(3,998,978) --
---------- ----------
Total stockholders' equity 548,238 --
---------- ----------
Total liabilities and stockholders' equity 2,404,928 --
========== ==========
See accompanying notes to financial statements.
F-4
<PAGE>
<TABLE>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Consolidated statement of operations
for the nine months ended September 30, 1999 and
for the period from September 16, 1998 (date of inception)
to December 31, 1998
(Expressed in United States Dollars)
For the nine
months ended
September 30,1999 From September
and cumulative 16, 1998 (date of
Note since inception inception) to
(unaudited) December 31, 1998
US$ US$
Operating expenses
General and administration expenses
Staff costs 901,754 --
Stock compensation costs 330,116
Organisational costs 300,000 --
Advertising and promotion 186,670 --
Legal and professional fees 1,167,678 --
Travelling 273,246 --
Depreciation 134,307
Others 471,285 --
----------- ----------
(3,765,056)
----------
Other income/(expenses)
Interest income 14,073 --
Interest expense (244,191) --
Loss on disposal of equipment (3,804)
----------- ----------
(233,922) --
----------- ----------
Net loss for the period (3,998,978) --
=========== ==========
Basic and diluted loss per share
applicable to common stockholders (0.34) --
=========== ==========
Weighted average shares used in
computing per share amounts 11,647,155 --
=========== ==========
See accompanying notes to financial statements.
F-5
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Consolidated statement of stockholders' equity
for the nine months ended September 30, 1999 and
for the period from September 16, 1998 (date of inception)
to December 31, 1998
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
Deficit
accumulated Total stock-
Additional during the holders'
Common paid-in development equity
Note stock capital stage
US$ US$ US$ US$
Consolidated statement of stockholders'
equity for the period from September
16, 1998 (date of inception) to
December 31, 1998
<S> <C> <C> <C> <C>
Balance at September 16, 1998 1 -- -- -- --
---------- ---------- ---------- ----------
Balance at December 31, 1998 -- -- -- --
========== ========== ========== ==========
Consolidated statement of stockholders'
equity for the nine months ended
September 30, 1999 (unaudited)
Balance at December 31, 1998 -- -- -- --
Impact of merger with JRL Resources Corp.
1 4,040 (4,940) -- (900)
Issuance of 8,000,000 shares of common
stock for organisational costs 1 8,000 300,000 -- 308,000
Secondary common stock offering of
500,000 shares 1 500 1,999,500 -- 2,000,000
Third common stock offering of 166,667
shares 1 167 1,499,833 -- 1,500,000
Stock-based compensation -- 330,116 -- 330,116
Issuance of debt securities with
detachable warrants 9 -- 410,000 -- 410,000
Net loss for the period -- -- (3,998,978) (3,998,978)
---------- ---------- ---------- ----------
Balance at September 30, 1999 12,707 4,534,509 (3,998,978) 548,238
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
F-6
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Consolidated statement of cash flows
for the nine months ended September 30, 1999 and
for the period from September 16, 1998 (date of inception)
to December 31, 1998
(Expressed in United States Dollars)
<TABLE>
<CAPTION>
For the nine
months ended
September 30,1999 From September
and cumulative 16, 1998 (date of
Note since inception inception) to
(unaudited) December 31, 1998
US$ US$
<S> <C>
Net loss for the period (3,998,978) --
Organisational costs in excess of cash paid 300,000 --
Stock compensation costs 330,116 --
Depreciation of property and equipment 134,307 --
Loss on disposal of equipment 3,804 --
Payment of financial advisory fee (1,500,000)
Amortisation of financial advisory fee 577,496
Increase in other receivables and prepaid expenses (279,413) --
Increase in amounts due from employees and
stockholders (80,240) --
Accretion of discount on loan 227,282
Increase in accounts payable 459,739 --
Increase in accrued expenses 139,247 --
Increase in deferred rent 77,466 --
---------- ----------
Net cash used in operating activities (3,609,174) --
----------
Cash flows from investing activities
Payments for property and equipment (883,946) --
---------- ----------
Net cash used in investing activities (883,946) --
---------- ----------
Cash flows from financing activities
Proceeds from issuance of common stock 3,508,000 --
Proceeds from short term loan with detachable warrants 1,000,000 --
Proceeds from disposal of equipment 5,806 --
Principal payments under capital lease obligations (677) --
---------- ----------
Net cash provided by financing activities 4,513,129 --
---------- ----------
Net increase in cash and cash equivalents 20,009 --
Cash and cash equivalents at beginning of period -- --
---------- ----------
Cash and cash equivalents at end of period 20,009 --
========== ==========
</TABLE>
See accompanying notes to financial statements.
F-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Consolidated statement of cash flows
for the nine months ended September 30, 1999 and
for the period from September 16, 1998 (date of inception)
to December 31, 1998 (continued)
(Expressed in United States Dollars)
The Group paid $142 and $Nil for interest for the nine months ended September
30, 1999 (unaudited) and for the period from September 16, 1998 (date of
inception) to December 31, 1998 (audited) respectively.
Major non-cash transactions
Period from January 1, 1999 to September 30, 1999 (unaudited):
(a) Property and equipment amounting to $4,871 were acquired under a capital
lease during the nine months ended September 30, 1999.
(b) Issuance of 8,000,000 shares to financial advisors for services rendered in
connection with organisational activities of the Group at a deemed value of
$300,000, in excess of $8,000 cash received
(c) During the nine months ended September 30, 1999 $330,116 in compensation
expense was recorded for options granted.
See accompanying notes to financial statements.
F-8
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
Notes to consolidated financial statements
for the nine months ended September 30, 1999 (unaudited)
and for the period from September 16, 1998 (date of inception)
to December 31, 1998
(Expressed in United States Dollars)
1 Background and principal activities
Formation
First Ecommerce Asia Limited ("FEAL") (prior to December 10, 1998 named Gold
Pacific Management Limited ) was incorporated in Hong Kong on September 16, 1998
with two shares of HK$1 per share issued and outstanding. On January 28, 1999
FEAL entered into an agreement and plan of merger with JRL Resources Corp.
(prior to August 18, 1998 named Vantage Sales Corp.), a company incorporated in
the State of Florida on November 13, 1996 with 1,025,000 common shares issued
and outstanding ("JRL Resources"), which had been inactive since its formation.
Pursuant to the terms of the agreement and plan of merger and related
agreements, 3,015,000 newly issued shares of JRL Resources and 985,000 shares
held by existing shareholders of JRL Resources were exchanged for the two shares
of FEAL, and FEAL became a wholly-owned subsidiary of JRL Resources.
Issuance of common shares for organisational costs
Also on January 28, 1999, JRL Resources issued 8,000,000 shares to financial
advisors for services rendered in connection with organisational activities at a
deemed value of $308,000, including $8,000 cash received.
Accounting for the formation and organisational costs
The merger between JRL Resources and FEAL was a merger of a private operating
company into a non-operating public shell corporation with nominal net assets
that resulted in the owners and management of the private company having
operating control of the combined company after the transaction. For accounting
purposes, the transaction has been treated as a reverse acquisition of JRL
Resources by FEAL with FEAL deemed to be the accounting acquirer. The
consolidated financial statements for periods prior to the merger reflect the
financial position and results of operations of FEAL since its formation. Since
JRL Resources had no significant operations prior to the reverse acquisition,
pro forma information giving effect to the acquisition is not presented.
The issuance of common shares to financial advisors for organisational costs
were recorded at the deemed fair value of the services provided of $300,000,
plus the nominal amount of cash received of $8,000, or $0.0385 per share.
F-9
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
1 Background and principal activities (continued)
JRL Resources merger with First Ecom.com, Inc.
Pursuant to an agreement and plan of merger dated February 12, 1999, JRL
Resources was merged with and into First Ecom.com, Inc. ("FECI"), a company
incorporated in the State of Nevada on February 12, 1999, with no shares
issued and outstanding. Pursuant to the agreement and plan of merger, all
of the 12,040,000 outstanding common shares of JRL Resources were exchanged
on a one-for-one basis for newly issued shares of FECI, with FECI being the
surviving corporation.
For accounting purposes, this merger is treated as a re-incorporation of
JRL Resources as FECI.
Secondary common share offering
On March 3, 1999, FECI completed a secondary stock offering of 500,000 new
common shares at $4 per share pursuant to a Subscription Agreement dated
March 3, 1999, and raised net proceeds totalling $2,000,000.
Third common share offering
On September 8, 1999, FECI completed a stock offering of 166,667 new common
shares at $9 per share pursuant to a Subscription Agreement dated September
8, 1999, and raised net proceeds totalling $1,500,000.
Formation of FEC Ltd.
On March 31, 1999, FEC Ltd. ("FECL") was incorporated in Bermuda as a
wholly-owned subsidiary of FEAL (together with FECI and FEAL "the Group").
Nature of Business
The Group was established to facilitate electronic payment processing of
e-commerce transactions for merchants and banks across the Internet. The
Group has developed an electronic gateway to convert consumers' credit card
information collected by merchants on the Internet into a format that can
be processed by banks. The Group will act as an intermediary payment system
service provider between on-line merchants, consumers and banks. The
principal geographic area in which the Group initially intends to provide
its services is throughout Asia. The Group initially intends to charge its
merchants and banks service fees to process transactions through this
gateway.
Where reimbursement for any transaction cannot be obtained in connection
with merchant transactions processed through the Group's gateway with The
Bank of Bermuda Limited, the Group expects to retain the risk of loss
related to sales returns, fraud losses, and chargebacks. The Group expects
to perform evaluations of its merchants and monitor the level and nature of
transactions of the merchants.
Since its inception the Group has been in the development stage. The Group
is in the process of acquiring and developing its software and hardware,
training its personnel, performing research and development activities, and
developing its markets. Through September 30, 1999, the Group had no
revenues from operations.
F-10
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
2 Basis of preparation
The accompanying financial statements have been prepared on a going concern
basis. While the Group had cash of $20,009 as of September 30, 1999,
currently it is not operating or generating cash flows. The ability of the
Group to continue as a going concern is ultimately dependent upon the
successful start-up of operations, including placing in service the Group's
operating software and hardware as well as developing sufficient markets.
Management believes that the Group will be able to attract additional
working capital to fund its requirements throughout the development stage.
However, there can be no assurance that the Group's business once started
will be successful or that such funds will be available to the Group on
commercially reasonable terms or at all.
3 Summary of significant accounting policies
(a) Principles of consolidation
The consolidated financial statements include the financial statements of
FECI and its subsidiaries. All companies in which the parent has a
controlling financial interest through direct or indirect ownership of a
majority voting interest are consolidated. All significant intercompany
balances and transactions have been eliminated on consolidation.
The financial statements prepared as of and for the period ended December
31, 1998 reflect the financial position and results of operations of FEAL
since its formation. The financial statements as of and for the period
ended September 30, 1999 and for the period prior to the merger with JRL
Resources reflect the consolidated financial position and results of
operations of FEAL. Subsequent to the merger, the financial statements
reflect the consolidated financial position and results of operations of
FECI (as successor to JRL Resources subsequent to FECI's formation and JRL
Resources prior to FECI's formation) and its subsidiary FEAL.
(b) Business combinations
Business combinations have been accounted for under the purchase method of
accounting. The results of operations of the acquired business from the
date of acquisition are included in the results of the Group. Net assets of
the companies acquired are recorded at their fair value to the Group at the
date of acquisition.
(c) Revenue and cost recognition
With respect to fees generated by transactions processed on behalf of
merchants, revenues are recognized when the transaction is processed. Other
payments received for service revenues are recognized on a straight-line
basis, unless evidence suggests that the revenue is earned or obligation is
fulfilled in a different pattern, over the contractual term of the
arrangement, or the expected period during which those specified services
are performed, whichever is longer.
F-11
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
3 Summary of significant accounting policies (continued)
(c) Revenue and cost recognition (continued)
Costs directly related to a contract that would not have been incurred but
for that contract (incremental direct acquisition costs) are deferred and
charged to expense in proportion to the revenue recognised. All other
costs, such as costs of services performed under the contract, general and
administrative expenses, advertising expenses and costs associated with the
negotiation of a contract prior to it being consummated, are charged to
expense as incurred. The Group expects to accrue for expected uncollectible
sales returns, fraud losses, credit card chargebacks and classify the
resulting expense as an addition to the allowance for doubtful debts.
(d) Cash and cash equivalents
Cash and cash equivalents consist of money market instruments with original
maturities of three months or less.
(e) Property and equipment
Property and equipment are stated at cost, net of accumulated depreciation.
Depreciation is calculated using the straight line basis over the
anticipated useful lives of the assets as follows:
Leasehold improvements Over the term of the leases
Computer equipment and processing system 3 years
Furniture, fixtures and office equipment 5 years
(f) Software development costs
In accordance with Statement of Position 98-1, internal and external costs
incurred to develop internal-use computer software are expensed during the
preliminary project stage and capitalised during the application
development stage and amortised over three years. During the period ended
December 31, 1998 and the nine-month period ended September 30, 1999, $Nil
and $27,600 (unaudited) of internal-use computer software was expensed,
respectively. As of December 31, 1998 and September 30, 1999, capitalised
software net of accumulated amortisation was $Nil and $544,482 (unaudited),
respectively.
(g) Income taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognised for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases and operating loss and tax credit carry forwards. Deferred tax
assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is
F-12
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
3 Summary of significant accounting policies (continued)
(g) Income taxes (continued)
recognised in income in the period that includes the enactment date. A
valuation allowance is recognised to reduce the deferred tax assets if it
is more likely than not that all or some portion of the deferred tax assets
will not be realised.
(h) Commitments and contingencies
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the
assessment and/or remediation can be reasonably estimated.
(i) Use of estimates
Management of the Group has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(j) Translation of foreign currencies
The functional currency of the Group is Hong Kong dollars. The reporting
currency of the Group is United States dollars. Balance sheet accounts of
the Group are translated into United States dollars at current exchange
rates. Income statement items are translated at the average rates during
the year. Net translation gains and losses are recorded directly to a
separate component of stockholders' equity. Foreign currency transaction
gains and losses are included in the determination of net loss.
(k) Research and development and advertising
Research and development, and advertising costs are expensed as incurred.
Research and development costs amounted to $Nil in the nine-month period
ended September 30, 1999 (unaudited) and the period from September 16, 1998
(date of inception) to December 31, 1998. Advertising costs amounted to
$186,670 (unaudited) and $Nil respectively in the nine-month period ended
September 30, 1999 and the period from September 16, 1998 (date of
inception) to December 31, 1998.
(l) Start-up and pre-operating costs
Start-up and pre-operating costs are expensed as incurred.
(m) Long-lived assets
The Group accounts for long-lived assets in accordance with the provisions
of Statement of Financial Accounting Standards ("SFAS") No. 121, Accounting
for the Impairment of Long-lived Assets and for Long-lived Assets to Be
Disposed Of. This statement requires that long-lived assets and certain
identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying
F-13
<PAGE>
3 Summary of significant accounting policies (continued)
(m) Long-lived assets (continued)
amount of an asset may not be recoverable. Recoverability of assets to be
held and used is measured by a comparison of the carrying amount of an
asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are reported
at the lower of carrying amount or fair value less costs to sell.
(n) Stock-based compensation
The Group accounts for stock-based compensation arrangements in accordance
with the provisions of Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees" ("APB No. 25") and complies with
the disclosure provisions of SFAS No. 123 "Accounting for Stock-Based
Compensation". Under APB No. 25 compensation expense is based on the
difference, if any, between the deemed fair value of the Group's stock and
the exercise price of the option. The unearned compensation is being
amortized in accordance with Financial Accounting Standards Board
Interpretation No. 28 on a straight-line basis over the vesting period of
the individual options.
The Group accounts for equity instruments issued to non-employees in
accordance with the provisions of SFAS No. 123 and Emerging Issues Task
Force 96-18. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are accounted
for based on the fair value of the consideration received or the fair value
of the equity instrument, whichever is more reliably measurable.
(o) Basic and diluted loss per share
SFAS No. 128, "Earnings Per Share" requires the presentation of basic net
income per share, and for companies with complex capital structures,
diluted net income per share.
As of September 30, 1999 and December 31, 1998 potentially diluting shares
totalling 1,177,500 (unaudited) and Nil, respectively, for employee share
options and 100,000 (unaudited) and Nil, respectively for warrants with
exercise prices less than the average market price that could dilute basic
earnings per share in the future, were not included in earnings per share
as their effect was anti-dilutive for those periods.
(p) Debt issued with stock purchase warrants
Debt issued with detachable stock purchase warrants is accounted for in
accordance with the provisions of Accounting Principles Board Opinion No.
14, "Accounting for Convertible Debt and Debt Issued with Stock Purchase
Warrants" ("APB No. 14"). Under APB No. 14 the portion of the proceeds of
debt securities issued with detachable stock purchase warrants which is
allocable to the warrants is accounted for as additional paid-in capital.
The allocation is based on the relative fair values of the two securities
at the time of issue. Any resulting discount or premium on the debt
securities is accounted for as such and amortised over the term of the debt
securities.
F-14
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
3 Summary of significant accounting policies (continued)
(q) Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 133 "Accounting for Derivative Financial Instruments and Hedging
Activities" which requires companies to record derivative financial
instruments on their balance sheets as assets or liabilities, measured at
fair value. Gains and losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative
and whether it qualifies for hedge accounting. The key criterion for hedge
accounting is that the hedging relationship must be highly effective in
achieving offsetting changes in fair value or cash flows. In June 1999 the
FASB issued SFAS No. 137 "Accounting for Derivative Instruments and Hedging
Activities - Deferral of Effective Date of FASB Statement No. 133" which
amends SFAS 133 to be effective for all fiscal years beginning after June
15, 2000. The Group has not determined the potential impact of this
statement on its financial condition or results of its operations.
4 Income taxes
As the Group is in its development stage and incurred losses since its
inception, no income tax expenses were recognised for the nine months ended
September 30, 1999 (unaudited) and for the period from September 16, 1998
(date of inception) to December 31, 1998. There were no taxes payable at
September 30, 1999 (unaudited) or December 31, 1998.
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at
September 30, 1999 are presented below (at the Hong Kong statutory rate of
16%):
September
30, 1999
(unaudited)
US$
Deferred tax liabilities:
Property and equipment, principally due to
differences in depreciation 131,078
--------
Deferred tax assets:
Net operating loss carry forward 529,291
Less valuation allowance (398,213)
--------
Net deferred tax assets 131,078
--------
Net deferred tax assets/liabilities --
========
F-15
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
4 Income taxes (continued)
The tax effects of temporary differences and carry forwards that give rise
to deferred tax assets and liabilities were $Nil as at December 31, 1998.
Currently, net operating loss carryforwards at September 30, 1999 of
$3,308,067 (unaudited), substantially all of which relate to the Group's
Hong Kong operations, can be carried forward indefinitely.
5 Prepaid financial advisory fees
Pursuant to an agreement dated March 5, 1999, the Group paid a fee of
$1,500,000 to a consultant for the following services:
- introducing the Group to investment banks, institutional investors,
finding institutions and high net worth individual investors and
assisting in negotiation of the terms of debt, equity or convertible
debt financing as required by the Group;
- designing and implementing a public relations program for the Group to
broaden exposure to the Group's services and introducing the Group to
potential customers and partners;
- designing and implementing an investor relations program to broaden
the Group's exposure to the financial industry analysts, financial
institutions, brokerage firms, individual brokers and the investing
public;
- developing an advertising strategy for the Group that may involve
electronic, print or broadcast advertising to promote the development
and marketing of the Group's products and services.
These services are to be rendered to the Group over the period from March
5, 1999 to August 31, 2000 and the amount paid was deferred and is being
amortised over the life of the service agreement on a straight-line basis.
For the nine months ended September 30, 1999 (unaudited) the Group
recognised approximately $577,000 in operating expenses in respect of the
consultant's fee and has approximately $923,000 in prepaid expenses as of
September 30, 1999 (unaudited) in respect of the consultant's fee.
F-16
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
6 Property and equipment
Details of the Group's property and equipment are as follows:
September 30,
1999 December 31,
(unaudited) 1998
US$ US$
Leasehold improvements 318,227 --
Computer equipment and processing system 778,624 --
Furniture, fixtures and office equipment 140,218 --
---------- ----------
1,237,069 --
Less accumulated depreciation (134,307)
---------- ----------
1,102,762 --
========== ==========
Depreciation expense charged to results of operations was $134,307 for the
nine months ended September 30, 1999 (unaudited).
7 Leases
The Group leases office equipment under a capital lease. The lease includes
a bargain purchase option at the end of the lease term. At September 30,
1999 (unaudited) and December 31, 1998, the gross amount of property and
equipment and related accumulated depreciation held under the capital lease
were as follows:
September 30,
1999 December 31,
(unaudited) 1998
US$ US$
Office equipment 4,871 --
Less accumulated depreciation (406) --
---------- ----------
4,465 --
========== ==========
Depreciation of office equipment held under capital lease is included in
depreciation expense for the nine months ended September 30, 1999.
F-17
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
7 Leases (continued)
Future minimum lease payments under non cancellable operating leases and
future minimum capital lease payments as of September 30, 1999 (unaudited)
are:
<TABLE>
<CAPTION>
<S> <C> <C>
Capital lease Operating lease
US$ US$
Three months ending December 31, 1999 491 117,629
Years ending December 31,
2000 1,965 502,690
2001 1,965 101,262
2002 655 --
---------- ----------
5,076 721,581
==========
Less amount representing interest (882)
----------
Present value of net minimum lease payments
4,194
Less current instalments of obligations under
capital lease (1,624)
----------
Obligations under capital lease, excluding
current instalments 2,570
==========
</TABLE>
There were no capital or operating leases as at December 31, 1998.
Rental expense for operating leases for the nine months ended September 30,
1999 (unaudited) and for the period from September 16, 1998 (date of
inception) to December 31, 1998 were $160,343 and $Nil respectively.
8 Stock options
Pursuant to a written consent of the directors on March 30, 1999, 3,000,000
shares of FECI's common stock have been reserved for issuance to employees
of the Group under an employee stock option plan.
On June 22, 1999, the board of directors approved the granting of share
options to certain employees of the Group. Under this stock option plan,
the grantees are allowed to purchase up to 1,137,500 shares of FECI's
common stock at a price of $7.65 per share. The fair value of the shares at
the date of grant was $9.06 and related compensation expense will be
recorded over the two-year vesting period. 50% of these options are
exercisable on and after June 22, 2000 and the remaining 50% are
exercisable on and after June 22, 2001. All of these options, if remaining
unexercised, will expire on June 22, 2004.
F-18
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
8 Stock options (continued)
On September 15, 1999 the board of directors approved the granting of share
options to a further employee of the Group. Under this stock option plan,
the grantee is allowed to purchase up to 100,000 shares of FECI's common
stock at a price of $7.65 per share. The fair value of the shares at the
date of grant was $6.88. 50% of these options are exercisable on and after
September 15, 2000 and the remaining 50% are exercisable on and after
September 15, 2001. All of these options, if remaining unexercised, will
expire on September 15, 2004.
Had compensation costs been determined consistent with the fair value
approach enumerated in SFAS No. 123, the Group's net loss for the nine
months ended September 30, 1999 (unaudited) and the period from September
16, 1998 (date of inception) to December 31, 1998 would have been increased
as indicated below:
From September
For the nine 16, 1999 (date of
months ended inception) to
September 30, 1999 December 31, 1998
(unaudited) US$
US$
Net loss As reported 3,998,978 --
Proforma 4,576,165 --
Net loss per share As reported 0.34 --
Proforma 0.39 --
The fair value of options granted on June 22, 1999 was estimated on the date of
grant using the Black-Scholes option-pricing model with the following
assumptions used: risk-free interest rate of 5.5%; expected life of 3 years;
51.45% expected volatility; and no dividends.
The fair value of options granted on September 15, 1999 was estimated on the
date of grant using the Black-Scholes option-pricing model with the following
assumptions used: risk-free interest rate of 5.5%; expected life of 3 years;
87.9% expected volatility; and no dividends.
F-19
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
8 Stock options (continued)
A summary of the Group's stock option plan is presented below:
<TABLE>
<CAPTION>
From September 16,
For the nine months 1999 (date of
ended September 30, inception) to December
1999 (unaudited) 31, 1998
US$ US$
Weighted Weighted
Number average Number average
of exercise of exercise
options price options price
------- -------- ------- --------
<S> <C> <C> <C> <C>
Outstanding at beginning
of period -- -- -- --
Granted 1,237,500 $ 7.65 -- --
Exercised -- -- -- --
Forfeited (60,000) $ 7.65 -- --
---------- ---------- ---------- ----------
Outstanding at end of period 1,177,500 $ 7.65 -- --
========== ========== ========== ==========
Options exercisable at period end -- -- -- --
========== ========== ========== ==========
Weighted-average fair value of
options granted during the
period $ 3.80 --
========== ==========
</TABLE>
9 Short term loan and warrants
On August 10, 1999 the Group entered into a loan agreement with a company
(the "Lender") for the advance of a $1,000,000 three month term loan to the
Group. Pursuant to the terms of the loan agreement the loan bears interest
at 12% per annum and is convertible into the common shares of the Group at
$8 per share at the Lender's option. The repayment date of the loan was
subsequently extended to January 10, 2000. The Lender was also granted at
origination warrants to subscribe to 100,000 common shares of the Group at
$8.50 per share, exercisable for 5 years commencing on August 10, 1999. The
intrinsic value of the conversion feature at the date of issuance of the
loan of $50,000 has been accounted for as additional paid-in share.
The portion of the loan proceeds issued with detachable warrants which is
allocable to the warrants of $360,000 has been accounted for as additional
paid-in share capital. The allocation is based on the fair value of the
loan of $1,000,000 and the fair value of the warrants at the date of issue
of $566,000.
F-20
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
9 Short term loan and warrants (continued)
The effective interest rate of the loan was calculated to be 280% per annum
as a result of the allocation of a portion of the proceeds to the separable
warrants and the conversion feature, the resultant discount of $410,000
created therefrom, and the amortisation of the discount to the initial
maturity date.
The fair value of warrants issued was estimated on the date of issue using
the Black-Scholes option-pricing model with the following assumptions used:
risk-free interest rate of 5.5%; expected life of 5 years; 76.7% expected
volatility; and no dividends. 10 Related party transactions
Period from January 1, 1999 to September 30, 1999 (unaudited)
(a) Asia Internet Limited ("AIL") is considered a related party to the
Group by virtue of a 40% shareholder of AIL being a director and
stockholder of the Group. AIL provided technical support, system
maintenance and other professional services to the Group and purchased
computer and office equipment on behalf of the Group. During the
nine-month period ended September 30, 1999, the Group paid $154,543 to
AIL for the above services. The amounts charged by AIL to the Group
for technical support, system maintenance and other professional
services and purchase of computer and office equipment on the Group's
behalf were $183,276 and $114,580 respectively. As at September 30,
1999, the Group owed AIL $143,313 (unaudited) (as at December 31,
1998: $Nil).
(b) Issuance of 8,000,000 shares to financial advisors for services
rendered in connection with organisational activities of the Group at
a deemed value of $300,000, in excess of $8,000 cash received.
(c) A director and shareholder of the Group is a partner in a firm of
solicitors to which the Group has paid legal fees in the ordinary
course of its business. The amount advanced by the Group to the firm
during the nine-month period ended September 30, 1999 was $131,170 and
the amount charged by the firm was $130,192. As at September 30, 1999,
the firm owed the Group $978.
(d) A director of the Group is a partner in a professional firm to which
the Group has paid consultancy fees in the ordinary course of its
business. The amount charged by the firm to the Group during the
nine-month period ended September 30, 1999 was $174,319. As at
September 30, 1999, the Group owed the firm $49,227.
F-21
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
First Ecom.com, Inc. and subsidiaries (a group of companies in development stage)
Consolidated financial statements for the nine months ended September 30, 1999 (unaudited)
Consolidated financial statements for the period from September 16, 1998
(date of inception) to December 31, 1998
</TABLE>
11 Commitments and contingencies
Capital commitments outstanding at September 30, 1999 (unaudited) not
provided for were as follows:
September 30,
1999 December 31,
(unaudited) 1998
US$ US$
Contracted for -- --
Authorised but not contracted for 3,383,524 --
========== ==========
12 Subsequent events (unaudited)
On October 27, 1999 the Group entered into a loan agreement with a company
wholly owned by three shareholders of the Group for the advance of a
$250,000 short term loan repayable by January 21, 2000. Pursuant to the
terms of the loan agreement the loan bears interest at 12% per annum.
On November 12, 1999 the Group entered into a loan agreement with the same
company wholly owned by three shareholders of the Group for the advance of
a $500,000 short term loan repayable on or before January 10, 2000.
Pursuant to the terms of the loan agreement the loan bears interest at 12%
per annum.
On November 26, 1999 the Group issued 1,000,000 units to The Bank of
Bermuda Limited for $6,500,000, each unit consisting of one share and a
five year warrant to purchase one share for $7.80. The warrants are
exercisable at any time up to November 25, 2004.
On November 11, 1999 the board of directors approved the granting of share
options to certain employees of the Group. Under this stock option plan,
the grantees are allowed to purchase up to 335,000 shares of FECI's common
stock at a price of $7.65 per share. 50% of these options are exercisable
on and after November 3, 2000 and the remaining 50% are exercisable on and
after November 3, 2001.
On November 11, 1999 the board of directors approved the granting of share
options to a potential future employee of the Group, subject to this
employee joining the Group. Under this stock option plan, the grantee is
allowed to purchase up to 30,000 shares of FECI's common stock at a price
of $7.65 per share. 50% of these options are exercisable on the date the
grantee joins the Group and the remaining 50% are exercisable on and after
the second anniversary of the date the grantee joins the Group.
F-22
EXHIBIT 10.1
FEC LIMITED
Service Level Agreement
THIS AGREEMENT is made on the o day of November 1999.
BETWEEN:
FEC Limited, a company incorporated under the laws of Bermuda
whose registered office is at Milner House, 18 Parliament Street,
Hamilton HM12, Bermuda ("FEC") and The Peoples Telephone Company
Limited, a company incorporated under the laws of Hong Kong SAR
whose registered office is at 8/F Manhattan Centre, 8 Kwai Cheong
Road, Kwai Chung, Kowloon, Hong Kong. ("Merchant")
RECITALS:
A. This Agreement supplements and shall be construed in conjunction with the
Ecommerce Merchant Agreement signed between FEC and the Merchant. This
Agreement becomes void if either party terminates the Ecommerce Merchant
Agreement.
B. FEC will, from time to time, provide professional services to the
Merchant that enables proper connection to the FEC payment gateway and
the use of FEC Services. This Agreement defines the services, support and
service levels that FEC is committed to the Merchant.
1. DEFINITIONS
1.1 Acceptance Date - for an item of Software, the first business day
following the date on which Merchant advises FEC in writing that
"User Acceptance Test" for that item has been completed
successfully.
1.2 Delivery Date - the business day on which FEC makes all of the
Software available for installation at the Installation Site.
1.3 Delivery Target Date - the business day specified in a Project
Plan on which FEC agrees to make available Software for
installation at the Installation Site.
1.4 Ecommerce Merchant Agreement - the Ecommerce Merchant Agreement
entered into between FEC and the Merchant dated November o, 1999.
Page 1 of 10
<PAGE>
1.5 Error - an instance of failure of Software to be Operative. An
Error is a Class 1 Error if it renders continued use of Software
Commercially infeasible in Merchant's reasonable judgment in
consultation with FEC. An Error is a Class 2 Error if it makes
continued use of Software inconvenient and substantially reduces
its value to the Merchant, in the Merchant's reasonable judgment
in consultation with FEC. All other Errors are Class 3 Errors, in
particular, all documentation shortcomings and deviations that do
not have the economic consequences defined for Class 1 and Class 2
Errors shall be deemed Class 3 Errors.
1.6 Implementation Date - the business day specified in the Project
Plan when the Merchant first uses a System commercially in
production in the ordinary course of the Merchant's business.
1.7 Project Plan - as defined in clause 2.1.1.
1.8 Software - object code and source code of a System, together with
associated user and operation manuals and other documentation,
supplies, trademarks and forms supplied to Merchant under a
Development Agreement.
1.9 System - the system to be designed, developed and installed by FEC
pursuant to clause 2.2.1.
1.10 Update - a set of procedures or new program code that FEC will
implement to correct all errors in the Software to the extent
reasonably practicable, and which may include modifications and
enhancement to improve performance of the Software.
1.11 Upgrade - a new version of Software which improves the
functionality of the system or which adds functional capabilities
to such Software.
1.12 User Acceptance Test - a set of procedures to formally test the
system with known input data and expected results.
1.13 Warranty Period - for a System the one hundred and twenty (120)
days period commencing on the Implementation Date specified in the
Project Plan.
2. SOFTWARE DEVELOPMENT
2.1 Requirement Phase
2.1.1 Merchant shall prepare, according to the schedule in the
Project Plan, a User Requirements Specification for a
project and related documentation
Page 2 of 10
<PAGE>
called for by a development agreement or another
comparable, disciplined project life cycle system
acceptable to FEC, in its sole discretion.
2.1.2 Merchant shall provide FEC access to Merchant's existing
software and documents which will be a source of
information for the projects and allow, when necessary, FEC
to work on Merchant's premises and to use a printer,
telephone, fax machine, photocopy machine, support supplies
and materials.
2.2 Design, Development And Installation
2.2.1 Upon written notice from Merchant accepting a Functional
Requirements Specification, FEC shall commence development
of a system. Until the Acceptance Date, FEC shall inform
the Merchant at periodic intervals of the status of the
project, progress against milestones and problems
encountered and resolved.
2.2.2 FEC shall install Software at the Installation Site, with
the assistance and under the supervision of Merchant
representative, according to the schedule set forth in the
Project Plan. Merchant shall notify FEC in writing,
determines that a System fulfills the Installation
Condition.
2.3 Acceptance
2.3.1 Merchant shall deliver, with the assistance from FEC, a
"User Acceptance Test Script" (UAT Script) for a System,
which will describe in detail how the UAT will demonstrate
that a System has the functions and operations specified in
the Functional Requirements Specification and will further
describe the objective, input, e.g., data values,
transaction types, data volumes, etc., and expected
results. The UAT Script shall also specify entry criteria,
e.g., screen results, reports, expected control totals, and
data values, etc., together with all operational
instructions required to carry out the tests. In return,
FEC will provide the Merchant with a UAT Plan.
2.3.2 Merchant shall conduct the User Acceptance Test, using the
UAT Plan provided by FEC. Merchant shall notify FEC in
writing of its acceptance or rejection of the Software. If
Merchant discovers during the UAT that any System does not
execute the UAT accurately, or Class 1 Errors or Class 2
Errors occur, Merchant shall notify FEC in writing of the
deficiencies. FEC, at its own expense, shall modify,
repair, adjust or replace the System to make it operative
within five (5) days from the date of Merchant's deficiency
notice. After any modification, repair, adjustment or
placement, Merchant may perform additional UAT until
fully-satisfied with the Software.
Page 3 of 10
<PAGE>
2.4 Documentation And Training
2.4.1 FEC shall have full responsibility for preparing any
documentation which the Development Agreement requires FEC
to deliver and for development and testing of the software.
2.4.2 FEC shall provide a "train the trainer" training course in
use of the System on Merchant's premises at the
Installation Site on date to be specified by Merchant. The
number of training days will depend on the training
material and complexity. The Merchant can send certain
number of technical people to attend this training course.
FEC shall provide Merchant at no charge with all trainer
leadership materials FEC has available or used in
connection with the classes conducted for the Merchant.
Merchant may duplicate these materials for Merchant's use
exclusively and use them to conduct other classes at
Merchant's convenience.
2.5 Changes To Project Plan
If FEC notifies Merchant that all or any part of a System will not
be delivered on the schedule set forth in the Project Plan,
Merchant may terminate or revise or limit the Project to avoid
delay. Merchant shall specify such revisions or limitations to the
Project Plan in a Software Development Project Plan Revision. If
Merchant determines to continue the Project pertaining to such
System, FEC shall prepare to Merchant a revised Project Plan
encompassing the revisions or limitations selected by Merchant to
avoid or mitigate the delay.
2.6 Additional Work
No additional work will be performed by FEC, except for those
already specified in the Functional Requirements Specification of
Phase 1 or as mutually agreed before successful completion of the
UAT.
2.7 Warranty
2.7.1 For a period of one hundred and twenty (120) days following
the Acceptance by Merchant (the "Warranty Period"), FEC
warrants to Merchant that the System when properly
installed, properly used and unmodified by Merchant, will
conform to the relevant Specifications and remain
substantially operative. FEC's sole responsibility shall be
to use reasonable commercial efforts to promptly correct
errors or defects. All Warranty claims not made in writing
or not received by FEC within the Warranty Period shall be
deemed waived. FEC's warranty obligations are solely for
the benefit of Merchant, who has no authority to extend or
Page 4 of 10
<PAGE>
transfer this warrant to any other person or entity. In the
case of a hardware, warranty will be provided by the
hardware manufacturer.
2.7.2 Subsequent to the Warranty Period, FEC shall continue to
provide the warranty services described in Clause 2.7.1 on
the basis set out therein provided that FEC shall be
entitled to invoice the Merchant for charges incurred in
connection with such services in an amount equal to cost
incurred by it together with such hourly other fees as are
normally charged by FEC, from time to time, in connection
with providing such services. Notwithstanding the
foregoing, FEC shall provide such further services without
charge to the Merchant in the event that any such
additional warranty claims by the Merchant arise as a
result of any fault on the part of FEC.
2.8 Intellectual Property Right (IPR)
2.8.1 Except for Third Party Materials and any Merchant Content,
the System developed for Merchant will be the sole property
of FEC, hence, FEC holds the IPR of the System delivered to
the Merchant. Onward selling or using of the System by any
unauthorized third party is prohibited.
2.8.2 With written approval from FEC, the Merchant may modify the
Software after the expiration of the Warranty Period.
3. PROFESSIONAL SUPPORT
3.1 FEC's Service Responsibilities
3.1.1 During the term of a development agreement, upon Merchant's
request, FEC shall provide Merchant the support services
(the "Services") described in this section with respect to
the Software supplied pursuant to such agreement, including
providing Updates and Corrections at no charge until the
expiration of the Warranty Period thereof and, thereafter,
at a rate of HK$700 per hour. (The list price is HK$1,000
per hour).
3.1.2 If reasonably practicable, FEC shall correct all Errors
reported by Merchant by means of the procedures established
by this section.
3.1.3 FEC's support services shall be performed in a timely and
professional manner by qualified maintenance professionals
familiar with the Software and its operation, and the
Services shall conform to the standards generally observed
in the industry for similar services.
Page 5 of 10
<PAGE>
3.1.4 Unless otherwise agreed by Merchant prior to a service
being rendered, FEC shall charge Merchant at a rate of
HK$700 per hour.
3.2 Support And Service Level
3.2.1 FEC shall provide support services during office hours (9am
to 6pm) from Monday to Friday except Public Holidays, at no
cost to Merchant, during Warranty Period. Merchant will be
charged for services after the Warranty Period.
3.2.2 FEC shall provide to Merchant, and keep current, a list of
persons and telephone numbers ("Calling List") for Merchant
to contact in order to obtain answers to questions
concerning Merchant's use of the System or assistance in
solving problems encountered in Merchant's use of the
System. Such Calling List shall include: (1) the first
person to contact in the event of such question or problem,
and (2) the persons in successively more responsible or
qualified positions to provide the answer or assistance
desired.
3.2.3 If Merchant detects any Error in Software during the
Warranty Period, Merchant shall contact FEC's telephone
consultative service. FEC shall respond, in any event,
within eight (8) working hours. If FEC fails to respond; or
if Merchant is unable, after three or more calls within a
fifteen (15) minute period, to reach FEC's telephone
consultative service; or if the designated person from the
Calling List is not available when Merchant makes contact
with FEC to obtain additional consultation and assistance,
then Merchant shall attempt to contact the next more
responsible or qualified person on the Calling List until
contact is made and a designated person responds to the
call.
3.2.4 After Merchant reports a suspected Error, FEC shall provide
a Correction or workaround as soon as possible. Merchant
shall consult with FEC to determine the severity of the
Error. If FEC has not diagnosed and corrected a Class 1
Error or Class 2 Error on the same day as Merchant's
initial telephone call, and Merchant wishes to obtain a
Correction, Merchant shall submit to FEC a listing of
output and such other data as FEC reasonably may request in
order to reproduce operating conditions similar to those
present when Merchant detected the Error. Merchant also
shall notify FEC in writing whether the Error is Class 1
Error or a Class 2 Error.
3.2.5 For Class 1 Errors, FEC shall take all necessary and
desirable steps, without regards to cost, to supply a
workaround reasonable in Merchant's judgment after receipt
of output or other documentation of the Error.
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<PAGE>
3.2.6 For Class 2 Errors, FEC shall take reasonable steps to
provide a workaround reasonable in Merchant's judgment or a
correction within five (5) days after receipt of output or
other documentation of the Error. These steps shall include
assigning fully-qualified professionals to work with
Merchant at Merchant's site during Merchant's regular
business hours until FEC provides a reasonable workaround
or Merchant determines after consultation with FEC that
such a workaround or Correction cannot be produced by FEC's
on-site technicians.
3.2.7 For Class 3 Errors, FEC shall correct the Error by
modifying System or documentation or issuing an Update.
3.3 System Enhancements
3.3.1 At Merchant's request, FEC shall provide system
enhancements at Merchant's cost.
3.3.2 If initiated by FEC, system enhancements shall be provided
at no cost.
3.4 Termination of Services
Termination of services will be determined by the section
"Termination - Term of Agreement" as stated in the Ecommerce
Merchant Agreement between FEC and The Peoples Phone Company Ltd.
3.5 Merchant Responsibilities
3.5.1 If Merchant discovers any suspected Error in Software,
Merchant shall analyze the suspected Error to determine if
it is the result of Merchant's misuse or misunderstanding
of the Software before seeking FEC's assistance. Merchant
may contact persons on the Calling List to make the first
report of a suspected Error.
3.5.2 If Merchant alters or modifies the Software without FEC's
written approval:
3.5.2.1 Any additional Services costs or expenses
occasioned to FEC by such alteration shall be
reimbursed by Merchant; or, at Merchant's option,
3.5.2.2 FEC shall be released from Services obligations
for the modified portion of the Software.
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<PAGE>
4. HARDWARE
4.1 The hardware is maintained by FEC in secure premises in Bermuda
and such hardware shall at all times be maintained in sufficient
condition and capacity for FEC to provide its services at all
times under this Agreement.
5. FORCE MAJEURE
5.1 Notwithstanding anything else contained in this Agreement, neither
party shall be in breach of this Agreement or liable to the other
with respect to any complete or partial failure performance by its
duties or obligations under this Agreement occasion by any act of
God, fire, active government or state, war, civil commotion,
insurrection, embargo, or other cause beyond the control of either
party. For greater certainty, the provisions of this clause shall
apply to FEC and FEC shall have no responsibility with respect to
or arising out of any disruption of its processing services (save
where such disruption arises solely as a result of the gross
negligence or wilful misconduct of FEC). If either party is unable
to perform its duties and obligations under this Agreement as a
direct result of the effect of one or more of any such causes the
operation of this Agreement shall be suspended during the period
(and only during the period) during which such cause continues to
have effect.
6. TERMS RELATING TO INTELLECTUAL PROPERTY
6.1 Nothing in this Agreement grants either party any rights in or
under the intellectual property (whether trademarks, copyrights,
patterns, know-how or otherwise) of the other party and neither
party shall use the intellectual property of the other party
without prior written consent, such consent to be subject to such
terms and conditions as the party granting such consent may
require. No use by one party under this Agreement of the other's
intellectual property shall confer upon the first party any rights
in or under such intellectual property. All rights connected with
or rising out of such use accrue to the owner of the intellectual
property in question.
6.2 Each party agrees that it shall fully indemnify the other party
against all liabilities, costs, charges and expenses (including
legal expenses) arising out of all actions, claims, demands and
proceedings brought against that party (including without
limitation claims of infringement brought by third parties)
arising out of or connected its use of the first party's
intellectual property if such use was approved according to Clause
6.1.
7. GENERAL CONTRACT PROVISIONS
7.1 All notices, requests, demands or other communications required or
permitted to be given by one party to another under this Agreement
must be given in writing by personal delivery, or by registered
mail, postage prepaid, addressed to the other party or parties at
the address set out on the first page (and, in the case of
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<PAGE>
FEC, with a copy to be provided to First Ecommerce Asia Limited,
902, Henley Building, 5 Queen's Road, Central Hong Kong) or at
such party or parties' other address if changed by notice given in
accordance with this Clause or Clause 7.2. Such notices, requests,
demands or other communications will be deemed to have been
received when delivered if delivered personally (unless the date
of delivery is not a Business Day or is delivered or sent after
5:00 p.m., (Bermuda Time) in which case the notice, request,
demand or other communication shall be deemed to have been
received on the next following Business Day) and, if mailed, will
be deemed to have received on the seventh (7th) Business Day after
the mailing thereof. During any interruption in regular postal
service, all notices, requests, demands or other communications
must be delivered personally or sent by facsimile transmission.
7.2 Notwithstanding Clause 7.1, all notices, requests, demands or
other communications required or permitted to be given by one
party to another party under this Agreement may be sent to the
receiving party's facsimile number as notified by such party to
the other in accordance with either clause 7.1 or this clause.
Notices, requests, demands or other communications sent by
facsimile transmission will be deemed to have been received when
transmitted (provided that the transmission is confirmed by the
transmission report) unless the date of delivery is not a Business
Day or the transmission is sent after 5:00 p.m. (Bermuda Time), in
which case the notice, request, demand or other communication
shall be deemed to have been received on the next Business Day.
7.3 Time is of the essence of this Agreement and of every part hereof.
7.4 This Agreement is governed by and shall be construed in accordance
with the laws of Bermuda.
7.5 This Agreement constitutes the entire Agreement between the
parties with respect to the matters herein and its execution has
not been induced by, nor do any of the parties rely upon or regard
as material, any representations, warranties, conditions,
promises, Agreements or statements whatsoever not incorporated
herein and made a part hereof.
7.6 Other than as specifically provided for herein, this Agreement may
not be amended, altered or qualified except by a memorandum in
writing signed by all of the parties.
7.7 If any article, clause or any portion of any section of this
Agreement is determined to be unenforceable or invalid by order,
decree or judgement of any court having jurisdiction, or is or
becomes unenforceable or invalid by virtue of any duly promulgated
law, rule or regulation, the remainder of this Agreement will be
construed as if the article, clause or portion of a section had
not been inserted.
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<PAGE>
7.8 FEC shall have the right, on written notice to the Merchant, to
assign this Agreement or all or any portion of its rights
hereunder to a wholly owned subsidiary of First Ecom.com, Inc.
Subject to the foregoing, neither FEC nor the Merchant shall have
the right to assign this Agreement or its rights hereunder without
the prior written consent of the other party.
7.9 This Agreement is binding upon and shall enure to the benefit of
the parties and their respective successors and permitted assigns.
ACCEPTED AND AGREED TO BY: ACCEPTED AND AGREED TO BY:
FEC LIMITED THE PEOPLES TELEPHONE
COMPANY LIMITED
- - - - - - - - - - - - - - - - - ---------------------------------- ----------------------------------
Authorised Signature Authorised Signature
Name: ____________________________ Name: ____________________________
Title: ___________________________ Title: ___________________________
Page 10 of 10
EXHIBIT 10.2
FEC LIMITED
Ecommerce Merchant Agreement
THIS AGREEMENT is made on the o day of November 1999.
BETWEEN:
FEC Limited, a company incorporated under the laws of Bermuda
whose registered office is at Milner House, 18 Parliament Street,
Hamilton HM12, Bermuda ("FEC") and The Peoples Telephone Company
Limited, a company incorporated under the laws of Hong Kong SAR
whose registered office is at 8/F Manhattan Centre, 8 Kwai Cheong
Road, Kwai Chung, Kowloon, Hong Kong. ("Merchant")
RECITALS:
A. FEC is an agent duly authorised by Bank of Bermuda Limited, a member of
MasterCard International Inc. and Visa International, to process
MasterCard and Visa Card payments for the purchase of goods and services,
including over the Internet and made by Cardholders.
B. The Merchant wishes to utilise FEC's services and FEC wishes to provide
such services, subject to the terms and conditions set out in this
Agreement.
NOW THEREFORE THIS AGREEMENT WITNESSES that in consideration of the mutual
covenants and Agreements set out in this Agreement, the parties, and agree as
follows:
1. Definitions And Interpretation
1.1 Wherever used in this Agreement, the following terms have the meanings
set out below:
(a) "Agreement" means this agreement as amended by the parties from
time to time in writing;
(b) "Bank" means the Bank of Bermuda Limited;
(c) "Business Day" means every day except Saturday, Sunday and any
other day on which principal commercial banks are not open for
business, and unless otherwise expressly provided in this
Agreement, in the countries in which the subject Card Sale is
effected;
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(d) "Card" means a credit card issued by a Card Association or any of
their duly authorised licensees and such other cards as FEC may
agree to process from time to time pursuant to Clause 3.3;
(e) "Card Associations" means MasterCard International Inc. or Visa
International;
(f) "Cardholder" means a customer of the Merchant effecting a Card
Sale;
(g) "Card Sales" means purchases of goods and/or services from the
Merchant effected by means of a Card and processed by FEC pursuant
to the provisions of this Agreement and "Card Sale" means any one
such transaction;
(h) "Charge Back" means any Card Sale transaction effected hereunder
which is disputed by a Cardholder and where notice of such dispute
has been given to the Bank or bank issuing the subject Card;
(i) "Credit" has the meaning given to that term in Clause 7.1;
(j) "Merchant Account" means the account established by FEC on behalf
of the Merchant pursuant to the provisions of Clause 4.1;
(k) "Restricted Services" means products or services that constitute,
relate to or are ancillary to, in whole or in part:
(i) pornographic or illicit material or activities of any type;
(ii) escort services;
(iii) gambling operations, including "virtual casinos";
(iv) ticket factoring;
(v) pyramid selling;
(vi) goods, products, services or distributions prohibited by
applicable law or under the rules, regulations or
directives of any Card Association; or
(vii) goods, products, services or distributions of any class or
type, whether or not similar to those specified above,
which are designated from time to time by FEC (in its sole
discretion) as being subject to this definition and notice
thereof being given to the Merchant, provided that no such
designation or notice is required for any particular Sale
to be subject to this definition; and
(l) "Total Sale Price" means the gross amount of any particular Card
Sale without discount, set-off or other adjustment.
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2. Use of FEC Services
2.1 The Merchant agrees to use the Card processing services provided by FEC
with respect to Card Sale transactions made over the Internet and FEC
agrees to provide such services, on and subject to the terms and
conditions set out in this Agreement.
2.2 In consideration of clause 2.1, the Merchant agrees to pay the following:
(a) To pay the discount fee provided for in clause 4.1.
(b) To pay a US$ 0.50 transaction fee per transaction where a credit
card not belonging to a Card Association is used.
2.3 FEC agrees to waive the cost of the HK$100,000 website design and
development fee it normally charges to its customers as consideration for
the Merchant entering into this Agreement.
3. Honouring Cards
3.1 In effecting Card Sales, the Merchant will honour properly tendered Cards
and will not discriminate between Cardholders and cash customers or
between Cardholders of different Cards. The Merchant will sell Merchant's
goods and/or services at its regular cash prices, including any special
sales price then in effect, without service or carrying charges of any
kind and will make no special charge (including what is commonly known as
a "surcharge") or extract any special agreement, condition or security
from a Cardholder and without otherwise requiring any Cardholder to pay
any part of the discount charged by the Merchant hereunder and will not
refuse to exchange, return, or adjust merchandise purchased if any such
exchange, return or adjustment is permitted to cash customers.
3.2 All Card Sales processed by FEC with respect to the Merchant will
represent obligations of Cardholders in amounts set forth therein for
merchandise sold or services rendered only, and shall not include or
involve any element of credit for any other purpose.
3.3 FEC shall have the right, upon notice to the Merchant, to accept such
other credit and debit and similar cards from such other Card issuers as
it may designate from time to time.
4. Merchants Account - Depositing Card Sales
4.1 Subject to the terms and conditions of this Agreement FEC will cause to
be credited to an account maintained by FEC with the Bank with respect to
the Merchant (the "Merchant Account") the Total Sale Price thereof and
deduct a percentage of such Total Sale Price at the time of such deposit,
such percentage to be advised by FEC to the Merchant. Such percentage may
be amended, from time to time, upon 15 days written notice to the
Merchant. The percentage to be deducted from the Total Sale price shall
be that percentage which is in effect at the time of the Card Sale. The
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percentage to be deducted from the Total Sale price will be at least as
favourable as any rate FEC gives to any other merchant providing an equal
or greater volume for the preceding three months. FEC may require the
Merchant to open or maintain a current or other account with or procure
any other service of the Bank, which is advisable or essential to the
operation of the applicable card plan, from the Bank or its subsidiaries.
4.2 FEC agrees to credit the amount aforementioned in clause 4.1 above to the
Merchant Account within three Business Days in Bermuda.
4.3 Except as set forth in Clause 8, the Bank on behalf of FEC shall have the
sole right to receive payments on Card Sales processed by FEC. The
Merchant agrees not to sue or to make any collections thereon, except as
may be specifically authorised by FEC in writing. In the event of such
authorisation, the Merchant agrees to hold all collections, if any, in
trust for FEC and to deliver it in kind immediately upon receipt. All
electronic and digital records, electronic sales drafts, electronic
credit vouchers, electronic acknowledgements and other supporting records
as may be required from time to time by the Bank with respect to Cards
Sales should be provided to the Bank on behalf of FEC by the Merchant in
accordance with the rules of the Card Association applicable to the Card
utilised in the transaction.
4.4 All Card Sales are subject to final audit and review by FEC and the Bank,
and the Merchant agrees that in the case of any inaccuracies, FEC may
charge or credit the Merchant's Merchant Account, without notice, for any
deficiencies or overages, as the case may be. The preparation and
delivery of Card Sales to the Bank on behalf of FEC by the Merchant shall
constitute an endorsement to FEC and the Bank by the Merchant of each
Card Sale for processing.
5. Authorising Card Sales
5.1 The Merchant, in making a Card Sale, will:
(a) contact FEC or its authorised agent(s) for authorisation for the
amount of such sale and authorisation number (Authorisation
Number);
(b) complete the transaction only after receiving the necessary
authorisation: and
(c) not effect a Card Sale transaction when only a part of the
consideration due is paid through the use of a Card unless the
reminder at the time of sale is paid either in cash or by cheque.
6. Unqualified Sales
6.1 The Merchant shall be liable to FEC for any Card Sale and FEC shall also
have the right at any time to charge the Merchant or the Merchant's
Merchant Account therefor, without notice, in any situation relating to
Card Sale or the Merchant's obligations under this Agreement where:
(a) the Card is invalid;
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(b) the Card appears on the Bank's current invalid Card list at the
time the transaction was consummated;
(c) merchandise is returned or services are disputed by Cardholder
whether or not a credit transaction is issued or delivered to the
Bank;
(d) the Card Sale is alleged to have been accepted or requested
improperly or without authority;
(e) the Cardholder disputes the sale, quality or delivery of
merchandise or the performance or quality of services rendered as
set forth on the Card Sale accepted by such Card holder or
authorised user;
(f) the Card Sale was drawn by, or depository credit given to, the
Merchant in circumstances constituting a breach of any term,
condition, representation, warranty, or duty of the Merchant
hereunder;
(g) the extension of credit for merchandise sold or services performed
was in violation of law or rules or regulations of any
governmental agency, local or otherwise; or
(h) the Card Sales relates in whole or in part to Restricted Services.
7. Credits
7.1 If any merchandise which is the subject matter of any Card Sale hereunder
is returned or price adjustment allowed or the purchaser is not the
person whose name appears as Cardholder, the Merchant will process a
credit ("Credit") in accordance with the requirements of the Bank or FEC.
These requirements may change from time to time.
8. Collections
8.1 The Bank on behalf of FEC has sole right to receive payments on Card
Sales effected under this Agreement unless charged back to the Merchant.
The Merchant will not accept any such payments and hereby assigns to FEC
all its right, title and interest in and to all Card Sales.
9. Displays And Equipment
9.1 The Merchant will adequately exhibit such advertising displays, including
digital or electronic displays, as FEC or the Bank may provide for
advising the public that Cards will be honoured by the Merchant. The
Merchant will not display any other advertising materials that identify
or make use of the service mark of the Card Associations' names unless
approved by FEC or the Bank.
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10. Representations And Warranties
10.1 As to each Card Sale the Merchant delivers to the Bank on behalf of FEC
and the transaction it evidences, the Merchant will be deemed to
represent and warrant to FEC that, to the best of the Merchant's
knowledge:
(a) it represents a bona fide sale of only merchandise or services in
the ordinary course of business for the Total Sale Price;
(b) the Merchant has performed it's obligations to the Cardholder in
connection with the transaction evidenced thereby;
(c) it is, in all respects, as required by and in compliance with this
Agreement, and all laws, rules and regulations, governing the
same, including that the subject Card Sale is not with respect to
prohibited activities or Restricted Services;
(d) the Merchant has no knowledge or notice that would impair or
affect the validity of the sale or the enforceability or
collection thereof as against the named Cardholder.
11. Prohibited Activities and Restricted Services
11.1 The Merchant will not engage in any money laundering activities or any
other illegal activities or the sale of Restricted Services.
11.2 The Merchant hereby covenants and agrees to indemnify and save harmless
FEC from and against any loss or damage suffered by FEC, the Bank or any
of their respective employees, officers and directors and their
respective successors and assigns as a result of any breach of,
non-compliance the provisions of Clause 11.1 by the Merchant, including,
without limitation, all costs and expenses (including legal fees incurred
in connection with any such loss or damage).
12. General
12.1 The Merchant will:
(a) observe and comply with the applicable rules, regulations codes
and promulgated procedures as FEC, the Bank or Card Associations
may prescribe for credit, debit and similar card sales, from time
to time. The Merchant acknowledges and agrees that all such rules,
regulations, codes and procedures shall be deemed to form a part
of this Agreement and are incorporated herein by reference;
(b) preserve all digital, electronic and other records pertaining to
Card Sales and Credits as may be required by the Bank or FEC for
two (2) years from the date thereof and permit FEC or the Bank to
examine and verify such records at any reasonable time;
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(c) execute and file such statement and notices as FEC or the Bank may
request to preserve or protect their respective interests
hereunder;
(d) agree to indemnify and save harmless FEC, the Bank and their
respective employees, officers and directors and their respective
successors and assigns against all actions, causes of action,
proceedings, liability, claims, damages and costs whatsoever
(including without limitation legal costs and expenses),
interposed by any party or persons by way of action, claim, suit,
defence, dispute, offset, cross-claim or counterclaim, that may
now or at any future time directly or indirectly arise relating to
any Card Sales processed by FEC or the Bank as a result of a
failure to pass on the Merchant's electronic file transmission of
any Card Sale to FEC or the Bank or out of the processing of Card
Sales, provided that such claim, damage or other liability is not
attributable to any gross negligence or wilful misconduct on the
part of FEC;
(e) subject to Clause 8, waive notice of default or non-payment,
protest or notice of protest, demand for payment and any demand or
notice in connection with any Card Sale, or this Agreement, and
consents to all extensions or compromises given any Cardholder and
the Merchant agrees that such does not affect any liability of the
Merchant hereunder; and
(e) not license or purport to license any sub-merchants or
sub-licensees with respect to the services provided by FEC
hereunder.
12.2 FEC and the Merchant each acknowledge that they may acquire information
about the business, operations, customers and financial condition of the
other and the Bank and that this information and the terms of this
Agreement are confidential ("Confidential Information"). FEC and the
Merchant each agree that they shall not disclose Confidential Information
about the other party or the customers of the other party to any third
party without obtaining prior written consent. Confidential Information
does not include information in the public domain or otherwise publicly
disseminated. Confidential Information may be disclosed by the Bank or
FEC concerning the Merchant pursuant to the request or requirement of the
Card Associations, any governmental agency, applicable Stock Exchange,
Securities Commission or similar statutory or regulatory authority,
pursuant to a court or administrative subpoena, order or other such legal
process or requirement of law, or in defence of any claims or causes of
action asserted against it.
13. Charge Back
13.1 In the event of a Charge Back or other financial adjustment to a Merchant
Account, then FEC or the Bank will so notify the Merchant and permit the
Merchant an opportunity to satisfy or otherwise provide security for such
Charge Back or financial adjustment within five (5) banking days of
Merchant's receipt of such notice. If the Merchant fails to satisfy or
otherwise provide security for such Charge Back or financial adjustment
within the allotted time, then the Bank on behalf of FEC may debit any
reserve accounts maintained with the Bank on behalf of the Merchant.
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14. Termination - Term of Agreement
14.1 This Agreement shall become effective when signed by both parties and
shall remain in full force and effect for seven years unless until
terminated pursuant to the provisions of this Article.
14.2 The Merchant may at any time, upon 60 days written notice to FEC
terminate this Agreement without cause provided that the Merchant pays to
FEC US$500,000 to purchase the hardware and software from FEC, such
hardware and software which was purchased and/or developed by FEC for the
Merchant and which is necessary for the Merchant to provide Card
processing or Electronic Bill Payment or Electronic Bill Presentment
services.
14.3 Without prejudice to any other rights or remedies it may have (whether
under this Agreement or at law), either party may terminate this
Agreement immediately by serving written notice on the other party if:
(a) the other party commits a breach of any material obligation under
this Agreement and, in the case of a remediable breach, fails to
remedy the breach after receiving 30 days written notice to do so;
or
(b) the other party becomes Insolvent
14.4 In Clause 14.3, "Insolvent" means the appointment of, or the application
to a court for the appointment of, a liquidator, provisional liquidator,
receiver or manager to either party, the entering into a scheme of
arrangement or composition with or for the benefits of either party's
creditors generally, any re-organisation, moratorium or other
administration involving the creditors or any class of the creditors of
either party, a resolution or proposed resolution to wind up either
party, or either party becoming unable to pay its debts, or being deemed
to have become unable to pay its debts, as and when they fall due.
14.5 This Agreement shall automatically terminate in the event that FEC's
Master Merchant Agreement with the Bank expires without being immediately
renewed or is terminated for any reason. In addition, FEC may terminate
this Agreement without notice if it comes to the attention of FEC that
the Merchant is engaging in any money laundering activities or any other
illegal activities or the sale of Restricted Services.
14.6 Termination of this Agreement shall not relieve either party of any
liability either arising prior to termination or for breach of this
Agreement or as may otherwise be established.
15. Force Majeure
15.1 Neither party shall be in breach of this Agreement or liable to the other
with respect to any complete or partial failure performance by its duties
or obligations under this Agreement occasion by any act of God, fire,
active government or state, war, civil commotion, insurrection, embargo,
or other cause beyond the control of either party. For greater certainty,
the provisions of this clause shall apply to FEC and FEC shall
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have no responsibility with respect to or arising out of any disruption
of its processing services (save where such disruption arises solely as a
result of the gross negligence or wilful misconduct of FEC). If either
party is unable to perform its duties and obligations under this
Agreement as a direct result of the effect of one or more of any such
causes the operation of this Agreement shall be suspended during the
period (and only during the period) during which such cause continues to
have effect.
16. Terms Relating to Intellectual Property
16.1 Nothing in this Agreement grants either party any rights in or under the
intellectual property (whether trademarks, copyrights, patterns, know-how
or otherwise) of the other party and neither party shall use the
intellectual property of the other party without prior written consent,
such consent to be subject to such terms and conditions as the party
granting such consent may require. No use by one party under this
Agreement of the other's intellectual property shall confer upon the
first party any rights in or under such intellectual property. All rights
connected with or rising out of such use accrue to the owner of the
intellectual property in question.
16.2 Each party agrees that it shall fully indemnify the other party against
all liabilities, costs, charges and expenses (including legal expenses)
arising out of all actions, claims, demands and proceedings brought
against that party (including without limitation claims of infringement
brought by third parties) arising out of or connected its use of the
first party's intellectual property if such use was approved according to
Clause 16.2.
17. General Contract Provisions
17.1 All notices, requests, demands or other communications required or
permitted to be given by one party to another under this Agreement must
be given in writing by personal delivery, or by registered mail, postage
prepaid, addressed to the other party or parties at the address set out
on the first page (and, in the case of FEC, with a copy to be provided to
First Ecommerce Asia Limited, 902, Henley Building, 5 Queen's Road,
Central Hong Kong) or at such party or parties' other address if changed
by notice given in accordance with this Clause or Clause 17.2. Such
notices, requests, demands or other communications will be deemed to have
been received when delivered if delivered personally (unless the date of
delivery is not a Business Day or is delivered or sent after 5:00 p.m.,
(Bermuda Time) in which case the notice, request, demand or other
communication shall be deemed to have been received on the next following
Business Day) and, if mailed, will be deemed to have received on the
seventh (7th) Business Day after the mailing thereof. During any
interruption in regular postal service, all notices, requests, demands or
other communications must be delivered personally or sent by facsimile
transmission.
17.2 Notwithstanding Clause 17.1, all notices, requests, demands or other
communications required or permitted to be given by one party to another
party under this Agreement may be sent to the receiving party's facsimile
number as notified by such party to the other in accordance with either
clause 17.1 or this clause. Notices, requests, demands or other
communications sent by facsimile transmission will be deemed to have been
received when transmitted (provided that the transmission is confirmed by
the
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transmission report) unless the date of delivery is not a Business Day or
the transmission is sent after 5:00 p.m. (Bermuda Time), in which case
the notice, request, demand or other communication shall be deemed to
have been received on the next Business Day.
17.3 Time is of the essence of this Agreement and of every part hereof.
17.4 This Agreement is governed by and shall be construed in accordance with
the laws of Bermuda.
17.5 This Agreement constitutes the entire Agreement between the parties with
respect to the matters herein and its execution has not been induced by,
nor do any of the parties rely upon or regard as material, any
representations, warranties, conditions, promises, Agreements or
statements whatsoever not incorporated herein and made a part hereof.
17.6 Other than as specifically provided for herein, this Agreement may not be
amended, altered or qualified except by a memorandum in writing signed by
all of the parties.
17.7 If any article, clause or any portion of any section of this Agreement is
determined to be unenforceable or invalid by order, decree or judgement
of any court having jurisdiction, or is or becomes unenforceable or
invalid by virtue of any duly promulgated law, rule or regulation, the
remainder of this Agreement will be construed as if the article, clause
or portion of a section had not been inserted.
17.8 FEC shall have the right, on written notice to the Merchant, to assign
this Agreement or all or any portion of its rights hereunder to a wholly
owned subsidiary of First Ecom.com, Inc. Subject to the foregoing,
neither FEC nor the Merchant shall have the right to assign this
Agreement or its rights hereunder without the prior written consent of
the other party.
17.9 This Agreement is binding upon and shall enure to the benefit of the
parties and their respective successors and permitted assigns.
ACCEPTED AND AGREED TO BY: ACCEPTED AND AGREED TO BY:
FEC LIMITED THE PEOPLES TELEPHONE
COMPANY LIMITED
__________________________________ _________________________________
Authorised Signature Authorised Signature
Name: ____________________________ Name: ___________________________
Title: ___________________________ Title: __________________________
-10-
EXHIBIT 10.3
MEMORANDUM OF UNDERSTANDING
Between
Hana Bank
And
First Ecom.Com Inc
This Memorandum of Understanding ("MOU") is made this 14th day of October, 1999
by and between Hana Bank, with offices situated at 101-1 Ulchiro-1 ka, Chung-ku,
Seoul, Republic of Korea, and First Ecom.com Inc., with offices at 902 Henley
Building, 5 Queen's Road Central, Hong Kong (respectively "First Ecom" and
"Hana"):-
1. First Ecom has a subsidiary company incorporated in Bermuda authorised
to process MasterCard and Visa Card payments for the purchase of goods
and services, including purchases transacted over the Internet.
2. The steps involved in the processing of such payments are described in
the attached summary and will be known as "E-commerce services".
3. Hana maintains banking relationships with merchants in the Republic of
Korea and wishes to enhance these relationships by engaging First
Ecom's payment processing services, subject to the terms and
conditions to be agreed.
4. First Ecom and Hana shall diligently work towards agreeing the terms
of a mutually satisfactory contract by which First Ecom shall provide,
and Hana shall engage, e-commerce services.
5. The terms of such agreement shall have regard to the rules made from
time to time by VISA International and MasterCard in relation to the
processing of credit card transactions, and shall require Hana to
ensure that its merchants to whom e-commerce services are extended are
informed of the need to abide by these rules at all times.
6. The terms of such agreement shall otherwise cover the cost of
e-commerce services, the duration for which these services are to be
provided, the circumstances in which the provision or engagement of
services may be terminated, terms relating to intellectual property,
together with other general terms and conditions customarily found in
international agreements.
7. First Ecom and Hana shall endeavour to reach a mutually satisfactory
agreement by November 30, 1999. However, as this MOU does not commit
either party to any legal obligations, failure to reach agreement by
that date shall not entitle either party to any form of remedy
whatsoever.
<PAGE>
For and on behalf of For and on behalf of
Hana Bank First Ecom.com Inc
(SIGNED) (SIGNED)
Authorised Officer Authorised Officer
<PAGE>
Summary of
Ecommerce Services
The FEDS' processing system will provide the Bank's merchants (each of which is
herein defined as "Merchant") with the capability of accepting customer
transactions by way of on-line ordering. The system will exhibit the features
and services described below.
Upon making a purchase from the Merchant's website, a customer will click on a
"buy" icon and submit order details (product description & quantity, ordering
name, shipping address, etc), together with payment details (credit card
information);
The customer will then click on a "send" icon in order to instruct the
encryption and transmission of this information;
The information contained in the transaction will then be processed by FEDS's
proprietary systems and sent along with a request for authorization as follows:
o FEDS' systems will route transaction information to a dedicated
payment switch located in the tax neutral jurisdiction of Bermuda;
o FEDS' systems will then ensure that the transaction information is
routed to the relevant payment network for authorization.
Transaction information is then sent back to the payment switch in Bermuda and
in turn routed back to the Merchant along with the result of the authorization
request.
Where a transaction has been authorized, the Merchant may apply for settlement
and will receive funds by way of transfer to its account at the Bank.
EXHIBIT 10.4
MEMORANDUM OF UNDERSTANDING
Between
Federal Express Pacific Corp.
And
First Ecommerce Asia Limited
This Memorandum of Understanding (MOU) is entered into between Federal Express
Pacific, Inc., having a place of business at 34th Floor Pacific Place Tower Two,
88 Queensway, Hong Kong ("FedEx") and First Ecommerce Asia Limited, having a
place of business at 8th Floor, Henley Building, 5 Queen's Road, Central, Hong
Kong ("FEC"). (each a "Party" or together, "the Parties") on this twentieth day
of October, 1999 ("Effective Date"). This document is intended to evidence the
Parties' intent to create a strategic alliance ("Alliance") in the areas of
investigation, marketing, development implementation, deployment of integrated
services for Electronic Commerce including, without limitation, Systems Tools
(such as customer automation systems tools and information systems),
Infrastructure (network platform used for service delivery), and Services
(sales, marketing and customer advocacy). This document is intended solely to
facilitate discussions between the Parties. This document is not intended to,
and does not create, any legally binding obligations between the Parties with
respect to the subject matter of this document. In addition, neither party is
obligated to continue to discuss and/or negotiate with regard to the subject
matter of this document with the other party.
Confidentiality
The information contained in this MOU, and in oral conversations, or any other
exchange of information between the Parties with respect to the subject matter
of the MOU prior to the execution of this MOU, or information that is exchanged
in furtherance of the objectives set forth in this MOU shall be treated as
confidential in accordance with the terms of the Confidentiality Agreement
executed by the Parties on September 8, 1999.
The following are summaries of points that could be included in the Alliance.
All of these are subject to further discussion and negotiation and do not
represent any final or binding commitments by either party.
Principles and Objectives of the Alliance
Possible objectives of the Alliance are: -
1. Opportunity Exploration
>> Actively pursue joint opportunities and Alliances that would create
mutual benefit and/or advantage.
2. Joint Marketing
>> Bring higher satisfaction to both FedEx and FEC customers by providing
total solutions combining FedEx and FEC services utilizing both
Parties' core competencies.
>> Coordinate the Parties' marketing communications activities to ensure
that each party has enough information of the other Party's products
and/or services.
3. Joint Projects
>> Accelerate penetration of selected customer segments (i.e.,
small/medium business, enterprise, multi-national corporate customers,
consumers, etc.) through joint services/solutions/market development
>> Create and develop differentiated services for each Party's customers
that clearly position each Party as an innovative market leader.
<PAGE>
Detail of Understanding
1. Responsibilities of the Parties.
1.1. FedEx shall be responsible for:
1.1.1. Provide all information relating to the FedEx distribution
network capabilities (to include shipping, tracking, and
value-added services).
1.1.2. Systems Integration
1.1.2.1. FedEx will provide technical integration support for
FedEx shipping and tracking software to FEC for the
purposes of designing and developing the Target
Platform.
1.1.2.2. FedEx will provide technical integration support for
value added services offered by FedEx to FEC for the
purposes of designing and developing the Target
Platform.
1.2. FEC shall be responsible for:
1.2.1. Provide all information relating to the FEC Systems
1.2.2. Systems Integration
1.2.2.1. FEC will provide technical integration support for
FEC Systems to FedEx for the purposes of designing
and developing the Target Platform.
1.3. FedEx and FEC shall be mutually responsible for.
1.3.1. Marketing of the Target Program's capabilities.
1.3.1.1. To be determined through internal marketing and
promotion strategies.
1.3.2. Testing and maintenance of systems connectivity.
1.3.2.1. FedEx is responsible for data integrity of all FedEx
service related information.
1.3.2.2. FEC is responsible for testing and maintenance of all
systems developed by FEC or associated companies.
2. Other Definitive Agreements
2.1. It is anticipated that the Parties may enter into appropriate
contracts once the Parties have defined the requirements of the
project/programs that are to be pursued. Further, in the event
that the Parties desire to collaborate on the development of
certain products or services to be defined by the Parties, the
Parties shall negotiate a joint development or collaboration
agreement with the specific responsibilities of the Parties to be
set forth in details, in a mutually agreeable statement of work.
2.2. Any agreement reached between the parties will be embodied in one
or more legally binding agreements containing terms and conditions
acceptable to both parties.
3. Disclaimer of Warranties
3.1. Both Parties disclaim all warranties including implied warranties
of merchantability, fitness for a particular purpose and error
free or uninterrupted use. No oral or written information or
representation given by either party or an authorized
representative of either party shall create a warranty.
<PAGE>
4. Limitations of Liability
4.1. Under no circumstances, including negligence, shall either party
be liable for any indirect damages, resulting from or connected
with the use of the software including, without limitation
special, incidental or consequential damages, and damages
resulting from the loss of use, data, profits or business, even if
the other party has been advised of the possibility of such
damages and even if the software fails of its essential purpose.
5. Termination Clause
5.1. This MOU may be terminated by either party upon giving to the
other ninety (90) days prior written notice.
6. Publicity
6.1. Neither party shall make use of or display the other party's logo,
trademarks, service marks and other marks or make any disclosure
about the relationship contemplated herein or existence of the
Agreement to any third party without the prior written consent of
the other.
7. Additional Conditions
7.1. The Parties will each undertake to have their legal counsel review
any proposed Alliance between the Parties. The Parties acknowledge
that there has been no substantive legal review of issues that may
exist with respect to a proposed Alliance.
7.2. All costs incurred by either Party in connection with this MOU
shall be the responsibility of the Party incurring the costs,
unless a written agreement executed by both Parties authorized
representatives has been signed that expresses a specific
agreement with respect to certain costs. Neither Party shall be
liable to the other for termination of this MOU.
7.3. The Parties agree that, as of the date of this MOU, there are no
binding commitments in existence with the respect to the subject
matter of this MOU, and that all prior written and oral
communications between the Parties with respect to the subject
matter of this MOU are superceded hereby.
7.4. This MOU is non-exclusive. Neither Party shall be precluded from
entering into agreements with third parties similar interest to
this memorandum. The Parties acknowledge that this MOU does not
represent any agreement between them with respect to the subject
matter of this MOU, and that any binding agreement between them
shall be in writing and shall be executed by duly authorized
representatives of each Party.
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Federal Express Pacific, Inc. First Ecommerce Asia Limited
ACCEPTANCE ACCEPTANCE
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By: SIGNED By: SIGNED
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Name: Raj Subramaniam Name: Gregory Michael Pek
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Title: VP, Electronic Commerce and Customer Title: President and Chief
Services Executive Officer
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Date: November 22, 1999 Date: November 22, 1999
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