<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
FORM 20-F
|X| REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES
EXCHANGE ACT OF 1934 OR
| | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 - FOR THE FISCAL YEAR ENDED DECEMBER 31, 1998
OR
| | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the transition period from ______________ to
_______________
DIGITAL STAR INC.
(Exact name of Registrant as specified in its charter)
-----------------------------------
BRITISH VIRGIN ISLANDS
(Jurisdiction of incorporation or organization)
Akara Bldg., 24 De Castro Street
Wickhams Cay I, Road Town
Tortola, British Virgin Islands
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
-----------------------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
-----------------------------------
SECURITIES REGISTERED OR TO BE REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
<TABLE>
<CAPTION>
Name of Each Exchange
Title of Each Class Which the Securities are Registered
------------------- -----------------------------------
<S> <C>
400,000,000 Class A Stock, par value $0.0001 per share NONE
100,000,000 Class B Stock, par value $0.0001 per share
</TABLE>
-----------------------------------
SECURITIES FOR WHICH THERE IS A REPORTING OBLIGATION PURSUANT TO SECTION 15(d)
OF THE ACT:
NONE
Indicate the number of outstanding shares of each of the issuer's classes of
capital or common stock as of the close of the period covered by the
Registration Statement.
As of November 10, 1999, 2,000,000 Class A shares, par value $0.0001 per share
(collectively, with the Class A and Class B Stock not yet issued and
outstanding, the "Common Stock"), were issued and outstanding.
<PAGE> 2
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes / / No /X/
Indicate by check mark which financial statement item the registrant has elected
to follow. Item 17 / / Item 18 /X/
PART I
ITEM 1. DESCRIPTION OF THE BUSINESS.
1A. GENERAL
Digital Star Inc. (the "Company") was incorporated on September 15,
1999 under the International Business Companies Act of the British Virgin
Islands (the "IBC Act"). The Company is a development stage company and has no
operations to date other than issuing shares and options to its original
shareholders and authorizing those actions in connection with the filing of this
Form 20-F (the "Registration Statement"), as described more fully herein.
The Company has been formed in accordance with the requirements for
forming a blank check company (a "Blank Check Company") as defined in Section
7(b)(3) of the Securities Act of 1933, as amended (the "Securities Act"). The
Company intends to provide a method for a foreign or domestic private company to
become a reporting company whose securities are qualified for trading in the
United States secondary market, pursuant to the Securities Exchange Act of 1934,
as amended (the "Exchange Act").
As such, the Company will attempt to locate and negotiate with a
business entity (a "Target Company") for the merger with or consolidation of,
the full or partial acquisition of, or the entering into any other business
combination with a Target Company. No assurances can be given that the Company
will be successful in locating, negotiating or merging with, acquiring, or
entering into any other business combination with any Target Company.
1B. PERCEIVED BENEFITS
There are certain perceived benefits to being a company with a class of
publicly-traded securities. These are commonly thought to include the following:
* the ability to use registered securities to make acquisitions
of assets or businesses;
* increased visibility in the financial community;
* facility of borrowing from financial institutions;
* improved trading efficiency;
* shareholder liquidity;
* greater ease in raising capital;
* compensation of key employees through stock options and
similar stock plans;
* enhanced corporate image; and
* a presence in the United States capital market.
<PAGE> 3
1C. POTENTIAL TARGET COMPANIES
Target Companies that may be interested in any form of business
combination with the Company could include, without limitation, the following:
* a company for which the primary purpose of becoming public is
the use of its securities for the acquisition of assets or
businesses;
* a company which is unable to find an underwriter of its
securities or is unable to find an underwriter of securities
on terms acceptable to it;
* a company which wishes to become public with less dilution of
its common stock than would occur upon an underwriting of
additional equity;
* a company which believes that it will be able to obtain
investment capital on more favorable terms after it has become
public;
* a foreign company which desires to make an initial entry into
the United States capital market;
* a special situation company, such as a company seeking a
public market to satisfy redemption requirements under a
qualified Employee Stock Option Plan; and
* a company seeking one or more of the other perceived benefits
of becoming a public company.
The officers, directors and shareholders are currently composed of the
same individuals. See ITEM 5, "DIRECTORS, OFFICERS, PROMOTERS AND CONTROL
PERSONS" and Item 7, "Certain relationships and related transactions". A
business combination with a Target Company will normally, but not necessarily,
involve the transfer to the Target Company of the majority of the issued and
outstanding common stock of the Company, and the partial or complete
substitution by the Target Company of the Company's current officers and
directors.
No assurances can be given with respect to the Company's ability to
enter into a business combination, nor can assurances be made regarding the
terms of any business combination or the nature of the Target Company with which
the Company may enter into a business combination. See ITEM 1D(2), "SPECULATIVE
NATURE OF THE COMPANY'S PROPOSED PLAN OF OPERATION".
The proposed business activities described herein classify the Company
as a Blank Check Company. The Securities and Exchange Commission (the
"Commission") and many states have enacted statutes, rules and regulations
limiting the sale of securities of Blank Check Companies. The officers and
directors do not intend to undertake any efforts to cause a market to develop in
the Company's securities until such time as the Company has successfully
implemented its business plan described herein.
The Company is voluntarily filing this Registration Statement with the
Commission and is under no obligation to do so under the Exchange Act.
1D. RISK FACTORS
The Company's business is subject to numerous risk factors, including
but not limited to the following:
(1) NO OPERATING HISTORY OR REVENUE AND MINIMAL ASSETS.
<PAGE> 4
The Company has had no operating history, revenues or earnings
from operations and has no significant assets or financial
resources. The Company will, in all likelihood, sustain
operating expenses without corresponding revenues, at least
until the consummation of a business combination, if any. This
may result in the Company incurring a net operating loss that
will increase continuously until the Company can consummate a
business combination with a Target Company. There is no
assurance that the Company can identify such a Target Company
and consummate such a business combination.
(2) SPECULATIVE NATURE OF THE COMPANY'S PROPOSED PLAN OF
OPERATIONS.
The success of the Company's proposed plan of operation will
depend to a great extent on the operations, financial
condition and management of the identified Target Company
following any business combination. While the Company's
officers, directors and current shareholders will likely
prefer business combinations with entities having established
operating histories, there can be no assurance that the
Company will be successful in locating Target Companies
meeting such criteria. In the event the Company completes a
business combination, of which there can be no assurance, the
success of the Company's operations will be dependent upon the
business operations and financial results of the Target
Company and numerous other factors beyond the Company's
control.
(3) SCARCITY OF AND COMPETITION FOR BUSINESS OPPORTUNITIES AND
COMBINATIONS.
The Company anticipates that it will be an insignificant
participant in the business of seeking mergers with and
acquisitions of business entities. A large number of
established and well-financed entities, including venture
capital firms, are active in mergers with and acquisitions of
Target Companies. Nearly all such entities have significantly
greater financial resources, technical expertise and
managerial capabilities than the Company and, consequently,
the Company will be at a competitive disadvantage in
identifying possible business opportunities and successfully
negotiating and completing a business combination. Moreover,
the Company will also compete with numerous other small public
and private companies in seeking merger or acquisition
candidates.
(4) NO AGREEMENT FOR BUSINESS COMBINATION OR OTHER TRANSACTION -
NO STANDARDS FOR BUSINESS COMBINATION.
The Company has no current arrangement, agreement or
understanding with respect to engaging in a merger with or
acquisition of a specific Target Company. There can be no
assurance that the Company will be successful in identifying
and evaluating suitable business opportunities, locating a
Target Company or concluding a business combination. The
officers and directors have not identified any particular
industry or specific business within an industry for
evaluation by the Company. There is no assurance that the
Company will be able to negotiate a business combination on
terms favorable to the Company. In implementing a structure
for a particular business acquisition with a Target Company,
the Company may also become a party to a merger,
consolidation, reorganization, joint venture or licensing
agreement with another corporation or entity. The Company has
not established a specific length of operating history or a
specified level of earnings, assets, net worth or other
criteria which it will require a Target Company to have
achieved, or without which the Company would not
<PAGE> 5
consider a business combination with such Target Company.
Accordingly, the Company may enter into a business combination
with a Target Company having losses, no significant operating
history, limited or no potential for immediate earnings,
limited assets, negative net worth or other negative
characteristics. The Company may consider, however, other
factors, including (but not limited to) the Target Company's
long-term growth possibilities, as well as its strategic
position relative to other companies in its location and
industry, in deciding to enter into a business combination.
(5) CONTINUED MANAGEMENT CONTROL, LIMITED TIME AVAILABILITY.
While seeking a business combination, the officers and
directors anticipate keeping their current employment
positions as well as seeking to organize other companies of a
similar nature. As such, demands may be placed on the
officers' and directors' time that will detract from the time
they are able to devote to the Company. The officers and
directors intend to devote as much time to the activities of
the Company as required; however, should a conflict arise,
there is no assurance that the officers and directors of the
Company would not attend to other matters prior to those of
the Company. Initially, the officers and directors intend to
devote up to ten (10) hours each per month to the business of
the Company, and they intend to increase that amount of time
when the analysis of, and negotiations and consummation with,
a Target Company is conducted. See ITEM 10E, "CONFLICTS OF
INTEREST". The Company's officers have not entered into a
written employment agreement with the Company and they are not
expected to do so in the foreseeable future. The Company has
not obtained key man life insurance on its officers and
directors. Notwithstanding the limited experience and limited
time commitment of the officers and directors, loss of the
services of the officers and directors would adversely affect
development of the Company's business and its likelihood of
continuing operations.
(6) CONFLICTS OF INTEREST--GENERAL.
The Company's officers and directors participate in other
business ventures that may compete directly with the Company.
The officers and directors will be responsible for seeking,
evaluating, negotiating and consummating a business
combination with a Target Company that may result in terms
providing benefits to the officers and directors. Additional
conflicts of interest and non-arms length transactions may
also arise in the future. There are no binding guidelines or
procedures for resolving potential conflicts of interest.
Failure by the officers and directors to resolve conflicts of
interest in favor of the Company could result in liability of
the officers and directors to the Company. However, any
attempt by shareholders to enforce a liability of the officers
and directors to the Company would most likely be
prohibitively expensive and time consuming. As the
shareholders and the officers and directors are currently the
same persons, these conflicts of interest also apply to the
shareholders.
(7) OTHER BLANK CHECK COMPANIES.
The officers and directors are currently involved in creating
additional Blank Check Companies substantially similar to the
Company. To date, three other companies substantially similar
to the Company have been established, but neither of those
companies has taken such prior action as the filing of a
registration statement or any other securities filing or
issuance. The officers and directors anticipate, however, that
two other
<PAGE> 6
companies may file registration statements substantially
similar to the Registration Statement of the Company
simultaneously with or soon after this Registration Statement
is filed. A conflict may arise in the event that another Blank
Check Company with which the officers and directors are
affiliated files a Registration Statement and actively seeks a
Target Company. The officers and directors anticipate (but are
not required to so effect) that Target Companies will be
located for the Company and other Blank Check Companies either
(i) in chronological order of the date of formation of such
Blank Check Companies; or (ii) by lot. However, other
additional Blank Check Companies that may be formed may differ
from the Company in certain items such as place of
incorporation, number of shares and shareholders, working
capital, types of authorized securities, or other items. It
may be that a Target Company may be more suitable for or may
prefer a certain Blank Check Company formed after the Company.
In such case, a business combination might be negotiated on
behalf of the more suitable or preferred Blank Check Company
regardless of date of formation or choice by lot. See ITEM
10C, "DIRECTORS AND OFFICERS OF REGISTRANT --Current Blank
Check Companies".
(8) REPORTING REQUIREMENTS MAY DELAY OR PRECLUDE ACQUISITION.
Section 13 of the Exchange Act requires companies subject to
the Exchange Act to provide certain information about
significant acquisitions, including certified financial
statements for an acquired company covering one or two
complete fiscal years, depending on the relative size of any
acquisition. The time and additional costs that may be
incurred by some Target Companies to prepare such financial
statements may significantly delay or essentially preclude
consummation of an otherwise desirable acquisition by the
Company. Acquisition prospects that do not have or are unable
to obtain the required financial statements may not be
appropriate for acquisition so long as the reporting
requirements of the Exchange Act are applicable.
(9) LACK OF MARKET RESEARCH OR MARKETING ORGANIZATION AND
EXPERTISE.
The Company has neither conducted nor obtained market research
indicating that demand exists for the type of transactions
contemplated by the Company. Even in the event demand exists
for a merger or acquisition of the type contemplated by the
Company, there is no assurance the Company will be successful
in completing any such business combination.
The officers and directors will be responsible for seeking,
evaluating, negotiating and consummating a business
combination with a Target Company. The officers and directors
are not, however, professional business analysts, and are
novices relative to the more established and well-financed
entities who are active in mergers with and acquisitions of
Target Companies. Therefore, the Company will operate at a
competitive disadvantage in identifying and completing
business combinations with suitable Target Companies.
(10) LACK OF DIVERSIFICATION.
The Company's proposed operations, even if successful, will
probably, but not necessarily, result in the Company engaging
in a business combination with only one Target Company. The
officers and directors anticipate that the Company will be
able to participate in only one potential business venture
because the Company has nominal assets and limited financial
resources. Consequently, the Company's activities will be
limited to those
<PAGE> 7
engaged in by the Target Company with which the Company merges
or acquires. The Company's inability to diversify its
activities into a number of areas may subject the Company to
economic fluctuations within a particular business or industry
and therefore increase the risks associated with the Company's
operations. This lack of diversification should be considered
a substantial risk to the shareholders of the Company because
it will not permit the Company to offset potential losses from
one venture against gains from another.
(11) REGULATION UNDER THE INVESTMENT COMPANY ACT.
Although the Company will be subject to certain regulation
under the Exchange Act, (and, if involved in a reorganization,
potentially the Securities Act), the officers and directors
anticipate that the Company will not be subject to regulation
under the Investment Company Act of 1940 (the "Investment
Company Act"). In the event the Company engages in business
combinations which result in the Company holding passive
investment interests in a number of entities, the Company
could be subject to regulation under the Investment Company
Act. In such event, the Company would be required to register
as an investment company under the Investment Company Act and
comply with the provisions thereof and could be expected to
incur significant registration and compliance costs. The
Company has obtained no formal determination from the
Commission as to the status of the Company under the
Investment Company Act. Any violation of the Investment
Company Act could subject the Company to material adverse
consequences.
(12) PROBABLE CHANGE IN CONTROL AND MANAGEMENT.
A business combination involving the issuance of the Company's
common stock will, in all likelihood, result in the
shareholders of the Target Company obtaining a controlling
interest in the Company. Any such business combination may
require shareholders of the Company to sell or transfer all or
a portion of the Company's common stock held by them. Any
merger or acquisition effected by the Company can be expected
to have a significant dilutive effect on the percentage of
shares held by the Company's shareholders at such time. The
resulting change in control of the Company could potentially
result in the partial or complete removal of the present
officers and directors of the Company and a corresponding
reduction in or elimination of their participation in the
future affairs of the Company.
The issuance of previously authorized and unissued common
stock of the Company would also result in a reduction in
percentage of shares owned by the present shareholders of the
Company and would most likely result in a change in control or
substitution or replacement of some or all of the officers and
directors of the Company.
The terms of any business combination may include such terms
as any or all of Messrs. Chan and Chan remaining a director,
officer and/or shareholder of the Company or any or all of
them becoming consultants to the Company with compensation
should they resign as directors and officers of the Company
and as a result of the consummation of a business combination.
See ITEM 10A, "BACKGROUNDS OF DIRECTORS".
(13) TAXATION.
<PAGE> 8
Tax consequences will, in all likelihood, be major
considerations in any business combination the Company
undertakes. Currently, such transactions may be structured to
result in tax-free treatment to both companies, pursuant to
various jurisdictions' tax provisions. The Company intends to
structure any business combination to minimize the tax
consequences to both the Company and the Target Company. There
can be no assurance, however, that any such business
combination will meet the statutory requirements of a tax-free
reorganization or that the parties will obtain the intended
tax-free treatment upon a transfer of stock or assets. A
non-qualifying reorganization could result in the imposition
of taxes in any jurisdiction that may have an adverse effect
on all parties to the transaction. See ITEM 7, "TAXATION".
(14) EMPLOYEES.
The Company has no full time employees. The Company's officers
and directors have agreed to allocate a portion of their time
to the activities of the Company, without compensation. The
officers and directors anticipate that the business plan of
the Company can be implemented by initially devoting no more
than ten (10) hours per month to the business affairs of the
Company and, consequently, conflicts of interest may arise
with respect to the limited time commitment by such officers
and directors. See ITEM 1D(5), "RISK FACTORS--Continued
Management Control; Limited Time Availability".
(15) ADVISORS OF TARGET COMPANY
A potential Target Company may have an agreement with a
consultant or advisor providing for services of the consultant
or advisor to be continued after any business combination.
Additionally, a Target Company may be presented to the Company
only on the condition that the services of a consultant or
advisor be continued after a merger, acquisition or other
business combination. Such preexisting agreements of Target
Companies for the continuation of the services of attorneys,
accountants, advisors or consultants could be a factor in the
selection of a Target Company.
(16) RISKS ASSOCIATED WITH THE YEAR 2000 PROBLEM
At present, the Company does not own or lease any computer
equipment. However, the Company, and any potential Target
Company, may face material adverse problems in maintaining or
upgrading its own (if any) or interfacing with other computer
systems, software, circuitry or any other electronic device in
the correct handling and processing of any date change. Any
such failure could have a material adverse effect on the
Company's financial condition and could also be a factor in
the selection of a Target Company.
(17) ENFORCEMENT OF CIVIL LIABILITIES.
The Company has appointed Mossack Fonseca & Co. (B.V.I.) Ltd.,
P.O. Box 3136, Road Town, Tortola, British Virgin Islands as
its agent upon whom service of process may be served in any
action brought against it under the securities laws of the
United States. However, it may be difficult for potential
investors to enforce outside the United States judgments
against the Company obtained in the United States in any such
actions, including actions predicated upon the civil liability
provisions of the United States federal securities laws. In
addition, all of the Company's officers and directors reside
outside the United States and all of
<PAGE> 9
the assets of these persons and of the Company are or may be
located outside of the United States. As a result, it may be
more difficult for potential investors to effect service of
process within the United States upon such persons, or to
enforce against the Company or such persons judgments obtained
in United States courts predicated upon the liability
provisions of the United States securities laws. There is
substantial doubt as to the enforceability against the Company
or any of its officers and directors located outside of the
United States in original actions for enforcement of judgments
of United States courts of liabilities predicated solely on
the civil liability provisions of the United States federal
securities laws.
It is the Company's understanding that no treaty exists
between Hong Kong or the British Virgin Islands and the United
States providing for reciprocal enforcement of foreign
judgments. However, the courts of Hong Kong and the British
Virgin Islands are generally prepared to accept a foreign
judgment as evidence of a debt due. An action may then be
commenced in Hong Kong or the British Virgin Islands for
recovery of this debt. A Hong Kong or British Virgin Islands
court will only accept a foreign judgment as evidence of a
debt due if: (i) the judgment is for a liquidated amount in a
civil matter; (ii) the judgment is final and conclusive and
has not been stayed or satisfied in full; (iii) the judgment
is not directly or indirectly for the payment of foreign
taxes, penalties, fines or charges of a like nature (in this
regard, a Hong Kong or British Virgin Islands court is
unlikely to accept a judgment for an amount obtained by
doubling, trebling or otherwise multiplying a sum assessed as
compensation for the loss or damage sustained by the person in
whose favor the judgment was given); (iv) the judgment was not
obtained by actual or constructive fraud or duress; (v) the
foreign court has taken jurisdiction on the grounds that are
recognised by the common law rules as to conflict of laws in
Hong Kong or the British Virgin Islands; (vi) the proceedings
in which the judgment was obtained was not contrary to natural
justice (i.e., the concept of fair adjudication); (vii) the
proceedings in which the judgment was obtained, the judgment
itself and the enforcement of the judgment are not contrary to
the public policy of Hong Kong or the British Virgin Islands;
(viii) the person against whom the judgment is given is
subject to the jurisdiction of a Hong Kong or a British Virgin
Islands court; and (ix) the judgment is not on a claim for
contribution in respect of damages awarded by a judgment which
does not satisfy the foregoing. Enforcement of a foreign
judgment in Hong Kong or the British Virgin Islands may also
be limited by applicable bankruptcy, insolvency, liquidation,
arrangement, moratorium or similar laws relating to or
affecting creditors' rights generally and will be subject to a
statutory limitation of time within which proceedings may be
brought.
(18) DIRECTOR ACTIONS AND SHAREHOLDER RIGHTS UNDER BRITISH VIRGIN
ISLANDS LAW.
Pursuant to the Company's Memorandum and Articles of
Association and pursuant to the laws of the British Virgin
Islands, the Company's Memorandum and Articles of Association
may be amended by the Board of Directors without shareholder
approval. This includes amendments to increase or reduce the
authorized capital stock of the Company, to authorize the
issuance of different classes of stock including preferred
stock and to issue such stock subject to any designations,
powers, preferences, rights, qualifications, limitations and
restrictions. The Board of Directors may also increase the
capital of the Company without shareholder approval. Further,
the Company's Memorandum and
<PAGE> 10
Articles of Association provide that differences which may
arise between the Company and any of its shareholders, their
executors, administrators or assigns relating to the Company's
Memorandum and Articles of Association shall, unless the
parties agree to a single arbitrator, be referred to two
arbitrators to be chosen by each of the differing parties. The
ability of the Company to amend its Memorandum and Articles of
Association without shareholder approval could have the effect
of delaying, deterring or preventing a change in control of
the Company without any further action by the shareholders,
including, without limitation, a tender offer to purchase the
Common Stock at a premium over then current market prices. In
addition, issuance of Preferred Stock, without shareholder
approval, on such terms as the Board of Directors may
determine, could adversely affect the voting power of the
holders of the Common Stock, including the loss of voting
control to others. No amendment to the Memorandum and Articles
of Association will be effective unless and until it is filed
with the Companies Registry of the British Virgin Islands.
Under the laws of most jurisdictions in the United States,
majority and controlling shareholders generally have certain
fiduciary duties to the minority shareholders. Shareholder
action must be taken in good faith and actions by controlling
shareholders which are obviously unreasonable may be declared
null and void. British Virgin Islands law protecting the
interests of minority shareholders may not be as protective in
all circumstances as the law protecting minority shareholders
in United States jurisdictions.
While British Virgin Islands law does permit a shareholder of
a British Virgin Islands company to sue its directors
derivatively, and to sue the Company and its directors for the
shareholder's benefit and the benefit of other shareholders
similarly situated, the circumstances in which any such action
may be brought, and the procedures and defenses that may be
available in any such action, may result in the rights of
shareholders of a British Virgin Islands company being more
limited than shareholders of a corporation incorporated in the
United States.
(19) LACK OF DIVIDENDS.
The Company has not paid any cash dividends on its Common
Stock. The future payment of dividends is within the
discretion of the Board of Directors. The Board does not
intend to declare any dividends in the foreseeable future, but
intends to retain all future earnings, if any, for use in the
Company's merger and acquisition activities.
(20) POLITICAL AND ECONOMIC DEVELOPMENTS AFFECTING HONG KONG.
The Company's principal office is located in Hong Kong.
Accordingly, the Company may be materially adversely affected
by factors affecting Hong Kong's political situation and its
economy or in its international political and economic
relations. Pursuant to the Sino-British Joint Declaration, the
government of the People's Republic of China ("PRC") began to
exercise sovereignty over Hong Kong, effective July 1, 1997,
through the Hong Kong Special Administrative Region, which was
established pursuant to Article 31 of the PRC constitution.
The PRC has agreed that (i) Hong Kong's current social and
economic system will remain unchanged for 50 years after July
1, 1997, with the Special Administrative Region to be
administered by local inhabitants under the PRC's "Basic Law,"
and (ii) the laws currently enforced in Hong Kong will remain
largely in unchanged
<PAGE> 11
and foreign investment will be protected by the law. There can
be no assurance that the Basic Law as adopted in its present
form will not be changed or interpreted in a materially
adverse manner for the Company in the future or that any such
changes or interpretations would not be given retroactive
effect. Accordingly, future political developments could make
it impractical, inefficient or impossible for the Company to
conduct business in or from Hong Kong.
ITEM 2. DESCRIPTION OF PROPERTIES
2A. GENERAL
The Company has no properties and currently has no agreements or plans
to acquire any properties. The Company's officers and directors use the offices
of Champ Pacific Capital Limited, Room 1806, Hutchison House, 10 Harcourt Road,
Central, Hong Kong at no cost to the Company. Champ Pacific Capital Limited has
agreed to continue this arrangement at any location it occupies until the
Company completes a transaction with a Target Company. One of the Company's
officers, directors and beneficial owners, Mr. Kevin Sheung Wai Chan, is a
director and fifty percent (50%) beneficial shareholder of Champ Pacific Capital
Limited.
2B. REAL ESTATE INVESTMENT POLICIES.
The Company has no real estate properties and at this time has no
agreements to acquire any properties. The Company does not preclude, however,
the possibility of becoming a party to a business combination with a Target
Company or another corporation or entity, or acquiring stock or assets of an
existing business, in which investments in real estate or interests in real
estate are involved.
ITEM 3. LEGAL PROCEEDINGS.
There is no litigation pending or, to the Company's knowledge,
threatened by or against the Company.
ITEM 4. CONTROL OF REGISTRANT.
The following table sets forth, as of September 30, 1999, each person
known by the Company to be the beneficial owner of ten (10) percent or more of
the Company's outstanding Class A common stock, each of whom are directors
individually and directors and officers of the Company as a group. Each person
has sole voting and investment power with respect to the shares shown. Other
than the rights to exercise options on the Class B preferred stock as described
below, none of the stockholders listed at this time have any rights to acquire
within sixty (60) days any additional common or preferred stock from warrants,
rights, conversion privilege(s) or similar obligations. No preferred stock of
the Company has been issued at this time; however, the individuals listed below
are the beneficial owners of rights to acquire, at an exercise price of US
$0.0001 per share, and at any time between September 15, 1999 and September 14,
2009, the Class B stock in the amounts below from stock options, each of whom
are directors individually and directors and officers of the Company as a group.
<TABLE>
<CAPTION>
- ------------------- -------------------------------------------------- ---------------------- -------------------------
Title of Class Name and Address of Beneficial Owner Amount of Beneficial Percentage
Ownership of Class
- ------------------- -------------------------------------------------- ---------------------- -------------------------
<S> <C> <C> <C>
Class A Common Mr. Kevin Sheung Wai Chan 1,500,000 75%
Stock Room 1806, Hutchison House
10 Harcourt Road, Central
Hong Kong
- ------------------- -------------------------------------------------- ---------------------- -------------------------
</TABLE>
<PAGE> 12
<TABLE>
<S> <C> <C> <C>
- ------------------- -------------------------------------------------- ---------------------- -------------------------
Class A Common Mr. Silas Sheung Kwan Chan 500,000 25%
Stock Room 1806, Hutchison House
10 Harcourt Road, Central
Hong Kong
- ------------------- -------------------------------------------------- ---------------------- -------------------------
Class B Mr. Kevin Sheung Wai Chan 7,500,000 75%
Preferred Room 1806, Hutchison House
Stock 10 Harcourt Road, Central
Options Hong Kong
- ------------------- -------------------------------------------------- ---------------------- -------------------------
Class B Mr. Silas Sheung Kwan Chan 2,500,000 25%
Preferred Stock Room 1806, Hutchison House
Options 10 Harcourt Road, Central
Hong Kong
- ------------------- -------------------------------------------------- ---------------------- -------------------------
</TABLE>
Mr. Kevin Sheung Wai Chan's Class A shares are held in trust by a
nominal shareholder, Beauty Wise Secretaries Limited, formerly Beauty Wise
Development Limited, a company organized and existing under the laws of Hong
Kong. Mr. Kevin Sheung Wai Chan is the Secretary, one of two Directors and a 50%
shareholder in Beauty Wise Secretaries Limited. Beauty Wise Secretaries Limited
holds the above-mentioned shares of Mr. Kevin Sheung Wai Chan for Mr. Kevin
Sheung Wai Chan's sole benefit pursuant to a Nominee Shareholder Agreement dated
September 15, 1999 between Mr. Kevin Sheung Wai Chan and Beauty Wise Secretaries
Limited. It is anticipated that, pursuant to the Nominee Shareholder Agreement,
should Mr. Kevin Sheung Wai Chan exercise his option to purchase the Class B
shares, Beauty Wise Secretaries Limited would hold such shares in trust for Mr.
Kevin Sheung Wai Chan's sole benefit.
Mr. Silas Sheung Kwan Chan's Class A shares are held in trust by a
nominal shareholder, Fortune Access Nominees Limited, formerly Fortune Access
Development Limited, a company organized and existing under the laws of Hong
Kong. Mr. Kevin Sheung Wai Chan is the Secretary, one of two Directors and a 50%
shareholder in Fortune Access Nominees Limited. Fortune Access Nominees Limited
holds the above-mentioned shares of Mr. Silas Sheung Kwan Chan for Silas Sheung
Kwan Chan's sole benefit pursuant to a Nominee Shareholder Agreement dated
September 15, 1999 between Mr. Silas Sheung Kwan Chan and Fortune Access
Nominees Limited. It is anticipated that, pursuant to the Nominee Shareholder
Agreement, should Mr. Silas Sheung Kwan Chan exercise his option to purchase the
Class B shares, Fortune Access Nominees Limited would hold such shares in trust
for Mr. Silas Sheung Kwan Chan's sole benefit.
ITEM 5. NATURE OF THE TRADING MARKET
The Common Stock of the Company is not yet listed on an exchange or
over-the-counter system. The Company does plan to consider looking at listing
its shares on the OTC Bulletin Board or the Nasdaq Small Cap market in the
future.
ITEM 6. EXCHANGE CONTROLS AND OTHER LIMITATIONS AFFECTING SECURITY HOLDERS
There are no exchange control restrictions on the payment of dividends
on the Common Stock of the Company in Hong Kong, where the Company's principal
executive offices are located, or the British Virgin Islands, where the Company
is incorporated. Currently, the shares in the Company are issued in the currency
of the United States. Other jurisdictions in which the Company may conduct
operations in the future, or where a Target Company is located, may have various
exchange controls.
Although the Company has not entered into any discussions with any
potential Target Company, the Company may seek to merge with or acquire a Target
Company in a number of jurisdictions, including the People's Republic of China
("PRC"), whose currency, the Renminbi, is not freely convertible into foreign
currency. The PRC government imposes control over its foreign currency reserves
in part through direct regulation of the conversion of Renminbi into foreign
currency and through restrictions on foreign trade. Prior to January
<PAGE> 13
1, 1994, the PRC had a dual exchange rate system, which consisted of the rate
fixed time-to-time by the PRC State Administration of Exchange Control (the
"SAEC") and the rates prevailing in the various swap centers around the country
(the "Swap Rates"). In most cases, foreign enterprises satisfied their need for
foreign currency through such means as exporting products for foreign currency,
selling "import substitute" products in the PRC for payment in foreign currency,
or accessing a swap center. Among the more widely used Swap Rates was the rate
at the swap center in Shanghai. Effective January 1, 1994, a new unitary,
managed floating-rate system was introduced in the PRC to replace the previous
dual-track foreign exchange system, which was abolished pursuant to the Notice
of the People's Bank of China Concerning Further Reform of the Foreign Currency
Control System (the "PBOC Notice"). The conversion of Renminbi into U.S. dollars
must now be based on the rate set by the People's Bank of China, which is set
based on the previous day's PRC interbank foreign exchange market rate and with
reference to current exchange rates on the world financial markets. In
furtherance of these currency reforms, the China Foreign Exchange Trading Center
(the "CFETC") was formally established in Shanghai and began operating in April
1994. The establishment of the CFETC was originally intended to coincide with
the phasing out of the swap centers. However, the swap centers have been
retained as an interim measure and it is envisaged that the local swap centers
will be phased out gradually.
Currently, foreign investment enterprises ("FIEs") in the PRC
(including Sino-foreign equity and co-operative joint ventures) are required to
apply to the local bureau of the SAEC for "foreign exchange registration
certificates foreign investment enterprises." Upon the presentation of
appropriate documentation, FIEs may enter into foreign exchange transactions at
swap centers, or in the future, in the event the unitary exchange rate system is
implemented as anticipated, through the unified market when all swap centers are
consolidated under the CFETC. On January 29, 1996, the State Council promulgated
the Regulations of the People's Republic of China Regarding Foreign Exchange
Control (the "Regulations") which came into effect on April 1, 1996. Pursuant to
the Regulations, conversion of Renminbi into foreign exchange for current
account items is permissible. Conversion of Renminbi into foreign exchange for
capital items, such as direct investment, loans or security is still under the
sole jurisdiction and requires approval of the SAEC.
As a result of the adoption of the unitary exchange rate system on
January 1, 1994, the official bank exchange rate for Renminbi to U.S. dollars
experienced an immediate devaluation of approximately 50% to US$1.00 .2 = Rmb
8.7000. Any future volatility or devaluation of the Renminbi could have a
material adverse effect on the Company's business, results of operations and
financial condition.
Management believes that the Company, if it merges with or acquires a
Chinese Target Company, would be able to obtain all required approvals for the
conversion and remittance abroad of foreign currency necessary for the
operations of any Chinese Target Company's business. However, such approvals do
not guarantee the availability of foreign currency, and no assurance can be
given that the Company would be able to convert sufficient amounts of foreign
currency in the PRC's foreign exchange markets in the future at acceptable
rates, or at all, for the repayment of debt, payments of interest, purchases of
equipment or payment of dividends, if any, and payments for services and other
contracts.
CERTAIN FOREIGN ISSUER CONSIDERATIONS
The Company is an International Business Company incorporated under the
provisions of the IBC Act. The transfer of shares between persons regarded as
residents outside of the British Virgin Islands is not subject to any exchange
controls. Likewise, issues and transfers of shares involving any person regarded
as resident in the British Virgin Islands are not subject to exchange control
approval. There are no limitations on the rights of non-British
<PAGE> 14
Virgin Islands owners of the Common Stock to hold or vote their shares. Because
the Company has been formed pursuant to the IBC Act, there are no restrictions
on its ability to transfer funds into and out of the British Virgin Islands or
to pay dividends to U.S. residents who are holders of the Common Stock.
In accordance with the Company's Memorandum and Articles of
Association, share certificates are only issued as shares registered on the
books of the Company. In the case of a representative acting in a special
capacity (for example, as an executor or trustee), the Company is not bound to
investigate or incur any responsibility in respect of the proper administration
of any such estate or trust. The Company takes no notice of any trust applicable
to any of its shares whether or not it had notice of such trust.
As a company subject to the IBC Act, the Company may not: (i) transact
business with persons resident in the British Virgin Islands except as set out
in Section 5(2) of the IBC Act; (ii) own an interest in real property situated
in the British Virgin Islands, other than a lease of property for use as am
office from which to communicate with shareholders or where books and records of
the Company are prepared and maintained; (iii) maintain a banking or trust
business, unless it is licensed under the British Virgin Islands Banks and
Trusts Companies Act of 1990; (iv) transact business as an insurance or a
reinsurance company, insurance agency or insurance broker, unless it is licensed
under an enactment authorizing it to transact that business; (v) maintain the
business of company management unless it is licensed under the British Virgin
Islands Company Management Act, 1990; or (vi) maintain the business of providing
a registered office or act as the registered agent for companies incorporated in
the British Virgin Islands.
There are no restrictions on the degree of foreign ownership of the
Company. The Company is subject neither to taxes on its income or dividends nor
to any foreign exchange controls in the British Virgin Islands. In addition, the
Company is not subject to capital gains tax in the British Virgin Islands, and
profits can be accumulated by the Company, as deemed by management to be
required, without limitation.
ITEM 7. TAXATION
The following discussion summarizes certain tax consequences to a
holder of Common Stock of the Company under present British Virgin Islands,
United States, Hong Kong and the People's Republic of China tax laws. The
discussion does not deal with all possible tax consequences relating to the
Company's operations or ownership of the Common Stock and does not purport to
deal with the tax consequences applicable to particular investors, some of which
(including banks, securities dealers, insurance companies and tax-exempt
entities, as well as financial institutions, broker-dealers, tax-exempt
organizations or persons or particular classes of U.S. holders of at least 10%
of the voting power of the value of the Company's stock) may be subject to
special rules. In particular, the discussion does not address the tax
consequences under state, local and other national tax laws. The following
discussion is based upon laws and relevant interpretations thereof in effect as
of the date of this Registration Statement, all of which are subject to change
retroactively and prospectively.
ANY PROSPECTIVE INVESTOR IN THE COMPANY SHOULD CONSULT WITH HIS OR HER
OWN TAX ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO HIM OR HER TO
PURCHASE, OWN AND DISPOSE OF THE SECURITIES, INCLUDING THE EFFECTS OF APPLICABLE
BRITISH VIRGIN ISLANDS, HONG KONG, PRC AND/OR UNITED STATES FEDERAL, STATE,
LOCAL OR OTHER TAX LAWS, AS WELL AS POSSIBLE CHANGES IN THE TAX LAWS.
BRITISH VIRGIN ISLANDS TAXATION
<PAGE> 15
Under the IBC Act as currently in effect, a holder of Common Stock of
the Company who is not a resident of the British Virgin Islands is exempt from
British Virgin Islands income tax on dividends paid with respect to the Common
Stock of the Company. A holder of Common Stock of the Company is not liable for
British Virgin Islands income tax on gains realized on the sale or disposal of
such shares. The British Virgin Islands does not impose a withholding tax on
dividends paid by the Company to its shareholders due to its incorporation under
the IBC Act.
There are no capital gains, gift and inheritance, or income taxes
levied by the British Virgin Islands on companies incorporated under the IBC
Act. In addition, the Common Stock of the Company is not subject to transfer
taxes, stamp duties or similar charges.
There is no income tax treaty or convention currently in effect between
the United States and the British Virgin Islands. As an exempted company, the
Company is required to pay the British Virgin Islands government an annual
license fee based on the Company's stated authorized capital.
UNITED STATES FEDERAL INCOME TAXATION.
The following is a general summary of certain material United States
federal income tax consequences arising from the purchase, ownership and
disposition of the Common Stock to holders who are United States citizens,
individuals resident in the United States for purposes of United States federal
income tax, or domestic corporations who purchase Common Stock in any future
offering and hold such Common Stock as capital assets (a "U.S. holder"). A U.S.
holder must allocate the purchase price for the Common Stock between the
components in accordance with their relative fair market values on the date of
issuance. The amount so allocated is the U.S. holder's tax basis in his Common
Stock.
The amount of the gross distributions actually or constructively
received by a U.S. Common Stock holder will be included as ordinary income to
the extent such distribution is paid from current or accumulated earnings and
profits of the Company, as determined under United States federal income tax
principles. Such distributions will not be eligible for the dividends that
receive deductions allowed to United States corporations. Distributions in
excess of the Company's current and accumulated earnings and profits are treated
as a non-taxable return of basis to the extent thereof, and then as a gain from
the sale of Common Stock.
A U.S. holder will recognize capital gain or loss upon the sale or
other disposition of the Common Stock in an amount equal to the difference
between the amount realized and the U.S. holder's tax basis in the Common Stock.
Such gain or loss will be long-term capital gain or loss if the Common Stock has
been held for more than one year at the time of the sale or other disposition.
Long-term capital gain of a non-corporate U.S. holder is generally subject to
tax at more favorable rates than ordinary income or short-term capital gain.
However, if the Company is deemed to be a passive foreign investment
company ("PFIC"), upon the receipt of certain distributions from the Company or
a disposition of the Common Stock, each U.S. holder will be liable for United
States federal income tax computed generally at the highest applicable rate as
if such distribution or gain had been recognized ratably over the period the
U.S. holder held such Common Stock, plus interest on the tax allocable to prior
years including within such holding period. Such tax and interest will be
payable by the U.S. holder for the year in which the distribution or gain is
actually realized, regardless of whether losses, credits or other tax benefits
would have been available to the U.S. holder to offset such income if it had
actually been realized in such prior tax years. Under certain circumstances, if
the Company were a PFIC, distributions and dispositions of shares in a direct or
indirect foreign corporate subsidiary of the Company may be attributed in whole
or in part to a U.S. holder, and such
<PAGE> 16
U.S. holder may be taxed under the PFI rules with respect to such distributions
or dispositions.
The Company will be treated as a PFIC if in the current tax year or any
prior tax year, either (i) seventy-five (75) percent or more of the gross income
of the Company is passive income, or (ii) on average, at least fifty (50)
percent of the assets of the Company (by value or, if the Company elects, by
their adjusted basis for computing earnings and profits) produce or are held for
the production of passive income ("passive assets"). Under special
"look-through" rules, the Company is considered to own its pro rata share of the
gross income and assets of any corporation which the Company owns (or is
considered to own) twenty-five (25) percent or more of the stock (by value).
Passive income for purposes of the PFIC rules generally includes dividends,
interest and other types of investment income.
The Company anticipates that under the look-through rules most of its
income will not constitute passive income and that most of its investments
therein will not constitute passive assets. Accordingly, the Company does not
anticipate that it will be treated as a PFIC based on the nature of its
business; however, there can be no assurance that they will not be treated as
such.
Alternatively, a U.S. holder could elect to treat the Common Stock as
an investment in a qualified electing fund ("QEF"). In such a case, the PFIC
rules described above would not apply; instead, the U.S. holder would be
required to include currently in his income his pro-rata share of the Company's
ordinary earnings (as ordinary income) and his pro-rata share of the Company's
net capital gains (as long-term capital gain), whether or not distributions with
respect to such earnings or gains are actually made to the U.S. holder. If the
U.S. holder makes the QEF election for the first year in which the Company is a
PFIC, the investor will be required to include its share of such income only for
tax years in which the Company meets either the income test or the asset test
and not in other tax years. Once made, the QEF election will be effective for
the tax year and all subsequent tax years, and may be revoked only with the
consent of the United States Internal Revenue Service.
The Company intends to notify U.S. holders in the event that it
concludes it will be treated as a PFIC for any tax year to enable the U.S.
holders the ability to consider whether to make the QEF election, although the
Company has no obligation to do so nor should U.S. holders rely on the Company
doing so. Prospective investors should consult with their own tax advisors
regarding the possible treatment of the Company as a PFIC, its effect, and the
eligibility, manner and advisability of making a QEF election in such case.
A U.S. holder will be subject to "backup withholding" at the rate of
thirty-one (31) percent with respect to dividends paid on the Common Stock and
any proceeds of the sale, exchange or redemption of the Common Stock which are
paid through a paying agent, broker or other intermediary in the United States
or a United States broker or certain United States-related brokers to such
holder outside the United States unless the U.S. holder (i) qualifies as an
exempt payee (including, without limitation, a corporation), and when required,
demonstrates this fact or (ii) provides a correct taxpayer identification number
(or certifies that he has applied for a taxpayer identification number),
certifies that such holder is not subject to backup withholding and otherwise
complies with the backup withholding rules. Backup withholding is not an
additional tax; rather the stockholder is entitled to a credit against his
United States federal income tax for the amount of any backup withholding. In
addition, a United States investor who fails to furnish his taxpayer
identification number may be subject to a penalty.
A U.S. holder who owns or acquires five (5) percent or more in value of
the Company's stock may be required to file certain additional reports with
<PAGE> 17
respect to the Company with the United States Internal Revenue Service and may
be subject to a penalty for failing to do so.
HONG KONG TAXATION.
Under the laws of Hong Kong, as currently in effect, a holder of Common
Stock is not subject to Hong Kong tax on dividends paid with respect to such
shares and no holder of Common Stock is liable for Hong Kong tax on gains
realized on sale or other disposition of such Common Stock except that those
persons who are classified for Hong Kong purposes as dealers in securities in
Hong Kong may be subject to Hong Kong tax in respect of any gain resulting from
the disposition of Common Stock. Hong Kong does not impose a withholding tax on
dividends paid by the Company. In addition, the Company will not be subject to
Hong Kong taxes as a result of its receipt of dividends from any of its
subsidiaries.
PRC TAXATION.
Currently, there is no material connection with the Company and the PRC
for tax claims to be made by PRC tax authorities. However, the Company is
looking to merge with or acquire a Target Company in the future, which may (but
not necessarily) be an operating entity in the PRC. The Company anticipates that
there would be no material consequences to holders of the Common Stock solely as
a result of the purchase, ownership and disposition of the Common Stock after
any potential merger or acquisition with a Chinese Target Company. There is an
income tax treaty in effect between the United States and the PRC.
ITEM 8. SELECTED FINANCIAL DATA
SUMMARY FINANCIAL AND OPERATING DATA
The selected information set forth below should he read in conjunction
with, and is qualified in its entirety by reference to, the consolidated
financial statements of the Company included in this Registration Statement as
prepared by Arthur Andersen & Co., independent public accountants. The Company
prepares its financial statements in accordance with United States generally
accepted accounting principles ("U.S. GAAP").
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
<S> <C>
ASSET
Cash $ 20,000
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued liabilities $ 5,000
------------------
Stockholders' equity:
Common Stock - Class A, $0.0001 par value; 400,000,000 shares authorized; 2,000,000
shares issued and outstanding 200
Common Stock - Class B, $0.0001 par value; 100,000,000 shares authorized; Nil issued
and outstanding -
Additional paid-in capital 19,800
Accumulated deficit (5,000)
------------------
</TABLE>
<PAGE> 18
<TABLE>
<S> <C>
Total stockholders' equity 15,000
------------------
Total liabilities and stockholders' equity $ 20,000
==================
</TABLE>
ITEM 9. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
With the exception of any historical matters herein, this Registration
Statement may contain "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended, and Section 21E of the Securities
Exchange Act of 1934, as amended. The Company's actual results could differ
materially from the results, if any, discussed in such forward-looking
statements. Any such forward-looking statements should be read only in
conjunction with this entire Registration Statement and the exhibits hereto.
9A. GENERAL BUSINESS PLAN
The Company's purpose is to seek, investigate and, if such
investigation warrants, attempt to enter into some form of business combination
with a Target Company seeking the perceived advantages of having a class of
securities registered under the Exchange Act. The Company will not restrict its
search to any specific business, industry or geographical location and the
Company may participate in a business venture of virtually any kind or nature.
It is impossible to predict at this time the status of any business in which the
Company may become engaged, in that such business may need to seek additional
capital, may desire to have its shares publicly traded, or may seek other
perceived advantages which the Company may offer. The Company is also not
restricted from implementing a structure for a particular business acquisition
with a Target Company in which the Company also becomes a party to a merger,
consolidation, reorganization, joint venture, or licensing agreement with a
third party corporation or entity. The Company has not identified any Target
Companies and has not entered into any negotiations regarding such business
combination to date. None of the Company's officers or directors have engaged in
any negotiations with any representative of any company regarding the
possibility of any business combination between the Company and such other
company to date.
The officers and directors anticipate possibly seeking out a Target
Company through solicitation. Such solicitation may include newspaper or
magazine advertisements, mailings and other distributions to law firms,
accounting firms, investment bankers, financial advisors and similar persons,
the use of one or more World Wide Web sites and similar methods. No estimate can
be made as to the number of persons who may be contacted or solicited. The
officers and directors may engage in such solicitation directly or may employ
one or more other entities to conduct or assist in such solicitation. The
officers and directors will pay referral fees to consultants and others who
refer Target Companies for mergers into reporting companies in which the
officers and directors have an interest. Payments are made if a business
combination occurs, and may consist of cash or a portion of the stock in the
Company retained by the officers and directors.
The Company anticipates that the selection of a business opportunity in
which to participate will be complex and a high-risk endeavor. The officers and
directors believe (but have not conducted or obtained any research to confirm)
that there are business entities seeking the perceived benefits of a publicly
registered corporation. Such perceived benefits may include the items listed in
Part 1, Item 1B of this Registration Statement. Business opportunities may be
available in many different industries and at various stages of development, all
of which will make the task of comparative investigation and analysis of such
business opportunities difficult and complex.
<PAGE> 19
The Memorandum and Articles of Association of the Company provides that
the Company may indemnify officers and/or directors of the Company for all
losses and liabilities which he or she may sustain or incur in or about the
execution of the duties of his or her office or otherwise in relation thereto,
and no director or officer shall be liable for any loss, damage or misfortune
which may happen to, or be incurred by the Company in the execution of the
duties of his or her office, or in relation thereto.
The Company has, and will continue to have, no capital with which to
provide the owners of business entities with any cash or other assets. The
Company believes it will be able to offer owners of Target Companies the
opportunity to enter into a business combination with a reporting company
without incurring the cost and time that would be required should a Target
Company decide to become a reporting company on its own. In analyzing
prospective business opportunities, the officers and directors will consider
such matters as: (i) available technical, financial and managerial resources;
(ii) working capital and other financial requirements; (iii) history of
operations, if any; (iv) prospects for the future; (v) nature of present and
expected competition; (vi) quality and experience of management services which
may be available and the depth of that management; (vii) potential for further
research, development or exploration; (viii) specific risk factors not now
foreseeable but which then may be anticipated to impact the proposed activities
of the Company; (ix) potential for growth or expansion; (x) the potential for
profit; (xi) perceived public recognition or acceptance of products, services or
trades; (xii) name identification; and (xiii) other relevant factors. This
discussion of the proposed criteria is not meant to be a restrictive or an
inclusive list of the Company's virtually unlimited discretion to search for and
enter into potential business opportunities. The officers and directors have not
conducted or obtained market research and are not aware of any empirical data to
support the perceived benefits of a merger or acquisition transaction for the
owners of any Target Company. See ITEM 1D(9), "RISK FACTORS - LACK OF MARKET
RESEARCH OR MARKETING ORGANIZATION AND EXPERTISE".
The Exchange Act requires that any merger or acquisition candidate comply
with certain reporting requirements, which include providing audited financial
statements in any reporting filings made under the Exchange Act. The officers
and directors of the Company will in all likelihood be inexperienced in matters
relating to the business of a Target Company. The officers and directors will
rely upon their own efforts in accomplishing the pre-business combination
purposes of the Company. Outside consultants or advisors may be utilized by the
Company to assist in the search for qualified Target Companies. If the Company
does retain such an outside consultant or advisor, any cash fee earned by such
person will need to be assumed by the Target Company, as the Company has limited
cash assets with which to pay such obligation.
Following a business combination the Company may benefit from the
services of others in regard to accounting, legal services, underwritings and
corporate public relations. If requested by a Target Company, the officers and
directors of the Company may recommend one or more underwriters, financial
advisors, accountants, law firms, public relations firms or other consultants to
provide such services.
9B. ACQUISITION OF OPPORTUNITIES
It is anticipated that any securities issued in any such reorganization
would be issued in reliance upon exemption from registration under the
Securities Act, any other applicable federal securities laws and state
securities laws. In some circumstances, however, as a negotiated element of its
transaction, the Company may agree to register all or a part of such securities
under the applicable federal or state securities laws immediately
<PAGE> 20
after the transaction is consummated or at specified times thereafter. If such
registration occurs, of which there can be no assurance, it will be undertaken
by the surviving entity after the Company has entered into an agreement for a
business combination or has consummated a business combination and the Company
is no longer considered a Blank Check Company. Until such time as this occurs,
the Company will not register any securities. The issuance of additional
securities and their potential sale into any trading market which may develop in
the Company's securities may depress the market value of the Company's
securities in the future if such a market develops, of which there is no
assurance.
While the terms of a business transaction to which the Company may be a
party cannot be predicted, it is expected that the parties to the business
transaction will desire to avoid the creation of a taxable event and thereby
structure the acquisition as a "tax-free" reorganization under Sections 351 or
368 of the Internal Revenue Code of 1986, as amended (the "Code").
With respect to any negotiations with a Target Company, the officers
and directors expect to analyze, among other factors, the percentage of the
Company Target Company shareholders would acquire in exchange for their
shareholdings in the Target Company. Depending upon, among other things, the
Target Company's assets and liabilities, the Company's shareholders would in all
likelihood hold a substantially lesser percentage ownership interest in the
Company following any such transaction. The percentage of ownership may be
subject to significant reduction in the event that the Company acquires a Target
Company with substantial assets.
The Company will participate in a business opportunity only after the
negotiation and execution of appropriate agreements. Although the terms of such
agreements cannot be predicted, generally such agreements will require certain
representations and warranties of the parties thereto, will specify certain
events of default, will detail the terms of closing and the conditions which
must be satisfied by the parties prior to and after such closing, will outline
the manner of bearing costs, including costs associated with the Company's
attorneys and accountants, and will include miscellaneous other terms.
The Company is currently exempt from certain provisions applicable to
U.S. public companies, including the duty to file its quarterly reports on Form
10-Q (or 10-QSB, as applicable), as required under the Exchange Act. However,
the Company anticipates compliance with rules and regulations of the Exchange
Act and other laws, rules and regulations as may be necessary for listing its
securities in the future on Nasdaq Small Cap or OTC Bulletin Board.
The officers and directors have agreed that they will advance to the
Company any additional funds which the Company needs for operating capital and
for costs in connection with searching for or completing a business combination
with a target company. Such advances will be made without expectation of
repayment unless the owners of the business which the Company acquires or merges
with agree to repay all or a portion of such advances. There is no minimum or
maximum amount the officers and directors will advance to the Company. The
Company will not borrow any funds to make any payments to the Company's
promoters, officers, directors or their affiliates or associates.
9C. COMPETITION
The Company will remain an insignificant participant among the firms
that engage in the acquisition of business opportunities. There are many
established venture capital and financial concerns which have significantly
greater financial and personnel resources and technical expertise than the
Company. In view of the Company's combined extremely limited financial
<PAGE> 21
resources and limited management availability, the Company will continue to be
at a significant competitive disadvantage compared to the Company's competitors.
See ITEM 1D(3), "RISK FACTORS -- SCARCITY OF AND COMPETITION FOR BUSINESS
OPPORTUNITIES AND COMBINATIONS".
ITEM 10. DIRECTORS AND OFFICERS OF REGISTRANT.
10A. BACKGROUNDS OF DIRECTORS
The Company has the following officers and directors:
<TABLE>
<CAPTION>
- ----------------------------------------------- --------- ---------------------------------------------------------------
Name Age Positions and Offices Held
- ----------------------------------------------- --------- ---------------------------------------------------------------
<S> <C> <C>
Kevin Sheung Wai Chan 38 Director
- ----------------------------------------------- --------- ---------------------------------------------------------------
Silas Sheung Kwan Chan 36 Director and Secretary
- ----------------------------------------------- --------- ---------------------------------------------------------------
</TABLE>
There are no agreements or understandings for the officers or directors
to resign at the request of another person and the above-named officer and
director is not acting on behalf of nor will act at the direction of any other
person.
Set forth below are summary descriptions containing the name of the
directors and officers of the Company, all positions and offices with the
Company held, the period during which such officer or director has served as
such, and the business and educational experience of each during at least the
last five (5) years:
KEVIN SHEUNG WAI CHAN. Mr. Chan is a director of the Company. From 1985
to 1989, he was with the audit division of Arthur Andersen in Hong Kong. From
1989 to 1994, he was an investment banker with Deutsche Morgan Grenfell in Hong
Kong. From 1994 to the present, Mr. Chan has been a Principal of Champ Pacific
Capital Limited, a financial consulting and advisory firm located in Hong Kong.
Mr. Chan has been a Certified Public Accountant in Hong Kong since 1989, as well
as a fellow member of the Hong Kong Society of Accountants and the Association
of Chartered Certified Accountants. Mr. Chan received his B.So.Sc. in Management
Studies from the University of Hong Kong in 1985.
SILAS SHEUNG KWAN CHAN. Mr. Chan is a director and secretary of the
Company. From 1985 to 1990, Mr. Chan was an Accountant with KPMG Peat Marwick
and Ernst & Young, both located in Hong Kong. From 1990 to 1992, Mr. Chan was
with the Hong Kong Stock Exchange as a Listing Executive. From 1993 to 1997, Mr.
Chan was with Fuji International Finance Limited, an international investment
bank, as Assistant Director. From 1997 to the present, Mr. Chan has been an
executive officer with Champ Pacific Capital Limited, a financial consulting and
advisory firm located in Hong Kong. Mr. Chan is a fellow member of the Hong Kong
Society of Accountants and the Association of Chartered Certified Accountants
since 1989, and has been a Chartered Financial Analyst since 1997. Mr. Chan
received a B.Sc. in Accounting from the University of Hong Kong in 1985 and an
M.B.A. from the University of Birmingham in 1993.
10B. PREVIOUS BLANK CHECK COMPANIES
Since formation of the Company, Messrs. Chan and Chan have formed or
are in the process of forming two additional British Virgin Islands companies -
Portal Net Limited and Net-Matrix Limited -- with the intent of them becoming
additional Blank Check Companies. See ITEM 10D, "RECENT TRANSACTIONS BY BLANK
CHECK COMPANIES". Prior to initiating formation of these companies, Messrs. Chan
and Chan and the Company have owned together one other British Virgin Islands
Blank Check Company, First Nets Global Inc., but Messrs. Chan and Chan have not
yet registered such company under the Exchange Act.
<PAGE> 22
10C. CURRENT BLANK CHECK COMPANIES
In addition to First Nets Global Inc., with which they have organized
and established in the British Virgin Islands but have not registered any shares
of such company under the Exchange Act, Messrs. Chan and Chan anticipate being
involved with additional Blank Check Companies with common stock registered
under the Securities Act or the Exchange Act. At present, Messrs. Chan and Chan
also anticipate filing a registration statement for Portal Net Limited and
Net-Matrix Limited simultaneously with the Registration Statement for the
Company or on a date soon after this Registration Statement is filed by the
Company.
10D. RECENT TRANSACTIONS BY BLANK CHECK COMPANIES
Although Messrs. Chan and Chan have formed the three additional
companies listed in Item 10B and 10C above with the intent of such companies
becoming additional Blank Check Companies, no Registration Statements have been
filed previous to this Registration Statement for these three companies.
However, Messrs. Chan and Chan anticipate registering the shares of Portal Net
Limited and Net-Matrix Limited simultaneously with the Company or on a date soon
after this Registration Statement is issued by the Company. At present, Messrs.
Chan and Chan do not have plans to file a registration statement for First Nets
Global Inc. in the immediate future.
10E. CONFLICTS OF INTEREST
The Company's officers and directors expect to register Portal Net
Limited, Net-Matrix Limited, First Nets Global Inc. and other companies of a
similar nature and with a similar purpose as the Company. Consequently, there
are potential inherent conflicts of interest in acting as an officer and
director of the Company. Insofar as the officers and directors are engaged in
other business activities, the officers and directors anticipate that they will
devote only a minor amount of time to the Company's affairs.
A conflict may arise in the event that another Blank Check Company with
which the officers and directors are affiliated is registered and actively seeks
a Target Company. See ITEM 1D(7), "RISK FACTORS OTHER BLANK CHECK COMPANIES".
Mr. Silas Sheung Kwan Chan is an executive officer of Champ Pacific
Capital Limited, and a Director and Secretary of Portal Net Limited, Net-Matrix
Limited and First Nets Global Inc. and expects to organize other companies of a
similar nature and with a similar purpose as the Company. As such, demands may
be placed on the time of Mr. Silas Sheung Kwan Chan that will detract from the
amount of time he is able to devote to the Company. Mr. Silas Sheung Kwan Chan
intends to devote as much time to the activities of the Company as required.
However, should a conflict arise regarding the time demands of Mr. Silas Sheung
Kwan Chan, there is no assurance that Mr. Silas Sheung Kwan Chan would not
attend to other matters prior to those of the Company. Mr. Silas Sheung Kwan
Chan projects that initially up to ten hours per month of his time may be spent
locating a Target Company which amount of time would increase when the analysis
of, and negotiations and consummation with, a Target Company are conducted.
Mr. Kevin Sheung Wai Chan is a Director of Champ Pacific Capital
Limited, Portal Net Limited, Net-Matrix Limited and First Nets Global Inc. and
expects to organize other companies of a similar nature and with a similar
purpose as the Company. As such, demands may be placed on the time of Mr. Kevin
Sheung Wai Chan that may detract from the amount of time he is able to devote to
the Company. Mr. Kevin Sheung Wai Chan intends to devote as much time to the
activities of the Company as required. However, should a conflict arise
regarding the time demands of Mr. Kevin Sheung Wai Chan, there is no assurance
that Mr. Kevin Sheung Wai Chan would not attend to other matters prior to those
of the Company. Mr. Kevin Sheung Wai Chan projects that
<PAGE> 23
initially up to ten hours per month of his time may be spent locating a Target
Company which amount of time would increase when the analysis of, and
negotiations and consummation with, a Target Company are conducted.
At the time of a business combination, the officers and directors
expect that some or all of the shares of common stock owned by the shareholders
and directors will be purchased by the Target Company. The amount of common
stock sold or continued to be owned by the directors cannot be determined at
this time.
The Company may agree to pay finder's fees, as appropriate and allowed,
to unaffiliated persons who may bring a Target Company to the Company where that
reference results in a business combination. The amount of any finder's fee will
be subject to negotiation, and cannot be estimated at this time. No finder's fee
of any kind will be paid to the officers and directors or promoters of the
Company or to their associates or affiliates. No loans of any type have, or will
be, made to the officers, directors or promoters of the Company or to any of
their associates or affiliates.
The Company's officers and directors have not had any negotiations with
and there are no present arrangements or understandings with any representatives
of the owners of any business or company regarding the possibility of a business
combination with the Company.
Any changes in these provisions require the approval of the Board of
Directors. The officers, directors and current shareholders do not intend to
propose any such action and do not anticipate that any such action will occur.
10F. INVESTMENT COMPANY ACT OF 1940
See ITEM 1D (11), "RISK FACTORS -- REGULATION UNDER THE INVESTMENT
COMPANY ACT". Any violation of the Investment Company Act would subject the
Company to material adverse consequences.
ITEM 11. COMPENSATION OF DIRECTORS AND OFFICERS.
The Company's officers and directors do not receive any compensation
for services rendered to the Company, have not received such compensation in the
past, and are not accruing any compensation pursuant to any agreement with the
Company.
The officers and directors of the Company will not receive any finder's
fee, either directly or indirectly, as a result of their efforts to implement
the Company's business plan outlined herein. However, the officers and directors
of the Company anticipate receiving benefits as beneficial shareholders of the
Company. See ITEM 4, "CONTROL OF REGISTRANT," and ITEM 13, "INTEREST OF
MANAGEMENT IN CERTAIN TRANSACTIONS".
No retirement, pension, profit sharing, stock option or insurance
programs or other similar programs have been adopted by the Company for the
benefit of its directors, officers or other employees.
ITEM 12. OPTIONS TO PURCHASE SECURITIES FROM REGISTRANT OR SUBSIDIARIES.
Mr. Kevin Sheung Wai Chan is the beneficial holder of the right to
exercise stock options for 7,500,000 Class B shares at an exercise price of US
$0.0001 per share. It is anticipated that all such shares would, if Mr. Kevin
Sheung Wai Chan were to exercise such right, be held in trust by a nominal
shareholder, Beauty Wise Secretaries Limited, formerly Beauty Wise Development
Limited, a company organized and existing under the laws of Hong Kong. Mr. Kevin
Sheung Wai Chan is the Secretary, one of two Directors and a 50% shareholder in
Beauty Wise Secretaries Limited. Beauty Wise Secretaries Limited would hold the
above-mentioned shares of Mr. Kevin Sheung Wai Chan for Mr. Kevin Sheung Wai
Chan's sole benefit pursuant to a Nominee Shareholder
<PAGE> 24
Agreement dated September 15, 1999 between Mr. Kevin Sheung Wai Chan and Beauty
Wise Secretaries Limited.
Mr. Silas Sheung Kwan Chan is the beneficial holder of the right to
exercise stock options for 2,500,000 Class B shares at an exercise price of US
$0.0001 per share. It is anticipated that all such shares would, if Mr. Silas
Sheung Kwan Chan were to exercise such right, be held in trust by a nominal
shareholder, Fortune Access Nominees Limited, formerly Fortune Access
Development Limited, a company organized and existing under the laws of Hong
Kong. Mr. Kevin Sheung Wai Chan is the Secretary, one of two Directors and a 50%
shareholder in Fortune Access Nominees Limited. Fortune Access Nominees Limited
would hold the above-mentioned shares of Mr. Silas Sheung Kwan Chan for Silas
Sheung Kwan Chan's sole benefit pursuant to a Nominee Shareholder Agreement
dated September 15, 1999 between Mr. Silas Sheung Kwan Chan and Fortune Access
Nominees Limited.
ITEM 13. INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS.
The Company has issued a total of 2,000,000 shares of common stock to
the following persons for a total of US $20,000.00 in cash:
<TABLE>
<CAPTION>
Name Relationship to Issuer Number of Total Shares Consideration
- -------------------------------------- ------------------------------ ------------------------------ --------------------
<S> <C> <C> <C>
Kevin Sheung Wai Chan Director 1,500,000 15,000
Silas Sheung Kwan Chan Director and Secretary 500,000 5,000
</TABLE>
The Company has also provided Kevin Sheung Wai Chan and Silas Sheung
Kwan Chan, through nominee shareholders Beauty Wise Secretaries Limited and
Fortune Access Nominees Limited, respectively, with the right to exercise stock
options for Class B shares as follows:
<TABLE>
<CAPTION>
Name Relationship to Issuer Number of Total Shares Consideration
- -------------------------------------- ------------------------------ ------------------------------ --------------------
<S> <C> <C> <C>
Kevin Sheung Wai Chan Director 7,500,000 750
Silas Sheung Kwan Chan Director and Secretary 2,500,000 250
</TABLE>
PART II
ITEM 14. DESCRIPTION OF SECURITIES TO BE REGISTERED.
14A. GENERAL
The authorized capital stock of the Company consists of 400,000,000
shares of Class A stock, par value $0.0001 per share, and 100,000,000 shares of
Class B stock, par value $0.0001 per share. To date, no preferred stock has been
issued by the Company; however, Messrs. Chan and Chan have been given the right
to exercise, from September 15, 1999 until September 14, 2009, the Class B stock
in the amounts set forth in Item 12 above from stock options. To date, Messrs.
Chan and Chan have not exercised their rights to purchase stock options. The
following statements relating to the capital stock are summaries and do not
purport to be complete. Reference is made to the more detailed provisions of,
and such statements are qualified in their entirety by reference to, the
Certificate of Incorporation and the Memorandum and Articles of Association,
copies of which are filed as exhibits to this Registration Statement.
14B. COMMON STOCK
<PAGE> 25
Holders of shares of Class A common stock are entitled to one vote for
each share on all matters to be voted on by the stockholders. Holders of common
stock do not have cumulative voting rights. Holders of common stock are entitled
to share ratably in dividends, if any, as may be declared from time to time by
the Board of Directors in its discretion from funds legally available therefor.
In the event of a liquidation, dissolution or winding up of the Company, the
holders of common stock are entitled to share pro rata all assets remaining
after payment in full of all liabilities. All of the issued and outstanding
shares of common stock are fully paid and non-assessable. Under British Virgin
Islands law, nonresidents of the British Virgin Islands may freely hold, vote
and transfer shares of Common Stock in the same manner as British Virgin Islands
residents.
Holders of common stock have no preemptive rights to purchase the
Company's common stock. The Board of Directors may redeem any such share at a
premium.
14C. PREFERRED STOCK
Pursuant to the Articles of Association of the Company, holders of
Class B shares are entitled to five votes for each share on all matters to be
voted on by the stockholders. Each Class B share can be converted into one Class
A share at the option of the holders of such shares. Conversion shall be
effected by written notice of such election by the holder to the Secretary of
the Company.
If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by the terms
of issue of that class) may, whether or not the Company is being wound up be
varied with the consent in writing of the holders of not less than fifty-one
percent of the issued shares of that class and of the holders of not less than
fifty-one percent of the issued shares of any other class of shares which may be
affected by such variation.
The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly provided by
the terms of issue of the shares of that class, be deemed to be varied by the
creation or issue of further shares ranking pari passu therewith.
Any future issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of the Company without further
action by the shareholders and may adversely affect the voting and other rights
of the holders of common stock. At present, the Company has no plans to issue
any preferred stock nor adopt any series, preferences or other classification of
preferred stock.
The issuance of shares of preferred stock, or the issuance of rights to
purchase such shares, could be used to discourage an unsolicited acquisition
proposal. For instance, the issuance of a series of preferred stock might impede
a business combination by including class voting rights that would enable the
holder to block such a transaction, or facilitate a business combination by
including voting rights that would provide a required percentage vote of the
stockholders. In addition, under certain circumstances, the issuance of
preferred stock could adversely affect the voting power of the holders of the
common stock. Although the Board of Directors is required to make any
determination to issue such stock based on its judgment as to the best interests
of the stockholders of the Company, the Board of Directors could act in a manner
that would discourage an acquisition attempt or other transaction that
potentially some, or a majority, of the stockholders might believe to be in
their best interests or in which stockholders might receive a premium for their
stock over the then market price of such stock. The Board of Directors does not
at present intend to seek stockholder approval prior to any issuance of
currently authorized stock, unless otherwise required by law or stock exchange
rules.
<PAGE> 26
14D. DIVIDENDS
Dividends, if any, will be contingent upon the Company's revenues and
earnings, if any, and capital requirements and financial conditions. The payment
of dividends, if any, will be within the discretion of the Company's Board of
Directors. The Company presently intends to retain all earnings, if any, for use
in its business operations and accordingly, the Board of Directors does not
currently anticipate declaring any dividends prior to a business combination.
See ITEM 1(D)(19) "LACK OF DIVIDENDS" and ITEM 6 "EXCHANGE CONTROLS AND OTHER
LIMITATIONS AFFECTING SECURITY HOLDERS".
PART III
ITEM 15. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 16. CHANGES IN SECURITIES, CHANGES IN SECURITY FOR REGISTERED
SECURITIES AND USE OF PROCEEDS
None.
PART IV
ITEM 17. FINANCIAL STATEMENTS (Intentionally Omitted)
ITEM 18. FINANCIAL STATEMENTS
The financial statements of the Company are presented in U.S.
Dollars. All financial statements of the Company presented herein have been
prepared in conformity with U.S. GAAP. The selected information set forth below
should he read in conjunction with, and is qualified in its entirety by
reference to, the consolidated financial statements of the Company included in
this Registration Statement as prepared by Arthur Andersen & Co., independent
public accountants.
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
<S> <C>
ASSET
Cash $ 20,000
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued liabilities $ 5,000
------------------
Stockholders' equity:
Common Stock - Class A, $0.0001 par value; 400,000,000 shares authorized; 2,000,000
shares issued and outstanding 200
Common Stock - Class B, $0.0001 par value; 100,000,000 shares authorized; Nil issued
and outstanding -
Additional paid-in capital 19,800
Accumulated deficit (5,000)
------------------
</TABLE>
<PAGE> 27
<TABLE>
<S> <C>
Total stockholders' equity 15,000
------------------
Total liabilities and stockholders' equity $ 20,000
==================
</TABLE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant certifies that it meets all of the requirements for filing
on Form 20-F and has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
DIGITAL STAR INC.
By: /s/ Mr. Kevin Sheung Wai Chan
-------------------------------
Name: Mr. Kevin Sheung Wai Chan
Title: Director
By: /s/ Mr. Silas Sheung Kwan Chan
-------------------------------
Name: Mr. Silas Sheung Kwan Chan
Title: Director and Secretary
Date: November 10, 1999
<PAGE> 28
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
Digital Star Inc.
We have audited the accompanying balance sheet of Digital Star Inc. as of
September 30, 1999 and the related statement of operations, cash flows, and
changes in shareholders' equity for the period from September 15, 1999 (date of
incorporation) to September 30, 1999. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards
in the United States of America. 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 financial statements referred to above presents fairly, in
all material respects, the financial position of Digital Star Inc. as of
September 30, 1999, and the results of its operations and its cash flows for the
period from September 15, 1999 (date of incorporation) to September 30, 1999, in
conformity with generally accepted accounting principles in the United States of
America.
/s/ Arthur Andersen & Co.
ARTHUR ANDERSEN & CO.
Certified Public Accountants
Hong Kong
Hong Kong,
October 25, 1999.
<PAGE> 29
DIGITAL STAR INC.
(A DEVELOPMENT STAGE COMPANY)
BALANCE SHEET
AS OF SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
ASSET
<S> <C>
Cash $ 20,000
==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Accrued liabilities $ 5,000
------------------
Stockholders' equity:
Common Stock - Class A, $0.0001 par value; 400,000,000 shares authorized; 2,000,000
shares issued and outstanding 200
Common Stock - Class B, $0.0001 par value; 100,000,000 shares authorized; Nil issued
and outstanding -
Additional paid-in capital 19,800
Accumulated deficit (5,000)
------------------
Total stockholders' equity 15,000
------------------
Total liabilities and stockholders' equity $ 20,000
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 30
DIGITAL STAR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars except for per share data)
<TABLE>
<S> <C>
Selling, general and administrative expenses $ (5,000)
Provision for income taxes -
------------------
Net loss $ (5,000)
==================
Loss per common share - Basic 0.25 cents
==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 31
DIGITAL STAR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<S> <C>
Cash flows from operating activities:
Net loss $ (5,000)
Increase in accrued liabilities 5,000
---------------
Net cash flows from operating activities -
Cash flows from financing activities:
Net proceeds from issuance of common stock - Class A 20,000
---------------
Net increase in cash and balance as of end of period $ 20,000
===============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 32
DIGITAL STAR INC.
(A DEVELOPMENT STAGE COMPANY)
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM SEPTEMBER 15, 1999 (DATE OF INCORPORATION)
TO SEPTEMBER 30, 1999
(Amounts expressed in United States dollars)
<TABLE>
<CAPTION>
Common stock - Class A Common stock - Class B
---------------------------- ---------------------------- Additional
Number of Number of Paid-in Accumulated
shares Amount shares Amount capital deficit
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Balance as of
September 15, 1999
- $ - - $ - $ - $ -
Issuance of common
stock 2,000,000 200 - - 19,800 -
Net loss for the
period - - - - - (5,000)
------------- ------------- ------------- ------------- ------------- -------------
Balance as of
September 30, 1999
2,000,000 $ 200 $ - $ - $ 19,800 $ (5,000)
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these financial statements.
<PAGE> 33
DIGITAL STAR INC.
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(Amounts expressed in United States dollars)
1. Organization and Business Operations
Digital Star Inc. (a development stage company) (the "Company") was incorporated
in the British Virgin Islands on September 15, 1999 to serve as a vehicle to
effect a merger, exchange of capital stock, asset acquisition, or other business
combination with a domestic or foreign private business. As of September 30,
1999 the Company had not yet commenced any formal business operations, and all
activity to date relates to the Company's formation and proposed fund raising.
The Company's fiscal year end is September 30.
The Company's ability to commence operations is contingent upon its ability to
identify a prospective target business and raise the capital it will require
through the issuance of equity securities, debt securities, bank borrowings, or
a combination thereof.
2. Summary of significant accounting policies
a. Income taxes
The Company accounts for income tax under the provisions of Statement
of Financial Accounting Standards No. 109, which requires recognition
of deferred tax assets and liabilities for the expected future tax
consequences of events that have been included in the financial
statements or tax returns. Deferred income taxes are provided using the
liability method. Under the liability method, deferred income taxes are
recognized for all significant temporary differences between the tax
and financial statement bases of assets and liabilities.
b. Loss per common share
Basic loss per common share is computed in accordance with Statement of
Financial Accounting Standards No. 128 by dividing net loss for each
year/period by the weighted average number of shares of common stock
outstanding during the year/period. The weighted average number of
shares used to compute basic loss per common share is 2,000,000 shares
for the period from September 15, 1999 (date of incorporation) to
September 30, 1999.
<PAGE> 34
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Cont'd)
b. Loss per common share (Cont'd)
The computation of diluted loss per common share is similar to basic
loss per common share, except that the denominator is increased to
include the number of additional common shares that would have been
outstanding if all dilutive securities outstanding during the
year/period are exercised. The weighted average number of shares used
to compute diluted loss per common share is approximately 12,000,000
shares for the period from September 15, 1999 (date of incorporation)
to September 30, 1999.
No diluted loss per common share for the period from September 15, 1999
(date of incorporation) to September 30, 1999 is presented as the
Company had not loss for the period. Accordingly, the inclusion of
stock options in the computation of diluted loss per common share will
result in anti-dilutive per-share amount.
c. Use of estimates
The preparation of the financial statements in conformity with
generally accepted accounting principles in the United States of
America requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Accordingly, actual results could differ from those
estimates.
d. Fair value of financial instruments
All financial instruments of the Company are carried at cost, which
approximate their fair values.
3. COMMON STOCK AND STOCK OPTIONS
a. Common stock
The Company is authorized to issue 400,000,000 shares of common stock -
Class A with a par value of $0.0001 each and 100,000,000 shares of
common stock - Class B with a par value of $0.0001 each. Upon
incorporation, 2,000,000 shares of common stock - Class A were issued
at $0.01 each to provide the Company with working capital.
The shareholders of common stock - Class A have one vote per share
while the shareholders of common stock - Class B have five votes per
share on any matter submitted to the shareholders. The shareholders of
common stock - Class A shall rank equally with the shareholders of
common stock - Class B in all other aspects.
<PAGE> 35
3. COMMON STOCK AND STOCK OPTIONS (Cont'd)
b. Stock options
On September 15, 1999, the Company granted stock options to existing
shareholders to subscribe for 10,000,000 Class B shares of common
stock. The share options are exercisable at par value of $0.0001 each
during the period from September 15, 1999 to September 14, 2009. No
stock option was exercised subsequent to their issuance.
<PAGE> 36
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION OF DOCUMENT
2.1 Memorandum of Association
2.2 Articles of Association
3.1 Letter of Agreement to Use Offices of Champ Pacific Capital
Limited
3.2 Relevant Board Resolutions
3.3 Nominee Shareholder Agreements
10.1 Consent of Champ Pacific Capital Limited
10.2 Consent of Accountants
<PAGE> 1
Exhibit 2.1
BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
------
MEMORANDUM OF ASSOCIATION
OF
Digital Star Inc.
("the Company")
1. The Name of the Company is Digital Star Inc.
2. The Registered Office of the Company is Akara Bldg., 24 De Castro
Street, Wickhams Cay I, Road Town, Tortola, British Virgin Islands or
such other place within the British Virgin Islands as the directors may
from time to time determine.
3. The Registered Agent of the Company is Mossack Fonseca & Co. (B.V.I.)
Ltd., P.O. Box 3136, Road Town, Tortola, British Virgin Islands or such
other person or company being a person or company entitled to act as a
Registered Agent as the directors may from time to time determine.
4. The objects for which the Company is established are:
(a) To carry on the business of an investment company and for that
purpose to acquire and hold either in the name of the Company
or in that of any nominee share stocks, debentures, debenture
stocks, bonds, notes, obligations or securities.
(b) To acquire any such share stocks, debentures, debenture
stocks, bonds, notes, obligations or securities by original
subscription, contract, tender, purchase, exchange
underwriting or otherwise and to subscribe for the same
subject to such terms and conditions (if any) as may be
thought fit.
(c) To exercise and enforce all rights and powers conferred by or
incident to the ownership of any such share stock obligations
or other securities including without prejudice to the
generality of the foregoing all such powers of veto or control
as may be conferred by virtue of the holding by the Company of
some special proportion of the issued or nominal amount
thereof and to provide managerial and other executive
supervisory and consultancy services for or in relation to any
company in which the Company is interested upon such terms as
may be thought fit.
(d) To buy, own, hold, subdivide, lease, sell, rent, prepare
building sites, construct, reconstruct, alter, improve,
decorate, furnish, operate, maintain, reclaim or otherwise
deal with and/or develop land and buildings and otherwise deal
in real estate in all its branches, to make advances upon the
security of land or houses or other property or any interest
therein, and whether erected or in course of erection and
whether on first mortgage or charge or subject to a prior
mortgage or mortgages or charge or charges, and to develop
land and buildings as may seem expedient but without prejudice
to the generality of the foregoing.
(e) To carry on the business of traders and merchants of any kind,
nature or description, and the sale or rendering of related
products and services, and the employment of the necessary
personnel therefor.
<PAGE> 2
(f) Without prejudice to the generality of the foregoing
paragraphs: to carry on the business of franchising; to
purchase, sell, exchange, lease, manage, hold, trade, invest
in all kinds of movable or immovable property, merchandise,
commodities, effects, products, services of any kind, nature
or description, to carry out any type of commercial or
financial operation, to receive and/or pay royalties,
commissions and other income or outgoing of any kind, to
purchase, construct, charter, own, operate, manage, administer
transport vessels of any kind and their appurtenances and
related services and agencies; to sell or render related
services and employ the necessary personnel therefor.
(g) To buy, sell, underwrite, invest in, exchange or otherwise
acquire, and to hold, manage, develop, deal with and turn to
account any bonds, debentures, shares (whether fully paid or
not), stock options, commodities, futures, forward contracts,
notes or securities of governments, states, municipalities,
public authorities or public or private limited or unlimited
companies in any part of the world, precious metals, gems,
works of art and other articles of value, and whether on a
cash or margin basis and including short sales, and to lend
money against the security of any of the aforementioned
property.
(h) To borrow or raise money from, but not restricted to, banks by
the issue of debentures, debenture stock (perpetual or
terminable), bonds, mortgages, or any other securities founded
or based upon all or any of the assets or property of the
Company or without any such security and upon such terms as to
priority or otherwise as the Company shall think fit.
(i) To engage in any other business or businesses whatsoever, or
in any act or activity, which are not prohibited under any law
for the time being in force in the British Virgin Islands.
(j) To do all such other things as are incidental to, or the
Company may think conducive to, the attainment of all or any
of the above objects.
And it is hereby declared that the intention is that each of the objects
specified in each paragraph of this clause shall, except where otherwise
expressed in such paragraph, be an independent main object and be in nowise
limited or restricted by reference to or inference from the terms of any other
paragraph or the name of the Company.
5. The Company has no power to:
(a) carry on business with persons resident in the British Virgin
Islands;
(b) own an interest in real property situate in the British Virgin
Islands, other than a lease referred to in paragraph (e) of
subsection (2);
(c) carry on banking or trust business, unless it is licensed
under the Banks and Trust Companies Act, 1990;
(d) carry on business as an insurance or reinsurance company,
insurance agent or insurance broker, unless it is licensed
under an enactment authorising it to carry on that business;
(e) carry on the business of company management unless it is
licensed under the Company Management Act, 1990, or
<PAGE> 3
(f) carry on the business of providing the Registered Office or
the Registered Agent for companies incorporated in the British
Virgin Islands.
Paragraph (e) of subsection (2) set out in paragraph 5 (b) above refers
to section 5 of the International Business Companies Act (CAP. 291).
According to paragraph (e) or subsection (2), an International Business
Company shall not be treated as carrying on business with persons
resident in the British Virgin Islands by reason that it holds a lease
of property for use as an office from which to communicate with members
or where books and records of the Company are prepared or maintained.
The Company Management Act, 1990 referred to in paragraph 5 (e) above
governs company management activities carried out in or from within the
British Virgin Islands only.
6. The shares in the Company shall be issued in the currency of the United
States of America.
7. The authorised capital of the Company is US$50,000.00 divided into
400,000,000 Class A share with a par value of US$0.0001 each and
100,000,000 Class B shares with a par value of US$0.0001 each. The
directors are duly empowered to issue shares as registered shares only.
8. Each Class A share shall be entitled to one vote and each Class B share
shall be entitled to five votes. Each Class B share may be converted
into one Class A share at the option of the holders of such shares.
Conversion shall be effected by written notice of such election by the
holder to the Secretary of the Company.
9. The shares shall be divided into such number of classes and series as
the directors shall by resolution from time to time determine and until
so divided shall comprise one class and series.
10. The directors shall by resolution have the power to issue any class or
series of shares that the Company is authorised to issue in its
capital, original or increased, with or subject to any designations,
powers, preferences, rights, qualifications, limitations and
restrictions.
11. The liability of members of the Company is limited.
12. The Company may by resolution of its members or of its directors, amend
or modify any of the conditions contained in this Memorandum of
Association and increase or reduce the authorised capital of the
Company in any way which may be permitted by law.
We, MOSSACK FONSECA & CO. (B.V.I.) LTD., of P. O. Box 3136, Road Town, Tortola,
British Virgin Islands for the purpose of incorporating an International
Business Company under the laws of the British Virgin Islands hereby subscribe
our name to this Memorandum of Association.
NAME, ADDRESS AND DESCRIPTION OF SUBSCRIBER
MOSSACK FONSECA & CO. (B.V.I.) LTD.
Akara Bldg.
24 De Castro Street
Wickhams Cay I
Road Town, Tortola
British Virgin Islands
<PAGE> 4
/s/ Janice Beazer
Trust Company Assistant Secretary
DATED this 15th day of September, 1999.
WITNESS to the above signature:
/s/ Desiree Chalwell
Desiree Chalwell
Wickhams Cay I
Road Town, Tortola
British Virgin Islands
Secretary
<PAGE> 1
Exhibit 2.2
BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP 291)
------
ARTICLES OF ASSOCIATION
OF
DIGITAL STAR INC.
("the Company")
1. References in these Regulations to the Act shall mean The International
Business Companies Act (Cap. 291). The following Regulations shall
constitute the Regulations of the Company. In these Articles, words and
expressions defined in the Act shall have the same meaning and, unless
otherwise required by the context, the singular shall include the
plural and vice versa, the masculine shall include the feminine and
neuter, and references to persons shall include corporations and all
legal entities capable of having a legal existence.
SHARES
2. The authorised capital of the Company is US$50,000.00 divided into
400,000,000 Class A shares with a par value of US$0.0001 each and
100,000,000 Class B shares with a par value of US$0.0001 each. The
directors are duly empowered to issue shares as registered shares only.
3. Each Class A share shall be entitled to one vote and each Class B share
shall be entitled to five votes. Each Class B share may be converted
into one Class A share at the option of the holders of such shares.
Conversion shall be effected by written notice of such election by the
holder to the Secretary of the Company.
4. Every person whose name is entered as a member in the share register
being the holder of registered shares, shall be entitled to a
certificate signed by the director(s) or officer(s) so authorised and
under the common seal of the Company, specifying the share or shares
held and the par value thereof, provided that in respect of shares,
held jointly by several persons, the Company shall not be bound to
issue more than one certificate, and delivery of a certificate for a
share to one of several joint holders shall be sufficient delivery to
all.
5. If a certificate is worn out or lost, it may be renewed on production
of the worn-out certificate, or on satisfactory proof of its loss
together with such indemnity as the directors may reasonably require.
Any member receiving a share certificate shall indemnify and hold the
Company and its officers harmless from any loss or liability which it
or they may incur by reason of wrongful or fraudulent use or
representation made by any person by virtue of the possession of such
certificate.
SHARE CAPITAL AND VARIATION OF RIGHTS
6. Subject to the provisions of these Articles, the unissued shares of the
Company (whether forming part of the original or any increased capital)
shall be at the disposal of the directors who may offer, allot, grant
options over or otherwise dispose of them to such persons at such times
and for such consideration, being not less than the par value of the
shares being disposed of, and upon such terms and conditions as the
directors may determine.
<PAGE> 2
7. Without prejudice to any special rights previously conferred on the
holders of any existing shares or class of shares, any share in the
Company may be issued with such preferred, deferred or other special
rights, or such restrictions, whether in regard to dividend, voting,
return of capital or otherwise, as the directors may from time to time
determine.
8. Subject to the provisions of the Act in this regard, shares may be
issued on the terms that they are redeemable, or, at the option of the
Company, liable to be redeemed on such terms and in such manner as the
directors before or at the time of the issue of the shares may
determine.
9. The directors may redeem any such share at a premium.
10. If at any time the share capital is divided into different classes of
shares, the rights attached to any class (unless otherwise provided by
the terms of issue of the shares of that class) may, whether or not the
Company is being wound up, be varied with the consent in writing of the
holders of not less than fifty-one percent of the issued shares of that
class and of the holders of not less than fifty-one percent of the
issued shares of any other class of shares which may be affected by
such variation.
11. The rights conferred upon the holders of the shares of any class issued
with preferred or other rights shall not, unless otherwise expressly
provided by the terms of issue of the shares of that class, be deemed
to be varied by the creation or issue of further shares ranking pari
passu therewith.
12. Except as required by law, no person shall be recognised by the Company
as holding any share upon any trust, and the Company shall not be bound
by or be compelled in any way to recognise (even when having notice
thereof) any equitable, contingent, future or partial interest in any
share or any interest in any fractional part of a share or (except only
as by these Regulations or by law otherwise provided) any other rights
in respect of any share except an absolute right to the entirety
thereof by the registered holder.
TRANSFER OF SHARES
13. Shares in the Company may be transferred by a written instrument signed
by the transferor and containing the name and address of the transferee
or in such other manner or form and subject to such evidence as the
directors shall consider appropriate.
14. Upon receipt of notification of any change of name and address of any
agent or attorney given to the Company for the purpose of service of
any notice, information or written statement required to be given to
members, the directors shall forthwith amend the register maintained
for this purpose.
TRANSMISSION OF SHARES
15. The personal representative, guardian or trustee as the case may be of
a deceased, incompetent or bankrupt sole holder of a registered share
shall be the only person recognised by the Company as having any title
to the share. In the case of a share registered in the names of two or
more holders, the survivor or survivors, and the personal
representative, guardian or trustee as the case may be of the deceased,
incompetent or bankrupt, shall be the only person(s) recognised by the
Company as having any title to the share, but they shall not be
entitled
<PAGE> 3
to exercise any rights as a member of the Company until they have
proceeded as set forth in the following two Regulations.
16. Any person becoming entitled by operation of law or otherwise to a
share or shares in consequence of the death, incompetence or bankruptcy
of any member may be registered as a member upon such evidence being
produced as may reasonably be required by the directors. An application
by any such person to be registered as a member for all purposes shall
be deemed to be a transfer of shares of the deceased, incompetent or
bankrupt member and the directors shall treat it as such.
17. Any person who has become entitled to a share or shares in consequence
of the death, incompetence or bankruptcy of any member may, instead of
being registered himself, request in writing that some person to be
named by him be registered as a transferee of such share of shares and
such request shall likewise be treated as if it were a transfer.
ACQUISITION OF OWN SHARES
18. Subject to the provisions of the Act in this regard, the directors may,
on behalf of the Company, purchase, redeem or otherwise acquire any of
the Company's own shares but only out of surplus or in exchange for
newly issued shares of equal value, or for such consideration as they
consider fit, and either cancel or hold such shares as treasury shares.
The directors may dispose of any shares held as treasury shares on such
terms and conditions as they may from time to time determine. Shares
may be purchased or otherwise acquired in exchange for newly issued
shares in the Company.
ALTERATION IN CAPITAL
19. Subject to the terms of any resolution passed by the directors for the
purpose of increasing the authorised capital of the Company, such
increased capital may be divided into shares of such respective
amounts, and with such rights or privileges (if any) as the directors
think expedient.
20. Any capital raised by the creation of new shares shall be considered as
part of the original capital, and shall be subject to the same
provisions as if it had been part of the original capital.
21. The directors may be resolutions:
(a) consolidate and divide all or any of its share capital into
shares of larger amount than its existing shares;
(b) cancel any shares which, at the date of the passing of the
resolution, have not been taken or agreed to be taken by any
person and diminish the amount of its authorised share capital
by the amount of the shares so cancelled;
(c) sub-divide its shares or any of them into shares of smaller
amount than is fixed by the Memorandum of Association and so
that subject to the provisions of Regulation 10 the resolution
whereby any share is sub-divided may determine that as between
the holders of the shares resulting from such sub-division one
or more of the shares may have such preferred or other special
rights over or may have such qualified or deferred rights or
be subject to any such restrictions as compared with the other
or others as the Company has power to attach to unissued or
new shares;
(d) subject to any confirmation or consent required by law, reduce
its authorised and issued share capital or any capital
redemption reserve fund or any share premium account in any
manner.
<PAGE> 4
22. Where any difficulty arises in regard to any consolidation and division
under this Regulation, the directors may settle the same as they think
expedient.
MEETINGS OF MEMBERS
23. The directors may convene meetings of the members of the Company at
such times and in such manner and places as the directors consider
necessary or desirable, and they shall convene such a meeting upon the
written request of members holding more than 50 percent of the votes of
the outstanding voting shares in the Company.
24. Seven days' notice at the least specifying the place, the day and the
hour of the meeting and the nature of the business to be conducted
shall be given in the manner hereinafter mentioned to such persons
whose names on the date the notice is given appear as members in the
share register of the Company.
25. A meeting of the members shall be deemed to have been validly held,
notwithstanding that it is held in contravention of the requirement to
give notice in Regulation 23, if notice of the meeting is waived by
ninety percent of the votes of all shares having a right to attend and
vote at the meeting.
26. The inadvertent failure of the directors to give notice of a meeting to
a member or to the agent or attorney as the case may be, or the fact
that a member or such agent or attorney has not received the notice,
does not invalidate the meeting.
PROCEEDINGS AT MEETINGS OF MEMBERS
27. No business shall be transacted at any meeting unless a quorum of
members is present at the time when the meeting proceeds to business. A
quorum shall consist of the holder or holders present in person or by
proxy of not less than one third of the shares of each class or series
of shares entitled to vote as a class or series thereon and the same
proportion of the votes of the remaining shares entitled to vote
thereon.
28. If within half an hour from the time appointed for the meeting a quorum
is not present, the meeting shall be dissolved.
29. At every meeting the members present shall choose someone of their
number to be the Chairman. If the members are unable to choose a
Chairman for any reason, then the person representing the greatest
number of voting shares present at the meeting shall preside as
Chairman, failing which the oldest individual person shall take the
chair.
30. The Chairman may, with the consent of the meeting, adjourn any meeting
from time to time, and from place to place, but no business shall be
transacted at any adjourned meeting other than the business left
unfinished at the meeting from which the adjournment took place.
31. At any meeting a resolution put to the vote of the meeting shall be
decided on a show of hands by simple majority unless a poll is (before
or on the declaration of the result of the show of hands) demanded:
(a) by the Chairman; or
(b) by any member or members present in person or by proxy and
representing not less than one tenth of the total voting
rights of all the members having the right to vote at the
meeting.
<PAGE> 5
32. Unless a poll be so demanded, a declaration by the Chairman that a
resolution has, on a show of hands, been carried, and an entry to that
effect in the book containing the minutes of the proceedings of the
Company, shall be sufficient evidence of the fact, without proof of the
number or proportion of the votes recorded in favour of or against such
resolution.
33. If a poll is duly demanded, it shall be taken in such manner as the
Chairman directs, and the result of the poll shall be deemed to be the
resolution of the meeting at which the poll was demanded. The demand
for a poll may be withdrawn.
34. In the case of an equality of votes, whether on a show of hands, or on
a poll, the Chairman of the meeting at which the show of hands takes
place, or at which the poll is demanded, shall be entitled to a second
or casting vote.
VOTES OF MEMBERS
35. At any meeting of members, whether on a show of hands or on a poll,
every holder of a voting share present in person or by proxy shall have
one vote for every voting share of which he is the holder.
36. A resolution which has been notified to all members for the time being
entitled to vote and which has been approved by a majority of the votes
of those members in the form of one or more documents in writing or by
telex, telegram, cable or other written electronic communication shall
forthwith, without the need for any notice, become effectual as a
resolution of the members.
37. If a committee be appointed for any member who is of unsound mind he
may vote by his committee.
38. If two or more persons are jointly entitled to a registered share or
shares and if more than one of such persons shall vote in person or by
proxy at any meeting of members or in accordance with the terms of
Regulation 34, the vote of that person whose name appears first among
such voting join holders in the share register shall alone be counted.
39. Votes may be given either personally or by proxy.
40. The instrument appointing a proxy shall be produced at the place
appointed for the meeting before the time for holding the meeting at
which the person named in such instrument proposes to vote.
41. An instrument appointing a proxy shall be in such form as the Chairman
of the meeting shall accept as properly evidencing the wishes of the
member appointing the proxy.
42. The instrument appointing a proxy shall be in writing under the hand of
the appointer, unless the appointer is a corporation or other form of
legal entity other than one or more individuals holding as joint
owners, in which case the instrument appointing a proxy shall be in
writing under the hand of an individual duly authorised by such
corporation or legal entity to execute the same. The Chairman of any
meeting at which a vote is cast by proxy so authorised may call for a
notarially certified copy of such authority which shall be produced
within 7 days of being so requested or the vote or votes cast by such
proxy shall be disregarded.
CORPORATIONS ACTING BY REPRESENTATIVES AT MEETINGS
<PAGE> 6
43. Any corporation or other form of corporate legal entity which is a
member of the Company may be resolution of its directors or other
governing body authorise such person as it thinks fit to act as its
representative at any meeting of the members or of any class of members
of the Company, and the person so authorised shall be entitled to
exercise the same powers on behalf of the corporation which he
represents as that corporation could exercise if it were an individual
member of the Company.
DIRECTORS
44. Subject to any subsequent amendment to change the number of directors,
the number of the directors shall be not less than one.
45. The first director or directors shall be elected by the subscribers to
the Memorandum. Thereafter, the director(s) shall be elected by the
members or the director (if there is only one) or directors for such
term as the members or the director (if there is only one) or directors
may determine.
46. The director(s) shall hold office until his(their) successor(s) shall
take office or until his(their) earlier death, resignation or removal.
47. Every vacancy in the board of directors may be filled by a resolution
of the members or of the director (if there is only one) or of a
majority of the remaining directors if applicable.
48. A director shall not require a share qualification, but nevertheless
shall be entitled to attend and speak at any meeting of the members and
at any separate meeting of the holders of any class of shares in the
Company.
49. A director by writing under his hand deposited at the Registered Office
of the Company may from time to time appoint another director or any
other person to be his alternate. Every such alternate shall be
entitled to be given notice of meetings of the directors and to attend
and vote as a director at any such meeting at which the director
appointing him is not personally present and generally at such meeting
to have and exercise all the powers, rights, duties and authorities of
the director appointing him. Every such alternate shall be deemed to be
an officer of the Company and shall not be deemed to be an agent of the
director appointing him. If undue delay or difficulty would be
occasioned by giving notice to a director of a resolution of which his
approval is sought in accordance with Regulation 73, his alternate (if
any) shall be entitled to signify approval of the same on behalf of
that director. The remuneration of an alternate shall be payable out of
the remuneration payable to the director appointing him, and shall
consist of such portion of the last mentioned remuneration as shall be
agreed between such alternate and the director appointing him. A
director by writing under hand deposited at the Registered Office of
the Company may at any time revoke the appointment of an alternate
appointed by him. If a director shall die or cease to hold the office
of director, the appointment of his alternate shall thereupon cease and
terminate.
50. The directors may, by resolution, fix the emoluments of directors in
respect of services rendered or to be rendered in any capacity to the
Company. The directors may also be paid such travelling, hotel and
other expenses properly incurred by them in attending and returning
from meetings of the directors, or any committee of the directors or
meetings of the members, or in connection with the business of the
Company as shall be approved by resolution of the directors.
51. Any director who, by request, goes or resides abroad for any purposes
of the Company or who performs services which in the opinion of the
<PAGE> 7
directors go beyond the ordinary duties of a director, may be paid such
extra remuneration (whether by way of salary, commission, participation
in profits or otherwise) as shall be approved by resolution of the
directors.
52. The Company may pay to a director who at the request of the Company
holds any office (including a directorship) in, or renders services to
any company in which the Company may be interested, such remuneration
(whether by way of salary, commission, participation in profits or
otherwise) in respect of such office or services as shall be approved
by resolution of the directors.
53. The office of director shall be vacated if the director:
(a) is removed from office by a resolution of members or by a
resolution of directors, or
(b) becomes bankrupt or makes any arrangement or composition with
his creditors generally, or
(c) becomes of unsound mind, or of such infirm health as to be
incapable of managing his affairs, or
(d) resigns his office by notice in writing to the Company.
54.(a) A director may hold any other office or position of profit under the
Company (except that of auditor) in conjunction with his office of
director, and may act in a professional capacity to the Company on such
terms as to remuneration and otherwise as the directors shall arrange.
(b) A director may be or become a director or other officer of, or
otherwise interested in any company promoted by the Company,
or in which the Company may be interested, as a member or
otherwise, and no such director shall be accountable for any
remuneration or other benefits received by him as director or
officer or from his interest in such other company. The
directors may also exercise the voting powers conferred by the
shares in any other company held or owned by the Company in
such manner in all respects as they think fit, including the
exercise thereof in favour of any resolutions appointing them,
or any of their number, directors or officers of such other
company, or voting or providing for the payment of
remuneration to the directors or officers of such other
company. A director may vote in favour of the exercise of such
voting rights in the manner aforesaid, notwithstanding that he
may be, or be about to become, a director or officer of such
other company, and as such in any other manner is, or may be,
interested in the exercise of such voting rights in the manner
aforesaid.
(c) No director shall be disqualified by his office from
contracting with the Company, either as vendor, purchaser or
otherwise, nor shall any such contract or arrangement entered
into by or on behalf of the Company in which any director
shall be in any way interested be voided, nor shall any
director so contracting or being so interested be liable to
account to the Company for any profit realised by any such
contract or arrangement, by reason of such director holding
that office or of the fiduciary relationship thereby
established. The nature of a director's interest must be
declared by him at the meeting of the directors at which the
question of entering into the contract or arrangement is first
taken into consideration, and if the director was not at the
date of that meeting interested in the proposed contract or
arrangement, or shall become interested in a contract or
arrangement after it is made, he shall forthwith after
becoming so interested advise the Company in writing of the
fact and nature of
<PAGE> 8
his interest. A general notice to the directors by a director
that he is a member of a specified firm or company, and is to
be regarded as interested in any contract or transaction which
may, after the date of notice, be made with such firm or
company shall (if such director shall give the same at a
meeting of the directors, or shall take reasonable steps to
secure that the same is brought up and read at the next
meeting of directors after it is given) be a sufficient
declaration of interest in relation to such contract or
transaction with such firm or company. A director may be
counted as one of a quorum upon a motion in respect of any
contract or arrangement which he shall make with the Company,
or in which he is so interested as aforesaid, and may vote
upon such motion.
OFFICERS
55. The directors of the Company may, by a resolution of directors, appoint
officers of the Company at such times as shall be considered necessary
or expedient, and such officers may consist of a President, one or more
Vice-Presidents, a Secretary and a Treasurer and such other officers as
may from time to time be deemed desirable. The officers shall perform
such duties as shall be prescribed at the time of their appointment
subject to any modification in such duties as may be prescribed by the
directors thereafter, but in the absence of any specific allocation of
duties it shall be the responsibility of the President to manage the
day to day affairs of the Company, the Vice-Presidents to act in order
of seniority in the absence of the President but otherwise to perform
such duties as may be delegated to them by the President, the Secretary
to maintain the registers, minute books and records (other than
financial records) of the Company and to ensure compliance with all
procedural requirements imposed on the Company by applicable law, and
the Treasurer to be responsible for the financial affairs of the
Company.
56. Any person may hold more than one office and no officer need be a
director or member of the Company. The officers shall remain in office
until removed from office by the directors whether or not a successor
is appointed.
57. Any officer who is a body corporate may appoint any person its duly
authorised representative for the purpose of representing it and of
transacting any of the business of the officers.
POWER OF DIRECTORS
58. The business of the Company shall be managed by the directors who may
pay all expenses incurred preliminary to and in connection with the
formation and registration of the Company, and may exercise all such
powers of the Company as are not by the Act or by these Regulations
required to be exercised by the members subject to any delegation of
such powers as may be authorised by these Regulations and to such
requirements as may be prescribed by resolution of the members; but no
requirement made by resolution of the members shall prevail if it be
inconsistent with these Regulations nor shall such requirement
invalidate any prior act of the directors which would have been valid
if such requirement had not been made.
59. The directors may entrust to and confer upon any director or officer
any of the powers exercisable by them upon such terms and conditions
and with such restrictions as they think fit, and either collaterally
with, or to the exclusion of, their own powers, and may from time to
time revoke, withdraw, alter or vary all or any of such powers. The
directors may delegate any of their powers to committees consisting of
such member or members of their body as they think fit; any committee
so
<PAGE> 9
formed shall in the exercise of the powers so delegated conform to any
regulations that may be imposed on it by the directors.
60. The directors may from time to time and at any time by power of
attorney appoint any company, firm or person or body of persons,
whether nominated directly or indirectly by the directors, to be the
attorney or attorneys of the Company for such purposes and with such
powers, authorities and discretions (not exceeding those vested in or
exercisable by the directors under these Regulations) and for such
period and subject to such conditions as they may think fit, and any
such powers of attorney may contain such provisions for the protection
and convenience of persons dealing with any such attorney as the
directors may think fit and may also authorise any such attorney to
delegate all or any of the powers, authorities and discretions vested
in him.
61. Any director who is a body corporate may appoint any person its duly
authorised representative for the purpose of representing it at
Directors Meetings and of transacting any of the business of the
directors.
62. The Directors are authorised to open and operate bank accounts with
banks, brokerage houses, savings and/or loan associations, credit
institutes or any similar institutions of their choice anywhere in the
world. All cheques, promissory notes, drafts, bills of exchange and
other negotiable instruments and all receipts for monies paid to the
Company, shall be signed, drawn, accepted, endorsed or otherwise
executed, as the case may be, in such manner as the directors shall
from time to time by resolution determine.
63. The directors may exercise all the powers of the Company to borrow
money and to mortgage or charge its undertakings, property and uncalled
capital or any part thereof, to issue debentures, debenture stock and
other securities whenever money is borrowed or as security for any
debt, liability or obligation of the Company or of any third party.
64. The continuing directors may act notwithstanding any vacancy in their
body, save that if the number of directors shall have been fixed at two
or more persons and by reason of vacancies having occurred among the
directors there shall be only one continuing director, he shall
authorised to act alone only for the purpose of appointing another
director.
PROCEEDINGS OF DIRECTORS
65. The meetings of the directors and any committee thereof shall be held
at such place or places as the directors shall decide.
66. The directors may elect a chairman of their meetings and determine the
period for which he is to hold office; but if no such chairman is
elected, or if at any meeting the chairman is not present at the time
appointed for holding the same, the directors present may choose one of
their number to be Chairman of the meeting.
67. The directors may meet together for the dispatch of business, adjourn
and otherwise regulate their meetings as they think fit. Questions
arising at any meeting shall be decided by a majority of votes; in case
of an equality of votes the chairman shall have a second or casting
vote. A director may at any time summon a meeting of the directors. If
the Company shall have only one director, the provisions hereinafter
contained for meetings of the directors shall not apply but such sole
director shall have full power to represent and act for the Company in
all matters and in lieu of minutes of a meeting shall record in writing
and sign a note or memorandum of all matters requiring a resolution of
<PAGE> 10
the directors. Such note or memorandum shall constitute sufficient
evidence of such resolution for all purposes.
68. A director shall be given not less than seven days notice of a meeting
of the directors.
69. Notwithstanding Regulation 67 above, a meeting of directors held in
contravention of that regulation shall be valid if a majority of the
directors entitled to vote at the meeting have waived the notice of the
meeting.
70. The inadvertent failure to give notice of a meeting to a director, or
the fact that a director has not received the notice, does not
invalidate the meeting.
71. A meeting of directors is duly constituted for all purposes if at the
commencement of the meeting there are present in person or by alternate
not less than one third of the total number of directors with a minimum
of two.
72. If within half an hour from the time appointed for the meeting a quorum
is not present, the meeting shall be dissolved.
73. Any one or more of the directors or any committee thereof may
participate in a meeting of directors or of a committee of directors by
means of a conference telephone or similar communications equipment
allowing all persons participating in the meeting to hear each other at
the same time. Participation by such means shall constitute presence in
person at a meeting.
74. A resolution approved by a majority of the directors for the time being
entitled to receive notice of a meeting of the directors or of a
committee of the directors and taking the form of one or more documents
in writing or by telex, telegram, cable or other written electronic
communication shall be as valid and effectual as if it had been passed
at a meeting of the directors or of such committee duly convened and
held, without the need for any notice.
INDEMNITY
75. Subject to the provisions of the Act and of any other statute for the
time being in force, every director or other officer of the Company
shall be entitled to be indemnified out of the assets of the Company
against all losses or liabilities which he may sustain or incur in or
about the execution of the duties of his office or otherwise in
relation thereto, and no director or other officer shall be liable for
any loss, damage or misfortune which may happen to, or be incurred by
the Company in the execution of the duties of his office, or in
relation thereto.
SEAL
76. The directors shall provide for the safe custody of the common seal of
the Company. The common seal when affixed to any instrument, shall be
witnessed by a director or any other person so authorised from time to
time by the directors. The directors may provide for a facsimile of the
common seal and approve the signature of any director or authorised
person which may be reproduced by printing or other means on any
instrument and it shall have the same force and validity as if the seal
had been affixed to such instrument and the same had been signed as
hereinbefore described.
DIVIDENDS AND RESERVES
<PAGE> 11
77. The directors may, by resolution, declare a dividend, but no dividend
shall be declared and paid except out of surplus and unless the
directors determine that immediately after the payment of the dividend
(a) the Company will be able to satisfy its liabilities as they
become due in the ordinary course of its business; and
(b) the realisable value of the assets of the Company will not be
less than the sum of its total liabilities, other than
deferred taxes, as shown in the books of account, and its
capital.
78. Dividends may be declared and paid in money, shares or other property.
79. In computing the surplus for the purpose of resolving to declare and
pay a dividend, the directors may include in their computation the net
unrealised appreciation of the assets of the Company.
80. The director may from time to time pay to the members such interim
dividends as appear to the directors to be justified by the surplus of
the Company.
81. Subject to the rights of the holders of shares entitled to special
rights as to dividends, all dividends shall be declared and paid
according to the par value of the shares in issue, excluding those
shares which are held by the Company as treasury shares at the date of
declaration of the dividend.
82. The directors may, before recommending any dividend, set aside out of
the profits of the Company such sums as they think proper as a reserve
or reserves which shall, at the discretion of the directors, be
applicable for meeting contingencies, or for any other purpose to which
the profits of the Company may be properly applied, and pending such
application may, at the like discretion, either be employed in the
business of the Company or be invested in such investments as the
directors may from time to time think fit.
83. If several persons are registered as joint holders of any share, any of
them may give effectual receipt for any dividend or other monies
payable on or in respect of the share.
84. Notice of any dividend that may have been declared shall be given to
each member in manner hereinafter mentioned and all dividends unclaimed
for three years after having been declared may be forfeited by the
directors for the benefit of the Company.
85. No dividend shall bear interest against the Company.
BOOKS AND RECORDS
86. The Company shall keep such accounts and records as the directors
consider necessary or desirable in order to reflect the financial
position of the Company.
87. The Company shall keep minutes of all meetings of directors, members,
committees of directors, committees of officers and committees of
members, and copies of all resolutions consented to by directors,
members, committees of directors, committees of officers and committees
of members.
88. The books, records and minutes required by Regulations 85 and 86 shall
be kept at the Registered Office of the Company or at such other place
as the directors may determine, and shall be open to the inspection of
the directors at all times.
<PAGE> 12
89. The directors shall from time to time determine whether and to what
extent and at what times and places and under what conditions or
regulations the books, records and minutes of the Company or any of
them shall be open to the inspection of members not being directors,
and no member (not being a director) shall have any right of inspecting
any book, record, minute or document of the Company except as conferred
by Law or authorised by resolution of the directors.
AUDIT
90. The directors may by resolution call for the accounts of the Company to
be examined by an auditor or auditors to be appointed by them at such
remuneration as may from time to time be agreed.
91. The auditor may be a member of the Company, but no director or officer
shall be eligible during his continuance in office.
92. Every auditor of the Company shall have a right of access at all times
to the books of accounts and vouchers of the Company, and shall be
entitled to require from the officers of the Company such information
and explanations as he thinks necessary for the performance of his
duties.
93. The report of the auditor shall be annexed to the accounts upon which
he reports, and the auditor shall be entitled to receive notice of, and
to attend, any meeting at which the Company's audited Profit and Loss
Account and Balance Sheet is to be presented.
NOTICES
94. Any notice, information or written statement required to be given to
members shall be served by mail (air mail service if available)
addressed to each member at the address shown in the share register.
95. All notices directed to be given to the members shall, with respect to
any registered share to which persons are jointly entitled, be given to
whichever of such persons is named first in the share register, and
notice so given shall be sufficient notice to all the holders of such
share.
96. Any notice, if served by post, shall be deemed to have been served
within ten days of posting, and in proving such service it shall be
sufficient to prove that the letter containing the notice was properly
addressed and put into the Post Office.
PENSIONS AND SUPERANNUATION FUNDS
97. The directors may establish and maintain or procure the establishment
and maintenance of any non-contributory pension or superannuation funds
for the benefit of, and give or procure the giving of donations,
gratuities, pensions, allowances or emoluments to any persons who are
or were at any time in the employment or service of the Company or any
company which is a subsidiary of the Company or is allied to or
associated with the Company or with any such subsidiary, or who are or
were at any time directors or officers of the Company or of any such
other company as aforesaid or who hold or held any salaried employment
or office in the Company or such other Company, or any persons in whose
welfare the Company or any such other company as aforesaid is or has
been at any time interested, and to the wives, widows, families and
dependents of any such person, and may make payments for or towards the
insurance of any such persons as aforesaid, and may do any of the
matters aforesaid either alone or in conjunction with any such other
company as aforesaid. A director holding any such employment or office
<PAGE> 13
shall be entitled to participate in and retain for his own benefit any
such donation, gratuity, pension, allowance or emolument.
WINDING UP
98. If the Company shall be wound up, the Liquidator may, in accordance
with a resolution of members, divide among the members in specie or in
kind the whole or any part of the assets of the Company (whether they
shall consist of property of the same kind or not) and may for such
purpose set such value as he deems fair upon any property to be divided
as aforesaid and may determine how such division shall be carried out
as between the members or different classes of members. The Liquidator
may vest the whole or any part of such assets in trustees upon such
trusts for the benefit of the contributories as the Liquidator shall
think fit, but so that no member shall be compelled to accept any
shares or other securities whereon there is any liability.
ARBITRATION
99. Whenever any difference arises between the Company on the one hand and
any of the members, their executors, administrators or assigns on the
other hand touching the true intent and construction or the incidence
or consequences of these presents or of the Act touching anything done
or executed omitted or suffered in pursuance of the Act or touching any
breach or alleged breach or otherwise relating to the premises or to
these presents or to any ordinance affecting the Company or to any of
the affairs of the Company, such difference shall, unless the parties
agree to refer the same to a single arbitrator, be referred to two
arbitrators one to be chosen by each of the parties to the difference
and the arbitrators shall before entering in the reference appoint an
umpire.
100. If either party to the reference makes default in appointing an
arbitrator either originally or by way of substitution (in the event
that an appointed arbitrator shall die, be incapable of acting or
refuse to act) for ten days after the other party has given him notice
to appoint the same, such other party may appoint an arbitrator to act
in the place of the arbitrator of the defaulting party.
AMENDMENT TO ARTICLES
101. The Company may alter or modify the conditions contained in these
Regulations, as originally drafted or as amended from time to time, by
a resolution of either the Company member(s) or of the director(s).
We, MOSSACK FONSECA & CO. (B.V.I.) LTD., of P. O. Box 3136, Road Town, Tortola,
British Virgin Islands for the purpose of incorporating an International
Business Company under the laws of the British Virgin Islands hereby subscribe
our name to these Articles of Association.
NAME, ADDRESS AND DESCRIPTION OF SUBSCRIBER
MOSSACK FONSECA & CO. (B.V.I.) LTD.
Akara Bldg.
24 De Castro Street
Wickhams Cay I
Road Town, Tortola
British Virgin Islands
<PAGE> 14
/s/ Janice Beazer
Trust Company Assistant Secretary
DATED this 15th day of September, 1999.
WITNESS to the above signature:
/s/ Desiree Chalwell
Desiree Chalwell
Wickhams Cay I
Road Town, Tortola
British Virgin Islands
Secretary
<PAGE> 1
Exhibit 3.1
CHAMP PACIFIC GROUP
ROOM 1806, HUTCHISON HOUSE, 10 HARCOURT ROAD, CENTRAL
HONG KONG
25 OCT 1999
The Directors
Digital Star Inc.
Room 1806 Hutchison House
10 Harcourt Road Central
Hong Kong
Re: Digital Star Inc. - Use of Office Space and Address
Dear Sirs,
We hereby advise that the Board of Directors of Champ Pacific Capital Limited
("The Company") has authorized the Officers and Directors of Digital Star Inc.
to use, at no cost to Digital Star Inc., its office space at Room 1806,
Hutchison House, 10 Harcourt Road, Central, Hong Kong (the "Office Address"),
with immediate effect until such time as Digital Star Inc. completes an
acquisition or merger. During this period, Digital Star Inc. is also authorized
to use the Office Address as Digital Star Inc.'s correspondence address at no
cost. We agree that Digital Star Inc. shall continue to be entitled to use any
such address the Company may occupy until such time as Digital Star Inc.
completes an acquisition or merger, should the Company move from its present
location. We request Digital Star Inc. to notify us as soon as such a
transaction is completed.
Please instruct Digital Star Inc.'s Officers and Directors only to use the
Office Address as Digital Star Inc.'s correspondence address and should not
represent the Office Address as Digital Star Inc.'s registered or business
address in Hong Kong to any third parties.
We also note that the Officers and Directors might use the Office Address to
carry out other lawful activities not relating to those of Digital Star Inc.
Under such circumstances, Digital Star Inc. should not bear any legal
responsibilities for these actions.
A copy of The Company's Minutes of the Board of Directors authorizing the above
arrangement is hereby attached for your reference and record.
Yours faithfully,
For and on behalf of
CHAMP PACIFIC CAPITAL LIMITED
/s/ CHAN SHEUNG WAI
Chan Sheung Wai, Director
<PAGE> 1
Exhibit 3.2
DIGITAL STAR INC.
FIRST RESOLUTIONS OF THE DIRECTOR OF THE COMPANY
PURSUANT TO THE RELEVANT ARTICLES OF THE COMPANY'S ARTICLES OF ASSOCIATION, I.
THE UNDERSIGNED, BEING DIRECTOR OF THE COMPANY FOR THE BEING, HEREBY:
1. INCORPORATION
NOTE THAT company is incorporated on 15th day of September 1999 under
The International Business Companies Act, Cap. 291 of the British
Virgin Islands. The Certificate of the Incorporation Number 343503 is
presented together with a copy of the Memorandum and Articles of
Association.
2. DIRECTOR(S)
NOTE THAT the subscriber to the Memorandum and Articles of Association
has appointed the following as the first director of the Company:-
Mr. CHAN Sheung Kwan
Form of consent to act is duly signed and submitted to the Board.
3. COMPANY SECRETARY
RESOLVE THAT the following corporate be appointed as company secretary.
Beauty Wise Secretaries Limited
4. SHARE CAPITAL
NOTE THAT the authorised capital of the company is US$50,000 divided
into 400,000,000 Class A Shares of US$0.0001 par value with one vote
for each share and 100,000,000 Class B Shares of US$0.0001 par value
with five votes for each.
5. APPLICATION(S) FOR AND ALLOTMENTS OF SECURITIES
Applications for securities each unit comprises one Class A Share and
five Class B Option in the company were submitted as follows:-
<TABLE>
<CAPTION>
Applicant(s) No. of Shares No. of Shares eligible for Consideration
Subscription under the
Options
<S> <C> <C> <C>
Beauty Wise Secretaries 1,500,000 Class A 7,500,000 Class B US$15,000
Limited
Fortune Access Nominees 500,000 Class A 2,500,000 Class B US$5,000
Limited
</TABLE>
<PAGE> 2
Details of Options granted are described in the attached letter for
grant of Options.
RESOLVE THAT the application be approved that the shares and Options be
issued accordingly.
FURTHER RESOLVE THAT the common seal of the company be affixed to the
share certificates to be issued and that a copy of the Register of
Member, detailing the issue, be sent to the Registered Agent of the
company and maintained at the registered office in the British Virgin
Islands.
6. COMMON SEAL
RESOLVE THAT the seal, an impression of which is affixed hereto, be and is
hereby adopted as the Common Seal of the Company.
7. REGISTERED ADDRESS AND CORRESPONDENCE ADDRESS
NOTE THAT the Registered Address of the Corporation is situated at
Akara Bldg., 24 De Castro Street, Wickhams Cay I, Road Town, Tortola,
British Virgin Islands.
RESOLVE THAT the address to be used for all correspondence be as
follows:-
Room 1806, 18/F., Hutchison House, 10 Harcourt Road, Central, Hong Kong
8. REGISTERED AGENT
NOTE THAT the Registered Agent for the company is Mossack Fonseca & Co.
(B.V.I.) Ltd., P.O. Box 3136, Road Town, Tortola, British Virgin
Islands.
9. LOCATION OF BOOKS AND RECORDS
RESOLVE THAT that the books, records and minutes of the Company shall
be kept at the registered office of the Company or at such other place
as the directors from time to time may determine, the initial location
of the books, records and minutes to be:-
Room 1806, 18/F., Hutchison House, 10 Harcourt Road, Central, Hong Kong
Dated this 15 September 1999
/s/ CHAN SHEUNG KWAN
Director
<PAGE> 3
DIGITAL STAR INC.
Room 1806, 18/F., Hutchison House, 10 Harcourt Road, Central, Hong Kong
Tel: (852) 2802 3638 Fax: (852) 2519 8683
Beauty Wise Secretaries Limited
Room 1806 Hutchison House
10 Harcourt Road Central
Hong Kong
Dear Sir
RE: OPTION FOR CLASS B SHARES
OPTION AT US$0.0001 PER SHARE
EXERCISABLE FROM 15TH SEPTEMBER 1999 TO 14TH SEPTEMBER 2009
The directors have agreed to make the offer of Share Option ("the Option") to
you to participate in the Company's shares.
OFFER
In conjunction and in consideration of your subscription of 1,500,000 Class A
Shares ("Subscription Shares") for US$15,000, we hereby grant you a Class B
Share Option to subscribe for total 7,500,000 Class B Shares of the Company of
nominal value of US$0.0001 each at a price ("Exercise Price") of US$0.0001 per
share exercisable during the period ("Exercise Period") from 15th Sept 1999 to
14th Sept 2009. Whole or part of Class B Share Option are transferable at the
option of the holders.
ACCEPTANCE
The Option shall be deemed to have been granted and accepted and to have taken
effect from the date when the Subscription Shares are fully paid-up.
EXERCISE OF OPTION
The Option can be exercised in whole or in part. Should you decide to exercise
the Option during the Exercise Period, you are required to complete the Exercise
Form together with the subscription money and lodge the same with the Company
Secretary.
Cheques should be crossed and drawn in favour of "Digital Star Inc." and the
shares will be allotted within 7 days upon receipt of the Exercise Form.
CONDITIONS OF THE PROGRAM
Options granted are transferable, and will lapse if not exercised within the
Exercise Period.
Yours faithfully
/s/ CHAN SHEUNG KWAN
Director
ACKNOWLEDGED AND ACCEPTED BY:
Signature: /s/ CHAN SHEUNG WAI
Full Name: BEAUTY WISE SECRETARIES LIMITED
<PAGE> 4
DIGITAL STAR INC.
Room 1806, 18/F., Hutchison House, 10 Harcourt Road, Central, Hong Kong
Tel: (852) 2802 3638 Fax: (852) 2519 8683
Fortune Access Nominees Limited
Room 1806 Hutchison House
10 Harcourt Road Central
Hong Kong
Dear Sir
RE: OPTION FOR CLASS B SHARES
OPTION AT US$0.0001 PER SHARE
EXERCISABLE FROM 15TH SEPTEMBER 1999 TO 14TH SEPTEMBER 2009
The directors have agreed to make the offer of Share Option ("the Option") to
you to participate in the Company's shares.
OFFER
In conjunction and in consideration of your subscription of 500,000 Class A
Shares ("Subscription Shares") for US$5,000, we hereby grant you a Class B Share
Option to subscribe for total 2,500,000 Class B Shares of the Company of nominal
value of US$0.0001 each at a price ("Exercise Price") of US$0.0001 per share
exercisable during the period ("Exercise Period") from 15th Sept 1999 to 14th
Sept 2009. Whole or part of Class B Share Option are transferable at the option
of the holders.
ACCEPTANCE
The Option shall be deemed to have been granted and accepted and to have taken
effect from the date when the Subscription Shares are fully paid-up.
EXERCISE OF OPTION
The Option can be exercised in whole or in part. Should you decide to exercise
the Option during the Exercise Period, you are required to complete the Exercise
Form together with the subscription money and lodge the same with the Company
Secretary.
Cheques should be crossed and drawn in favour of "Digital Star Inc." and the
shares will be allotted within 7 days upon receipt of the Exercise Form.
CONDITIONS OF THE PROGRAM
Options granted are transferable, and will lapse if not exercised within the
Exercise Period.
Yours faithfully
/s/CHAN SHEUNG KWAN
Director
ACKNOWLEDGED AND ACCEPTED BY:
Signature: CHAN SHEUNG WAI
Full Name: FORTUNE ACCESS NOMINEES LIMITED
<PAGE> 1
EXHIBIT 3.3
NOMINEE SHAREHOLDER AGREEMENT
THIS AGREEMENT made the 15th day of September 1999
BETWEEN: CHAN SHEUNG KWAN of Room 1806, Hutchison House, 10 Harcourt Road,
Central, Hong Kong (hereinafter called the "the Principal") of the one part AND
FORTUNE ACCESS NOMINEES LIMITED of Room 1806, Hutchison House, 10 Harcourt Road,
Central, Hong Kong(hereinafter called the "the Company") of the other part.
WHEREAS:
1. The Principal has caused the share specified in the Schedule hereto
(hereinafter called "the said share") to be registered in the name of
the Company, and
2. The Principal desires and the Company has agreed to be the nominees
shareholder of the said shares on the terms hereinafter set out.
NOW IT IS HEREBY AGREED AS FOLLOWS:-
1. The Company shall hold the said share as Nominee Shareholder on behalf
of the Principal, and shall, in accordance with such direction in
writing as may from time to time be given by the Principal to the
Company transfer and deal with the said share and any dividend payable
in respect thereof and execute all such proxies and documents as are
necessary and proper to enable the Principal or its nominees to vote at
any shareholders' meetings which the holder of the said she is entitled
to attend.
2. In consideration of the Company providing the services aforesaid, the
Principal shall pay to the Company a Nominee Shareholder's fee at
HK$2,000.00 per annum, commencing on the 15th day of September 1999 and
payment annually advance.
3. The Principal shall keep the Company at all times hereafter fully
indemnified from and against all liability loss or damage which the
Company may at any time incur or sustain by reason of the said share
being registered in the name of the Company or arising out of or in
connection with the Company providing the services aforesaid or by
reason of any act deed matter or thing done or omitted to be done by
the Company as nominee shareholder of the said share (other than any
act deed matter or thing done or omitted to be done in contravention of
the laws of Hong Kong or of a lawful direction given by the Principal
to the Company) and against all actions proceedings claims costs and
expenses whatsoever arising thereout or in connection therewith.
4. The agreements and obligations contained herein shall be binding on the
successors and assigns of the Principal.
5. This Agreement shall remain in full force and effect unless and until
it is terminated by either party giving not less than one (1) month
prior written notice to the other.
6. Any notice required to be given under this Agreement shall be deemed
duly served by left at or set out in this Agreement or to such other
address as may have been last notified in writing by or on behalf of
such party to the other party hereto.
As WITNESS the hands of the parties hereto the day and year first above written.
<PAGE> 2
THE SCHEDULE ABOVE REFERRED TO
500,000 Class A shares of US$0.0001 - each fully paid and 2,500,000
Class B share options exercisable at US$0.0001 each in the capital of
DIGITAL STAR INC.
SIGNED by the Principal in the ) /s/ CHAN SHEUNG KWAN
presence of:- )
SIGNED by Mr. Chan Sheung Wai ) /s/ CHAN SHEUNG WAI
for and on behalf of )
the Company in the )
presence of:- )
<PAGE> 3
NOMINEE SHAREHOLDER AGREEMENT
THIS AGREEMENT made the 15th day of September 1999
BETWEEN: CHAN SHEUNG WAI of Room 1806, Hutchison House, 10 Harcourt Road,
Central, Hong Kong (hereinafter called the "the Principal") of the one part AND
BEAUTY WISE SECRETARIES LIMITED of Room 1806, Hutchison House, 10 Harcourt Road,
Central, Hong Kong(hereinafter called the "the Company") of the other part.
WHEREAS:
1. The Principal has caused the share specified in the Schedule hereto
(hereinafter called "the said share") to be registered in the name of
the Company, and
2. The Principal desires and the Company has agreed to be the nominees
shareholder of the said shares on the terms hereinafter set out.
NOW IT IS HEREBY AGREED AS FOLLOWS:-
1. The Company shall hold the said share as Nominee Shareholder on behalf
of the Principal, and shall, in accordance with such direction in
writing as may from time to time be given by the Principal to the
Company transfer and deal with the said share and any dividend payable
in respect thereof and execute all such proxies and documents as are
necessary and proper to enable the Principal or its nominees to vote at
any shareholders' meetings which the holder of the said she is entitled
to attend.
2. In consideration of the Company providing the services aforesaid, the
Principal shall pay to the Company a Nominee Shareholder's fee at
HK$2,000.00 per annum, commencing on the 15th day of September 1999 and
payment annually advance.
3. The Principal shall keep the Company at all times hereafter fully
indemnified from and against all liability loss or damage which the
Company may at any time incur or sustain by reason of the said share
being registered in the name of the Company or arising out of or in
connection with the Company providing the services aforesaid or by
reason of any act deed matter or thing done or omitted to be done by
the Company as nominee shareholder of the said share (other than any
act deed matter or thing done or omitted to be done in contravention of
the laws of Hong Kong or of a lawful direction given by the Principal
to the Company) and against all actions proceedings claims costs and
expenses whatsoever arising thereout or in connection therewith.
4. The agreements and obligations contained herein shall be binding on the
successors and assigns of the Principal.
5. This Agreement shall remain in full force and effect unless and until
it is terminated by either party giving not less than one (1) month
prior written notice to the other.
<PAGE> 4
6. Any notice required to be given under this Agreement shall be deemed
duly served by left at or set out in this Agreement or to such other
address as may have been last notified in writing by or on behalf of
such party to the other party hereto.
As WITNESS the hands of the parties hereto the day and year first above written.
THE SCHEDULE ABOVE REFERRED TO
1,500,000 Class A shares of US$0.0001 - each fully paid and
7,500,000 Class B share options exercisable at US$0.0001 each in the
capital of
DIGITAL STAR INC.
SIGNED by the Principal in the ) /s/ CHAN SHEUNG WAI
presence of:- )
)
SIGNED by Mr. Chan Sheung Wai ) /s/ CHAN SHEUNG WAI
for and on behalf of )
the Company in the )
presence of:- )
<PAGE> 1
EXHIBIT 10.1
CHAMP PACIFIC GROUP
ROOM 1806, HUTCHISON HOUSE, 10 HARCOURT ROAD, CENTRAL
HONG KONG
CONSENT OF CHAMP PACIFIC CAPITAL LIMITED
We hereby consent to the use by Digital Star Inc. in Registration Statement on
Form 20-F of our letter dated October 25, 1999 relating to the use of office
space and address at Room 1806, Hutchison House, 10 Harcourt Road, Central, Hong
Kong at no cost to Digital Star Inc.
For and on behalf of
CHAMP PACIFIC CAPITAL LIMITED
/s/ CHAN SHEUNG WAI, Director
- -------------------
Hong Kong
October 25, 1999
<PAGE> 1
EXHIBIT 10.2
November 3, 1999
The Board of Directors
Digital Star Inc.
Unit 1806, Hutchison House
10 Harcourt Road
Central
Hong Kong
Dear Sirs,
As independent public accountants, we hereby consent to the incorporation by
reference in this Form 20-F of our report dated October 25, 1999 included in the
Registration Statement. It should be noted that we have not audited any
financial statements of the Company subsequent to September 30, 1999 or
performed any audit procedures subsequent to the date of our report.
Very truly yours,
/s/ Arthur Andersen & Co.
