UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF
SECURITIES OF SMALL BUSINESS ISSUERS
Under Section 12(b) or 12(g) of The Securities Exchange Act of 1934
CathayOnline Inc.
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(Name of Small Business Issuer in its charter)
Nevada 88-0346952
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
6 East 45th Street, Suite 1000, New York, New York 10017
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number (212) 490-1871
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Securities to be registered pursuant to Section 12(b) of the Act
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Title of each class Name of each exchange on which registered
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Securities to be registered pursuant to Section 12(g) of the Act.
Common Stock, par value $.001 per share
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(Title of Class)
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(Title of Class)
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Certain statements contained in this Form 10-SB constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Exchange Act. These
statements, identified by words such as "will," "intend to," "plan to,"
"anticipate," "believe,""estimate,""should,""expect" and similar expressions,
include our expectations and objectives regarding our future financial position,
operating results and business strategy. These statements reflect the current
views of management with respect to future events and are subject to risks,
uncertainties and other factors that may cause our actual results, performance
or achievements, or industry results, to be materially different from those
described in the forward-looking statements. Such risks and uncertainties
include those set forth under the captions "Risk Factors" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
elsewhere in this Form 10-SB. We do not intend to update the forward-looking
information to reflect actual results or changes in the factors affecting such
forward-looking information.
PART I
Item 1. DESCRIPTION OF BUSINESS.
General.
CathayOnline Inc., through its wholly-owned subsidiaries, (i) provides
operating and management services to one of five currently operating Internet
Service Providers ("ISP") licensed by the Province of Sichuan, The People's
Republic of China (the "PRC" or "China") and (ii) provides Web based e-mail and
advanced messaging solutions on the Internet for Chinese speaking consumers and
Chinese businesses in China and throughout the world. References in this Form
10-SB to "we," "us" and "our" refer to CathayOnline Inc. and its subsidiaries
unless the context requires otherwise.
Our current and future operations seek to capitalize on the enormous
growth potential which exists for the Internet in China and among the
Chinese-speaking world generally which encompasses approximately 1.4 billion
people worldwide. Toward that end, over the next several years, we intend to add
products and services which will help us to build our subscriber and user base
and take advantage of the growth potential of the Internet in China, a country
of over 1.3 billion people. As one of our first new product offerings, we will
test market a television set top box (based upon existing technology which can
be contract manufactured in China), which enable Internet browsing and e-mail
over standard telephone lines from a television set at a price substantially
less than personal computers and closer to a price point which will be within
the budget of more Chinese people than are PCs. We will offer these devices
alone and bundled with our e-mail and messaging services and with the Internet
access services provided by our ISP partner Sichuan Guo Xun Xun Xin Xi Chan Ye
You Xian Gong Si. We also intend to begin developing a Web site that will act as
a full service portal to the Internet which will provide content services,
community products, search engines and e-commerce products from which we would
generate subscription, advertising and other revenues. Ultimately, we hope to
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offer a fully diversified range of Internet services and products emphasizing
the Greater China region, comprised of the PRC, Taiwan and Hong Kong, as well as
ethnic Chinese in North America, Singapore, the Philippines, Indonesia, Thailand
and Malaysia.
CathayOnline was incorporated in the State of Nevada on September 20,
1995 under the name Kyocera Management, Ltd. and changed its name to
CathayOnline Inc. in April 1998. We are contemplating affecting a reverse split
of the outstanding shares of our common stock but will make such determination
based upon market and other conditions during the first quarter of 2000.
Prior to November 1999, we had been engaged in the sale of PRC national
lottery tickets to the general public through 10 electronic lottery kiosks
located in the City of Guangzhou, Guandong Province, PRC. We did not believe
that this business segment was consistent with our mission to become a
diversified Internet service provider. In November 1999 we transferred these
assets to a wholly-owned subsidiary. On December, 1999, we entered into an
agreement to sell this subsidiary all of the lottery kiosks and our license to
sell lottery tickets to Moorgate Management Inc., an unaffiliated third party,
for a price of $150,000. The closing of the agreement will occur and is subject
to Moorgate's completion of a satisfactory due diligence of the corporation and
the business.
Our current and potential future businesses must be analyzed in light
of certain limitations inherent in doing business in the PRC. Specifically, our
business may be limited by the following factors, all of which may compromise
our ability to grow as we expect:
o The internal laws of the PRC and the Province of Sichuan with
respect to (i) legal prohibitions for foreign participation in
the investment in, or operation or management of,
telecommunications services such as ISP's; (ii) licensing
requirements and other approvals to the transaction of certain
business in the PRC; and (iii) limitations on the content of
materials, such as news, which could be furnished via our
proposed Web portal;
o The possibility that Internet usage does not grow at the
levels predicted and/or that Internet penetration does not
proceed as quickly as we believe it will;
o The economic and technological inability to upgrade the
existing telecommunications infrastructure in China and the
Province of Sichuan;
o Competition from existing and potential competitors with
longer operating histories, greater resources and greater name
recognition which prevent us from establishing a brand;
o The economic climate in China and Asia, in general;
o The possibility that China could devalue its currency which
would effect revenues derived from our Chinese operations; and
o Potential disruptions in friendly relations between China and
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the United States, such as the failure of the United States
Congress to approve the recent accord which would entitle
China to enter the World Trade Organization, which may have a
negative backlash on our business.
The descriptions in this registration statement regarding our planned
product and service offerings and the anticipated features of those planned
product and service offerings are forward-looking statements. Actual products,
services and features could differ materially from those projected as a result
of a variety of factors, some or all of which may be out of our control. We are
in the early stages of our development and may not realize our potential until
much later in the future, if at all.
Corporate Structure.
CathayOnline Inc. was incorporated in 1995. We commenced our Internet
operations in 1999 and do business through our wholly-owned subsidiaries or
wholly-owned subsidiaries of our direct subsidiaries. Our corporate structure is
depicted below, with the name of each entity, the location of its principal
office and its jurisdiction of incorporation set forth below the corporate name
in parentheses:
CathayOnline Inc./New York
(Nevada)
CathayOnline Ltd./Hong Kong
(British Virgin Islands)
TorchMail.com, Inc./Hong Kong CathayOnline (Hong Kong)
(Turks and Caicos Islands) Technologies Ltd./Hong Kong
(Hong Kong)
Sichuan CathayOnline
Technologies Co. Ltd./Chengdu
(PRC)
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Currency Presentation
We publish our financial statements in United States dollars. In this
Form 10-SB, any figure which is denominated, by contract or otherwise, in
Canadian dollars or Chinese Renminbi has been converted into US dollars at the
exchange rate on December 1, 1999. At December 1, 1999, CAN$1 was convertible
into US$.6787 (so that CAN$1.47 equal US$1) and one Chinese Renminbi was
convertible into US$.12077, based on a fixed exchange rate of RMN8.2789 for each
US dollar. (All Canadian currency information is based on exchange rates
reported in the Wall Street Journal on December 1, 1999.)
Risk Factors.
Set forth below are certain risks and uncertainties relating to our
business. These are not the only risks and uncertainties we face. Additional
risks and uncertainties not presently known to us or that we currently deem
immaterial may also impair our business. If any of the following risks actually
occur, our business, operating results or financial condition could be
materially adversely affected.
RISKS RELATING TO OUR BUSINESS
IT IS DIFFICULT TO EVALUATE OUR BUSINESS AND PROSPECTS BECAUSE WE HAVE A LIMITED
OPERATING HISTORY
We began exploring the possibility of entering into the Internet
business in China in January 1999 and reached an agreement with Sichuan Guo Xun
in September 1999 to render the consulting services described in the agreement
between us. We accepted delivery of the Chinese language version of USA.NET's
Web based e-mail and advanced messaging on December 1, 1999 and have commenced
full-scale marketing of these products and services. Accordingly, we have only a
very limited operating history upon which you can evaluate our business and
prospects. As a young company, we face risks and uncertainties relating to our
ability to successfully implement our business plan. You should consider the
risks, expenses and difficulties encountered by companies in their early stages
of development, particularly companies, such as ours, which is doing business in
China in new and rapidly evolving markets, including:
o building a subscriber base for the Internet services offered
by Sichuan Guo Xun;
o successfully marketing our Web based e-mail and advanced
messaging services; and
o promptly address the challenges faced by early stage companies
which do not have an experience or performance base upon which
to draw.
If we do not successfully address these risks and uncertainties, our
business, operating results and financial condition will be materially adversely
affected.
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WE HAVE A HISTORY OF LOSSES, WE EXPECT TO LOSE MONEY IN THE FUTURE AND WE MAY
NOT ACHIEVE OR SUSTAIN PROFITABILITY
We have not generated any revenues from our current business operations and we
expect to continue to lose money at least through the end of fiscal year 2001.
We incurred net losses from operations of approximately $116,795 (unaudited) for
the three months ended September 30,1999, and $322,038 for fiscal 1999. We have
an accumulated deficit from operations of $438,833 since commencing our current
business. We may never generate revenues sufficient to offset expenses and we
may never become profitable. Even if we do achieve profitability, we may not
sustain or increase profitability on a quarterly or annual basis in the future.
We have not generated sufficient revenues to cover the substantial sums we have
spent to create, launch and enhance our services or to continue operating as we
currently do. Our operating costs have exceeded our revenues for all quarters
during which we have been engaged in the Internet services and Web base e-mail
businesses. We have historically funded our operations by selling stock and not
by generating income from our business. We may have to continue financing our
operations from the sale of equity or debt securities and if we are unsuccessful
in obtaining such financing, we will have to rely on revenues generated from
operations to fund our future growth, if any. Please see our financial
statements for further information regarding our financial history.
WE REQUIRE ADDITIONAL FUNDS TO IMPLEMENT OUR CURRENT PLANS AND FINANCE FUTURE
GROWTH
Our business model assumes that we will have substantial additional funds
to implement the full range of products and services we plan to offer. We
require funds for the following purposes:
o To continue providing hardware and technical assistance to
Sichuan Guo Xun;
o To implement our marketing strategy and attract subscribers to
both our e-mail/advanced messaging services and the Internet
access services offered by Sichuan Guo Xun, including hiring
additional persons;
o To put into place a customer service department in China to
assist subscribers both with respect to our e-mail/advanced
messaging services and Internet services;
o To take advantage of unanticipated opportunities, such as
major strategic alliances or other special marketing
opportunities, acquisitions of complementary businesses or
assets;
o To respond to unanticipated developments or competitive
pressures; and
o To develop our future products such as the TVTopBox and our
proposed Web portal.
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We will seek to obtain additional funds through sales of equity and/or debt, or
other external financing in order to fund our current operations and to achieve
our business plan. We cannot assure that any additional capital resources will
be available to us, or, if available, will be on terms that will be acceptable
to us. Any additional equity financing will dilute the equity interests of
existing security holders. If adequate funds are not available or are not
available on acceptable terms, our ability to execute our business plan and our
business could be materially and adversely affected.
OUR MANAGEMENT HAS LIMITED EXPERIENCE OPERATING A PUBLIC COMPANY
Only our Chief Financial Officer has served as a director of a public
company. No other members of our current management team have ever operated a
public company. We must develop the skills and knowledge required to operate
effectively as a public company and there can be no assurance that we will be
able to do so. If we are not successful in developing these skills or do not
retain individuals who have significant experience operating a public company,
we may never be able to implement all or any portion of our business plan and
our business could be materially and adversely affected. Please see the
biographies of our management under Item 5. Directors and Executive Officers,
Promoters and Control Persons.
WE MAY FACE RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS, INVESTMENTS, STRATEGIC
PARTNERSHIPS OR OTHER VENTURES, INCLUDING WHETHER SUCH TRANSACTIONS CAN BE
LOCATED, COMPLETED AND THE OTHER PARTY INTEGRATED WITH OUR BUSINESS ON FAVORABLE
TERMS
As part of our long-term growth strategy, we may seek to acquire or
make investments in complementary businesses, technologies, services or products
or enter into strategic relationships with parties who can provide access to
those assets, if appropriate opportunities arise. From time to time, we may
enter into discussions and negotiations with companies regarding our acquiring,
investing in, or partnering with their businesses, products, services or
technologies. We may not identify suitable acquisition, investment or strategic
partnership candidates, or if we do identify suitable candidates, we may not
complete those transactions on commercially acceptable terms or at all.
Acquisitions often involve a number of special risks, including the following:
o we may experience difficulty integrating acquired operations,
products, services and personnel;
o we may be unable to retain acquired subscribers;
o the acquisition may disrupt our ongoing business;
o we may not be able to successfully incorporate acquired
technology and rights into our service offerings and maintain
uniform standards, controls, procedures, and policies;
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o we may not be able to retain the key personnel of the acquired
company; and
o the businesses we acquire may fail to achieve the revenues and
earnings we anticipated; and
o we may ultimately be liable for contingent and other
liabilities, not previously disclosed to us, of the companies
that we acquire.
We may not successfully overcome problems encountered in connection
with potential future acquisitions. In addition, an acquisition could materially
adversely affect our operating results by:
o diluting your ownership interest;
o causing us to incur additional debt; and
o forcing us to amortize expenses related to goodwill and other
intangible assets.
Any of these factors could have a material adverse effect on our
business. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may incur
indebtedness or issue equity securities to pay for any future acquisitions.
THE FAILURE OF THE UNITED STATES CONGRESS TO RATIFY THE RECENT AGREEMENT BETWEEN
THE US AND CHINA, WHICH WILL CLEAR THE WAY FOR CHINA'S ENTRY INTO THE WORLD
TRADE ORGANIZATION MAY HAVE A NEGATIVE IMPACT ON OUR BUSINESS
On November 15, 1999, the United States and the PRC reached a trade
agreement whereby China agreed to reduce tariffs on various industrial and
agricultural products and lift many of the barriers that prevent US companies
from doing business in China. Under the agreement, China agreed, among other
things, to permit:
o foreign entities to invest in Chinese Internet businesses;
o foreign entities to own up to 49% of Chinese telephone service
providers, which would increase to 50% in two years;
o foreign entities to establish their own product distribution
systems and sell directly to Chinese customers;
o foreign banks and insurance companies to offer services to
Chinese customers in two years; and
o foreign entities to own up to 33% of other financial service
provider, which percent would increase to 49% at some time in
the future.
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The United States agreed that in return for these concessions, that it
would support China's entry into the World Trade Organization, the group that
sets the rule for international commerce. Entry into the WTO would give China
access to international economic protections, such as protection from unfair
trade practices abroad, but also would impose a body of rules on China's
internal economy and put China under the jurisdiction of international courts,
which enforce the World Trade Organization's rules. The agreement is subject to
approval by the United States Congress.
If the US Congress does not approve the trade agreement, there could be
serious repercussions on US-Chinese relations and a possible backlash against
US-owned businesses operating in China, including the adoption of new laws that
severely restrict how US businesses operate in China and their ownership of
Chinese businesses. Any failure to approve the agreement could have a material
negative impact on all aspects of our business and our results or operations.
In addition, China must negotiate and enter trade pacts with each of
Japan and the European Union in order to gain their support to entry into the
WTO and we cannot be certain that China will be successful in concluding
treaties with either of them.
It is impossible to predict how entry into the World Trade Organization
would affect China's economy or the manner in which it conducts business
domestically and internationally.
WE DEPEND ON OUR RELATIONSHIPS WITH USA.NET AND SICHUAN GUO XUN TO GENERATE
REVENUES AND OUR BUSINESS COULD
SUFFER IF THESE RELATIONSHIPS ARE TERMINATED
Our agreement with Sichuan Guo Xun extends through March 2003 and our
initial agreement with USA.NET is for a period of one year expiring on July 2,
2000. These agreements may be terminated early in certain circumstances,
including our failure, in the case of Sichuan Guo Xun, to support its
operations, and in the case of USA.NET, to reach certain minimum sales quotas
and provide certain service and support levels. Even we are able to meet our
sales quotas, USA.NET may not renew our agreement at the conclusion of the term
thereof. If either of these relationships is terminated early, we will be unable
to recover the costs and expenses associated with building our operations in
these markets. If Sichuan Guo Xun terminates our relationship prior to or upon
the expiration of our agreement with it, it is unlikely that we could reach an
agreement with an existing private ISP in China and our business would be
materially adversely affected. If USA.NET does not renew this relationship and
if we do not replace it with another full service Web based e-mail/advanced
messaging strategic partner, then our business, operating results and financial
condition would be materially adversely affected.
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IF WE FAIL TO EFFECTIVELY MANAGE OUR GROWTH, OUR BUSINESS WILL SUFFER
If the Internet and Web based e-mail and messaging becomes as widely
used in China as we expect and as estimates suggest and our business grows
correspondingly, this rapid growth will place a significant strain on our
managerial, operational, financial and information systems resources. To
accommodate any significant increase in our size and manage our growth, we must
implement and improve these systems and attract, train, manage and retain
qualified employees. These demands will require us to add new management
personnel and develop new expertise. If we fail to successfully manage our
growth, our ability to maintain and increase our subscriber base will be
impaired and our business will suffer.
RELIANCE ON USA.NET TO PROVIDE SOFTWARE AND OTHER THIRD PARTIES TO PROVIDE
HARDWARE TO KEEP PACE WITH TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY STANDARDS
AND REMAIN COMPETITIVE
Both the Internet services market and Web based e-mail and advanced
messaging market are characterized by rapidly changing technology, evolving
industry standards, changes in subscriber needs and frequent new services and
product introductions. We will rely on USA.NET to provide us with new products
and services to enhance our Web based e-mail and advanced messaging services and
no assurance can be given that USA.NET will develop or offer to us these new
services.
In addition, we depend on certain suppliers of hardware and software
components to build Sichuan Guo Xun's ISP business. We acquire a majority of our
networking service components, including terminal servers and high-performance
routers, from only a few companies. The expansion of Internet networks worldwide
may place a significant demand on these suppliers, some of which have limited
production capacity. We may experience delays in delivery of new modems,
terminal servers and other equipment. If delays are severe, all of Sichuan Guo
Xun's incoming modem lines may become full during peak times, resulting in busy
signals for subscribers who are trying to connect to Sichuan Guo Xun. If our
suppliers cannot meet increased demand and we are not able to develop
alternative sources of supply, we could experience delays and increased costs in
expanding our network, difficulty in providing our services and the loss of
dissatisfied customers.
Our future success depends, in part, on our ability to:
o use leading technologies to develop our technical expertise;
o enhance our existing services;
o develop or gain the right to offer new services that meet
changing member needs on a timely and cost-effective basis;
and
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o develop new products which are attractive to our subscribers
and which may generate additional subscribers.
In particular, we must provide subscribers with the appropriate
products, services and guidance to best take advantage of the rapidly evolving
Internet and Web based e-mail and advanced messaging market. Our failure to
respond in a timely and effective manner to new and evolving technologies could
have a negative impact on our business. We may not succeed in adapting our
Internet access business or Web based e-mail and advanced messaging services to
new and faster access devices.
ANY DECLINE IN OUR SUBSCRIBER RETENTION LEVELS WILL ADVERSELY AFFECT US
Our new subscriber acquisition costs, both with respect to the Internet
access services provided by Sichuan Guo Xun and the Web based e-mail and
advanced messaging services that we provide, will be substantial relative to the
monthly fees we charge. Accordingly, our long-term success largely depends on
our retention of existing members. While we have invested and will continue to
invest significant resources in our infrastructure and technical and member
support capabilities, it is relatively easy for Internet users and Web based
e-mail/advanced messaging customers to switch to competing providers.
Consequently, our investments may not help member retention. Any significant
loss of members will substantially decrease our revenue and cause our business
to suffer.
WE MAY BE SUBJECT TO LIABILITY AND OUR REPUTATION MAY SUFFER BECAUSE OF
SPAMMING, LOST OR MISDIRECTED MESSAGES OR OTHER PROBLEMS
We may be subject to risks from claims resulting from unsolicited
e-mail (or spamming), lost or misdirected messages, illegal or fraudulent use of
e-mail or interruptions or delays in service. Even to the extent these claims do
not result in liability, we could incur significant costs in investigating or
defending against these claims, or in implementing measures to reduce our
exposure to such liability. These types of claims may also hurt our reputation.
Any imposition of liability coverage could materially adversely affect our
business, financial condition and operating results.
SYSTEM FAILURES EXPERIENCED BY SICHUAN GUO XUN, USA.NET OR CHINA'S NATIONAL
TELECOMMUNICATIONS CARRIERS CAUSED BY NATURAL DISASTERS COULD HAVE AN ADVERSE
EFFECT ON OUR BUSINESS
We expect to derive the vast majority of our revenues for the
foreseeable future from our relationship with Sichuan Guo Xun, which provides
Internet access services to residents of Sichuan Province, China, and the Web
based e-mail and advanced messaging services provided to our subscribers through
the infrastructure of USA.NET. These services are provided over
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telecommunications lines leased from China's national telecommunications
monopolies such as China Telecom and China Unicom, upon which we are dependent
for physical repair and maintenance of the leased lines. We have no or little
control over how USA.NET or the Chinese telephone companies conduct their
respective businesses and cannot cause of any of these entities to take steps
necessary to protect our interests, such as creating redundant systems to which
we could turn in the event of an interruption in service. The occurrence of a
natural disaster, power failures, telecommunications failure or other
unanticipated problem that interrupts or otherwise negatively affects the level
of service afforded by either of Sichuan Guo Xun or USA.NET could have a
material adverse effect our business.
SICHUAN GUO XUN'S AND USA.NET'S NETWORKS ARE SUBJECT TO SECURITY RISKS AND
INAPPROPRIATE USE BY INTERNET USERS THAT COULD INTERRUPT OUR SERVICES
The future success of our business will depend on the security of the
networks of third parties over which we have no control. Despite implementation
of security measures, we remain vulnerable to computer viruses, sabotage,
break-ins and similar disruptive problems caused by subscribers or other
Internet users. Any breach of Sichuan Guo Xun's or USA.NET's network security or
other inappropriate use of the network through which we conduct our businesses,
such as the sending of excessive volumes of unsolicited bulk e-mail or "spam,"
could lead to interruptions, delays, or cessation of services to our
subscribers. Sichuan Guo Xun's Internet subscribers and our e-mail and advanced
messaging subscribers, in turn, could terminate their membership or assert
claims against us. Third parties could also potentially jeopardize the security
of confidential information stored in the computer systems of Sichuan Guo Xun or
USA.NET or our subscribers' computer systems by their inappropriate use of the
Internet, which could cause losses to our subscribers or us or deter potential
customers from subscribing to our services. Inappropriate use of the Internet
includes attempting to gain unauthorized access to information or systems,
commonly known as "cracking" or "hacking." Although we intend to continue to
implement security measures with respect to Sichuan Guo Xun, "hackers" have
circumvented measures taken by other ISPs in the past, and these hackers may be
able to circumvent the security measures in the future. To fix problems caused
by computer viruses or other inappropriate uses or security breaches, we may
have to interrupt, delay, or cease service to our subscribers, which could have
a material adverse effect on our business. In addition, we expect that our
subscribers will increasingly use the Internet for commercial transactions in
the future. Any network malfunction or security breach could cause these
transactions to be delayed, not completed at all, or completed with compromised
security. As a result, subscribers or others may assert claims of liability
against us. Further, until more comprehensive security technologies are
developed, the security and privacy concerns of existing and potential
subscribers may inhibit the growth of the Internet and e-mail and advanced
messaging industries in general and our subscriber base and revenue in
particular.
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OUR SERVICES AND REPUTATION MAY BE ADVERSELY AFFECTED BY SOFTWARE DEFECTS
Our services depend on complex software developed by third parties,
such as the software developed by USA.NET which drives our Web based e-mail and
advanced messaging products. Software often contains defects, particularly when
first introduced or when new versions are released. These defects could cause
service interruptions that damage our reputation, increase our service costs,
cause us to lose revenue, delay market acceptance or divert our development
resources, any of which could materially adversely affect our business,
operating results and financial condition. We may not discover software defects
that affect our services or enhancements until we deploy the software.
FAILURE TO PAY ROYALTIES MAY RESULT IN THE LOSS OF THE AGREEMENT BY WHICH WE
ACQUIRED TORCHMAIL.COM, INC.
We are required to pay ongoing royalties to the seller of
TorchMail.com, Inc. to retain ownership of that corporation and the use of
USA.NET's Web based e-mail and advanced messaging products and services. Any
failure to make such payments, or otherwise meet our obligations to the seller
of TorchMail.com, Inc., could cause us to forfeit that subsidiary, its
subscriber base and the USE.Net e-mail and advance messaging products. We are
required to pay to the seller of TorchMail.com, Inc. royalties based upon the
number of seats (e-mail boxes) we service ranging from between $.01 to $.10 per
seat per month. If we fail to make these payments, or otherwise breach our
agreement with the seller of TorchMail.com, Inc., we will lose our right to
TorchMail.com Inc. and we would lose the entire amount we have invested in this
business through the date of any such forfeiture. The lose of TorchMail.com,
Inc. would have a material adverse affect on our business.
IF WE ARE UNABLE TO RETAIN KEY EXECUTIVES OR HIRE NEW QUALIFIED PERSONNEL, OUR
BUSINESS WILL BE ADVERSELYAFFECTED
Our success greatly depends on our ability to attract and retain key
technical, sales, marketing, information systems, and financial and executive
personnel. We are especially dependent on the continued services of our senior
management team, particularly Brian Ransom, our President, and Owen Li, our
General Manager of Chinese operations. The loss of Mr. Ransom, Mr. Li or other
senior managers could have a materially detrimental effect on us. We have
entered into employment agreements with each of Mr. Ransom and Mr. Li, however,
these agreements are terminable by us and each of these employees. All other
members of our senior management team can terminate their employment at any
time. We do not maintain key person life insurance on any of our personnel. If
we fail to attract, hire or retain the necessary personnel, or if we lose the
services of any member of our senior management team, our business could be
adversely affected.
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OUR FAILURE TO ENSURE THAT OUR SYSTEMS OR OUR CUSTOMERS AND SUPPLIERS SYSTEMS
ARE YEAR 2000 COMPLIANT COULD LEAD TO A MAJOR SYSTEM FAILURE THAT COULD
ADVERSELY AFFECT OUR BUSINESS
The Year 2000 problem is the result of computer programs that use two
digits rather than four to define the applicable year. On January 1,
2000,computer equipment and programs that have time-sensitive software may not
be able to distinguish whether "00" means 1900 or 2000. Incompatible date coding
could cause a major system failure or could create erroneous results. We may
also be vulnerable to other companies' Year 2000 issues. Our failure, or the
failure of third parties on which we rely, to adequately address Year 2000
readiness issues could result in an interruption, or a failure, of some normal
business activities or operations. Presently, we believe that the primary risks
that we face with regard to the Year 2000 are those arising from third party
services or products. In particular, we depend heavily on USA.NET to provide
e-mail/advanced messaging services and equipment. USA.NET has advised us that it
is Year 2000 compliant. We have received no such assurance from Sichuan Guo Xun
or the PRC entities that operate and manage the Chinese Internet backbone. A
significant Year 2000-related disruption of these network services or equipment
could cause our customers to consider seeking alternate providers or cause an
unmanageable burden on customer service and technical support. This in turn
could materially and adversely affect business. Furthermore, our business
depends on the continued operation of, and widespread access to, the Internet.
To the extent that the normal operation of the Internet is disrupted by the Year
2000 issue, or if a large portion of our customers are unable to access the
Internet due to Year-2000 related issues in connection with their own systems,
our business could be materially and adversely affected. We also face Year 2000
risks related to the potential acquisitions we may make. If we fail to identify
and address Year 2000 issues in connection with any potential acquisitions, our
business could be materially and adversely affected. We expect to incur nominal
expenses to implement our Year 2000 readiness program. These estimates do not
include additional costs that may be incurred to expand the program for systems
and products that we may acquire later in 1999. These are our best estimates,
and we do not believe that the total costs will have a material affect on our
business. However, if the actual costs resulting from implementation of the Year
2000 readiness program significantly exceed our estimates, they may have a
material adverse effect on our business. Furthermore, we have not developed a
Year 2000 contingency plan to identify and address significant Year 2000 risks.
WE MUST ESTABLISH, MAINTAIN AND STRENGTHEN OUR BRANDS TO REMAIN COMPETITIVE
To be successful, we believe that we must establish and maintain our
brands. We must succeed in our marketing efforts, provide high-quality services
and increase our user base to build our brand awareness. If consumers, Web
portals, businesses or advertisers do not perceive our services to be of high
quality, or if users reject our new services, the value of our brands would be
diluted. If we are unable to establish and maintain our brands, our business,
operating results and financial condition would be materially adversely affected
COMPETITION
Both the ISP industry and Web based e-mail/advanced messaging
industries in the geographic areas where we do business are highly competitive.
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The ISP industry in China is dominated nationally and in each province
by PRC government owned ISP's. These entities are significantly larger and
possess greater financial and personnel resources than do Sichuan Guo Xun or us.
Furthermore, these ISPs have access to inexpensive telecommunications lines and
can charge significantly lower prices than Sichuan Guo Xun. In order to be
competitive with and overcome the inherent advantages possesses by these
entities, we will have to offer higher quality Internet access services by
decreasing the subscriber to line ratio and providing faster and more reliable
services. In addition, if the PRC relaxes constraints on licensing and other
impediments to entering the provincial ISP market, we can expect many new
entrants into the market, both Western and Asian, most of which will have
substantially greater resources than we have at our disposal. We can offer no
assurance that we will be able to compete successfully against public or private
ISPs now existing or which enter the market in the future.
While we are not aware of any other entities currently offering Web
based e-mail and professional messaging services, we expect that other entities
will enter the market to avail themselves of the enormous potential which exists
in China. Many of the entities which we would expect to enter the market are
substantially larger and have greater financial, technical and personnel
resources than we do. There can be no assurance that we will be able to compete
successfully against any of our competitors in the Web based e-mail and advanced
messaging products industry.
RISKS RELATING TO DOING BUSINESS IN CHINA AND OUR STRATEGIC
RELATIONSHIP WITH SICHUAN GUO XUN
OUR BUSINESS DEPENDS ON CONTINUED GROWTH OF THE INTERNET IN CHINA
Our future success substantially depends on continued growth in the use
of computers, the Internet and Web based e-mail and advanced messaging services
in China. Although we believe that computer and Internet usage and the
popularity of Web based e-mail and advanced messaging services in China will
continue to grow as it has in the past, we cannot be certain that this growth
will continue or that it will continue in its present form. The growth of
computer usage and the Internet in China is constrained by the cost of computers
and other Internet access devices to Chinese people relative to their annual
income and current technology infrastructure and no assurance can be given that
computers or other Internet access devices will be offered at prices within the
budget of the average Chinese consumer or that the technological infrastructure
will be enhanced. If Internet usage declines in China or evolves away from our
business, our growth will slow or stop and our financial results will suffer.
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WE MUST DEVOTE SIGNIFICANT MANAGERIAL, TECHNICAL AND FINANCIAL RESOURCES TO OUR
STRATEGIC RELATIONSHIP WITH SICHUAN GUO XUN AND THIS RELATIONSHIP MAY NOT PROVE
TO BE PROFITABLE
Our relationship with Sichuan Guo Xun exposes us to a number of
significant risks and uncertainties, such as:
-We may fail to generate sufficient revenues from these operations to
offset the expenses and resources we devote to developing, maintaining
and enhancing such services;
-The resources we need to devote to these relationships and our
services may be greater than we anticipate; and
-These relationships may divert our resources and our management's time
and attention from our other services, including our e-mail/advanced
messaging services
These risks and uncertainties could result in material adverse effects
upon our business, operating results and financial condition. Our strategic
relationship with Sichuan Guo Xun requires that we devote significant
managerial, technical and financial resources to this relationship. Our
agreement with Sichuan Guo Xun requires us to support its operations by
contributing hardware and software to our PRC subsidiary, which will require a
substantial capital contribution. We have invested $700,000 in our PRC
subsidiary to purchase additional hardware and other capital equipment used in
the provision of Internet access services and to provide service and support in
order to achieve our expansion and growth objectives and expect to provide
substantial additional capital in the future. If we are unable to provide this
additional capital to purchase hardware and software on a timely basis, Sichuan
Guo Xun may terminate our relationship. Please see our discussion in "Business -
ISP Services" for additional information regarding our relationship with Sichuan
Guo Xun.
SICHUAN GUO XUN IS DEPENDENT ON NATIONAL TELECOMMUNICATIONS CARRIERS FOR LINES
AND IS SUBJECT TO THEIR LINE CHARGES
Sichuan Guo Xun relies on traditional telecommunications carriers to
transmit its traffic over local and long distance networks, both with respect to
dial-up service for its subscriber base as well as for line charges which
connect it to China's Internet backbone. Specifically, it relies on the PRC
telephone monopolies such as China Telecom and China Unicom. The benefits of
competition and alternative sources of supply are not present in these markets.
These entities can set rates and charges for Sichuan Guo Xun's lines while
competing only against themselves. Although line rates and charges have been
reduced since the break-up of China Telecom into several government owned
telecommunications carriers, there can be no assurance that line rates will
continue to decrease or that rates will not increase in the future. Sichuan Guo
Xun will have to pay the line rates charged by these entities to continue in
business. Although we have been assured that additional lines are available,
these entities may deny or delay the allocation of leased lines to Sichuan Guo
Xun for no reason. Any drastic increase in the rates charged by the
telecommunications monopolies for access lines or any failure to obtain
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additional lines will adversely affect our business and potentially slow our
growth. In addition, these networks may experience disruptions and capacity
constraints that are not easily remedied. Sichuan Guo Xun has no means of
replacing these services.
IF SICHUAN GUO XUN DOES NOT SUCCEED IN DEVELOPING SUFFICIENT NETWORK CAPACITY,
IT MAY LOSE CUSTOMERS
The success of Sichuan Guo Xun will depend, in part, on the capacity,
reliability and security of its network. Sichuan Guo Xun's network includes
computers, servers, routers, modems and other related hardware and software.
While Sichuan Guo Xun has not experienced network capacity constraints to date,
such constraints may occur in the future, if Sichuan Guo Xun grows as we
anticipate, in connection with:
- particular dial-up POPs affecting only members attempting to use that
particular point of presence; and
- system wide services, such as e-mail and news services, which can
affect all members.
These capacity constraints may result in slowdowns, delays or inaccessibility
when subscribers try to use a particular service. Poor network performance could
cause subscribers to terminate their membership with us. To reduce the
probability of such problems, we will be required to expand and improve Sichuan
Guo Xun's network. Such expansion and improvement will be very costly and time
consuming. We have committed to provide $1 million to Sichuan Guo Xun to expand
its network and have provided $700,000 to date. We may not have sufficient funds
or otherwise be able to expand or adapt Sichuan Guo Xun's network to meet
additional demand or changing subscriber requirements on a timely basis or at a
commercially reasonable cost.
INCREASED GOVERNMENT REGULATION MAY INCREASE OUR COST OF DOING BUSINESS OR CAUSE
US TO CHANGE THE WAY WE CONDUCT OUR BUSINESS
Any new legislation or regulation adopted by the PRC regarding the
Internet, or the application or uncertainty relating to the application of
existing laws and regulations to the Internet, could materially adversely affect
our business, operating results and financial condition. Legislation could
impair the growth of the Internet and decrease the acceptance of the Internet as
a communications and commercial medium. This could decrease the demand for our
services, increase our cost of doing business or otherwise have a material
adverse affect on our business, financial condition and operating results.
Further, the growth and development of the Internet messaging market may prompt
calls for more stringent consumer protection laws that may impose additional
burdens on companies conducting business online. These laws may impose
additional burdens on our business. For example, because we rely on the
collection and use of personal data from our users for targeting advertisements,
any laws or regulations that restrict our ability to collect or use such
information may harm us. Hong Kong has enacted laws or adopted regulations that
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prevent Internet companies or Web portals from selling any information collected
from users.
WE MAY BE SUBJECT TO CRIMINAL PENALTIES, INCLUDING REVOCATIONS OF OUR LICENSE TO
DO BUSINESS IN CHINA IF WE ARE SUBJECT TO CLAIMS BASED ON THE NATURE AND CONTENT
OF MATERIALS TRANSMITTED THROUGH OUR WEB BASED E-MAIL AND MESSAGING SERVICES
As a provider of Web based e-mail and messaging services, we may be
subject to legal claims involving matters such as a breach of Chinese national
security, defamation, negligence, invasion of privacy, copyright infringement
and other claims based on the nature and content of the materials transmitted by
e-mail. We do not and cannot screen all of the content generated by our users
and we could be exposed to liability with respect to this content. Online
content restrictions in China are extremely broad and cover many areas,
including breaches of national security; disclosure of State secrets;
infringement on State; social or collective interests or the legal rights and
interests of citizens; or illegal or criminal and prohibit the transmission of
indecent or obscene information and content. While we are unaware of any
enforcement of these laws by the PRC in connection with the content of e-mail
and online messages, the PRC government could successfully use these laws to
terminate operations of Web based e-mail and messaging providers licensed to
operate in China.
BECAUSE SICHUAN GUO XUN LACKS FULL REDUNDACY OF ITS COMPUTER SYSTEMS, A SYSTEMS
FAILURE COULD PREVENT IT FROM OPERATING ITS BUSINESS
Sichuan Guo Xun relies on the Internet and, accordingly, upon the
continuous reliable and secure operation of its Internet servers, hardware,
software and infrastructure, such as leased lines from telecommunications
service providers operated by the government of China. While Sichuan Guo Xun
does have limited back-up capability, it does not have full redundancy of all of
its computer and telecommunications systems. As a result, failure of key primary
or back-up systems to operate properly could lead to a loss of customers and
damage Sichuan Guo Xun's reputation. We are working to increase the extent of
the redundancy of Sichuan Guo Xun's systems to lessen the effects of any system
failure, but we cannot make any assurance that existing back-up and redundancy
systems or these implemented in the future will be sufficient to avoid the
problems which may result from a failure of existing systems.
REGULATION OF THE INTERNET AND INFORMATION INDUSTRY IN THE PRC MAY ADVERSELY
AFFECT OUR BUSINESS
The PRC has enacted regulations governing the provision of ISP
services, Internet access and the distribution of news and other information.
The Chinese government regulates access to the Internet by imposing strict
licensing requirements and requiring ISPs in China to use the international
inbound and outbound Internet backbones. Sichuan Guo Xun has been issued all
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licenses required to offer Internet access services in the Province of Sichuan.
There can be no assurance that Sichuan Guo Xun's will retain its license.
In the future, we hope to develop a Web portal which will provide news
and other information to users. The Propaganda Department of the Communist Party
has been given the responsibility to censor news published in China to ensure,
supervise and control political correctness. The Ministry of Information
Industry has published implementing regulations that subject online information
providers to potential liability for content included on their portals and the
actions of subscribers and others using their systems, including liability for
violation of Chinese laws prohibiting the distribution of content deemed to be
socially destabilizing. Because many Chinese laws, regulations and legal
requirements with regard to the Internet are relatively new and untested, their
interpretation and enforcement of what is deemed to be socially destabilizing by
Chinese authorities may involve significant uncertainty. In addition, the
Chinese legal system is a civil law system in which decided legal cases have
little precedential value. As a result, in many cases it is difficult to
determine the type of content that may result in liability. We cannot predict
the effect of further developments in the Chinese legal system, particularly
with regard to the Internet, including the promulgation of new laws, changes to
existing laws or the interpretation or enforcement thereof, or the preemption of
local regulations by national laws. Periodically, the Ministry of Public
Security has stopped the distribution of information over the Internet which it
believes to be socially destabilizing. The Ministry of Public Security has the
authority to cause any local ISP to block any Web site maintained outside of
China at its sole discretion. Web sites that are blocked in China include many
major news-related Web sites such as www.cnn.com, www.latimes.com,
www.nytimes.com and www.appledaily.com.hk. These laws will affect the Chinese
language Web portal which we propose to develop in the future.
The Chinese government has also expressed its intention to closely
control possible new areas of business presented by the Internet, such as
Internet telephony. We cannot provide assurance that we will be able to obtain
any necessary license required in the future or that future changes in Chinese
government policies affecting the provision of ISP services, information
services, including the provision of online services, will not impose additional
regulatory requirements on us or our strategic partner, intensify competition in
the Chinese information industry or otherwise have a material adverse effect on
our business, financial condition and results of operations.
THERE ARE ECONOMIC RISKS ASSOCIATED WITH DOING BUSINESS IN CHINA
The PRC economy has experienced significant growth in the past decade,
but such growth has been uneven across geographic and economic sectors and has
recently been slowing. There can be no assurance that such growth will not
continue to decrease or that any slow down will not have a negative effect on
our business. The PRC economy is also experiencing deflation which may continue
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in the future. The current economic situation may adversely affect our
profitability over time as expenditures for advertisements may decrease due to
the results of slowing domestic demand and deflation. On October 7, 1998, the
Guangdong International Trust and Investment Corporation, an investment holding
company of Guangzhou Province, was declared insolvent and shut down by the PRC
government. Subsequently many other similarly situated PRC provincial investment
holding companies have defaulted on their loans and experienced financial
difficulties. As a result, our clients and suppliers may have limited access to
credit that may adversely affect our business. In addition, the international
financial markets in which the securities of the PRC government, agencies and
private entities are traded also have experienced significant price fluctuations
upon speculation that the PRC government may devalue the Renminbi which could
increase our costs relative to our PRC revenues.
RESTRICTIONS ON CURRENCY EXCHANGE MAY LIMIT OUR ABILITY TO UTILIZE OUR REVENUES
EFFECTIVELY
We expect to derive a significant portion of revenues in the form of
Renminbi. Although Chinese governmental policies were introduced in 1996 to
allow greater convertibility of the Renminbi, significant restrictions still
remain. We can provide no assurance that the Chinese regulatory authorities will
not impose greater restrictions on the convertibility of the Renminbi. Any
future restrictions on currency exchanges may limit our ability to utilize
revenue generated in Renminbi to fund our business activities outside the PRC.
A CHANGE IN CURRENCY EXCHANGE RATES COULD INCREASE OUR COSTS RELATIVE TO OUR
REVENUES
We expect to generate a portion of our revenues and to incur expenses
and liabilities in Chinese Renminbi and U.S. dollars. As a result, we are
subject to the effects of exchange rate fluctuations with respect to any of
these currencies. We have not entered into agreements or purchase instruments to
hedge our exchange rate risks although we may do so in the future.
RISKS RELATING TO OUR STOCK
POSSIBLE DELISTING OF OUR STOCK FROM TRADING ON THE ELECTRONIC BULLETIN BOARD
Our common stock is listed on the electronic bulletin board of the
over-the-counter market. In early 1999, the Securities and Exchange Commission
and NASDAQ adopted regulations that would prohibit securities that are not
registered under the Securities Exchange Act of 1934 from trading on any market
or electronic exchange, including the electronic bulletin board. Any securities
not so registered by the date specified by NASDAQ would be "delisted," that is
dropped from the electronic bulletin board from trading. Under these new rules,
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our class of common stock must be registered under the Securities Exchange Act
of 1934 by January 19, 2000. This Form 10-SB is intended to register our class
of common stock under the Securities Exchange Act of 1934. However, by law,
registration statements such as this Form 10-SB do not become effective until 60
days after filing with the Securities and Exchange Commission. A date 60 days
from the filing of this Form 10-SB would extend beyond the January 19, 2000
deadline. If the Securities and Exchange Commission does not declare this Form
10-SB effective prior to the delisting date, our common stock will be delisted
from trading on the electronic bulletin board and holders of our common stock
would have no means of liquidating their shares. Once delisted, we cannot
predict when, if ever, our class of common stock would be re-listed for trading
on the electronic bulletin board or any other market or exchange as the approval
to re-list the common stock is subject to review by the NASD.
BECAUSE OUR COMMON STOCK PRICE IS BELOW $5.00, WE ARE SUBJECT TO ADDITIONAL
RULES AND REGULATIONS.
The SEC has adopted regulations which generally define a "penny stock"
to be any equity security that has a market price (as defined) of less than
$5.00 per share, subject to certain exceptions. Our common stock presently is a
"penny stock". Because our stock is a "penny stock", it is subject to rules that
impose additional sales practice requirements on broker/dealers who sell our
securities to persons other than established customers and accredited investors.
There can be no assurance that the common stock will trade for $5.00 or more per
share, or if so, when.
Although we desire to list the common stock on the Nasdaq SmallCap
Market and intend to apply for a listing on the SmallCap market at such time as
we meet the listing criteria, there can be no assurance that we will ever
qualify.
In order to qualify for initial listing on the Nasdaq SmallCap Market a
company must, among other things, have:
o at least $4,000,000 in net tangible assets;
o a $5,000,000 "public float;" and
o a minimum bid price for its securities of $4.00 per share.
o maintain $2,000,000 in net tangible assets, and
o a $1,000,000 market value of the public float.
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In addition, continued inclusion requires two market makers and a
minimum bid of $1.00 per share. Failure to meet these maintenance criteria may
result in the discontinuance of Nasdaq SmallCap Market listing.
Absent Nasdaq SmallCap Market or other Nasdaq or stock exchange
listing, trading, if any, in common stock will, as it presently is, continue in
the "Electronic Bulletin Board" administered by the National Association of
Securities Dealers, Inc. As a result, you may find it difficult to dispose of or
to obtain accurate quotations as to the market value of the common stock.
OUR STOCK PRICE IS HIGHLY VOLATILE
In the past, our common stock has traded at volatile prices. We believe
that the market prices will continue to be subject to significant fluctuations
due to various factors and events that may or may not be related to our
performance. The stock market has from time to time experienced significant
price and volume fluctuations, which have particularly affected the market
prices of the stocks of Internet-sector companies and companies operating in
China which may be unrelated to the operating performance of such companies.
Furthermore, our operating results and prospects from time to time may be below
the expectations of public market analysts and investors.
FACTORS OUTSIDE OF OUR CONTROL MAY AFFECT OUR OPERATING RESULTS AND CAUSE OUR
QUARTERLY RESULTS TO FLUCTUATE
Our financial results may fluctuate significantly because of several factors,
many of which are beyond our control. These factors include:
o our failure to keep pace with changing technology;
o costs associated with gaining and retaining members and
capital expenditures for upgrading our systems and
infrastructure;
o timing and market acceptance of new and upgraded Internet
service introductions, technologies and services by us and our
competitors;
o loss of subscribers, seasonal fluctuations in demand for our
services;
o downward pressure on prices due to increased competition;
o changes in our operating expenses, including
telecommunications costs; and
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o the effect of potential acquisitions.
Fluctuations caused by these and other factors could cause our business to
suffer.
WE HAVE NO INTENTION TO PAY DIVIDENDS
We have never paid any cash dividends on our common stock. We currently
intend to retain all future earnings, if any, for use in our business and do not
expect to pay any dividends in the foreseeable future.
THE FUTURE SALE OF OUR COMMON STOCK IN THE PUBLIC MARKET COULD CAUSE OUR STOCK
PRICE TO FALL
The market price of our common stock could fall if our stockholders
sell substantial amounts of common stock, including shares issued upon the
exercise of outstanding options, in the public market following this offering.
Such sales might also make it more difficult for us to sell equity securities in
the future at a time and price that we deem appropriate. Please refer to our
discussion in "Shares Eligible for Future Sale."
CAUTIONARY NOTE ABOUT FORWARD-LOOKING STATEMENTS
This Form 10-SB may include "forward-looking statements" within the
meaning of Section 27A of the Securities Act and Section 21E of the Exchange
Act. We intend the forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements in these sections. All statements
regarding our expected financial position and operating results, our business
strategy, our financing plans and the outcome of any contingencies are
forward-looking statements. These statements can sometimes be identified by our
use of forward-looking words such as "may," "believe," "plan," "will,"
"anticipate," "estimate," "expect," "intend" and other phrases of similar
meaning. Known and unknown risks, uncertainties and other factors could cause
the actual results to differ materially from those contemplated by the
statements. The forward-looking information is based on various factors and was
derived using numerous assumptions. Although we believe that our expectations
that are expressed in these forward-looking statements are reasonable, we cannot
promise that our expectations will turn out to be correct. Our actual results
could be materially different from our expectations, including the following:
- the Internet and Web based e-mail may not grow as quickly as
anticipated in China;
- we may lose subscribers or fail to grow our subscriber base;
- the service providers with which we do business may fail to
provide adequate services or develop and provide us with
competitive products;
- we may not successfully integrate operations, personnel or
assets obtained through acquisitions;
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- we may fail to compete with existing and new competitors; - we
may not be able to sustain growth;
- we may not adequately respond to technological developments
impacting the Internet;
- we may fail to identify and correct a significant Year 2000
compliance problem and experience a major system failure;
- we may not be able to find needed financing; and - internal
laws and regulations governing our operations in China may
change in a way which materially and negatively effects our
business.
This list is intended to identify some of the principal factors that could cause
actual results to differ materially from those described in the forward-looking
statements included elsewhere in this report. These factors are not intended to
represent a complete list of all risks and uncertainties inherent in our
business, and should be read in conjunction with the more detailed cautionary
statements included in this prospectus under the caption "Risk Factors."
BUISNESS
The Internet.
Growth Of The Internet and the World Wide Web (the "Web")
The Internet is a global collection of connected public and private
computer systems and networks that link millions of public and private computers
to form what is essentially the largest computer network in the world. The
Internet enables government agencies, educational institutions, commercial
organizations and individuals to communicate, access and share information,
provide entertainment and conduct business remotely. The Internet has
experienced rapid growth in recent years and is expected to continue to grow
based on estimated increases in the numbers of Web users, Web traffic and the
number of Web sites. International Data Corporation ("IDC") estimates that the
number of worldwide users of the Internet will increase from 97 million in 1998
to 502 million by the end of 2003. In a report issued in April 1998, the U.S.
Department of Commerce estimates that traffic on the Internet is doubling every
100 days. Additionally, Forrester Research estimates that the number of Web
sites in the United States will increase from approximately 450,000 in 1997 to
nearly four million in 2002.
Several factors are contributing to the Internet's growth on a
worldwide basis, including the proliferation of lower cost personal computers
("PCs"); advances in the performance and speed of PCs, modems and networking
components; improvements in network infrastructures, easier and more competitive
access to the Internet and the increasing use of the Internet by businesses as a
competitive tool. In addition, the emergence of a network of servers and
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information called the World Wide Web, which is rich in content, activities and
services, has made the Internet more accessible in terms of providing
information, products and services that people can use on a daily basis.
Furthermore, the Internet has become an important global medium that enables
millions of people to obtain and share information and conduct business
electronically. In China, additional factors driving the growth of the Internet
include improving technological infrastructure, the increase in access to
personal computers (PCS) and a rapid increase of the quantity of Chinese content
driven by the government's online initiative and commercial enterprises, among
other factors described below.
Internet Infrastructure in China
China's Internet network presently consists of four, largely separate
national networks: ChinaNet, the largest Internet access provider, is owned and
operated by the PRC government and is the only channel through which the
domestic PRC network can connect to the international Internet network; Golden
Bridge Network, a much smaller, competing commercial network; China Science and
Technology Network, the nation's high technology research network; and China
Educational and Research Network, linking China's academic and learning
institutions from grade school to post-graduate level. A fifth network, the
China Multimedia Services Network, is an asynchronous transfer mode, or ATM,
network which relies on ATM switches and routers (which are poorly suited to
carrying Internet protocol traffic, which results in inefficient use of network
bandwidth), is currently under development and is already available in a number
of cities. This network currently offers limited access to the international
Internet.
Until March 1997, these four networks had virtually no
interconnectivity so that all Internet traffic had to be routed via the United
States. Today, there is limited connectivity via low bandwidth (128K) leased
line connections among the four networks, though these connections are
completely saturated. As yet, there are no shared network access points or
peering relationships (which are agreements among Internet networks and service
providers which permit information to flow freely from one network to another)
to improve the efficiency of network traffic. The various networks have little
or no redundancy or back-up, and network flow is subject to frequent outages.
All ISPs in China are connected to nodes operated and maintained by the
Science and Technology Ministry of the PRC government. Nodes (the physical
equipment through which ISPs connect to China's Internet backbone and which
connect China to the international Internet) and routers (which send Internet
data to the proper destination) have been established in 31 of China's largest
cities such as Beijing, Guangzhou, Shanghai and Chengdu. Nodes located in
coastal cities such as Beijing, Shanghai and Guangzhou provide China with its
connection to the international Internet.
The majority of commercial users access ChinaNet via dial-up accounts
that support bandwidth speeds of up to 33.6Kbps, that is, the communications
line can accommodate a maximum of 33,600 bytes of information per second.
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Accessing The Internet in China
In China, access to the Internet is accomplished primarily through the
government's backbone of separate national interconnecting networks that connect
with the international gateway to the Internet, which is owned and operated by
the PRC government and is the only channel through which the domestic PRC
network can connect to the international Internet network. Presently, almost all
access to the Internet is through ChinaNet, the PRC's primary commercial network
(operated by the Ministry of Information Industry), which is owned and operated
by the PRC government. Four other Internet access providers are operating at a
national level, albeit with small subscriber bases. Over the last several years,
the PRC government and individual provinces, consistent with the central
government's policies and initiatives to establish and construct a modern
telecommunications industry and information distribution system, have granted
licenses to private organizations to provide Internet access services to the
Internet's resources. In October 1999, there were estimated to be 150 private
ISPs operating in China. Access services in China generally are limited to
dial-up modem access whereby an individual's computer dials a number which
connects the user to a network owned and maintained by the ISP, which either has
access to the Internet backbone or is permanently connected to the Internet, and
through which the user is connected to the Internet. ISP's in China all rely on
the national telecommunications companies, such as China Telecom and China
Unicom, to provide Internet access lines and to maintain local
telecommunications lines.
In Beijing, it is possible for computer users to access the Internet by
dialing a four digit number and logging-on using a three digit password, which
is available to anyone. The only cost for the service is the telephone line
charge [(pay local phone charges of roughly 4 RMB (US$0.50) per hour] that
appears on the telephone line's monthly bill. The Golden Bridge Network,
described below, has a similar access system, charged through the purchase of a
pre-paid calling card, and is available in most major cities in China.
Growth Opportunities in China
According to ChinaNIC ("CNNIC"), a department of the Chinese Academy of
Sciences, by July 1999, China officially had 4 million Internet users, up from
2.1 million users at the end of 1998. A study conducted by Maverick Research
Ltd., in conjunction with Virtual China Inc., estimates that the number of
Internet users in China could increase to 15 million persons by mid 2001
(measured by numbers of users accessing the Internet, not by the number of
computers connected to the Internet). IDC estimates that Web pages hosted in
China grew from 100 in 1994 to 250,000 in 1998. According to The Internet in
China, a study published in June 1999 by Strategis Group and BDA China, China is
the fastest-growing Internet market in Asia. The study estimates that by the end
of 1999, more than 6.7 million people in China will have Internet access, a
number projected to grow to 33 million or more by 2003. Some forecasts project
up to 100 million users by 2010, at which time China would surpass the United
States as the country with the most Internet users.
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In addition to the factors described above, several specific elements
are contributing to the growth of the Internet in China, including: the
increasing familiarity, acceptance, and use of the Internet by the central and
local governments, businesses, and consumers; the growing number of PCs
installed in homes, offices, and public locations such as libraries and schools;
the advent of the television set-top box that requires only a television set and
telephone line for Internet access (at a cost significantly less than a PC and
within the budget of many more Chinese than a PC); the increased availability of
PCs for purchase through retail outlets in China; the decreasing cost of PCs and
related peripherals; significant improvements and upgrades in progress in
telecommunications network infrastructure, bandwidth, and connectivity; the
popularity of e-mail and advanced messaging services; and the emphasis placed by
the PRC government on developing a national information infrastructure built, in
part, on Internet connectivity under its Torch Program and the initiation of the
Golden Projects, launched in 1994, designed to increase economic efficiency and
centralize the control of information.
Under the Torch Program, the PRC government has already invested more
than US$28 billion to install more than 100,000 km of optical fiber that now
links 85% of the country. In addition, under the Golden Bridge Project, the PRC
commenced development of the infrastructure for "informationizing" the national
economy, which encompassed the construction of an infrastructure backbone over
which other information services run and included a hybrid network of satellite
and landline networks, which tie together the provincial and regional nodes. The
Golden Bridge Project has given rise to CERNET (the China Education and Research
Network, discussed above), which was intended to be China's entry into the
Internet.
The first direct fiberoptic link between China and the US -- the US$1.2
billion China-US Cable Network project -- is expected to be completed in the
first half of 2000. This link will provide an explosion of information available
within China. In order to make efficient and economical use of the coming flood
of information, the Chinese government is encouraging foreign investment and
assistance to develop its telecommunications and technology infrastructures.
Over the last several years, as a part of the Torch Program initiative,
China has taken steps to improve telecommunications for the masses by increasing
cable television and telephone installations, both of which can support Internet
access. As of a recent date, cable television access was installed in over 100
million households in China and there was more than one television set for every
eight people and one color television for each urban household. Telephone
penetration in China is expected to rise at annual average rate of 2% in the
next five years and reach 22% by 2003 from the current 12%, with the focus
placed on the rural and western part of the country, according to the Minister
of the Information Industry. By 2003 the number of customers using fixed
telephones will increase to 170 million from the current 100 million and the
number of persons using mobile telephones will increase to 100 million from the
current 36 million. In the Province of Sichuan, which has a population of
approximately 100 million people, there are estimated to be approximately 3.44
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million fixed line telephone subscribers and 546,000 mobile telephone
subscribers. Though penetration of actual lines are low when expressed as a
percentage of the overall population, these percentages translate into an
enormous numbers of households when viewed in relation to the actual population.
The Maverick Research Ltd. report forecasts that PC sales in China are
expected to be 7 to 10 million units over the next two years. The confluence of
telephone and cable television line installations and PC sales point to
significantly increased Internet access use over the next several years.
We do not believe that the economic downturn in Asia during 1998 and
1999 has effected or will impact the rate of Internet penetration in China or
our other target markets for the following reasons:
o Statistics evidence continued growth in use of the Internet;
o The PRC government has adopted policies and taken initiative
to develop the telecommunications infrastructure and to ensure
that the Internet continues to grow; and
o It appears that individual and business Internet users have
determined that Internet applications such as e-mail and Web
site advertising, offer lower cost substitutes for comparable
non-Internet alternatives.
E-commerce in China
The Internet is dramatically affecting the methods by which consumers
and businesses are evaluating and buying goods and services, and the methods by
which businesses are providing customer service. The Internet provides online
merchants with the ability to reach a global audience and to operate with
minimal infrastructure, reduced overhead and greater economies of scale, while
providing consumers with a broad selection, increased price comparison power and
convenience. In the last several years, many companies have emerged that focus
solely on the Internet as the medium for selling products or delivering services
directly to purchasers, bypassing traditional wholesale and retail channels.
Furthermore, traditional businesses are implementing sophisticated Web sites and
extranets to effect electronic commerce initiatives that offer competitive
advantages.
These businesses are deploying an expanding variety of Internet-enabled
applications, ranging from Web site marketing and recruiting programs to on-line
customer interaction systems, integrated purchase order and "just-in-time"
inventory solutions for key customers and suppliers. These capabilities require
increasingly complex Web sites and support operations. In addition, advances in
on-line security and payment mechanisms are alleviating concerns associated with
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conducting transactions in an open-platform environment, thus prompting more
consumers and businesses to use the Internet in conjunction with purchases and
more businesses to offer a greater breadth of electronic commerce services. IDC
estimates that the number of consumers buying goods and services on the Internet
will grow from 17.6 million in 1997 to over 128 million in 2002, and that the
total value of goods and services purchased over the Internet by consumers and
businesses will increase from approximately $12 billion in 1997 to over $425
billion by 2002.
The opportunities for e-commerce in emerging markets such as China are
magnified by the inefficiencies of existing product and service distribution
systems. Products are available sporadically, if at all, in certain locations
and at prices which do not reflect a world-wide competitive environment or other
market forces. Alternatively, e-commerce affords customers access to a greater
variety of products and services at prices consistent with world markets. These
factors are expected to be the primary driving forces behind the projected
explosive growth of e-commerce in China. In fact, China's President, Jiang Zemin
has described e-commerce as "the future of business" and called on developed
countries to provide less developed countries with the technology and other
assistance needed to promote it. This statement, made at such a high level,
reflects the emphasis China is beginning to put in the economic benefits of
having a wired nation.
E-commerce is relatively prevalent among state sector and government
controlled businesses but is almost nonexistent among individual consumers. In
the summer of 1998, the Ministry of Foreign Trade and Economic Cooperation
(otherwise known as "MOFTEC") went on-line with its China Market Web site, the
country's first official export-oriented business-to-business e-commerce site.
One report suggests that this site was organized because the preponderance of
major business is conducted by state-sector and government controlled businesses
and that it will serve as the foundation for consumer oriented e-commerce.
However, by some estimates e-commerce is on the cusp of explosive growth.
According to BDA China/Strategis Group, China will have over 33 million Internet
users employing over 37 million computers by the end of 2003 and IDC predicts
that China's e-commerce market will burgeon to over $11 billion by 2004, up from
$43 million in 1999 (though no break-down between e-commerce derived from
business customers relative to individual consumers was provided in this study).
While e-commerce is in its infancy in China, companies such as
China.com Corporation and Sina.net, have rolled out fully diversified
sophisticated Web Portals to deliver content, products and services targeting
Chinese speaking people in China, Hong Kong and Taiwan. Similar Web sites have
been and will be developed and as they condition the Chinese market to the
possibilities of e-commerce for the masses, e-commerce will gain increasing
acceptance as a purchase medium for consumers and as an advertising tool for
businesses.
The most cited obstacle to e-commerce in China is the lack of a
nation-wide credit card verification system. Although credit cards such as
MasterCard and Visa operate in China, these cards predominantly are issued by
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individual banks and their use is limited because of the inability of merchants
to clear transactions with banks with which they do not have a relationship. The
PRC, as a part of its Golden Projects initiative, has proposed the Golden Card
project which has targeted the development of a nationwide, inter-bank credit
card clearing house by the year 2000. The development and widespread issuance of
credit cards would inaugurate the e-commerce era in China.
In a study conducted by CNNIC, the typical Internet user in China is a
young, college educated, urban male, who is technically oriented and accesses
the Internet via the Windows operating system. A very high percentage reside in
China's major cities. According to the report, 37% of users have annual incomes
between 400 and 1,000 Renminbi (the official Chinese unit of currency, valued,
by the PRC government, at RMB8.28 per US$1). These persons are influenced by
and, in essence, are a part of Western culture. We believe that this segment of
the population will be the driving force behind the first wave growth of
e-commerce in the future.
Electronic Mail (e-mail)
The Internet is quickly becoming an important communications tool,
advertising medium and sales channel for both consumers and businesses
worldwide. IDC estimates that the number of Internet users worldwide will grow
from 97 million in 1998 to 502 million by the end of 2003, and that the number
of devices able to access the Internet will increase from 120 million in 1998 to
515 million by the end of 2002. Jupiter Communications estimates that online
advertising revenue will grow from approximately $1.9 billion in 1998 to
approximately $7.7 billion in 2002. We believe that e-mail and advanced
messaging services will continue to be key drivers of Internet usage and growth
because they are among the most popular Internet applications today. E-mail is a
powerful yet inexpensive means of handling a wide variety of
business-to-business, business-to-consumer and personal communications at any
time and from any location.
According to the CNNIC report, 94% of the Internet users cite e-mail as
a motive for accessing the Internet and almost 91% of Internet users cited
e-mail as the most frequently used service. A United States Embassy report on
the Internet in China indicates that over 9% of information carried by Internet
circuits in China is devoted to e-mail.
By way of comparison to United States e-mail trends, Forrester Research
reports that the number of e-mail users in the United States is expected to
increase from 75 million in 1998 to 135 million in 2001. In addition, IDC
estimates that the total number of e-mail messages sent per day in the United
States will increase from 2.1 billion in 1998 to 7.9 billion in 2002.
We believe that the growth in the use of e-mail is being driven by its
convenience, speed, relatively low cost and the ability to send multimedia
attachments, such as video clips, graphics files, audio files, documents and
spreadsheets. These products are available because of new industry wide e-mail
protocols. New Internet protocols enable a user to access messages from a
variety of devices. These protocols allow Internet servers to route mail from
the sender to a destination so that users with a Web browser, such as Netscape
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Navigator or Microsoft Internet Explorer, to access their messages from any
computer, terminal or device that is connected to the Internet. These protocols
also allow users to sort messages, search for specific text in a message, and
manipulate folders and mailboxes while those files are still on the server host
instead of on the user's computer or alternative Internet access device. This is
particularly valuable for users who access their messages from different
computers with different e-mail software. In addition, these new protocols allow
users to have a common mailbox and customized folders and mailboxes that are not
specific to a particular computer or alternative access device.
The new Internet protocols are facilitating a convergence in messaging,
including e-mail, voice mail and fax communications onto a single platform with
a single standard. For example, these new standards will allow voice mail
messages to become audio attachments and faxes to become image attachments to
e-mail messages. As a result, users will be able to read, view, listen and
respond to different message types using a common interface that can be accessed
by traditional PCs or a variety of other Internet access devices, including
wireless telephones, network computers, pagers, personal digital assistants and
television set-top boxes. The multiplicity of products and uses for e-mail are
making it an essential communications medium and businesses and consumers expect
their e-mail service to be as reliable as their telephone service. To remain
competitive, businesses must be able to rapidly deploy an advanced e-mail
system, manage the system effectively and increase its capacity. As the number
of e-mail users grows and the volume and complexity of messages increases,
e-mail systems must be able to accommodate increasing user demand and rising
storage requirements.
Today, many businesses have implemented in-house e-mail systems that
require hardware, software and technical and administrative resources. Creative
Networks, an e-business consulting and research firm, estimates that to acquire,
deploy and operate an in-house messaging solution for 5,000 users, a business
must spend approximately $640 per user's mailbox per year. Even at this level of
investment, we believe many businesses still face significant downtime and
unreliable service. According to the Gartner Group, the percentage of large
businesses that expect to outsource at least some of their e-mail systems is
estimated to grow from 10% in 1998 to 25% in 2000. Additionally, Forrester
Research estimates that the amount spent on outsourced e-mail services will
increase from an estimated $8 million in 1997 to over $1 billion in 2002. We
believe that a growing number of businesses will outsource their messaging
services to ensure a more reliable, cost-effective and less resource-intensive
solution than their own in-house e-mail system.
Web Based E-mail and Advanced Messaging as a Business and Marketing Tool
The Internet has emerged as an attractive new medium for advertisers.
The Internet allows advertisers to target desired demographic groups or
consumers in specific geographic locations. It also allows them to interact more
effectively with consumers and capture valuable data about buying patterns,
preferences and demands. The Internet allows advertisers to present messages to
specific, targeted audiences, and to enable users to interact with advertising
information presented in Web pages. This characteristic of the Internet also
permits advertisers to measure more precisely the number of impressions, or
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times that an advertisement appears in page views downloaded by users, through
verification by an independent third-party auditor.
Advertisers can also measure the effectiveness of advertising in
generating "click throughs", or user requests for additional information made by
clicking on the advertiser's banner linking the user to the advertiser's Web
site. We also believe that technological developments may result in greater
ability to provide information and analysis about the effectiveness of Internet
advertising and the demographic profiles of users, as well as the ability of
advertisers to modify frequently and tailor more closely their messages. This
should result in more targeted, higher impact advertising opportunities, and
greater integration of Web-based advertising into the range of marketing
channels available to advertisers.
ISP Services.
On September 9, 1999, our subsidiary, Sichuan CathayOnline Technologies
Co. Ltd., a wholly-owned foreign enterprise established under the laws of the
PRC and controlled by us through CathayOnline Technologies (Hong Kong) Ltd.,
entered into an Exclusive Management and Consulting Services Agreements with the
Sichuan Province ISP, Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Si ("Sichuan
Guo Xun"), which offers dial-up Internet access to consumers and businesses.
Sichuan Guo Xun is one of nine ISP's licensed by the Province of Sichuan to
provide Internet access to consumers and businesses in the Province, and one of
only five operating ISP's in Sichuan (this figure includes ISP's operated by the
PRC government or agencies thereof). Under the terms of this agreement we
furnish to Sichuan Guo Xun managerial and technical consulting services,
including
o value added services with respect to planning, designing and
implementing computer networking and data processing
operations;
o services related to the development and implementation of
computer and electronic communications; and
o administrative services.
Owen Li, the General Manager of our subsidiary Sichuan CathayOnline
Technologies Co. Ltd., has approximately three years of experience operating an
ISP in China and is responsible for all of our operations in the Province of
Sichuan.
In consideration of the service we render to Sichuan Guo Xun, we will
receive a fee equal to 90% of the net profits generated from Sichuan Guo Xun's
operations. The agreement with Sichuan Guo Xun extends through March 2003 and
automatically renews for three and one half years upon its expiration. At
October 31, 1999, Sichuan Guo Xun served approximately 2,500 subscribers in the
City of Chengdu, which has approximately 10 million residents.
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In addition, we have agreed to fund the development and support of
Sichuan Guo Xun by infusing cash into our PRC subsidiary, Sichuan CathayOnline
Technologies Co., Ltd. To date, we have funded this entity with $700,000 which
has been used to purchase infrastructure, such as computer hardware and
software, and have invested in other supporting items and personnel. The
hardware and software that we have provided to date has allowed Sichuan Guo Xun
to increase the number of users it can accommodate from 2,500 persons to 25,000
persons. The equipment consists of (a) an intelligent voice/fax processing
platform with appropriate hardware and software; (b) 32 E1 fiber optical
connection channels (four of which are in service at this time) to the China
Telecom/Unicom PSTN systems; (c) 4 E1 DDN fiber optical point station to the
Internet backbone (only one E1 is in service now); (d) a power supply system
(can support up to 125A); (e) a 220V to 48V conversion battery UPS systems; and
(f) Local Area Network equipment (with Cisco routers, Compaq servers, IBM
servers). We will continue to invest as necessary in Sichuan Guo Xun to develop
a world class ISP.
Sichuan Guo Xun Xun Xin Xi Chan Ye You Xian Gong Si ISP
Sichuan Guo Xun was issued an ISP license by the PRC on September 8,
1999. Under the terms of the license, it may engage in the business of operating
computer information international networking, which includes operation of an
ISP and the right to provide e-mail and similar services.
Sichuan Guo Xun commenced ISP operations in September 1999. Its
principal offices and hardware facilities housing its infrastructure equipment
are located in Chengdu. Sichuan Guo Xun possesses limited hardware which allowed
it to service 2,500 subscribers, which has been augmented by the equipment and
support we have invested in our PRC subsidiary. Sichuan Guo Xun's leases one E1
line, having a bandwidth of 2.04 megabytes of data, to connect it with the
Internet node in Chengdu and three E1 lines for dial-up purposes. Sichuan Guo
Xun has the ability to expand to 32 dial-up lines at any time. Its network
capacity can accommodate 25,000 users and approximately 120 dial-up telephone
numbers through which a subscriber can enter the ISP. Over the next several
months, Sichuan Guo Xun will increase its bandwidth by leasing additional lines
to connect its facilities to the node in Chengdu and lease additional dial-up
lines to accommodate increased user demands. We have been advised that Sichuan
Guo Xun can increase the number of dial-up lines available to it to up 960
telephone numbers.
Sichuan Guo Xun is connected to the regional node maintained by the PRC
Ministry of Science and Technology located in Chengdu by telephone lines leased
from China Telecom and Unicom. Through this node, it is connected to China's
Internet backbone network, which permits it to route data to destinations,
including international sites, not on Sichuan Guo Xun's network.
We will continue to invest in the enhancement and expansion of Sichuan
Guo Xun's infrastructure to support customer growth and accommodate increased
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customer usage. We will provide the hardware, software and technical assistance
necessary to create a reliable network to satisfy Sichuan Guo Xun's customers'
demands. We plan to provide Sichuan Guo Xun with additional capital in the next
year, as our financial position permits, to increase and support growth of the
subscriber base and to accommodate increased demands on the system.
Sichuan Guo Xun leases telephone lines on a monthly basis from the
PRC's telephone utilities, such as China Telecom and China Unicom, over which
users access the Internet. Internet line access is expensive and has been cited
as the primary impediment to the growth of the Internet in China. Currently,
Sichuan Guo Xun leases the line that connects it to China's Internet backbone at
the node in Chengdu at a cost of approximately $18,116 per month. Sichuan Guo
Xun leases the lines through which its subscribers gain access to the Internet
at a cost of approximately $1,087 per line per month for an aggregate of
approximately $3,261 for the three lines it leases. We believe that with the
break-up of China Telecom, formerly the PRC's telephone monopoly, and the
ensuing competition among the resulting entities (which continue to be
government owned), that monthly line charges will continue to decrease. Internet
access line charges represent approximately 20% of Sichuan Guo Xun's total
operational costs and any reduction in these expenses will increase gross and
net revenues and accrue to our benefit.
Sichuan Guo Xun presently provides Internet access services to
approximately 2,500 individual consumers and businesses located in the City of
Chengdu and anticipates expanding its service area to include other major cities
in the Province of Sichuan during the next 18 months. Subscribers are provided
with software to load onto their computer which will allow their computer to
interface with the ISP and in which they will store the ISP access telephone
numbers. A computer modem (now standard on most computers), an electronic device
for converting between serial data from a computer and an audio signal suitable
for transmission over telephone lines, dials the ISP access number and
interfaces with the ISP at a point of presence, thereby giving the user access
to the Internet. Users can then type in the Internet address or uniform resource
locator ("URL") and gain entry into the Internet site. Users gain access to the
international Internet thought Sichuan Guo Xun. Some Internet sites are blocked
by the PRC government because of content offensive to the PRC and users will not
be able to gain access to these sites. In addition, Sichuan Guo Xun could be
subject to substantial fines and criminal penalties, including the loss of its
license, in the event users of its service gain access to proscribed sites or
content. See "Government Regulation."
Subscribers pay for Sichuan Guo Xun's services either through "e-cash,"
debit or credit card. We are exploring the possibility of having local
telecommunications carriers to bill the services on the subscribers' monthly
telephone bill.
The Province of Sichuan
The Province of Sichuan is situated in the western section of China and
is bounded on the south and west by the Yangtze River. It is China's largest
province with 100 million residents, approximately 10 million of whom reside in
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the capital, Chengdu. Sichuan is the fifth largest province in geographic area
and its gross domestic product, which was approximately $50 billion in 1998,
ranks fourth among China's provinces. Sichuan is characterized by dense
population, heavy industry and agricultural prosperity. Sichuan has
approximately 3.44 million fixed line telephone subscribers and 546,000 mobile
telephone subscribers, thereby giving them access to the Internet. Sichuan has
numerous universities, high-tech businesses and heavy industry, the primary
users of the Internet in China.
We believe that the small number of operating ISPs in Sichuan, its
demographic profile as well as the technological and physical infrastructure,
including telephone lines, are all positive factors which will permit Sichuan
Guo Xun's subscriber base to grow significantly over the next several years and
we have developed a marketing plan to effectuate such growth.
Web Based E-mail and Advanced Messaging Products and Services.
Agreement with USA.NET
Our wholly-owned subsidiary, TorchMail.com Inc., has entered into a
Reseller Agreement with USA.NET, Inc. which entitles us to offer its Web based
e-mail and messaging services to our customers. USA.NET is the largest
independent Web-based consumer e-mail service on the Internet, which presently
services approximately 12 million business and consumer mailboxes. USA.NET has
adapted and customized its professional messaging services and e-mail
applications to the Chinese language for us to employ in our product offerings.
We took delivery of the Chinese language versions of USA.NET's Web based
e-mail/advanced messaging products and services on December 1, 1999 and expect
to begin full scale marketing of these products imminently.
We will offer to our individual and business customers, through
USA.NET's infrastructure, a variety of Web based consumer e-mail services and
commercial messaging services as well as comprehensive message outsourcing
services. We believe that USA.NET offers messaging solutions on highly reliable
and scalable, or expandable, technology that include advanced features,
universal accessibility and a high level of security. We also believe that we
can leverage USA.NET's strong and respected brand recognition to grow our e-mail
subscriber base.
Our agreement with USA.NET provides that we will have "First to Market
Protection" within a territory comprising the PRC, Hong Kong, Singapore, Taiwan,
and the Philippine Islands (the "Territory") for a specified period after we
accepted delivery of the Chinese language version of USA.NET's e-mail and
advanced messaging products (December 1, 1999). During this period, USA.NET may
not form competing relationships with other resellers in the same industry in
the Territory. This protection will afford us the opportunity to effectively
market, advertise, support and resell the customized services in the Territory
during such period. After the expiration of this period, USA.NET will be
entitled to enter into relationships with other entities to identify, register
and support customers and provide the services that we will offer.
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The Reseller Agreement includes monthly sales quotas that require us to
sell a certain number of "seats" (defined as an electronic mailbox created
within a customer's account) during each month of our agreement with USA.NET and
a specified number of seats during the first year. If we are able to meet the
minimum annual quota, USA.NET will grant to us a right of first refusal to serve
as its exclusive reseller within the Territory for the initial term (one year)
and for each successive term of the agreement, if it is renewed by each of us
thereafter. It is our intention, if funds become available, to purchase the
minimum number of seats required to meet the first year's annual quota during
the period in which we have First to Market Protection which will allow us to
solidify our competitive position and develop our marketing techniques to ensure
that we can thereafter continue to be the sole provider of USA.NET's Web based
e-mail and messaging services in the Territory. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
The agreement with USA.NET also provides that it will be responsible
for customer support with respect to all seats but that such support services
are limited to responses in English. We will be responsible for handling
customer support for our Chinese-speaking customers and will be entitled to
obtain answers to questions or responses to problems directly from USA.NET.
Therefore, we will be required to maintain a customer service department staffed
by Chinese speaking employees to respond to customer support questions. As yet,
we have not established customer support operations nor have we engaged any
personnel to staff the customer support center. We will establish
e-mail/advanced messaging services support operations and implement support
procedures that will ensure that our subscribers will receive reliable service.
E-mail in China
According to the CNNIC report, 94% of the Internet users in China cite
e-mail as a motive for accessing the Internet and almost 91% of Internet users
cited e-mail as the most frequently used service. A United States Embassy report
on the Internet in China indicates that over 9% of information carried by
Internet circuits in China is devoted to e-mail. By way of comparison to United
States e-mail trends, Forrester Research reports that the number of e-mail users
in the United States is expected to increase from 75 million in 1998 to 135
million in 2001. In addition, IDC estimates that the total number of e-mail
messages sent per day in the United States will increase from 2.1 billion in
1998 to 7.9 billion in 2002. We expect that e-mail in China will continue to
grow as the number of Internet users increases.
Web Based E-mail and Advanced Messaging Products
We believe that the market for e-mail/advanced messaging products can
be divided among business and corporate users, on the one hand, and individual
consumers, on the other. Business and corporate users can use e-mail/advanced
messaging products and services both as an intra-corporate communications device
as well as a marketing and advertising tool to reach millions of potential
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customers. Individual consumers tend to rely on e-mail as a communications
device. We have developed marketing strategies directed to each of these groups
and offer distinct products and services to satisfy each group's demands.
We will offer our basic Web based e-mail services to individual
consumers free of charge and charge individuals for additional premium services.
We will charge business customers fees for the TorchMail advanced messaging
services. Business customers may select from a wide range of products and
services that will be priced based upon the services selected. Service charges
will be payable by subscribers via "e-cash," debit or credit card.
We currently are offering, on a beta trial basis, an English language
version of USA.NET's basic Web based e-mail and messaging services and have
registered a negligible number of accounts to date. We accepted delivery of the
Chinese version of USA.NET's Web base e-mail and advanced messaging suite of
products on December 1, 1999 and expect to commence full scale marketing of
these products in the near future.
In return for providing basic messaging services to individual users
free-of-charge, we may integrate revenue-producing advertising on the TorchMail
Web site (e.g., banner ads, clickthrough links, and direct delivery content). We
hope to generate revenue from advertising on our TorchMail Web site as well as
from the promotion of opt-in content delivery, which is marketing information
and special offers from advertisers that users can choose to receive. We will
seek to develop and maintain up-to-date demographic profiles and information
about our customers, by studying their clickthrough preferences, to permit
advertisers to target groups with pinpoint advertisements. We may be able to
sell such demographic information (except as to Hong Kong residents where the
distribution of such information is illegal) for a profit.
Although advertising naturally segues with our e-mail and advanced
messaging services and is a practice followed by most similarly situated Western
Internet companies, we have focused our attention on organizational activities
such as securing agreements with Sichuan Guo Xun and USA.NET, and only recently
have begun to explore the possibilities of advertising by way of our TorchMail
Web site.
We have entered into a letter of intent with an entity which will
permit TorchMail to develop a financial Web site and offer to our customers us
real time stock quotes from exchanges around the world and financial news
services as provided by Standard & Poor's Corporation (through a duly licensed
provider of such services based in Canada), and grants to us a right of first
refusal to offer e-mail and advanced messaging services to any other entities
which feed this supplier's live stock quotes through their Web sites. We have
not entered into a final agreement for the services which are the subject of the
letter of intent and no assurance can be given that any such agreement ever will
be finalized.
We intend to implement our Web based e-mail and messaging services in
two phases. Phase One, which currently is underway, encompasses the offering of
e-mail and messaging services to individuals and business customer within the
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Territory. In Phase Two we will make available television set top boxes through
which a user may access and send e-mail and browse the Web and develop and offer
new products consistent with technological advances.
Users of our Web based e-mail and messaging services will receive a
permanent e-mail address of their choice with a "torchmail.com" domain name
(e.g. [email protected]). We provide the basic service free of charge. The
user's e-mail address does not change regardless of how often the user switches
employers, schools or Internet service providers. Users can send or retrieve
e-mail through our TorchMail Web site (www.torchmail.com) from any computer
connected to the Internet with a standard Web browser. Since our system is
Web-based, users do not need to download or install special software to access
the service, but if they desire, they can view their messages through popular
software programs such as Netscape Messenger or Microsoft Outlook.
All of our users can use TorchMail's set of free basic features to:
- Store up to five megabytes of data (additional storage space is
available at a nominal charge);
- Consolidate messages from multiple Post Office Protocol;
- compliant mailboxes into one mailbox;
- Block unwanted messages;
- Attach large, complex files to their messages;
- Store frequently used e-mail addresses in an address book;
- Spell check messages;
- Organize and archive messages in customized folders;
- Add customized signatures to their messages; and
- Create automatic replies to incoming messages.
Our subscribers will have the advantage of advanced privacy and
security features. Each user has an account that the user can access only after
entering a unique user name and an individually selected password. Users
accessing their accounts via a public computer or other access device can choose
to disable the memory cache, meaning that viewed pages are expired rather than
stored in the browser's memory so that subsequent users of the public computer
or other access device will not be able to read the user's messages. Users can
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also subscribe to several fee-based premium services, including virus scanning,
pager notification, e-mail forwarding and Post Office Protocol access. Users pay
for these premium services on a monthly or annual basis.
We will offer a wide variety of fee based, tiered packages of
commercial Web based e-mail and advanced messaging services including:
o Professional Messaging: A branded Web-based e-mail account to
be offered on a fee basis to individual companies, small
businesses, and value-added retailers ("VARs"). Companies are
provided with a full-featured branded e-mail address (e.g., _
HYPERLINK mailto:[email protected]) and a suite of
branded e-mailboxes for employees (e.g.,
[email protected]). Each e-mailbox is Web-based,
making it accessible from any location in the world that
provides Web access. Professional Messaging is offered on a
tiered-subscription basis, with fees based on the number of
e-mailboxes included in a suite and the types of optional
value-added services selected. Optional value-added premium
services, if not included in a particular subscription bundle,
include spam blocking, read receipt notification, e-mail
collecting and forwarding, signature verification, mail
management (e.g., user management, alias management, etc.),
pager notification, and other such services.
o Enterprise Messaging: Represents a fee-based feature-rich and
reliable Web-based e-mail services and e-mail management
services for businesses, including VARs, that desire an e-mail
system but prefer to avoid the expense, time and resource
consumption, and the inconvenience of installing, operating,
and supporting a proprietary in-house system. Enterprise
Messaging is customized to meet the specific needs of a
business, and is offered on a tiered-subscription basis, with
fees based on the types and levels of services requested.
Optional value-added premium services, if not included in a
particular subscription bundle, include junk mail blocking,
read receipt notification, e-mail collecting and forwarding,
signature verification, customized interface and
administrative reports, pager notification, and other such
services.
o Web Messaging for Portals-- A combination of free and
fee-based web-based e-mail, messaging, and other services that
portal operators can provide to their portal site visitors and
customers. Free services include message storage, mail
collection, spam blocking, file attachment, address book,
company directory, spell checking, and folder and message
management. Services available to portal operators on a
tiered- or custom-contract basis include most of the specialty
services offered in the Carrier Messaging for Service
Providers program; assistance with setting up, managing,
maintaining, and upgrading a branded Webmail site; and mail
management features that let a portal operator maintain
account-level control. We believe that when these services are
combined, they provide a Web portal operator with the
opportunity to build a loyal customer base, increase
advertising revenue through its own advertising sources and
through shared revenues from ads provided through its
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affiliation with us, and improve the effectiveness of its
customer communications. Our Web Messaging for Portals program
is structured to offer portal operators services similar to
those that USA.NET provides to customers such as American
Express(R)and Netscape(R)Netcenter.
Today, many businesses have implemented in-house e-mail systems that
require hardware, software and technical and administrative resources. Creative
Networks, an e-business consulting and research firm, estimates that to acquire,
deploy and operate an in-house messaging solution for 5,000 users, a business
must spend approximately $640 per user's mailbox per year. Even at this level of
investment, we believe many businesses still face significant downtime and
unreliable service. According to the Gartner Group, the percentage of large
businesses that expect to outsource at least some of their e-mail systems is
estimated to grow from 10% in 1998 to 25% in 2000. Additionally, Forrester
Research estimates that the amount spent on outsourced e-mail services will
increase from an estimated $8 million in 1997 to over $1 billion in 2002. We
believe that a growing number of businesses will outsource their messaging
services to ensure a more reliable, cost-effective and less resource-intensive
solution than their own in-house e-mail system. Consequently, we believe that
Web base e-mail and advanced messaging services for businesses will continue to
grow in China.
During Phase Two, we will complete our roll out of the Chinese-language
version of TorchMail.com and begin to offer new products and services as
developed by USA.NET and others and as PRC laws permit. These products will be
developed on an in-house basis and through strategic alliances with a number of
different companies based in China and other parts of Asia and the world.
In addition during Phase Two, we intend to commence offering an
Internet television set top box that will permit anyone with a television set
and a telephone line to send and receive e-mail and browse the Internet. The
Company intends to make its Internet TVTopBox available for purchase through
retail outlets, which will provide sales revenue, and to bundle the set-top
boxes with value-added subscriptions to TorchMail.com services, as well as
subscriptions to Sichuan Guo Xun's Internet access service. We envision that the
typical purchaser of the TVTopBox will never have owned a PC and will have had
little to no experience operating computers, may have less than a college
education and be somewhat intimidated by technology. Given these assumptions, we
believe that the TVTopBox is an attractive alternative to the PC for the
following reasons:
o Low price; computer (and consequently Internet) penetration is
limited by the cost of PCs, which are beyond the reach of the
average consumer financially, whereas the TVTopBox will be
significantly less expensive; and
o Ease of use; TVTopBoxes will be far simpler to use than PCs.
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The TVTopBox relies on existing technology and can be manufactured in
China at a cost which will allow us to sell the product at a price point which
we believe may be in the range of many Chinese families.
Terms of Our Acquisition of TorchMail
By agreement dated July 2, 1999, we acquired all of the outstanding
shares of the capital stock of TorchMail.com Inc., a corporation organized under
the laws of the Turks and Caicos Islands, British West Indies, from the sole
holder of all such shares. TorchMail.com Inc. had, on July 1, 1999, entered into
an agreement with USA.NET, Inc. to develop the Chinese language version of its
e-mail and advanced messaging services in the Chinese language and appointed
TorchMail.com Inc. as its First Right to Market the e-mail and advanced
messaging services and products described above.
Pursuant to our agreement with the sole shareholder of TorchMail.com
Inc., we paid US$10,000 and we issued 2,500,000 shares of our Common Stock upon
the closing of the agreement. We also have agreed to pay additional
consideration to the seller of the TorchMail.com shares as follows:
o upon the resale of 360,000 seats, we will issue an additional
2,500,000 shares of our Common Stock;
o upon the resale of 500,000 seats, we will issue an additional
1,250,000 shares of our Common Stock;
o upon the resale 700,000 seats, we will issue an additional
1,250,000 shares of our Common Stock;
o upon the resale of 35,000 seats and up to the resale of 99,999
seats, we will pay a fee equal to $.01 per seat per month;
o upon the resale of 100,000 seats and up to the resale of
199,999 seats, we will pay a fee equal to $.03 per seat per
month;
o upon the resale of 200,000 seats and up to the resale of
299,999 seats, we will pay a fee equal to $.05 per seat per
month;
o upon the resale of 300,000 seats and up to the resale of
399,999 seats, we will pay a fee equal to $.07 per seat per
month; and
o upon the resale of 400,000 seats and above, we will pay a fee
equal to $.10 per seat per month.
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We believe that we will generate sufficient income from each seat
resold by us to support the payments to the seller of TorchMail.com Inc. as
required pursuant to this agreement. See "Management's and Discussion and
Analysis of Financial Condition and Results of Operations."
Growth Strategy.
Our long-term goal is to become a fully integrated and fully
diversified Internet company that provides the complete range of Internet
services and solutions to our clients. Our immediate focus will be to build
revenues from our existing core activities. We will concentrate on increasing
our subscriber base for Sichuan Guo Xun's Internet access services and for our
e-mail/advanced messaging services, which will generate revenues from
subscription fees for premium services and advertising revenues generated
through our TorchMail Web site, and to introduce the TVTopBox. We believe that
these product offerings, when bundled in attractive multi-service packages, will
drive sales for the next 18 to 24 months, and income generated from these
activities will constitute the vast majority of our revenues during this period.
At such time as we have established our organizational competencies and
have created and implemented sustainable growth models within each of our core
areas, which may require 1 to 2 years of development, we will proceed with the
expansion of our business into the potentially more lucrative area of developing
a content driven Web portal which is projected to offer:
o content delivery services, such as search engines, directories
and local information all in the Chinese language and directed
specifically to users in China;
o community products such as chat and message boards;
o online advertising and marketing solutions; and
o e-commerce activities.
According to BDA China/Strategis Group, China will have over 33 million
Internet users employing over 37 million computers by the end of 2003. IDC
predicts that China's e-commerce market will burgeon to over $11 billion by
2004, up from $43 million in 1999. These figures present a compelling rationale
to proceed with the development of a content driven Web portal.
We believe that Internet companies will need to offer customers a
variety of value-added solutions to take full advantage of the Internet's
capabilities. Eventually, as capital permits, we plan to expand Sichuan Guo
Xun's ISP value-added services by adding appropriate hardware, software and
human resources to provide such services. Such value added services typically
provide higher margins than Internet access and e-mail/advanced messaging
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services. We believe that, worldwide, value-added services are among the fastest
growing segments of the Internet marketplace. We will focus our efforts on
developing corporate clients. We will stress to potential corporate customers
that in order to realize the opportunities of the Internet, companies must
develop an attractive Internet presence using a "Web site" that is easily
accessible to potential customers. Since few businesses in China have neither
experience creating and developing nor the corporate resources (cash and
Internet expertise) to cost-effectively develop, maintain an Internet presence
and continually upgrade network facilities, we will develop consulting and
technical capabilities that will allow us to offer a full range of services to
businesses including the following:
o Web site design and maintenance consulting services;
o co-location services, whereby we provide secure space to house
customer-owned Internet equipment;
o Web hosting services including shared and dedicated hosting on
our servers for customer Web sites as well as collocation
hosting of customer supplied servers in our facilities; and
o consulting services with respect to connecting corporate
networks to the Internet, use of the Internet as a revenue
generating tool and other services, which our clients may find
useful.
We will stress the benefits of outsourcing these services emphasizing
that customers will be able to easily and more cost-effectively address their
Internet needs without developing solutions internally or assembling services
from multiple vendors, including resellers, other Internet service providers and
information technology service providers. These arrangements will allow
enterprises to focus on their core operations, enhance the reliability and
performance of their Web sites and reduce their Internet-related operating
expenses. We propose to offer these services in customized bundles through a
single network connection and to provide our customers with technical support
and management expertise.
We are actively seeking to establish relationships with ISPs in other
Provinces of the PRC and hope to enter into arrangements with such entities as
that which exists between Sichuan Guo Xun and us.
We believe that our current services are and our future services, if we
are able to develop them, will be complimentary, as sales of TVTopBoxes will
benefit customer growth in our Internet access business that will benefit our
e-mail business. Ultimately, once we have completed the development of our Web
portal, consumers could use our TVTopBoxes to send and receive e-mail through
Sichuan Guo Xun's Internet access service and transact e-commerce, conduct Web
searches and engage in personal activities, such as information retrieval, chat
groups and online hobby organizations through our Web portal. We also can create
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important synergies between our Internet access and e-mail advanced messaging
services by creating a default mechanism that directs Internet access customers
to our Web portal home page. If we can successfully capture these synergies, we
can distinguish our services from our competitors and gain a competitive
advantage that will benefit consumers and advertisers.
In order to realize our potential, we will enter into strategic
alliances or make strategic acquisitions, as necessary, to strengthen our
business, and as liquidity permits. We also plan to actively pursue strategic
investments. This will allow us to capture value in other Internet-related
businesses, both within China (as PRC law permits) and otherwise, including
those that exist today and those that will develop in the future. We are
prepared to adapt our businesses in all of our core competencies and future
endeavors in order to better serve our customers and to gain a competitive
advantage.
The descriptions in this registration statement regarding our planned
product and service offerings and the anticipated features of those planned
product and service offerings are forward-looking statements. Actual products,
services and features could differ materially from those projected as a result
of a variety of factors, some or all of which may be out of our control.
Marketing and Brand Awareness.
Our marketing efforts are designed to help us carry out our totally
integrated Internet services strategy in Sichuan Province and to provide
Internet related services to Chinese speaking people throughout the world. In
order to accomplish our goals, we will pursue the following strategies:
Build Our Brands. Given the low penetration of the Internet in Sichuan
and China, generally, and the paucity of market participants in the region (we
are one of nine private ISPs licensed by, and one of only five privately owned
ISPs operating in, the Province of Sichuan), we believe that we have an
opportunity to develop a brand name within Sichuan for the entire range of our
products and to develop a loyal consumer base among Chinese speaking
e-mail/advanced messaging users throughout the world. Our relationship with
USA.NET, which allows us to offer the same products and services it provides to
its customers and to avail ourselves of USA.NET's high quality customer
services, ensures that we offer a high quality, reliable and state-of-the art
product which we hope will promote loyalty among our customer base. In the
province of Sichuan, as e-mail/advanced messaging subscribers become aware of
our other services and products, such as the Internet accesses services provided
by Sichuan Guo Xun and our TVTopBox, we will offer them attractive incentives,
such as bundling the products at reduced prices, to become consumers of these
products. Once we have developed brand loyalty among one of our products, we
believe that we can attract consumers to other products.
We believe that building our ISP brands is essential to attract, retain
and obtain revenue from our potential user base. We will use advertising to
build our ISP brands. Our campaigns will include online advertising, public
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billboards, public transportation, radio and newspapers. We will arrange
seminars on university campuses directed at students, who represent the highest
concentration of Internet users in China. We will offer lectures and seminars to
business leaders and trade groups, such as librarians and other professional
organizations, which have a national presence and whose recommendations will be
a valuable source of word of mouth advertising. We hope to leverage our existing
Internet access and e-mail/advanced messaging subscriber base by offering
incentives to register new subscribers to these services. Our advertising will
focus on the benefits customers can derive from using the Internet, such as
easily locating useful information, and the ease with which the Internet can be
used and will demonstrate that our services are within the budget of the average
person.
We will undertake an aggressive advertising campaign of our existing
products. We will start by focusing on our free e-mail services. We will stress
the benefits of communicating via e-mail/advanced messaging to individuals and
corporate users and emphasize our dedicated customer support, which will be
available 24 hours per day, seven days per week. We initially will focus our
advertising in the City of Chengdu where approximately 10 million persons reside
(representing 10% of Sichuan's population), including the wealthiest and most
educated segment of the population. We believe that business customers will be
particularly interested in our Web based e-mail/advanced messaging services. In
advertising our Web based e-mail and advanced messaging services to business
customers, we will focus on the fact that our services:
o eliminate the need to incur significant hardware, software and
ongoing operational support costs;
o can be rapidly deployed, upgraded and expanded to meet growth
in business and message volume;
o are reliable and offer a high degree of security;
o can be customized to meet branding requirements and ensure a
"look and feel" that is consistent with their corporate image;
o are compatible with software platforms such as Netscape
Messenger and Microsoft Outlook;
o offer specialized applications and value added features that
allow strategic business-to-business and/or
business-to-consumer communications; and
o provide sophisticated and accessible customer service and
technical support.
Expand Our ISP Customer Base. We will take action to expand our ISP
customer base. Some of these steps are designed to lower barriers to Internet
use:
o by making the Internet easier to access, and
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o by lowering our customers' start-up costs.
We offer our software in easy-to-use Internet connection kits. We believe that
our software will be useful in encouraging inexperienced and first-time users to
sign on to the Internet and to use our ISP products. We will offer these types
of kits to our Internet subscribers at no additional cost. We believe that this
will encourage potential customers to use our Internet access service rather
than those of our competitors.
We will work hard to retain existing customers and stimulate usage. We
will continue to work hard to build customer loyalty and encourage increased
Internet usage. In order to retain our existing customers we will take action to
ensure that our product offerings are the most competitive in the marketplace.
We will strive to offer our ISP customers the highest quality and fastest
service to enhance their Internet experience. Market research among Internet
users in China indicates that fast and reliable Internet access is essential to
retaining users. We therefore will work to provide our customers with a low call
failure rate, fast login time and high connection speed. We also will offer, for
a fee, specialty training seminars to individuals and businesses covering and
introduction to the Internet, Web site and Web page design, networking, data
base development, systems administration, making money through the Internet and
connectivity of internal networks to the Internet. These seminars will serve to
introduce customers to the services we offer, establish us as a reputable
provider of these services and develop brand awareness.
Government Regulation.
Regulation of Foreign Participation in the Operation and Management of
Telecommunications Services
In 1995, the PRC introduced the Interim Regulations Directing Foreign
Investment, which classified foreign investment in all economic sectors in the
PRC into four categories; encouraged; permitted; restricted and prohibited. To
these regulations were appended the Industrial Catalogue (as revised on January
1, 1998), which clearly provides that the operation and management of
telecommunication services falls within the prohibited category. In addition,
Article 6 of the Interim Telecom Procedures also expressly prohibits foreign
nationals and entities (and wholly owned subsidiaries of such foreign nationals
or entities) from investing in, operating/managing or participating in
telecommunications businesses. Thus, foreign investors are legally barred from
participating in the operation and management of telecommunications services in
the PRC. ISPs are deemed to fall within this category and such regulations are
supported by other laws specifically relating to the Internet in the PRC.
The above described law has prompted us to enter into the consulting
agreement with Sichuan Guo Xun which provides that we will furnish, to the
extent such activities are not proscribed by PRC law, management, consulting and
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technical assistance services, including value added services with respect to
planning, designing and implementing computer networking and data processing
operations; services related to the development and implementation of computer
and electronic communications; and administrative services. The penalties, which
we might incur if we are, for any reason, deemed to be in violation of any of
the PRC laws regarding foreign participation in an ISP, are unclear. Such
penalties may include the revocation of Sichuan Guo Xun Xun's license or our
suspension or termination from operating within the ISP industry in the PRC, as
well as potential fines. Any ruling, which limits or prohibits our ISP
operations in the PRC would negatively impact our business and our potential
results of operations.
We have obtained an opinion of the Beijing Sage Law Firm of Beijing,
PRC, which advises that our ISP operations are in compliance with all relevant
laws in China
Internet Content Regulation
Under the Administrative Measures on Security Protection for
International Connections to Computer Information Networks, any use of the PRC
Internet infrastructure which results in a breach of the public security or the
provision of socially destabilizing content is a violation of Chinese law. A
breach of public security includes: (i) a breach of national security or
disclosure of State secrets; (ii) infringement on State, social or collective
interests or the legal rights and interests of citizens; or (iii) illegal or
criminal activities. "Socially destabilizing content" is broadly construed to
include any violation of PRC laws or the PRC Constitution; which incites
subversion of State power; incites national division; fabricates or distorts the
truth, spreads rumors or disrupts social order; spreads feudal superstition,
involves obscenities, pornography, gambling, violence; or damages the reputation
of any State organ; among other destabilizing content. Web sites, which do not
comply with such regulation, can be and are blocked from the PRC Internet
infrastructure by the PRC Public Security at the source at which the
international Internet enters the PRC. Web sites, which violate this law,
intentionally or otherwise, are subject to criminal penalties, loss of licenses,
and blocking of the site by the PRC, among other punishments.
If we are able to develop a Web portal that provides content services
within the PRC, we will have to ensure that the content respects the laws of the
PRC. We likely would have to engage an organization to provide regulatory advice
to us to ensure compliance by our portal network with PRC regulatory
requirements.
Currency Repatriation
We expect to realize a significant portion of our revenues from the
operations of Sichuan CathayOnline Technologies Co., Ltd., a foreign investment
enterprise ("FEI") organized pursuant the laws of the PRC. A portion of the
revenues that we generate from our relationship with Sichuan Guo Xun will be
used to pay our PRC employees, for marketing and other working capital in
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connection with our PRC operations. However, we will be restricted from
converting all revenues earned from these operations into foreign currency for
repatriation to our United States operations.
Prior to 1996, FEIs were severely restricted in their ability to
convert Renminbi into foreign currency for use outside of China, including for
payments to foreign third parties for payments for services rendered or good
sold or repatriation to foreign parent corporations. On July 1, 1996,
regulations were enacted which allow all FIEs throughout China to purchase and
sell foreign exchange at designated banks. In accordance with these regulations,
all domestic entities, including FIEs, can buy foreign exchanges at designated
foreign exchange banks for the purposes of current account payments by
submitting documents which prove that the commercial transactions are real.
Under the regulations, in order to buy foreign currencies for current account
payments, FIEs are required to present commercial documents to the designated
foreign exchange bank. Under the regulations, with certain exceptions, all
current account foreign exchange earnings of a domestic entity (including an
FIE) must be sold to designated foreign exchange banks. Current account earnings
include foreign exchange earnings deriving from export, transportation assets
(including intangible assets, transfer, leasing and services. A significant
exception to these rules is that FEIs are permitted to retain certain amount of
foreign exchange within a designated ceiling set by the PRC government. FIEs can
open foreign exchange primary accounts for current account purposes and special
purpose foreign exchange accounts for capital items.
While we will not able to repatriate all revenues earned in Renminbi,
we will be able to repatriate those funds we have invested and will invest in
our PRC subsidiary which relate to capital expenditures. While the 1996 laws
offer some flexibility to foreign investment enterprises such as our PRC
subsidiary, the laws continue to regulate the purposes for which and the amount
of funds which can be repatriated to our United States operations.
Effect of Recent Accord between the United States and China
On November 15, 1999, the United States and the PRC reached a trade agreement
whereby China agreed to reduce tariffs on various industrial and agricultural
products and lift many of the barriers that prevent US companies from doing
business in China. Under the agreement, China agreed, among other things, to
permit:
o foreign entities to invest in Chinese Internet businesses;
o foreign entities to own up to 49% of Chinese telephone service
providers, which would increase to 50% in two years;
o foreign entities to establish their own product distribution
systems and sell directly to Chinese customers; o foreign
banks and insurance companies to offer services to Chinese
customers in two years;
o foreign entities to own up to 33% of other financial service
provider, which percent would increase to 49% at some time in
the future.
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The United States agreed that in return for these concessions, that it
would support China's entry into the World Trade Organization, the group that
sets the rule for international commerce. Entry into the WTO would give China
access to international economic protections, such as protection from unfair
trade practices abroad, but also would impose a body of rules on China's
internal economy and put China under the jurisdiction of international courts
that enforce the World Organization's rules. The agreement is subject to
approval by the United States Congress.
The PRC also must negotiate trade agreements with each of the European
Union and Japan in order to gain the support of these groups to China's entry
into the WTO.
It is impossible to predict what effect China's entry into the WTO will
have on our business. Clearly, by becoming a member of the WTO, China will have
to open its boarders to international competition, which generally will have a
beneficial effect on most international entities doing business in China. If the
US Congress does not approve the November 15, 1999 agreement, there could be
serious repercussions on US-Chinese relations and a possible backlash against US
owned businesses operating in China, including the adoption of new laws that
severely restrict how US businesses operate in China and their ownership of
Chinese businesses.
It is impossible to predict how entry into the World Trade Organization
would affect China's economy or the manner in which it conducts business
domestically and internationally.
Competition.
We face intense competition in both of our primary businesses, ISP
services in Sichuan and Web based e-mail and advanced messaging services and
products provided to Chinese nationals and Chinese speaking people worldwide.
ISP Services
In the PRC, there are the five national ISPs owned and operated by the
national government (or ministries of the national government). There are in
excess of 150 private ISPs licensed to operate in various provinces. In the
Province of Sichuan, there are nine licensed ISPs, five of which currently are
operating, including ISP's owned and operated by the PRC or its ministries and
agencies.
The Internet in China is in its infancy. Local and national licensing
requirements limit the number of ISPs which currently operate and which will be
permitted to operate in China. Further, according to commentary in the September
18, 1999 China Commercial News (as described in an October 1998 United States
Embassy Report emanating from Beijing), high net access fees collected by the
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government telecommunications monopolies limit the development of the Internet.
Line rates represent the largest single expenditure incurred by private ISPs in
China, costing approximately $18,116 per line per month. According to a US
Embassy Report in Beijing, private ISPs in the PRC pay 80% of their income in
Internet access fees (line charges). The recent break-up of China Telecom and
the establishment of other nationally owned telephone companies such as China
Unicom, have ushered in a somewhat competitive environment.
We believe that our primary ISP competitor in Sichuan is ChinaNet,
which is owned and operated by the PRC government. As an arm of the PRC
government, ChinaNet is well funded and politically protected. Most importantly,
ChinaNet obtains telephone lines from government owned telephone companies such
as China Telecom and Unicom, at rates that we believe are substantially less
than rates paid by private ISPs. In addition, ChinaNet offers its Internet
access services nationwide. Consequently, ChinaNet can offer its Internet access
services at rates substantially less than private ISPs. For example, ChinaNet
account holders dial the same number throughout China and have several choices
of payment plans. ChinaNet's cheapest plan offers three hours of monthly access
for just 20RMB (US$2.50). Users can also get 75 hours a month for 300 RMB
(US$36). In addition, users must pay local phone charges of roughly 4 RMB
(US$0.50) per hour.
We believe that the privately owned ISPs operating in Sichuan and
elsewhere in China currently are small operations with negligible subscriber
bases. As the Internet industry matures in the PRC and as telephone line rates
for Internet access decrease, more entities will be granted national and local
licenses to offer ISP services and more individuals will register with private
ISPs because private ISPs will offer faster connections to the Internet, have
lower user to telephone line ratios and can provide services in addition to
Internet access. Many existing and potential future ISPs in Sichuan and the PRC
generally, will possess significantly greater capital and human resources then
we do and have the potential to be factors in the PRC ISP industry.
We believe that our competitive advantage arises because of our
position as one of the first ISPs in Sichuan. We believe that if we can provide
reliable Internet access at reasonable rates, we can build name recognition and
establish our self as the premier private ISP in Sichuan. In addition, when we
offer our ISP services bundled with our Web based e-mail and advanced messaging
products, we believe that we can provide a comprehensive product offering which
is not otherwise available in Sichuan. Further, as we develop and add to our
existing product line with our TVTopBox and our Web portal, we can build brand
recognition and a loyal customer base and remain ahead of our competitors at the
forefront of the ISP and Internet market in Sichuan.
On November 15, 1999, the PRC and the United States reached an
agreement that would facilitate the PRC's entry into the World Trade
Organization. As a part of the accord, the PRC agreed to lift barriers that have
prohibited American companies from doing business in China. The accord is
subject to approval by the United State Congress. If the US Congress approves
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the accord, we are unable to predict the effect opening China's restrictive
economy to foreign businesses will have on our business.
Web Based E-mail and Advanced Messaging Services
PRC law provides generally that all providers of Internet services,
including e-mail and related services, must be licensed at the national level.
Presently, we believe that there are only a few entities that have been granted
the official licenses to provide e-mail and related services in the PRC.
However, e-mail services can be provided to people in China from remote
locations, such as the United States, and there is little that the PRC
government can do to block these services. We are aware of several other
entities offering e-mail services to Chinese speaking people throughout the
world and that these e-mail services are directed to individuals and not
business or corporate users. We believe that none of the other entities offering
e-mail services in China offer the range of e-mail and advanced messaging
services that we offer. Most of these entities are substantially larger, have
significantly greater subscriber bases and possess greater financial and human
resource than we do.
We believe that our association with USA.NET, which allows us to offer
the same extensive suite of Web based e-mail/advanced messaging services and
products as it offers to its US customers, affords us a competitive advantage
over other entities providing similar services to Chinese speaking persons and
business in the PRC and around the world. USA.NET is committed to developing and
implementing innovative products and services that will keep it at the forefront
of the Web based e-mail/advanced messaging industry. We believe that our ability
to offer these products and services in Chinese will allow us to remain ahead of
our competitors. As the Internet matures in China and users become more familiar
with and begin employing the complete range of services available, they will
further appreciate our product offerings and we have the opportunity to become
the e-mail/advanced messaging service provider of choice in the PRC and
throughout the Chinese-speaking world.
Corporate History.
CathayOnline was incorporated in the State of Nevada on September 20,
1995 under the name Kyocera Management, Ltd. The corporation was inactive from
its inception through the December 1998. In December 1998, we sold 5,785,500
shares of our common stock to a group of individuals, including members of
current Board of Directors, in consideration of $57,850 in cash and services
rendered. The then Board of Directors resigned and appointed Brian Ransom as a
Director. We then commenced our Internet services business. In April 1998, we
changed our name to CathayOnline Inc.
Prior to December 1999, we had been engaged in the sale of PRC national
lottery tickets to the general public through 10 electronic lottery kiosks
located in the City of Guangzhou, Guandong Province, PRC. We did not believe
that this business segment was consistent with our mission to become a
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diversified Internet service provider and we transferred the kiosks to a
wholly-owned subsidiary which we sold on December 1, 1999. Under the terms of
this agreement we sold the kiosks and our license to sell lottery tickets to
Moorgate Management Inc., an unaffiliated third party, for a price of $150,000.
The closing of the agreement will occur and is subject to Moorgate's completion
of a satisfactory due diligence of the corporation and the business.
In February1999, our Board of Directors and shareholders approved an
amendment to our Articles of Incorporation which authorizes us to issue 30
million of shares of "blank check preferred stock." We have not yet amended our
Articles of Incorporation to add the class of preferred stock.
Employees
As of October 31, 1999, we had 45 full-time employees, 6 of whom are
located in North America and 39 of whom are located in the PRC. Our employees
include 17 persons engaged in technical support and development, 11 in marketing
and sales, and 10 in administration and support, and 7 persons engaged in
management.
From time-to-time, we also employ consultants and independent
contractors to support our sales, marketing and administrative efforts. Our
employees are not represented by any collective bargaining agreements and we
have not experienced any work stopages.
Facilities.
We have our principal office at 6 East 45th Street, New York, New York
where we sublease approximately 1,000 square feet of office which we lease for
$1,000 per month. We sublease approximately 1,500 square of feet of office space
on a month to month basis at 543 Granville Street, Vancouver, British Columbia,
Canada which we lease for $1,728 per month. Our Chinese operations are run from
a 12,100 square foot office located in the City of Chengdu, Sichuan Province. We
have leased this space through August 2004.
We believe that our offices in New York and Vancouver are insufficient
for our present and future needs and expect to relocate these offices over the
next several months. We believe that additional space is available in each of
these geographic at competitive prices. If our business grows as we anticipate,
we expect to require additional office space in Chengdu. We are confident that
sufficient additional office space is available in Chengdu on commercially
reasonable terms.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
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Form 10-SB. The following discussion contains forward-looking statements. Our
actual results may differ significantly from those projected in the
forward-looking statements. Factors that might cause future results to differ
materially from those projected in the forward-looking statements include, but
are not limited to, those discussed in "Risk Factors" and elsewhere in this
document.
Overview
CathayOnline, Inc. was incorporated in September, 1995 and in December
1998, the management of the Company changed with the objective of analyzing and
implementing a strategy with respect to the long term opportunities in the
Internet within the People's Republic of China and other Chinese speaking
markets including the Internet Service Providing market and collateral operating
and Web based services such as Web based e-mail, advanced messaging services,
integration of Internet services with other forms and means of communication.
Additionally the Company was exploring opportunities in online lottery kiosks.
From January 1999 through June 1999, our operating activities consisted
primarily of identifying opportunities, negotiating Letters of Understanding
with several of those opportunities, planning and development of the operations,
implementing the corporate structure, recruiting personnel, raising capital and
purchasing operating assets. During the period from June through October, we
finalized a number of agreements including: the acquisition of TorchMail.com; a
first to market reseller Agreement with USA.NET, under which TorchMail.com, a
wholly owned subsidiary, obtained the right to market a Chinese language version
of USA.NET's Web based email and advanced messaging services to the Chinese
speaking markets; the establishment of a wholly-owned subsidiary, Sichuan
CathayOnline Technologies Co. Ltd., which, through a joint project with Sichuan
Guo Xun Xin Xi Chan Ye You Xian Gong Si operates a government licensed Internet
Service Provider in the Sichuan province in China; the establishment of a
co-branded Website with register.com under which TorchMail.com will sell primary
level domains, and; the indirect acquisition of interests in ten lottery kiosks
in Guangzhou, China (which have been sold prior to the date hereof). To date, we
having invested over $700,000 in our PRC subsidiary, Sichuan CatahyOnline
Technologies, to provide technological and personnel support, allowing Sichuan
Guo Xun to expand its operations to accommodate up to 25,000 subscribers.
Presently, we generate no significant income and have incurred net
losses since inception. Our prospects must be considered in light of the
significant risks, costs and difficulties often encountered by enterprises in
their early stages of development, in particular companies in the Internet
sector and, more specifically, targeting and operating in the Greater China and
Asian markets.
Our capital and operating expenses will increase significantly in the
near future as the result of commitments and hiring requirements to meet
marketing objectives. With these requirements in mind, we are seeking to raise
up to $10 million to fund our anticipated expenses. There is no guarantee that
we will be able to raise the funds and there are no guarantees that we will not
require to raise further capital for operations and expansion in the near
future.
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We expect to expand our employee base, from the existing 45 employees,
by an additional 30 over the next 6 months, including sales, marketing,
operational , technical and customer support resources. In particular, we intend
to expand our sales force to market the services provided by the ISP and the
marketing of the Web based e-mail and advanced messaging services under the name
TorchMail. The primary target of the ISP is medium to large sized corporations
and government institutions in the Sichuan province desiring to establish or
expand their online presence, providing training, service, technical support and
Web site development to our clientele.
We intend to further develop existing strategic partnerships and
identify new opportunities to expand our distribution channels of the Chinese
language Web based e-mail and advanced messaging services to the Chinese
speaking markets, in particular partnerships with ISP's, portals, Web hosting
companies and government institutions in the People's Republic of China, Hong
Kong, Taiwan, Malaysia, Singapore and Indonesia.
Currently, we make our principal offices in New York and have marketing
offices or representation in Chengdu, Guangzhou and Beijing, China and
Vancouver, Canada.
Additionally, we have entered into a letter of intent with CleanWay
Corp. in which, if made into a final agreement, would permit TorchMail to offer
live stock quotes, create its own financial Website on which viewers could
obtain live stock quotes and have the first right of refusal to provide Web
based email to any other sites or companies using the live quotes as provided by
StockSecrets. Though we are continuing the discussions with CleanWay as to the
nature of a definitive agreement, in addition to discussing the technical
aspects of implementing the service, no definitive agreement has been signed and
there can be no assurance that we will be able to offer these services.
On July 2 ,1999, we acquired 100% TorchMail.com, Inc. for an initial
payment of 2,500,000 shares of our common stock plus ten thousand dollars for
legal expenses. Further payments possibly may have to be made for the
acquisition of TorchMail upon the resale of 360,000 Seats (mailboxes created
within a Customer Account of use of Services by a User) we will issue an
additional 2,500,000 shares, upon the resale of 500,000 Seats the Company will
issue 1,250,000 shares and upon the resale of 750,000 Seats the Company will
issue 1,250,000 shares. We are confident that we will generate sufficient
revenues from our Web based e-mail and advanced messaging operations to support
all future payments required to be made under various agreements we have entered
relating to these operations.
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Sichuan ISP Project:
On August 10, 1999, we organized, in accordance with the laws of the
PRC, a wholly-owned subsidiary, Sichuan CathayOnline Technologies Co. Ltd.
("Sichuan CathayOnline"), which operates in the City of Chengdu. On September 9,
1999, Sichuan CathayOnline entered into a management and consultancy service
agreement (the "Agreement") with Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Si
("Sichuan Guo Xun"), an ISP in Sichuan Province licensed by the Sichuan
Administrative Bureau for Posts and Telecommunications for an initial term from
September 8, 1999 to March 23, 2003. Pursuant to the Agreement, Sichuan
CathayOnline and Guo Xun will work jointly in providing Internet services and
Sichuan CathayOnline is entitled to 90% of the profit generated from such
services.
TorchMail.com, Inc.
CathayOnline, through its wholly owned subsidiary TorchMail.com, Inc.
and its partnership with USA.NET, has budgeted to sell in excess of 360,000 Web
based professional advanced messaging services Seats to the Chinese speaking
markets through November 30, 2000. During the ramp-up period of reaching the
target, the costs payable to USA.NET drop significantly to TorchMail,
substantially increasing the profit margin to our operations. We intend to seek
out and train strategically located sales teams to promote the product and
services to the Chinese speaking markets in the People's Republic of China, Hong
Kong, Taiwan, Singapore, Indonesia, Malaysia and the Philippines.
With the rapidly evolving nature of the technology industry, potential
for political uncertainty and our limited operating history, we believe that any
period to period comparisons of our revenues and operating results are not
meaningful and should not be relied upon as an indication of future performance.
As of December 1, 1999 the Company had 45 employees, in comparison with no full
time employees at December 31, 1998. CathayOnline does not believe that its
historical growth rates for revenues, expenses, capital investments or personnel
are indicative of future results.
Results of Operations
During the period from September 20, 1995 to January 6, 1998, we did
not engage in any operations and were considered dormant. On January 6, 1998, we
obtained a Certificate of renewal from the State of Nevada. As of June 30, 1999
the Company was in the development stage and has only recently commenced planned
principal operations.
Since inception, we have incurred significant losses and, as of June
30, 1999, had an accumulated deficit of approximately $325,000. It is our
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intention to invest heavily to expand network infrastructure and expand sales
and marketing. We expect to incur substantial operating losses in the
foreseeable future.
Income Taxes
No provision for federal and state incomes taxes has been recorded as
we have incurred net operating losses from inception through June 30, 1999. As
of June 30, 1999, we had approximately $300,000 of federal and state net
operation loss carryforwards available to offset future taxable income which
expire in varying amounts beginning in 2010. Under the Tax Reform Act of 1986,
the amounts of and benefits from net operating loss carryforwards may be
impaired or limited in certain circumstances. Because there is significant doubt
as to whether we will realize any benefit from this deferred tax asset, we have
established a full valuation allowance as of June 30, 1999.
Inflation and Regulation
Our operations have not been, and in the near term are not expected to
be, materially affected by inflation or changing prices. We will encounter
competition from a variety of firms selling Internet services in its market
area. Many of these firms have long-standing customer relationships and are
well-staffed and well financed. The Company believes that competition in the
Internet industry is based on competitive pricing, although the ability,
reputation and support of a marketing network is also significant. The Company
does not believe that any recently enacted or presently pending proposed
legislation will have a material adverse effect on its results of operations.
Factors That May Affect Future Results
Management's Discussion and Analysis and other parts of this
registration statement contain information based on management's beliefs and
forward-looking statements that involve a number of risks, uncertainties, and
assumptions. There can be no assurance that actual results will not differ
materially from the forward-looking statements as a result of various factors,
including but not limited to the following:
The markets for many of our product offerings are characterized by
rapidly changing technology, evolving industry standards, and frequent new
product introductions. Our operating results will depend to a significant extent
on our ability to design, develop, or otherwise obtain and introduce new
products, services, systems, and solutions and to reduce the costs of these
offerings. The success of these and other new offerings is dependent on many
factors, including proper identification of customer needs, cost, timely
completion and introduction, differentiation from offerings of our competitors,
and market acceptance. The ability to successfully introduce new products and
services could have an impact on future results of operations.
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Fluctuations in Quarterly Results
We have incurred operating losses since inception, and cannot be
certain that we will achieve profitability on a quarterly or annual basis in the
future. We believe that future operating results will be subject to quarterly
fluctuations due to a variety of factors, including, but not limited to:
o Continued growth of the Internet in China;
o Continued growth of the Internet and e-mail usage in Asia;
o Our ability to attract and retain customers and maintain
customer satisfaction;
o Technical difficulties or system outages;
o Government regulation surrounding the Internet;
o Fulfilling contractual obligations under the agreement with
USA.NET;
o Pricing policies of competitors;
o Ability to attract and retain qualified personnel with Chinese
language and Internet industry expertise, in particular
technical, sales and marketing personnel;
o The amount and timing of operating costs and capital
expenditures relating to expansion of our business and
infrastructure;
o The ability to upgrade, develop and maintain our systems and
infrastructure; and
o Failure to increase sales.
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In addition to the factors set forth above, the Company's operating results will
be impacted by the extent to which the Company incurs non-cash charges
associated with stock-based arrangements with the employees and non-employees.
Liquidity and Capital Resources
Since inception, we have funded our operations from the net proceeds
from the sale of common stock. In 1999, cash provided by financing activities
was approximately $1,922,850 million.
We have no debt.
Our current cash balances will not be sufficient to meet our working
capital and capital expenditure requirements for the next 12 months. It is
anticipated that with the further expansion of the operations we will incur
negative cash flows, therefore requiring us to seek additional financings to
support the growth in operations, both on a short term and long term basis. We
expect to acquire or invest in businesses, products, services and technologies
that complement or augment its service offerings and customer base. We currently
are engaged in discussions with a number of companies regarding strategic
acquisitions or investments. Although these discussions are ongoing, no
definitive agreements have been signed and there can be no assurance that any of
these discussions will result in actual acquisitions. It is anticipated that
some of the acquisitions will be paid for by issuing additional common stock and
this could dilute our shareholders. In addition, there may be the requirement to
amortize significant amounts of goodwill and other intangible assets in
connection with future acquisitions, which would materially increase the
Company's operating expenses. In addition, we may seek to raise funds by
offering debt or equity to the public. There is no guarantee that we will be
able to raise the funds. Thereafter, we may need to raise additional funds in
order to meet funding requirements of a more rapid expansion plan, potential
acquisitions, development of new or enhanced products or services, in response
to competitive pressures or to acquire technologies or complimentary products or
businesses.
If we cannot obtain outside financing, we will consider scaling back
our expansion plans for TorchMail and Sichuan Guo Xun's operations, and
re-evaluate certain potential acquisitions and, instead, rely upon internally
generated cash flow. Resources that would have been allocated to a more
aggressive expansion plan would then be diverted towards a broad based
advertising campaign to build upon the subscriber bases permitting an internally
financed growth.
Net of depreciation, our investment in property and equipment was
nominal up to October 31, 1999. Installation of infrastructure equipment in
Chengdu, purchases of furniture and equipment for new employees, and leasehold
improvements related to office expansions accounted for this increase. It is
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expected that our investments in property and equipment will continue to grow as
the Company seeks to increase capacity and services.
Item 3. DESCRIPTION OF PROPERTY.
We have our principal office at 6 East 45th Street, New York, New York
where we sublease approximately 1,000 square feet of office space on a month to
month basis for $1,000 per month . We sublease approximately 1,500 square of
feet of office space on a month to month basis at 543 Granville Street,
Vancouver, British Columbia, Canada at a cost of CAN$2,546 per month. Our
Chinese operations are run from a 12,100 square foot office located in the City
of Chengdu, Sichuan Province. We have leased this space through August 2004 at a
cost of approximately $7,250 per month.
We believe that our offices in New York and Vancouver are insufficient
for our present and future needs and expect to relocate these offices over the
next several months. We believe that additional space is available in each of
these geographic at competitive prices. We believe that our facilities in
Chengdu are sufficient to meet our current and foreseeable requirements.
Item 4. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN
SHAREHOLDERS.
The following table sets forth information as of December 1, 1999,
regarding the beneficial ownership of Common Stock of (1) each person or group
known by us to beneficially own 5% or more of the outstanding shares of Common
Stock, (2) each director and officer and (3) all executive officers and
directors as a group. Unless otherwise noted, the persons named below have sole
voting and investment power with respect to the shares shown as beneficially
owned by them.
Amount of
Name of Beneficial Percent of Outstanding
Beneficial Owner 1 Ownership Shares of Class Owned 2
- ------------------ --------- -----------------------
Brian W. Ransom 3 17,750,000 50.36%
Owen Li 4 1,647,178 8.60%
Peter Lau 5 1,500,000 7.89%
All officers and directors
as a group (3 persons) 20,897,178 6 58.37%
- --------------------------
* Less than 1% of the outstanding shares.
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1. The address for each of the officers and directors of the Company is c/o our
corporate headquarters in New York.
2. The percentage of shares owned of the outstanding class gives effect to the
issuance of shares of common stock to such person upon the exercise the warrants
held by that person and exercisable within 60 days of the date hereof.
3. Includes 15,050,000 shares issuable upon the exercise of common stock
purchase warrants granted to Mr. Ransom, 50,000 of which were granted to Mr.
Ransom on April 29, 1999 in connection with an investment of $25,000 in units of
which these warrants were a part, and 15,000,0000 warrants issued on October 26,
1999 as partial compensation for the services he will render as our President.
The 50,000 warrants are exercisable for a period of 2 years after issuance at a
price of $.60, if exercised during the first year after issuance, and $.70 per
share, if exercised during the second year after issuance. The 15,000,000
warrants are exercisable for a period of 3 years commencing on the date of grant
at an exercise price of $.33 per share. Ten million of these warrants are held
by a corporation all of the shares of which will be held in a trust of which Mr.
Ransom is the sole beneficiary. The shares of common stock underlying the
15,000,000 warrants are subject to registration under the Securities Act of
1933.
4. Table includes 1,500,000 shares issuable upon the exercise of common stock
purchase warrants granted to Mr. Li on October 26, 1999. The warrants are
exercisable for a period of 3 years commencing on the date of grant at an
exercise price of $.33 per share. The shares of common stock underlying these
warrants are subject to registration under the Securities Act of 1933.
5. Does not include 6,000 shares of common stock to which Mr. Lau is entitled
under the terms of his consulting agreement with us but which we have not
issued. If these shares had been issued and included as outstanding, Mr. Lau
would own approximately 7.895% of the total number of outstanding shares of
common stock, after giving effect to the exercise of the warrants described the
immediately following sentence. Table includes 1,500,000 shares issuable upon
the exercise of common stock purchase warrants granted to Mr. Lau on October 26,
1999. The warrants are exercisable for a period of 3 years commencing on the
date of grant at an exercise price of $.33 per share. The shares of common stock
underlying these warrants are subject to registration under the Securities Act
of 1933.
6. Assumes exercise of all warrants held by the named individuals.
Item 5. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTORS AND CONTROL PERSONS.
The following table lists, as of October 31, 1999, our directors,
executive officers and key employees, as well as promoters and control persons
of our company:
Name Age Title
- ---- --- -----
Brian W. Ransom 38 President and a Director
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Owen Li 36 Director and General Manager-Sichuan
CathayOnline Technologies Co. Ltd. (HK)
Peter Lau 46 Chief Financial Officer and Secretary
All directors hold office until the next annual meeting of stockholders
and until their successors have been elected and qualified. The Board of
Directors elects the officers annually.
Brian W. Ransom has served as our President and a Director since
December 1998. From 1991 until he joined us, Mr. Ransom acted as an independent
consultant to and negotiator for North American and European companies. He
consulted on matters relating to corporate structuring, corporate finance,
foreign exchange and interest rate risk control management and negotiation of
strategic relationships between corporations and corporations and governments.
Mr. Ransom has been responsible for the management of a US$1.5 billion loan
portfolio and the management of a currency-trading portfolio. He has held
positions on the boards of two Canadian mutual fund companies, an international
fiduciary, as well as the boards of software and manufacturing firms
Mr. Owen Li has been one of our Directors and has served as the
President of Sichuan CathayOnline Technologies Co., Ltd., our wholly-owned
Chinese subsidiary that interfaces with Sichuan Guo, since June 1999. In his ca
pacity as President of the Sichuan CathayOnline,in China, Mr. Li specializes in
technology planning and business development in computers and
telecommunications. Prior to joining us, from September 1997 through May 1999,
Mr. Li served as the Manager of ChengduNet, an ISP located in Chengdu, Sichuan
Province, which no longer exists. From July 1991 through September 1997, he was
employed by the Workers' Compensation Board of the Province of British Columbia,
Canada, as a Data Base Administrator. Mr. Li brings to us 12 years of technical
experience in computer communications, including 7 years of management
experience in the telecommunications industry, as well as extensive experience
as a system administrator and technical architect. Mr. Li has consulted for the
University of British Columbia, BC research, the Worker's Compensation Board,
and ProNet. Mr. Li was awarded a bachelors degree in computer science from
Sichuan University in 1985 and a masters degree in computer science from the
University of British Columbia, Canada, in 1991.
Peter Lau has been our Chief Financial Officer since joining us in
October 1999. Mr. Lau has more than twenty years professional experience in
corporate finance, accounting and marketing. Prior to becoming associated with
us, since 1996, he served as the Managing Director of Corporate Finance, Manager
of Special Projects, and Managing Director of United States operations for
American Frontier Financial, Inc., a United States registered securities
brokerage firm, and Heng Fung Capital, Inc. and Heng Fung Equities, Inc., Hong
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Kong merchant banking companies with offices in Hong Kong and the United States.
While with the Heng Fung group, Mr. Lau established a U.S. merchant banking and
investment banking operation on Wall Street for. From 1994 through 1996, Mr. Lau
served as the Managing Director of Corporate Finance for Ridgewood Capital LLC.,
where he provided corporate financial and advisory services, negotiated and
arranged equity and debt financing, and developed new business. Mr. Lau also is
a director of Advanced Environmental Technology Inc. Mr. Lau is a certified
public accountant by training and has been employed by Deloitte & Touche as an
accountant and a senior management consultant. Mr. Lau holds was awarded a
bachelors degree in accounting from University of Hartford in 1976 and a masters
degree in accounting from University of Hartford in 1978.
Agreements with Management
On October 30, 1999, we entered into an employment agreement with Brian
Ransom to serve as our President and Chief Executive Officer. This agreement
provides that Mr. Ransom will serve as President for a period of 2 years. We
will pay Mr. Ransom annual compensation of $60,000 for his services; a monthly
bonus based upon the number of Web based professional messaging e-mail accounts
we establish during the term of his employment, as described below; and a cash
bonus to be determined by the Board of Directors upon the conclusion of each
year of the term of his agreement with us. Mr. Ransom's bonus upon the resale by
us of Web based professional messaging e-mail accounts we establish during the
term of his employment shall be calculated as follows:
o 35,000 seats and up to the resale of 99,999 seats, we will pay
a bonus equal to $.01 per seat per month;
o 100,000 seats and up to the resale of 199,999 seats, we will
pay a bonus equal to $.03 per seat per month;
o 200,000 seats and up to the resale of 299,999 seats, we will
pay a bonus equal to $.05 per seat per month;
o 300,000 seats and up to the resale of 399,999 seats, we will
pay a bonus equal to $.07 per seat per month; and
o 400,000 seats and above, we will pay a bonus equal to $.10 per
seat per month.
The foregoing bonus shall be payable by us (or any other entity which may
acquire TorchMail.com, Inc. in the future) for so long as TorchMail shall derive
revenues from its Web based professional messaging e-mail accounts.
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In addition, we have issued to Mr. Ransom warrants to purchase up to 15
million shares or our common stock. The warrant is exercisable for a period of 3
years at an exercise price of $.33 per share. Either we or Mr. Ransom may
terminate his employment agreement with or without cause on 60 day's written
notice.
On June 29, 1999, we entered into a Management Agreement with Owen Li,
one of our Directors and the President of Sichuan CathayOnline Technologies Co.,
Ltd. to serve as the General Manager of that entity for a period of 3 years. Mr.
Li is responsible for all aspects of our operations in the Province of Sichuan.
Mr. Li will receive an aggregate of $10,000 per month payable as follows: (i)
Sichuan CathayOnline Technologies Co., Ltd. will pay to Mr. Li $6,500 per month,
in cash, (ii) we have issued 120,000 shares upon the execution of the agreement;
and (iii) we will issue to Mr. Li in each month during the term of the agreement
a number of shares of our common stock as shall be equal to $3,500 divided by
the average bid price per share of common stock for the last five trading days
of each month and deduct a 10% discount from such price. In addition, we have
agreed to issue into a trust for Mr. Li's benefit, the following shares, an
indeterminate portion of which he has agreed to transfer to employees of Sichuan
CathayOnline Technologies Co., Ltd., as incentives for their performance:
o we must issue to Mr. Li an indeterminate number of shares to
which he became entitled upon the execution of the agreement
which shall be calculated by dividing $60,000 by the lesser of
$.50 or the average closing bid price per share of our common
stock over the 3 day period prior to the execution of our
agreement with Mr. Li;
o we have issued 27,278 shares of common stock;
o at such time as Mr. Li has registered 7,500 subscribers to
Sichuan Guo Xun, we have agreed to issue a number of shares of
our common stock as shall be calculated by dividing $75,000 by
the lesser of $.50 or the average closing bid price per share
of our common stock over the 3 day period prior to the
execution of our agreement with Mr. Li; and
o at such time as Mr. Li has registered 16,000 subscribers to Sichuan Guo
Xun, we have agreed to issue a number of shares of our common stock as
shall be calculated by dividing $90,000 by the lesser of $.50 or the
average closing bid price per share of our common stock over the 3 day
period prior to the execution of our agreement with Mr. Li.
In addition, we have issued to Mr. Li warrants to purchase up to 1.5
million shares or our common stock. The warrant is exercisable for a period of 3
years at an exercise price of $.25 per share. Mr. Li has agreed that, unless he
first receives our written permission, he will not engage in any activities that
compete with our business within any geographic area where Sichuan CathayOnline
Technologies Co., Ltd. is licensed to do business in the telecommunications
field in the PRC. Each party is entitled to terminate the agreement on 5 day's
notice, in our case, if Mr. Li fails top perform his obligations under the
agreement and in Mr. Li's case, if we have not funded Sichuan CathayOnline
Technologies Co., Ltd. with $1 million within 6 months of June 29, 1999.
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On October 1, 1999, we entered into a Consulting Agreement with Peter
Lau, our Chief Financial Officer to serve in such capacity for a period of one
year. We will pay Mr. Lau a consulting fee of $48,000 per year and to issue to
Mr. Lau 3,000 shares of our common stock in each month during the term of the
agreement. In addition, we have agreed to pay Mr. Lau (i) a fee equal to 3% of
the gross proceeds which we may derive from any financing or loan obtained
through Mr. Lau; (ii) a fee, in cash or stock as we and Mr. Lau may agree, equal
to 5% of the gross value of any merger acquisition or disposition to a part
introduced to us by him; (iii) an additional undetermined fee for serving on the
Board of Directors; and (iv) a to be determined bonus. In addition, we have
issued to Mr. Lau warrants to purchase up to 1.5 million shares or our common
stock. The warrant is exercisable for a period of 3 years at an exercise price
of $.25 per share.
Item 6. EXECUTIVE COMPENSATION.
The following table sets forth the information regarding compensation
paid (on an annualized basis) for the Named Executive Officers for the periods
indicated.
SUMMARY COMPENSATION TABLE
- -------------------------------------------------------------------------------
Restricted
Name and Principal Position Year Salary Stock Awards
- --------------------------- ---- ------ ------------
Brian Ransom, President 1999 $25,000 $37,500 1
- -------------------------------------------------------------------------------
None of our other executive officers received compensation in excess of
$100,000 for the fiscal year ended June 30, 1999.
1. Includes 150,000 shares of common stock issued to Mr. Ransom in consideration
of services rendered. We valued these shares at $.25 each for an aggregate value
of $37,500.
Item 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
No reportable transactions.
Item 8. DESCRIPTION OF SECURITIES.
General
Our authorized capital consists of 50,000,000 shares of common stock,
par value $.001 per share. At December 1, 1999 there were outstanding 17,492,771
63
<PAGE>
shares of common stock. In February 1999, our Board of Directors and
shareholders approved an amendment to our Articles of Incorporation which
authorized 30,000,0000 shares of par value $.001 blank check preferred stock. We
have not amended our Articles of Incorporation to authorize the issuance of
these shares but expect to do so in the near future. Set forth below is a
summary description of certain provisions relating to our capital stock
contained in our Articles of Incorporation and By-Laws and under the Foreign and
Domestic Corporation Laws of the State of Nevada. The summary is qualified in
its entirety by reference to our Articles of Incorporation and By-Laws and the
Nevada corporation laws.
We are contemplating affecting a reverse split of the outstanding
shares of our common stock but will make sure determination based upon market
and other conditions during the first quarter of 2000.
Blank Check Preferred Stock
The amendment to our Articles of Certificate of Incorporation
authorizes our Board of Directors to issue, without any action on the part of
our shareholders, an aggregate of 30,000,000 shares of "blank check" preferred
stock. The Board shall have authority to divide the blank check preferred stock
into one or more series and has broad authority to fix and determine the
relative rights and preferences, including the voting rights of the shares of
each series. The blank check preferred stock could be used as a method of
discouraging, delaying, or preventing a change in control of the Company or be
used to resist takeover offers opposed by management. Under certain
circumstances, the Board could create impediments to or frustrate persons
seeking to effect a takeover or otherwise gain control of the Company by causing
shares of blank check referred stock with voting or conversion rights to be
issued to a holder or holders who might side with the Board in opposing a
takeover bid that the Board determines not to be in our best interest. In
addition, our ability to issue such shares of blank check preferred stock with
voting or conversion rights could dilute the stock ownership of such person or
entity. No shares of blank check preferred stock are currently issued and
outstanding and we have no plans to issue any shares of blank check preferred
stock.
Common Stock
We are authorized to issue 50,000,000 shares of common stock. All the
issued and outstanding shares of common stock are validly issued, fully paid and
non-assessable. Each outstanding share of common stock has one vote on all
matters requiring a vote of the stockholders. There is no right to cumulative
voting; thus, the holders of fifty percent or more of the shares outstanding
can, if they choose to do so, elect all of the directors. In the event of a
voluntary or involuntary liquidation, all stockholders are entitled to a prorata
distribution after payment of liabilities and after provision has been made for
each class of stock, if any, having preference over the common stock. The
holders of the common stock have no preemptive rights with respect to our
offerings of shares of our common stock. Holders of common stock are entitled to
dividends if, as and when declared by the Board out of the funds legally
available therefor. It is our present intention to retain earnings, if any, for
use in our business. Dividends are, therefore, unlikely in the foreseeable
future.
64
<PAGE>
Warrants
Employee and Consultants Warrants: During October 1999, we issued to
our employees and consultants (or their designees) in consideration for services
rendered warrants to purchase up to 21,700,000 shares of our common stock. The
warrants are exercisable for a period of 3 years commencing on October 26, 1999
at an exercise price of $.33 per share. The shares of common stock issuable upon
exercise of these warrants are subject to registration as described below. These
warrants provide for cashless exercise by the holders. These warrants are not
redeemable. As of the date hereof, none of these warrants have been exercised.
Investor Warrants: During April and June 1999, we issued an aggregate
of 2,990,000 common stock purchase warrants to eight investors, including 50,000
warrants to our President. These warrants are exercisable for a period of 2
years from the date of issuance at an exercise price of $.60, if exercised
during the first year after issuance, and $.70 if exercised in the second year
after issuance. Theses warrants are not redeemable. As of the date of this Form
10-SB, 200,000 warrants have been exercised.
Registration Rights
We have granted registration rights covering the 21,700,000 shares of
common stock issuable to our employees and consultants upon the exercise of
warrants issued to them as consideration for services rendered to us during the
last year. These persons shall have the right to include all of the shares
issuable upon exercise of these warrants in any registration statement we may
file under the Securities Act of 1933 (with certain exceptions). The holders of
the shares of common stock issuable upon exercise of the warrants have agreed to
reduce the number of shares which may be registered if their shares are to be
included in a registration statement which also includes securities being
offered by us if the underwriter of such offering determines the total number of
shares or securities being registered must be reduced because of prevailing
market factor. Further, the holders of the shares issuable upon exercise of the
warrants have agreed to resell the shares in three equal tranches. These
shareholders may sell: (i) up to one third of their shares commencing 6 months
after the effective date of the registration statement by which the shares are
registered; (ii) up to an additional one third of their shares 12 months after
the effective date of the re registration statement by which the shares are
registered; and (iii) up to an additional one third of their shares 18 months
after the effective date of the re registration statement by which the shares
are registered.
Stock Splits
On January 5, 1998, we affected a 1-for-44 split of our outstanding
shares of common stock. On August 27, 1998, we affected a 1-for-2.273 split of
our outstanding shares of common stock. All stock information included in this
registration statement reflects these stock splits.
65
<PAGE>
Shares Eligible for Future Sale
As of the date of this Form 10-SB, we have a total of 17,492,771 shares
of common stock outstanding. Of these outstanding shares, 11,446700 shares are
freely tradable, without restriction by or further registration under the
Securities Act of 1933 by persons other than our "affiliates," as defined in
Rule 144 under the Securities Act.
All the other outstanding shares of common stock (6,046,071 shares) are
"restricted securities" for purposes of the Securities Act and may not be sold
unless they are registered under the Securities Act or unless an exemption from
registration, such as that provided by Rule 144, is available.
We can make no prediction as to the effect, if any, that market sales
of shares of Common Stock or the availability of shares for sale will have on
the market price prevailing from time to time. Nevertheless, sales of
significant numbers of shares of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair our
future ability to raise capital through an offering of its equity securities.
Transfer Agent
The Transfer Agent for the common stock is Signature Stock Transfer
Inc. located at Office in the Park, 14675 Midway Road, Suite 221, Dallas, Texas
75244.
PART II
Item 1. Market Price and Dividends on Registrant's Common Equity and related
Stockholder Matters
Market Price
On December 30, 1999 the closing bid price pr share of our common stock
was $1.78125.
Our common stock began trading on the over-the-counter electronic
bulletin board on August 26, 1998.
The following table sets forth the quarterly high and low closing bid
and closing ask prices (in U.S. dollars) for our common stock for the period
August 26, 1998 through the first three quarters of 1999:
66
<PAGE>
Closing Bid
-----------
High Low
---- ---
1998
- ----
August 26 thru September 30 UNPRICED
October 1 thru December 31 $1.50 $.01
1999
- ----
January 4 thru March 31 $1.25 $.50
April 1 thru June 30 $1.25 $.31
July 1 thru September 30 $ .99 $.50
Source: National Quotation Bureau, LLC
The foregoing data represents prices between dealers and does not
include retail mark-ups, mark-downs or commissions, nor does such data represent
actual transactions or adjustments for stock-splits or dividends.
Dividends
To date, we have not declared or paid dividends on our common stock. We
presently plan to retain earnings, if any, for use in our business.
Trading Market
Our common stock trades on the NASD Electronic Bulletin Board under the
symbol "CAOL".
Principal Market-Makers
On November 30, 1999, there were 23 active market makers of our common
stock. The principal market makers of our common stock. The principal market
makers during 1999 have been Knight Securities, Inc., Wm. V. Frankel & Co.,
Incorporated, M.H. Meyerson & Co., Inc., USCC Trading (a division of Fleet
Bank), Hill Thompson Magid & Co., Inc., Wein Securities Corp., and Paragon
Capital Corporation.
Number of Shareholders of Record
As of December 1, 1999, there were approximately 47 shareholders of
record of our common stock.
67
<PAGE>
Item 2. LEGAL PROCEEDINGS.
We are not presently party to any material legal proceeding nor are we
aware of any material pending or potential legal proceeding, which might be
instituted against us.
Item 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Not applicable.
Item 4. RECENT SALES OF UNREGISTERED SECURITIES.
December 1998 Offering
In December 1998, we completed a private placement of 5,785,000 shares
of our common stock at an offering price of $.001 per share for an aggregate
offering price of $57,850. The shares were offered and sold in reliance on an
exemption from registration afforded by Rule 504 of Regulation D under the
Securities Act of 1933 and only to accredited investors within the meaning of
Rule 501 of Regulation D under the Act. The proceeds of such offering have been
used as follows:
Purpose Amount
- ------- ------
Working Capital $ 57,850
March 1999
In March 1999, we issued an aggregate of 225,000 warrants to third
parties for services rendered. These warrants were issued pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. Subsequently, these entities exercised the warrants on a cashless basis
into 202,500 shares of common stock. We derived no cash proceeds from the sale
of the shares.
April 2, 1999 Offering
On April 2, 1999, we issued an aggregate of 475,000 shares of common
stock to four persons (including our President who received 150,000 shares) in
consideration of services rendered to us. We valued the shares at $.25 per share
for an aggregate price of $118,750. We issued the shares pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. We derived no cash proceeds from the sale of the shares.
68
<PAGE>
April 29, 1999 Offering
In April 1999, we completed a private placement of 700,000 units of our
securities at a price of $.50 per unit for an aggregate offering price of
$350,000. Each unit consisted of one share of common stock and one common stock
purchase warrant which entitles the holder to purchase one share of common stock
for two years commencing upon the date of issuance at an exercise price of $.60,
if exercised during the first year after issuance, and $.70 if exercised in the
second year after issuance. The units were offered and sold in reliance on an
exemption from registration afforded by Regulation S under the Securities Act of
1933 as amended. Our President purchased 50,000 units for cash. The proceeds of
such offering have been used as follows:
Purpose Amount
- ------- ------
Purchase of Kiosk Operations in China $150,000
Development of business of Sichuan Guo Xun $150,000
Working capital $150,000
June 1999 Offering
In June1999, we completed a private placement of 2,290,000 units of our
securities, each unit consisting of one share of common stock and one common
stock purchase warrant entitling the holder to purchase one share of common
stock for a two year period at an exercise price of $.60 if exercised during the
first year after issuance and $.70 if exercised during the second year after
issuance. Each unit was sold at a price of $.25 for an aggregate offering price
of $577,500. The units were offered and sold in reliance on an exemption from
registration afforded by Regulation S under the Securities Act of 1933 as
amended. The proceeds of such offering have been used as follows:
Purpose Amount
- ------- ------
Development of business of TorchMail.com Inc. $150,000
Development of Sichuan CathayOnline Technologies Co., Ltd. $250,000
Working Capital $172,500
69
<PAGE>
July 2, 1999
On July 2, 1999, we issued 2,500,000 shares of common stock to
Frontline Investments Inc. in connection with our acquisition of TorchMail.com,
Inc. The shares were issued in reliance on the exemption from registration
afforded by Regulation S under the Securities Act of 1933 as amended. We
realized no cash proceeds from the issuance of these shares.
September 1999
On September 10, 1999, we issued 100,000 shares of common stock to a
third party for services rendered pursuant to the terms of an agreement. We
valued the shares at $.40 per share. We issued the shares pursuant to the
exemption from registration afforded by Section 4(2) of the Securities Act of
1933. We realized no cash proceeds from the issuance of these shares.
August and September 1999
During August and September 1999, we issued an aggregate of 20,000
shares of common stock Porcelain Ltd., as designee for Edward Lee, the manager
of our former Chinese kiosk operations, in accordance with the provisions of our
employment agreement with Mr. Lee. We realized no cash proceeds from the
issuance of these shares.
August and November 1999
During August and November 1999, we issued an aggregate of 147,278
shares of common stock to Owen Li, the general manager of Sichuan CathayOnline
Technologies Co., Ltd., in accordance with the provisions of our agreement with
Mr. Li. These shares were issued pursuant to the exemption from registration
afforded by Section 4(2) of the Securities Act of 1933. We realized no cash
proceeds from the issuance of these shares.
October 1999 Offering
In October 1999, we completed a private placement of 2,500,000 shares
of our common stock at a price of $.375 per share for an aggregate offering
price of $937,500. The shares were offered and sold in reliance on the exemption
from registration afforded by Rule 504 of Regulation D promulgated under the
Securities Act of 1933 and only to "accredited investors" within the meaning of
Rule 501 of the Regulation D under the Securities Act of 1933. The proceeds of
such offering have been used as follows:
70
<PAGE>
Purpose Amount
- ------- ------
Purchase of Equipment for Sichuan CathayOnline Technologies, Co., Ltd. $450,000
Development of TorchMail.com, Inc. business organization $250,000
Working Capital $184,350
Commissions $ 48,150
Professional Fees $ 5,000
October 1999
On October 26, 1999, we issued to our employees and consultants (or
their designees) in consideration for services rendered and to be rendered
pursuant to employment and consulting agreements between us and them, warrants
to purchase up to 21,700,000 shares of our common stock. The warrants are
exercisable for a period of 3 years commencing on October 26, 1999 at an
exercise price of $.33 per share. The shares of common stock issuable upon
exercise of these warrants are subject to registration as described below. These
warrants provide for cashless exercise by the holders. These warrants are not
redeemable. As of the date hereof, none of these warrants have been exercised.
We realized no cash proceed from the issuance of these warrants.
Item 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Our Articles of Incorporation provide that none of our directors or
officers shall be personally liable to the corporation or any stockholder for
damages for breach of fiduciary duty as a director or officer or for any act or
omission on their part, except that liability shall not be eliminated for acts
or omissions which involve intentional misconduct, fraud or a knowing violation
of the law or the payment of dividends in violation of Nevada's corporate laws.
Additionally, our By-Laws provide for the indemnification of any of our
directors, officers and employees by reason of their serving in such capacity
against reasonable expenses, including attorneys' fees, actually and reasonably
incurred by them in connection with the defense of any action, suit or
proceeding or any appeal therein which they, or any of them, are made parties or
a party, except if such person is adjudged to have been liable for negligence or
misconduct in the performance of such person's duties. Our Board of Directors
shall fix the amount of the indemnity payable by us. Such indemnification is not
deemed to be exclusive of any other rights to which those indemnified may be
entitled, under any by-law, agreement, vote of stockholders or otherwise. The
foregoing provisions of our Articles of Incorporation may reduce the likelihood
of derivative litigation against our directors and officers for breach of their
fiduciary duties, even though such action, if successful, might otherwise
benefit us and our stockholders.
71
<PAGE>
PART F/S
CONTENTS
Page
Independent Auditor's Report..............................................F - 1
Balance Sheets
September 30, 1999 (Unaudited) and
June 30, 1999 and 1998..................................................F - 2
Statements of Operations for the
Three Months Ended September 30, 1999 (Unaudited) and the
Years Ended June 30, 1999 and 1998.....................................F - 3
Statement of Stockholders' Equity for the
Three Months Ended September 30, 1999 (Unaudited) and the
Years Ended June 30, 1999 and 1998.....................................F - 4
Statements of Cash Flows for the
Three Months Ended September 30, 1999 (Unaudited) and the
Years Ended June 30, 1999 and 1998.....................................F - 5
Notes to Financial Statements.............................................F - 7
<PAGE>
INDEPENDENT AUDITOR'S REPORT
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
We have audited the accompanying balance sheets of CathayOnline, Inc.
(formerly Kyocera Management, Ltd.) (a development stage company) as of June 30,
1999 and 1998, and the related statements of operations, stockholders' equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of CathayOnline, Inc.
(formerly Kyocera Management, Ltd.) (a development stage company) as of June 30,
1999 and 1998, and the results of its operations and its cash flows for the
years then ended, in conformity with generally accepted accounting principles.
Respectfully submitted
/S/ ROBISON, HILL & CO.
----------------------------
Certified Public Accountants
Salt Lake City, Utah
October 7, 1999
F - 1
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
September 30, June 30,
--------------------------
1999 1999 1998
----------- ----------- -----------
<S> <C> <C> <C>
Current Assets - Cash ..................... $ 277,585 $ 164,982 $ --
Restricted Cash ........................... 6,920 6,920 --
Accounts Receivable ....................... 2,500 -- --
Prepaid Expenses .......................... 19,666 -- --
Fixed Assets - Equipment .................. 12,131 3,680 --
Less Accumulated Depreciation ............. (459) (64) --
Investment in Subsidiaries and Other Assets 637,987 204,546 --
----------- ----------- -----------
Total Assets: ............................. $ 956,330 $ 380,064 $ --
=========== =========== ===========
Liabilities - Accounts Payable ............ $ 34,145 $ 79,726 $ --
----------- ----------- -----------
Stockholders' Equity:
Common Stock, Par value $.001
Authorized 50,000,000 shares,
Issued 17,276,700 shares
at September 30,
1999, 11,752,700 at June 30, 1999
and 2,639,868 at June 30, 1998 ........ 17,277 11,753 2,640
Paid-In Capital ......................... 1,776,491 1,043,373 860
Stock Subscribed Receivable ............. (429,250) (429,250) --
Deficit Accumulated During the
Development Stage ..................... (442,333) (325,538) (3,500)
----------- ----------- -----------
Total Stockholders' Equity ........... 922,185 300,338 --
----------- ----------- -----------
Total Liabilities and
Stockholders' Equity ............... $ 956,330 $ 380,064 $ --
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 2
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Cumulative
(Unaudited) since
For the Three inception
Months Ended For the year ended of
September 30, June 30, development
---------------------
1999 1999 1998 stage
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues: .................... $ 3,803 $ -- $ -- $ 3,803
Cost of Revenues ............. 2,312 -- -- 2,312
--------- --------- --------- ---------
Gross Margin ................. 1,491 -- -- 1,491
Expenses: .................... 118,286 322,038 2,353 443,824
--------- --------- --------- ---------
Net Loss ................ $(116,795) $(322,038) $ (2,353) $(442,333)
--------- --------- --------- ---------
Basic & Diluted loss per share $ (0.01) $ (0.06) $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 3
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Deficit
Accumulated
Stock During
Common Stock Paid-In Subscribed Development
Shares Par Value Capital Receivable Stage
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Balance at July 1, 1997 .......... 1,099,956 $ 1,100 $ 2,100 -- $ (1,147)
January 5, 1998 Issuance of Stock
for services and payment of
accounts payable ............... 1,539,912 1,540 (1,240) -- --
Net Loss ......................... -- -- -- -- (2,353)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1998
As originally reported ......... 2,639,868 2,640 860 -- (3,500)
Cancellation of Officer Shares ... (1,539,912) (1,540) 1,540 -- --
Retroactive adjustment for 2.273
to 1 stock split August 27, 1998 1,400,244 1,400 (1,400) -- --
----------- ----------- ----------- ----------- -----------
Restated balance June 30, 1998 ... 2,500,200 2,500 1,000 -- (3,500)
December 29, 1998 Issuance of
Stock for cash ................ 5,785,000 5,785 52,065 -- --
Capital Contributed by shareholder -- -- 2,526 -- --
March 9, 1999 Issuance of Stock
for payment of
accounts payable .............. 202,500 203 (203) -- --
April 2, 1999 Issuance of Stock
for payment of
accounts payable .............. 475,000 475 118,275 -- --
April 29, 1999 Issuance of Stock
for cash ...................... 700,000 700 349,300 -- --
June 24, 1999 Issuance of Stock
for cash ...................... 2,090,000 2,090 520,410 (429,250) --
Net Loss ......................... -- -- -- -- (322,038)
----------- ----------- ----------- ----------- -----------
Balance at June 30, 1999 ......... 11,752,700 $ 11,753 $ 1,043,373 $ (429,250) $ (325,538)
=========== =========== =========== =========== ===========
Issuance of stock (Unaudited) .... 5,524,000 5,524 733,118 -- --
Net Loss (Unaudited) ............. -- -- -- -- (116,795)
----------- ----------- ----------- ----------- -----------
Balance at September 30, 1999
(Unaudited) ...................... 17,276,700 $ 17,277 $ 1,776,491 $ (429,250) $ (422,333)
=========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 4
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Cumulative
(Unaudited) Since
For the Three Inception
Months Ended For the years ended of
September 30, June 30, Development
--------------------------
1999 1999 1998 Stage
----------- ----------- ------------ -----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
<S> <C> <C> <C> <C>
Net Loss .................................. $ (116,795) $ (322,038) $ (2,353) $ (442,333)
Adjustments to reconcile net loss to net
cash used in operating activities:
Depreciation and amortization .......... 395 64 2,053 3,659
Issuance of common stock for expenses .. -- 140,350 300 140,650
Change in operating assets and liabilities:
Restricted cash ........................ -- (6,920) -- (6,920)
Accounts Receivable .................... (2,500) -- -- (2,500)
Prepaid Expenses ....................... (19,666) -- -- (19,666)
Accounts Payable ....................... (45,581) 79,726 -- 34,145
----------- ----------- ----------- -----------
Net Cash Used in operating activities ... (184,147) (108,818) -- (292,965)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of equipment .................. (8,451) (3,680) -- (12,131)
Investment in subsidiaries ............. (433,441) (204,546) -- (637,987)
----------- ----------- ----------- -----------
Net cash used in investing activities ..... (441,892) (208,226) -- (650,118)
----------- ----------- ----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock .... 738,642 479,500 -- 1,218,142
Capital contributed by shareholder ........ -- 2,526 -- 2,526
----------- ----------- ----------- -----------
Net Cash Provided by Financing Activities . 738,642 482,026 -- 1,220,668
----------- ----------- ----------- -----------
Net (Decrease) Increase in
Cash and Cash Equivalents ............... 112,603 164,982 -- 277,585
Cash and Cash Equivalents
at Beginning of Period .................. 164,982 -- -- --
----------- ----------- ----------- -----------
Cash and Cash Equivalents
at End of Period ........................ $ 277,585 $ 164,982 $ -- $ 277,585
=========== =========== =========== ===========
</TABLE>
F - 5
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
STATEMENTS OF CASH FLOWS (Continued)
<TABLE>
<CAPTION>
SUPPLEMENTAL DISCLOSURE OF
CASH FLOW INFORMATION:
Cash paid during the year for:
<S> <C> <C> <C> <C>
Interest $ - $ - $ - $ -
Income taxes $ - $ - $ - $ -
SUPPLEMENTAL DISCLOSURE OF
NON-CASH INVESTING AND
FINANCING ACTIVITIES: None
</TABLE>
The accompanying notes are an integral part of these financial statements.
F - 6
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of accounting policies for CathayOnline, Inc. (formerly
Kyocera Management, Ltd.) is presented to assist in understanding the Company's
financial statements. The accounting policies conform to generally accepted
accounting principles and have been consistently applied in the preparation of
the financial statements.
The unaudited financial statements as of September 30, 1999 and for the
three months then ended reflect, in the opinion of management, all adjustments
(which include only normal recurring adjustments) necessary to fairly state the
financial position and results of operations for the three months. Operating
results for interim periods are not necessarily indicative of the results which
can be expected for full years.
Organization and Basis of Presentation
The Company was incorporated under the laws of the State of Nevada on
September 20, 1995 using the name of Kyocera Management, Ltd. The name was
changed to CathayOnline, Inc. on April 14, 1999. The Company ceased all
operating activities during the period from September 20, 1995 to January 6,1998
and was considered dormant. On January 6, 1998, the Company obtained a
Certificate of renewal from the State of Nevada. The Company as of June 30, 1999
is in the development stage, and has only recently commenced planned principal
operations.
Nature of Business
On the 30th of June the Company announced its exclusive partnership with
Sichuan Guo Xun Xin ChanYe You Xian Gong Si, a licensed Internet Service
Provider employing 28 industry professionals, through its wholly owned
subsidiary Sichuan CathayOnline Information Technologies Co. Ltd., of Chengdu,
China.
Subsequent to June 30, 1999 CathayOnline, through a right to first market
partnership with USA.net, launched its English version of TorchMail.com, a web
based email and advanced messaging service for the Chinese speaking markets,
through its newly acquired wholly owned subsidiary, Torchmail.com, Inc. These
markets include but are not limited to Peoples Republic of China, Hong Kong,
Taiwan, Singapore, and Malaysia.
F - 7
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Nature of Business (Continued)
Furthermore, the Company through its wholly owned subsidiary CathayOnline
Technologies (Hong Kong) Ltd., through a partnership with Wan Rong Services Co.
Ltd., became the operator of 10 online lottery kiosks in Guangzhou, China. Cash
and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with a maturity of three months or less
to be cash equivalents to the extent the funds are not being held for investment
purposes.
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles required 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. Actual results could differ from those estimates.
Translation of Foreign Currrency
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange and statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
translation adjustments are made directly to a separate component of the
stockholders' equity. Certain foreign activities are considered to be an
extension of the U.S. operations, and the gain or loss resulting from
remeasuring these transactions into U.S. dollars is included in income. Gains or
losses from other foreign currency transactions, such as those resulting from
the settlement of foreign receivables or payables, are included in the
Statements of Operations.
F - 8
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Property and Equipment
Property and equipment are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on a straight-line basis from 3 to 5
years.
Upon sale or other disposition of property and equipment, the cost and
related accumulated depreciation or amortization are removed from the accounts
and any gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as
incurred. Major overhauls and betterments are capitalized and depreciated over
their useful lives.
Reclassifications
Certain reclassifications have been made in the 1998 financial statements
to conform with the 1999 presentation.
Loss per Share
The reconciliations of the numerators and denominators of the basic loss
per share computations are as follows:
Per-Share
Income Shares Amount
(Numerator) (Denominator)
For the three months ended September 30, 1999 (Unaudited)
Basic Loss per Share
Loss to common shareholders ....... $ (116,795) 14,514,700 $(0.01)
========== ========== =====
F - 9
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(Continued)
Loss per Share (Continued)
Per-Share
Income Shares Amount
(Numerator) (Denominator)
For the year ended June 30, 1999
Basic Loss per Share
Loss to common shareholders ....... $ (322,038) 5,748,248 $(0.06)
========== ========== =====
For the year ended June 30, 1998
Basic Loss per Share
Loss to common shareholders ....... $ (2,353) 2,500,200 $--
========== ========== =====
The effect of outstanding common stock equivalents would be anti-dilutive
for June 30, 1999 and 1998 and are thus not considered.
NOTE 2 - INCOME TAXES
As of June 30, 1999, the Company had a net operating loss carryforward for
income tax reporting purposes of approximately $300,000 that may be offset
against future taxable income through 2014. Current tax laws limit the amount of
loss available to be offset against future taxable income when a substantial
change in ownership occurs. Therefore, the amount available to offset future
taxable income may be limited. Accordingly, the potential tax benefits of the
loss carryforwards are offset by a valuation allowance of the same amount.
NOTE 3 - DEVELOPMENT STAGE COMPANY
The Company has not begun principal operations and as is common with a
development stage company, the Company has had recurring losses during its
development stage.
F - 10
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 4 - COMMITMENTS
As of June 30, 1999 all activities of the Company have been conducted by
corporate officers from their business offices. Currently, there are no
outstanding debts owed by the company for the use of these facilities and there
are no commitments for future use of the facilities.
NOTE 5 - COMMON STOCK TRANSACTIONS
The Company was initially incorporated to allow for the issuance of up to
25,000 shares of no par value common stock. On January 5, 1998, the Company
approved the amendment of it's Articles of Incorporation to allow for the
issuance of up to 50,000,000 shares of $0.001 par value common stock. The
Amended Articles of Incorporation were filed with the State of Nevada on April
20, 1998. All amounts presented in the accompanying financial statements reflect
the effect of this change in the par value of the Company's stock as of the
first day of the first period presented.
On January 5, 1998, the Company's Board of Directors approved a 44 for 1
forward stock split on its issued and outstanding common stock. All issued and
outstanding share and per share amounts in the accompanying financial statements
reflect the effect of this stock split as of the first day of the first period
presented.
At inception, the Company issued approximately 9,999 shares of common stock
(439,956 post split shares) to its officers and directors for services performed
and payments made on the Company's behalf during its formation. This transaction
was valued at approximately $0.02 per share or an aggregate approximate $200.
During 1996, to provide initial working capital, the Company completed a
private placement sale of an aggregate of approximately 15,000 shares of common
stock (660,000 post split shares) at approximately $0.20 per share. These sales
generated approximately $3,000 in proceeds to the Company which were primarily
used to pay organizational expenses.
On January 5, 1998, prior to the stock split, the Company issued
approximately 34,998 shares of common stock (1,539,912 post split shares) to
officers and directors of the Company for management services rendered to the
Company. This transaction was valued at approximately $300, which approximated
the fair value of the services rendered to the Company. On August 26, 1998 the
Officers surrendered these shares to the Company for cancellation.
F - 11
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 5 - COMMON STOCK TRANSACTIONS (CONTINUED)
On August 27, 1998 the Board of Directors authorized 2.273 to 1forward
stock split on its issued and outstanding common stock. All references in the
accompanying financial statements to the number of common shares and per-share
amounts for 1998 and 1997 have been restated to reflect the stock split.
On December 29, 1998 the Company issued 5,785,000 shares pursuant to Rule
504 of Regulation D promulgated by the United States Securities and Exchange
Commission. 3,625,000 shares were issued for cash at $0.01 per share and
2,160,000 shares were issued for cash.
On March 9, 1999 the Company completed a private placement sale of an
aggregate of 202,500 common shares being issued for payments made on the
Company's behalf.
On April 2, 1999 the Company completed a private placement sale of an
aggregate of 475,000 shares of common stock for payments made on the Company's
behalf.
On April 29, 1999 the Company issued 700,000 shares pursuant to Regulation
S promulgated by the United States Securities and Exchange Commission. The
shares were issued for cash at $0.50 per share.
On June 24, 1999 the Company issued 2,090,000 shares pursuant to Regulation
S promulgated by the United States Securities and Exchange Commission. The
shares were issued for cash at $0.25 per share.
NOTE 6 - PREFERRED STOCK
The Board of Directors of the Company has the authority to determine by
resolution the number of preferred shares to be issued by series, the rate and
terms for payment of cumulative or non-cumulative dividends, the conversion
features of the preferred stock, the redemption rights and prices, if any, the
terms of the sinking fund, if any, to be provided for the shares, the voting
powers of preferred shareholders and any other special rights, qualifications,
limitations, or restrictions. As of June 30, 1999, no preferred stock had been
issued.
F - 12
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 7 - STOCK OPTIONS AND WARRANTS
All options and warrants have been granted at exercise prices greater than
the market value on the date of granting. All options vest 100% at date of
grant.
1999 1998
------------------ ------------------
Options outstanding, beginning of year - -
Granted 2,990,000 -
Expired - -
Exercised - -
------------------ ------------------
Options and warrants outstanding, end of year 2,990,000 -
================== ==================
Price for options and warrants
outstanding, end of year $ 0.35 - .070 $ -
Options and warrants granted
subsequent to year end -
Option and warrant price range
granted subsequent to year end$ -
NOTE 8 - SUBSEQUENT EVENTS
On July 2, 1999 the Company completed an Acquisition (the "Acquisition") in
which it acquired 100% of the issued and outstanding capital stock of
TorchMail.com Inc., a Turks & Caicos, BWI corporation in exchange for 2,500,000
shares of the Company's $.001 par value common stock, comprising approximately
15% of the Company's issued and outstanding common stock after giving effect to
the Acquisition, and $10,000. Further, upon the resale of 360,000 Seats (defined
as a mailbox created within a Customer Account for use of the Services by a
User) the Company will issue an additional 2,500,000 shares, upon the resale of
500,000 Seats the Company will issue 1,250,000 shares and upon the resale of
750,000 Seats the Company will issue 1,250,000 shares. The transaction has been
accounted for as a purchase. Assets and liabilities are reflected at their fair
market value.
In July through September, the Company acquired the operations of 10 online
lottery kiosks through its wholly owned subsidiary CathayOnline Technologies
(Hong Kong) Ltd., with its joint
F - 13
<PAGE>
CATHAYONLINE, INC.
(Formerly Kyocera Management, Ltd.)
(A Development Stage Company)
NOTES TO FINANCIAL STATEMENTS
FOR THE YEARS ENDED JUNE 30, 1999 AND 1998
(References to September 30, 1999 are Unaudited)
(Continued)
NOTE 8 - SUBSEQUENT EVENTS (Continued)
venture partner Wan Rong Services Co. Ltd., for $100,000. The kiosks sell online
lottery tickets for government sanctioned sports and charitable lotteries to the
general public in Guangzhou, China.
On the 10th of August 1999 the Company's wholly owned subsidiary's joint
venture partner, Guo Xun Xin Xi Chan Ye You Xian Gong Si received a license from
the Republic of China to operate an "electronic information processing;
development, manufacture and sales of telecommunication and computer networking
products; computer networking dial-up services; information systems
infrastructure construction and the related services" business for a period of 4
years. The Company has committed to invest $1,000,000 in this venture. As of
October 1999 the Company has invested approximately $700,000.
F - 14
<PAGE>
PART III
Item 1. INDEX TO EXHIBITS
Exhibit No. Description of Exhibit
3.1 Articles of Incorporation of CathayOnline Inc.
3.2 By-Laws of CathayOnline Inc.
3.3 Certificate of Incorporation of CathayOnline (BVI) Ltd.
3.4 Memorandum and Articles of Association of CathayOnline (BVI)
Ltd.
3.5 Certificate of Incorporation of CathayOnline Technologies
(Hong Kong) Limited
3.6 Memorandum and Articles of Association of CathayOnline
Technologies (Hong Kong) Limited
3.7 Certificate of Incorporation of Sichuan CathayOnline
Technologies Co., Ltd.
3.8 Articles of Association of Sichuan CathayOnline Technologies
Co., Ltd.
3.9 Certificate of Incorporation of TorchMail.com, Inc.
3.10 Memorandum and Articles of Association of TorchMail.com, Inc.
4.1 Specimen Form of Common Stock Certificate
4.2 Form of Warrant issued to Employees and Consultants
4.3 Form of Warrant issued in April 1999 Offering
4.4 Form of Warrant issued in October 1999 Offering
<PAGE>
10 Material Contracts
10.1 Exclusive Management, Operating and Consultancy Service
Agreement with Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Si
10.2 Agreement to Acquire TorchMail.com Inc.
10.3 Reseller Agreement between TorchMail.com Inc. and USA.NET Inc.
THIS AGREEMENT HAS BEEN SUBMITTED TO THE SECURITIES AND
EXCHANGE COMMISSION UNDER SEPARATE COVER WITH A REQUEST THAT
THE EXHIBIT BE GRANTED CONFIDENTIAL TREATMENT.
10.4 Agreement with GameWeaver.com Inc for the Sale of Kiosks
10.5 Letter of Intent with Clean Way Corp.
10.6 Employment Agreement between CathayOnline Inc. and Brian
Ransom
10.7 Management Agreement with Owen Li
10.8 Consulting Agreement with Peter Lau
10.9 Public Relations Agreement with Talk Stock with Me Inc.
10.10 Lease Agreement with Sichuan Dongfu Group Company
23.1 Consent of Robison, Hill & Co.
23.2 Consent of Beijing Sage Law Firm
27.1 Financial Data Schedule
99.1 Opinion of Beijing Sage Law Firm as to Legality of Operations
of Sichuan CathayOnline Technologies Co. Ltd.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Section 12 of the Securities
Exchange Act of 1934, the registrant has duly caused this registration statement
to be signed on its behalf by the undersigned thereunto duly authorized.
CATHAYONLINE INC.
Date: December 13, 1999 By: /s/ Brian Ransom
------------------------- -----------------------------------
Exhibit 3.1
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After lssuance of Stock)
Kyocera Manaagement, Ltd.
-------------------------
Name of Corporation
We the undersigned Bruce Ransom and Brian Ransom
------------ -------------
President Secretary
of Kyocera1 Management, Ltd. do hereby certify:
------------------------
Name of Corporation
That the Board of Directors of said corporation at a meeting duly convened, held
on the 31st day of March, 1999, adopted a resolution to amend the original
articles as follows:
Article I is hereby amended to read as follows:
The Name of the Corporation is: CathayOnline, Inc.
The number of shares of the corporation outstanding and entitled to vote on an
amendment to the Articles of Incorporation is 8,285,200; that the said change(s)
and amendment have been consented to and approved by a majority vote of the
stockholders holding at least a majority of each ciass of stock outstanding and
entitled to vote thereon.
-------------------------------------
Bruce Ransom
President
-------------------------------------
Brian Ransom
Corporate Secretary
Province of British Columbia
Country of Canada
This instmnient was acknowledged before me on April 8, 1999 by Bruce Ransom
as President and Brian Ransom as Corporate Secretary
of Kyocera Management, Ltd a Nevada corporation.
Signature
---------------------------
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
KYOCERA MANAGEMENT, LTD.
------------------------
Name of Corporation
We the undersigned SHARON A. BOYD and
----------------------------------------------
President or Vice President
JEANETTE HUNTLEY of KYOCERA MANAGEMENT, LTD.
- -------------------------------- ------------------------------------------
Secretazy or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly
convened, held on the 5 th day of JANUARY, 1998 adopted a resolution to amend
the original articles as follows:
Article FOURTH is hereby amended to read as follows:
That the total number of voting common stock authorized that may be
issued by the corporation is fifty million (50,000,000) shares of stock
with par value of $.OO1 per share and no other class of stock shall be
authorized. Said shares may be issued by the corporation from time to
time for such considerations as may be fixed from titme to time by the
Board of Directors.
The number of shares of the corporation outstanding and entitled to
vote on an amendment to the Articles of Incorporation is 25,000 that the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon. President o Secretary or Assistant
Secretary
---------------------------------------
President or Vice President
---------------------------------------
Secretary or Assistant Secretary
State of California
County of San Diego
This instrument was ackknowledged before me on 4/16/98 by SHARON A.
BOYD as PRESIDENT and JEANETTE HUNTLEY as SECRETARY of KYOCERA MANAGEMENT, LTD.
a Nevada corporation.
Signature
-------------------------
<PAGE>
[GRAPHIC OMITTED]
CORPORATE CHARTER
I, DEAN HELLER, the duly elected and qualified Nevada Secretary of State, do
hereby certify that KYOCERA MANAGEMENT, LTD. did on the TWENTIETH day of
SEPTEMBER, 1995 file in this office the original Articles of Incorporation; that
said Articles are now on file and of record in the office of the Secretary of
State of the State of Nevada, and further, that said Articles contain all the
provisions required by the law of said State of Nevada.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the Great Seal of State, at
my office, in Carson City, Nevada, this
TWENTIETH day of SEPTEMBER, 1995.
Secretary of State
By
Certification Clerk
<PAGE>
ARTICLES OF INCORPORATION
OF
KYOCERA MANAGEMENT, LTD.
FIRST. The name of the corporation is:
KYOCERA MANAGEMENT, LTD.
SECOND. The resident agent for this corporation shall be:
SAGE INTERNATIONAL INC.
The address of said agent, and the principal or statutory address of this
corporation in the State of Nevada, shall be 1135 Terminal Way, Suite 209, Reno,
Nevada 89502, located in Washoe County, State of Nevada. This corporation may
maintain an office, or offices, in such other place within or without the State
of Nevada as may be from time to time designated by the Board of Directors, or
by the By-Laws of said corporation, and that this corporation may conduct all
corporation business of every kind and nature, including the holding of all
meetings of Directors and Stockholders, outside the State of Nevada as well as
within the State of Nevada.
THIRD. The objects for which this corporation is formed are as follows:
to engage in any lawful activity.
FOURTH. That the total number of voting common stock authorized that
may be issued by the corporation is TWENTY FIVE THOUSAND (25,000) shares of
stock with NO PAR VALUE, and no other class of stock shall be authorized. Said
shares may be issued by the corporation from time to time for such
considerations as may be fixed from time to time by the Board of Directors.
FIFTH. The governing board of this corporation shall be known as
directors, and the number of directors may from time to time be increased or
decreased in such manner as shall be provided by the bylaws of this corporation,
providing that the number of directors shall not be reduced to less than one
(1). The name and post office address of the first Board of Directors shall be
one (1) in number and listed as follows:
NAME POST OFFICE ADDRESS
CHERI S. HILL 1135 TERMINAL WAY, SUITE 209
RENO, NEVADA 89502
1 of 3 pages.
<PAGE>
SIXTH. After the amount of the subscription price, the purchase price,
of the par value of the stock of any class or series is paid into the
corporation, owners or holders of shares of any stock in the corporation may
never be assessed to pay the debts of the corporation.
SEVENTH. The name and post office address of the Incorporator signing
the Articles of Incorporation is as follows:
NAME POST OFFICE ADDRESS
CHERI S. HILL 1135 TERMINAL WAY, SUITE 209
RENO, NEVADA 89502
EIGHTH. The corporation is to have perpetual existence.
NINTH. No director or officer of the corporation shall be personally
liable to the corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer or for any act or omission of any such
director or officer; however, the foregoing provision shall not eliminate or
limit the liability of a director or officer for (a) acts or omissions which
involve intentional misconduct, fraud or a knowing violation of law; or (b) the
payment of dividends in violation of Section 78.300 of the Nevada Revised
Statutes. Any repeal or modification of this Article by the stockholders of this
corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director or officer of the corporation
for acts or omissions prior to such repeal or modification.
TENTH. No shareholder shall be entitled as a matter of right to
subscribe for or receive additional shares of any class of stock of the
corporation, whether now or hereafter authorized, or any bonds, debentures or
securities convertible into stock, but such additional shares of stock or other
securities convertible into stock may be issued or disposed of by the Board of
Directors to such persons and on such terms as in its discretion it shall deem
advisable.
ELEVENTH. This corporation reserves the right to amend, alter, change
or repeal any provision contained in the Articles of Incorporation, in the
manner now or hereafter prescribed by statute, or by the Articles of
Incorporation, and all rights conferred upon Stockholders herein are granted
subject to this reservation.
2 of 3 pages.
<PAGE>
I, THE UNDERSIGNED, being the Incorporator hereinbefore named for the
purpose of forming a corporation pursuant to the General Corporation Laws of the
State of Nevada, do make and file these Articles of Incorporation, hereby
declaring and certifying the facts herein stated are true, and accordingly have
hereunto set my hand September 19, 1995.
- -----------------------------------
CHERI S. HILL, Incorporator
STATE OF NEVADA
COUNTY OF WASHOE
On September 19, 1995, before me, the undersigned, a Notary Public in and for
said County and State, personally appeared CHERI S. HILL, personally known to me
to be the person whose name is subscribed to the foregoing document and
acknowledged to me that she executed the same.
- -----------------------------------
Notary Public
CERTIFICATE OF ACCEPTANCE OF
APPOINTMENT BY RESIDENT AGENT
SAGE INTERNATIONAL, INC., hereby accepts appointment as Resident
Agent of KYOCERA MANAGEMENT, LTD..
SAGE INTERNATIONAL, INC.
By: Date September 19, 1995
------------------------------
CHERI S. HILL, Senior V.P.
3 of 3 pages.
Exhibit 3.2
BY-LAWS
OF
KYOCERA MANAGEMENT, LTD.
ARTICLE I - OFFICES
The office of the Corporation shall be located in the City and State designated
in the Articles of Incorporation. The Corporation may also maintain offices at
such other places within or without the United States as the Board of Directors
may, from time to time, determine.
ARTICLE II - MEETING OF SHAREHOLDERS
Section 1 - Annual Meetings:
The annual meeting of the shareholders of the Corporation shall be held within
five months after the close of the fiscal year of the Corporation, for the
purpose of electing directors, and transacting such other business as may
properly come before the meeting.
Section 2 - Special Meetings:
Special meetings of the shareholders may be called at any time by the Board of
Directors or by the President, and shall be called by the President or the
Secretary at the written request of the holders of ten per cent (10%) of the
shares then outstanding and entitled to vote thereat, or as otherwise required
under the provisions of the Business Corporation Law.
Section 3 - Place of Meetings:
All meetings of shareholders shall be held at the principal office of the
Corporation, or at such other places as shall be designated in the notices or
waivers of notice of such meetings.
By-Laws - 1
<PAGE>
Section 4 - Notice of Meetings:
(a) Except as otherwise provided by Statute, written notice of each meeting of
shareholders, whether annual or special, stating the time when and place where
it is to be held, shall be served either personally or by mail, not less than
ten or more than fifty days before the meeting, upon each shareholder of record
entitled to vote at such meeting, and to any other shareholder to whom the
giving of notice may be required by law. Notice of a special meeting shall also
state the purpose or purposes for which the meeting is called, and shall
indicate that it is being issued by, or at the direction of, the person or
persons calling the meeting. if, at any meeting, action is proposed to be taken
that would, if taken, entitle shareholders to receive payment for their shares
pursuant to the Statute, the notice of such meeting shall include a statement of
that purpose and to that effect. If mailed, such notice shall be directed to
each such shareholder at his address, as it appears on the records of the
shareholders of the Corporation, unless he shall have previously filed with the
Secretary of the Corporation a written request that notices intended for him be
mailed to some other address, in which case, it shall be mailed to the address
designated in such request.
(b) Notice of any meeting need not be given to any person who may become a
shareholder of record after the mailing of such notice and prior to the meeting,
or to any shareholder who attends such meeting, in person or by proxy, or to any
shareholder who, in person or by proxy, submits a signed waiver of notice either
before or after such meeting. Notice of any adjourned meeting of shareholders
need not be given, unless otherwise required by statute.
Section 5 - Ouorum:
(a) Except as otherwise provided herein, or by statute, or in the Certificate of
Incorporation (such Certificate and any amendments thereof being hereinafter
collectively referred to as the "Certificate of Incorporation"), at all meetings
of shareholders of the Corporation, the presence at the commencement of such
meetings in person or by proxy of shareholders holding of record a majority of
the total number of shares of the Corporation then issued and outstanding and
entitled to vote,
By-Laws - 2
<PAGE>
shall be necessary and sufficient to constitute a quorum for the transaction of
any business. The withdrawal of any shareholder after the commencement of a
meeting shall have no effect on the existence of a quorum, after a quorum has
been established at such meeting.
(b) Despite the absence of a quorum at any annual or special meeting of
shareholders, the shareholders, by a majority of the votes cast by the holders
of shares entitled to vote thereon, may adjourn the meeting. At any such
adjourned meeting at which a quorum is present, any business may be transacted
at the meeting as originally called if a quorum had been present.
Section 6 - Voting:
(a) Except as otherwise provided by statute or by the Certificate of
Incorporation, any corporate action, other than the election of directors, to be
taken by vote of the shareholders, shall be authorized by a majority of votes
cast at a meeting of shareholders by the holders of shares entitled to vote
thereon.
(b) Except as otherwise provided by statute or by the Certificate of
Incorporation, at each meeting of shareholders, each holder of record of stock
of the Corporation entitled to vote thereat, shall be entitled to one vote for
each share of stock registered in his name on the books of the Corporation.
(c) Each shareholder entitled to vote or to express consent or dissent without a
meeting, may do so by proxy; provided, however, that the instrument authorizing
such proxy to act shall have been executed in writing by the shareholder
himself, or by his attorney-in-fact thereunto duly authorized in writing. No
proxy shall be valid after the expiration of eleven months from the date of its
execution, unless the persons executing it shall have specified therein the
length of time it is to continue in force. Such instrument shall be exhibited to
the Secretary at the meeting and shall be filed with the records of the
Corporation.
By-Laws - 3
<PAGE>
(d) Any resolution in writing, signed by all of the shareholders entitled to
vote thereon, shall be and constitute action by such shareholders to the effect
therein expressed, with the same force and effect as if the dame had been duly
passed by unanimous vote at a duly called meeting of shareholders and such
resolution so signed shall be inserted in the Minute Book of the Corporation
under its proper date.
ARTICLE III - BOARD OF DIRECTORS
Section 1 -- Number, Election and Term of Office:
(a) The number of the directors of the Corporation shall be at least one (1)
person, unless otherwise determined by vote of a majority of the entire Board of
Directors.
(b) Except as may otherwise be provided herein or in the Certificate of
Incorporation, the members of the Board of Directors of the corporation, who
need not be shareholders, shall be elected by a majority of the votes cast at a
meeting of shareholders, by the holders of shares, present in person or by
proxy, entitled to vote in the election.
(c) Each director shall hold office until the annual meeting of the shareholders
next succeeding his election, and until his successor is elected and qualified,
or until his prior death, resignation or removal.
Section 2 -- Duties and Powers:
The Board of Directors shall be responsible for the control and management of
the affairs, property and interest of the Corporation, and may exercise all
powers of the Corporation, except as are in the Certificate of Incorporation or
by statute expressly conferred upon or reserved to the shareholders.
Section 3 -- Annual and Regular Meetings; Notice:
(a) A regular annual meeting of the Board of Directors shall be held immediately
following the annual meeting of the shareholders, at the place of such annual
meeting of shareholders.
By-Laws - 4
<PAGE>
(b) The Board of Directors, from time to time, may provide by resolution for the
holding of other regular meetings of the Board of Directors, and may fix the
time and place thereof.
(c) Notice of any regular meeting of the Board of Directors shall not be
required to be given and, if given, need not specify the purpose of the meeting;
provided, however, that in case the Board of Directors shall fix or change the
time or place of any regular meeting, notice of such action shall be given to
each director who shall not have been present at the meeting at which such
action was taken within the time limited, and in the manner set forth in
paragraph (b) Section 4 of this Article III, with respect to special meetings,
unless such notice shall be waived in the manner set forth in paragraph (c) of
such Section 4.
Section 4 - Special Meetings: Notice:
(a) Special meetings of the Board of Directors shall be held whenever called by
the President or by one of the directors, at such time and place as may be
specified in the respective notices or waivers of notice thereof.
(b) Except as otherwise required by statute, notice of special meetings shall be
mailed directly to each director, addressed to him at his residence or usual
place of business, at least two (2) days before the day on which the meeting is
to be held, or shall be sent to him at such place by telegram, radio or cable,
or shall be delivered to him personally or given to him orally, not later than
the day before the day on which the meeting is to be held. A notice, or waiver
of notice, except as required by Section 8 of this Article III, need not specify
the purpose of the meeting.
(c) Notice of any special meeting shall not be required to be given to any
director who shall attend such meeting without protesting prior thereto or at
its commencement, the lack of notice to him, or who submits a signed waiver of
notice, whether before or after the meeting. Notice of any adjourned meeting
shall not be required to be given.
Section 5 - Chairman:
At all meetings of the Board of Directors, the Chairman of the Board, if any and
if present, shall preside. If there shall be no Chairman, or he shall be absent,
then the President shall preside, and in his absence, a Chairman chosen by the
Directors shall preside.
By-Laws - 5
<PAGE>
Section 6 - Ouorum and Adiournments:
(a) At all meetings of the Board of Directors, the presence of a majority of the
entire Board shall be necessary and sufficient to constitute a quorum for the
transaction of business, except as otherwise provided by law, by the Certificate
of Incorporation, or by these By-Laws.
(b) A majority of the directors present at the time and place of any regular or
special meeting, although less than a quorum, may adjourn the same from time to
time without notice, until a quorum shall be present.
Section 7 - Manner of Acting:
(a) At all meetings of the Board of Directors, each director present shall have
one vote, irrespective of the number of shares of stock, if any, which he may
hold.
(b) Except as otherwise provided by statute, by the Certificate of
Incorporation, or by these By-Laws, the action of a majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors. Any action authorized, in writing, by all of the directors
entitled to vote thereon and filed with the minutes of the corporation shall be
the act of the Board of Directors with the sam force and effect as if the same
had been passed by unanimous vote at a duly called meeting of the Board.
Section 8 - Vacancies:
Any vacancy in the Board of Directors occurring by reason of an increase in the
number of directors, or by reason of the death, resignation, disqualification,
removal (unless a vacancy created by the removal of a director by the
shareholders shall be filled by the shareholders at the meeting at which the
removal was effected) or inability to act of any director, or otherwise, shall
be filled for the unexpired portion of the term by a majority vote of the
remaining directors, though less than a quorum, at any regular meeting or
special meeting of the Board of Directors called for that purpose.
Section 9 - Resignation:
Any director may resign at any time by giving written notice to the Board of
Directors, the President or the Secretary of the Corporation. Unless otherwise
specified in such written notice, such resignation shall take effect upon
receipt thereof by the Board of Directors or such officer, and the acceptance of
such resignation shall not be necessary to make it effective.
By-Laws - 6
<PAGE>
Section 10 - Removal:
Any director may be removed with or without cause at any time by the affirmative
vote of shareholders holding of record in the aggregate at least a majority of
the outstanding shares of the Corporation at a special meeting of the
shareholders called for that purpose, and may be removed for cause by action of
the Board.
Section 11 - Salary:
No stated salary shall be paid to directors, as such, for their services, but by
resolution of the Board of Directors a fixed sum and expenses of attendance, if
any, may be allowed for attendance at each regular or special meeting of the
Board; provided, however, that nothing herein contained shall be construed to
preclude any director from serving the Corporation in any other capacity and
receiving compensation therefor.
Section 12 - Contracts:
(a) No contract or other transaction between this Corporation and any other
Corporation shall be impaired, affected or invalidated, nor shall any director
be liable in any way by reason of the fact that any one or more of the directors
of this Corporation is or are interested in, or is a director or officer, or are
directors or officers of such other Corporation, provided that such facts are
disclosed or made known to the Board of Directors.
(b) Any director, personally and individually, may be a party to or may be
interested in any contract or transaction of this Corporation, and no director
shall be liable in any way by reason of such interest, provided that the fact of
such interest be disclosed or made known to the Board of Directors, and provided
that the Board of Directors shall authorize, approve or ratify such contract or
transaction by the vote (not counting the vote of any such director) of a
majority of a quorum, notwithstanding the presence of any such director at the
meeting at which such action is taken. Such director or directors may be counted
in determining the presence of a quorum at such meeting. This Section shall not
be construed to impair or invalidate or in any way affect any contract or other
transaction which would otherwise be valid under the law (common, statutory or
otherwise) applicable thereto.
By-Laws - 7
<PAGE>
Section 13 - Committees:
The Board of Directors, by resolution adopted by a majority of the entire Board,
may from time to time designate from among its members an executive committee
and such other committees, and alternate members thereof, as they deem
desirable, each consisting of three or more members, with such powers and
authority (to the extent permitted by law) as may be provided in such
resolution. Each such committee shall serve at the pleasure of the Board.
ARTICLE IV - OFFICERS
Section 1 - Number,Ouakfications. Election
and Term of Office:
(a) The officers of the Corporation shall consist of a President, a Secretary, a
Treasurer, and such other officers, including a Chairman of the Board of
Directors, and one or more Vice Presidents, as the Board of Directors may from
time to time deem advisable. Any officer other than the Chairman of the Board of
Directors may be, but is not required to be, a director of the Corporation. Any
two or more offices may be held by the same person.
(b) The officers of the Corporation shall be elected by the Board of Directors
at the regular annual meeting of the Board following the annual meeting of
shareholders.
(c) Each officer shall hold office until the annual meeting of the Board of
Directors next succeeding his election, and until his successor shall have been
elected and qualified, or until his death, resignation or removal.
Section 2 - Resignation:
Any officer may resign at any time by giving written notice of such resignation
to the Board of Directors, or to the President or the Secretary of the
Corporation. Unless otherwise specified in such written notice, such resignation
shall take effect upon receipt thereof by the Board of Directors or by such
officer, and the acceptance of such resignation shall not beo necessary to make
it effective.
By-Laws - 8
<PAGE>
Section 3 - Removal:
Any officer may be removed, either with or without cause, and a successor
elected by a majority vote of the Board of Directors at any time.
Section 4 - Vacancies:
A vacancy in any office by reason of death, resignation, inability to act,
disqualification, or any other cause, may at any time be filled for the
unexpired portion of the term by a majority vote of the Board of Directors.
Section 5 - Duties of Officers:
Officers of the Corporation shall, unless otherwise provided by the Board of
Directors, each have such powers and duties as generally pertain to their
respective offices as well as such powers and duties as may be set forth in
these by-laws, or may from time to time be specifically conferred or imposed by
the Board of Directors. The President shall be the chief executive officer of
the Corporation.
Section 6 - Sureties and Bonds:
In case the Board of Directors shall so require, any officer, employee or agent
of the Corporation shall execute to the Corporation a bond in such sum, and with
such surety or sureties as the Board of Directors may direct, conditioned upon
the faithful performance of his duties to .the Corporation, including
responsibility for negligence and for the accounting for all property, funds or
securities of the Corporation which may come into his hands.
Section 7 - Shares of Other Corporations:
Whenever the Corporation is the holder of shares of any other corporation, any
right or power of the Corporation as such shareholder (including the attendance,
acting and voting at shareholders' meetings and execution of waivers, consents,
proxies or other instruments) may be exercised on behalf of the Corporation by
the President, any Vice President, or such other person as the Board of
Directors may authorize.
ARTICLE V - SHARES OF STOCK
Section 1 - Certificate of Stock:
(a) The certificates representing shares of the Corporation shall be in such
form as shall be adopted by the Board of Directors, and shall be numbered and
registered in
By-Laws - 9
<PAGE>
the order issued. They shall bear the holder's name and the number of shares,
and shall be signed by (i) the Chairman of the Board or the President or a Vice
President, and (ii) the Secretary or Treasurer, or any Assistant Secretary or
Assistant Treasurer, and shall bear the corporate seal.
(b) No certificate representing shares shall be issued until the full amount of
consideration therefor has been paid, except as otherwise permitted by law.
(c) To the extent permitted by law, the Board of Directors may authorize the
issuance of certificates for fractions of a share which shall entitle the holder
to exercise voting rights, receive dividends and participate in liquidating
distributions, in proportion to the fractional holdings; or it may authorize the
payment in cash of the fair value of fractions of a share as of the time when
those entitled to receive such fractions are determined; or it may authorize the
issuance, subject to such conditions as may be pennitted by law,. of scrip in
registered or bearer form over the signature of an officer or agent of the
Corporation, exchangeable as therein provided for full shares, but such scrip
shall not entitle the holder to any rights of a shareholder, except as therein
provided.
Section 2 - Lost or Destroyed Certificates:
The holder of any certificate representing shares of the Corporation shall
immediately notify the Corporation of any loss or destruction of the certificate
representing the same. The Corporation may issue a new certificate in the place
of any certificate theretofore issued by it, alleged to have been lost or
destroyed. On production of such evidence of loss or destruction as the Board of
Directors in its discretion may require, the Board of Directors may, in its
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the Corporation a bond in such sum as the Board may
direct, and with such surety or sureties as may be satisfactory to the Board, to
indemnify the Corporation against any claims, loss, liability or damage it may
suffer on account of the issuance of the new certificate. A new certificate may
be issued without requiring any such evidence or bond when, in the judgment of
the Board of Directors, it is proper so to do.
By-Laws - 10
<PAGE>
Section 3 - Transfers of Shares:
(a) Transfers of shares of the Corporation shall be made on the share records of
the Corporation only by the holder of record thereof, in person or by his duly
authorized attorney, upon surrender for cancellation of the certificate or
certificates representing such shares, with an assignment or power of transfer
endorsed thereon or delivered therewith, duly executed, with such proof of the
authenticity of the signature and of authority to transfer and of payment of
transfer taxes as the Corporation or its agents may require.
(b) The Corporation shall be entitled to treat the holder of record of any share
or shares as the absolute owner thereof for all purposes and, accordingly, shall
not be bound to recognize any legal, equitable or other claim to, or interest
in, such share or shares on the part of any other person, whether or not it
shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 4 - Record Date:
In lieu of closing the share records of the Corporation, the Board of Directors
may fix, in advance, a date not exceeding fifty days, nor less than ten days, as
the record date for the determination of shareholders entitled to receive notice
of, or to vote at, any meeting of shareholders, or to consent to any proposal
without a meeting, or for the purpose of determining shareholders entitled to
receive payment of any dividends, or allotment of any rights, or for the purpose
of any other action. If no record date is fixed, the record date for the
determination of shareholders entitled to notice of or to vote at a meeting of
shareholders shall be at the close of business on the thy next preceding the day
on which notice is given, or, if no notice is given, the day on which the
meeting is held; the record date for determining shareholders for any other
purpose shall be at the close of business on the thy on which the resolution of
the directors relating thereto is adopted. When a determination of shareholders
of record entitled to notice of or to vote at any meeting of shareholders has
been made as provided for herein, such determination shall apply to any
adjournment thereof, unless the directors fix a new record date for the
adjourned meeting.
By-Laws - 11
<PAGE>
ARTICLE VI- DIVIDENDS
Subject to applicable law, dividends may be declared and paid out of any funds
available therefor, as often, in such amounts, and at such time or times as the
Board of Directors may determine.
ARTICLE VII - FISCAL YEAR
The fiscal year of the Corporation shall be fixed by the Board of Directors from
time to time, subject to applicable law.
ARTICLE VIII - CORPORATE SEAL
The corporate seal, if any, shall be in such form as shall be approved from time
to
time by the Board of Directors.
ARTICLE IX - AMENDMENTS
Section 1 - By Shareholders:
All by-laws of the Corporation shall be subject to alteration or repeal, and new
bylaws may be made, by the affirmative vote of shareholders holding of record in
the aggregate at least a majority of the outstanding shares entitled to vote in
the election of directors at any annual or special meeting of shareholders,
provided that the notice or waiver of notice of such meeting shall have
summarized or set forth in full therein, the proposed amendment.
Section 2 - By Directors:
The Board of Directors shall have power to make, adopt, alter, amend and repeal,
from time to time, by-laws of the Corporation; provided, however, that the
shareholders entitled to vote with respect thereto as in this Article IX
above-provided may alter, amend or repeal by-laws made by the Board of
Directors, except that the Board of Directors shall have no power to change the
quorum for meetings of shareholders or of the Board of Directors, or to change
any provisions of the by-laws with respect to the removal of directors or the
filling of vacancies in the Board resulting from the removal by the
shareholders. If any by-law regulating an impending election of directors is
adopted, amended or repealed by the Board of Directors, there shall be set forth
in the notice of the next meeting of shareholders for the election of directors,
the by-law so adopted, amended or repealed, together with a concise statement of
the changes made.
By-Laws - 12
<PAGE>
ARTICLE X - INDEMNITY
(a) Any person made a party to any action, suit or proceeding, by reason of the
fact that he, his testator or intestate representative is or was a director,
officer or employee of the Corporation, or of any Corporation in which he served
as such at the request of the Corporation, shall be indemnified by the
Corporation against the reasonable expenses, including attorney's fees, actually
and necessarily incurred by him in connection with the defense of such action,
suit or proceedings, or in connection with any appeal therein, except in
relation to matters as to which it shall be adjudged in such action, suit or
proceeding, or in connection with any appeal therein that such officer, director
or employee is liable for negligence or misconduct in the performance of his
duties.
(b) The foregoing right of indemnification shall not be deemed exclusive of any
other rights to which any officer or director or employee may be entitled apart
from the provisions of this section.
(c) The amount of indemnity to which any officer or any director may be entitled
shall be fixed by the Board of Directors, except that in any case where there is
no disinterested majority of the Board available, the amount shall be fixed by
arbitration pursuant to the then existing rules of the American Arbitration
Association.
By-Laws - 13
Exhibit 3.3
[GRAPHIC OMITTED]
TERRITORY OF THE BRITISH VIRGIN ISLANDS
THE INTERNATIONAL BUSINESS COMPANIES ACT
(CAP. 291)
CERTLFCATE OF INC0RP0RATION (SECTIONS 14 AND 15)
No. 330915
The Registrar of Companies of the Bri tjsh Virgin Islands HEREBY CERTIFIES
pursuant to the International Business Companies Act, Cap. 291 that all the
requirements of the Act in respect of incorporation having been satisfied,
CathayOnline (BVI) Ltd.
is incorporated in the British Virgin Islands as an International Business
Company this 30th day of June, 1999.
Given under my hand and seal at
Road Town, in the Territory of the
British Virgin Islands
.
--------------------------------
CRTIOO1BS Registrar of Companies
Exhibit 3.4
IBC No. 330915
[GRAPHIC OMITTED]
territory of the british virgin islands
the international business companies act, cap. 291
MEMORANDUM AND ARTICLES OF ASSOCIATION OF
Cathayonline (BVI) Ltd.
INCORPORATED THE 30th DAY OF June, 1999.
<PAGE>
territory of the british virgin islands
the international business companies act, cap. 291
MEMORANDUM OF ASSOCIATION OF
CathayOnline (BVI) Ltd.
1. The Name of the Company is CathayOnline (BVI) Ltd.
2. The Registered Office of the Company will be situate at Tropic
Isle Building, P.O. Box 438, Road Town, Tortola, British Virgin
Islands or at such other place within the British Virgin Islands
as the directors may from lime to lime determine.
3. The Registered Agent of the Company will be Integro Corporate
Services (BVI) limited, Tropic Isle Building, P.O. Box 438, 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:
(1) To buys 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), stocks, 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 wodd,
precious metals, gems, works of art and other artides of
value, and whether on a cash or margin basis and including
short sales, and to lend money either unsecured or against
the security of any of the aforementioned property
(2) 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.
(3) To borrow or raise money 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
security and upon such terms as to priority or otherwise as
the Company shall think fit.
<PAGE>
(4) To guarantee loans and to lend money with or without
guarantee or security to any persons, firms or corporations.
(5) To engage in any other business or businesses whatsoever; or
in any acts or activities, which are not prohibited under
any law for the time being in force in the British Virgin
Islands.
(6) 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 dause shall, except
where otherwise expressed in such paragraph, be an independent
main object and be in nowise flmited or restricted by reference
to or inference from the terms of any other paragraph or the name
of the Company.
5. (1) 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 authorizing 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
(f) carry on the business of providing the registered
office or the registered agent for companies
incorporated in the British Virgin Islands.
(2) For purposes of paragraph (a) of subsection (1), the company
shall not be treated as carrying on business with persons
resident in the British Virgin Islands by reason only that:
(a) it makes or maintains deposits with a person carrying
on banking business within the British Virgin Islands;
(b) it makes or maintains professional contact with
solicitors, banisters, accountants, bookkeepers, trust
companies, administration companies, investment
advisers or other similar persons carrying on business
within the British Virgin Islands;
(c) it prepares or maintains books and records within the
British Virgin Islands;
<PAGE>
(d) it holds, within the British Virgin Islands, meetings
of its directors or members;
(e) 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;
(f) it holds shares, debt obligations or other securities
in a company incorporated under the International
Business Companies Act or under the Companies Act; or
(g) shares, debt obligations or other securities in the
company are owned by any person resident in the British
Virgin Islands or by any company incorporated under the
International Business Companies Act or under the
Companies Act.
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 divided into
50,000 shares with a par value of US$1.00 each. The directors
shall have the authority to determine by resolution at their
discretion whether shares are to be issued as registered shares
or to bearer.
8. 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 dass and
series.
9. 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.
10. Shares issued as registered shares may be exchanged for shares
issued to bearer, and shares issued to bearer may be exchanged
for registered shares.
11. Where shares are issued to bearer, the bearer, identified for
this purpose by the number of the share certificate, shall be
requested to give to the Company the name and address of an agent
or attorney for service of any notice, information or written
statement required to be given to members, and service upon such
agent or attorney shall constitute service upon the bearer of
such shares. In the absence of such name and address being given
it shall be sufficient for purpose of service for the Company to
publish the notice, information or written statement in one or
more newspapers published or circulated in the British Virgin
Islands and in a newspaper in the place where the Company has its
principal office.
12. The Company shall by a resolution of members or by a resolution
of directors have the power to amend or modify any of the
conditions contained in this. Memorandum of Association and to
increase or reduce the authonsed capital of the Company in any
way which may be permitted by law.
<PAGE>
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<PAGE>
WE. the undersigned Registered Agent, subscribe our name to this Memorandum of
Association.
- --------------------------------------------------------------------------------
NAME, ADDRESS AND DESCRIP11ON OF SUBSCRIBER
- --------------------------------------------------------------------------------
Integro Corporate Services (BVI) Limited
Tropic Isle Building
P.O. Box 438
Road Town, Tortola
British Virgin Islands
Registered Agent CLAUDE1TE I. FRANCIS (Sdg.)
---------------------------
Authorised Signatory
- --------------------------------------------------------------------------------
DATED this 30th day of June, 1999.
WITNESS to the above signature: V. JOSEPH (Sdg.)
---------------------------
Road Town
Tortola
British Virgin Islands
<PAGE>
(intentionally left blank)
<PAGE>
(intentionally left blank)
<PAGE>
territory of the british virgin islands
the international business companies act, cap. 291
ARTICLES OF ASSOCIATION OF
CathayOnline (BVI) Ltd.
1. References in these Articles to the Act shall mean The
International Business Companies Act, Cap. 291. The
following Regulations shall constitute the Artides 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 indude the
plural and vice-versa, the masculine shall indude the
feminine and neuter and references to persons shall indude
corporations and all legal entities capable of having a
legal existence.
SHARES
2. The authorised capital of the Company is US$50,000
divided into 50,000 shares with a par value of US$1
each, which may be issued as either registered shares
or as shares issued to bearer as the directors may by
resolution determine.
3. Every person whose name is entered as a member in the
share register being the holder of registered shares,
and every person who subscribes for shares issued to
bearer, shall, without payment, be entitled to a
certificate signed by two directors or two officers or
by one director and one officer of the Company or under
the common seal of the Company with or without the
signature of any director or officer of the Company
specifying the share or shares held and the par value
thereof, provided that in respect of a registered
share, or 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.
4. In the case of bearer shares, each certificate for
shares issued to bearer shall carry an identifying
number, and the Company shall maintain a register of
the name and address of an agent or attorney which may
be given to the Company by the bearer, identified for
this purpose by such identifying number, for service of
any notice, information or written statement required
to be given to members.
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.
<PAGE>
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) and treasury
shares (if any) shall be at the disposal of the
directors who may, without limiting or affecting any
rights previously conferred on the holders of any
existing shares or class or series of shares, 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 Company may, by resolution of the
directors, determine.
7. No shares of the Company may be issued until the
consideration in respect of the shares is fully paid,
and when issued the share is for all purposes fully
paid and nonassessable save that a share issued for a
promissory note or other written obligation for payment
of a debt may be issued subject to forfeiture in the
manner prescribed in Regulation 22.
8. Shares of the Company shall be issued for money,
services rendered, personal property (including other
shares, debt obligations or other securities in the
Company), an estate in real property, a promissory note
or other binding obligation to contribute money or
property, or any combination thereof.
9. Without prejudice to. any special rights previously
conferred on the holders of any existing shares or
class of shares, any share of 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.
10. 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, are
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.
11. The directors may redeem any such share at a premium.
12. 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
three-fourths of the issued shares of that class and of
any other class of shares which may be affected by such
variation.
13. The rights conferred upon the holders of the shares of
any dass issued with preferred or other rights shall
not, unless otherwise expressly provided by the terms
of issue of the shares of that dass, be deemed to be
varied by the creation or issue of further shares
ranking pan passu therewith.
14. Except as required by law, the persons named in the
share register shall be recognised by the Company as
holding the 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 thereof by the registered holder.
<PAGE>
TRANSFER OF SHARES
15. Registered shares in the Company may be transferred by
a written instrument signed by the transferor and
containing the name and address of the transferee orin
such other manner or form and subject to such evidence
as the directors shall consider appropriate. Shares
issued to bearer shall be transferred by delivery of
the certificate evidencing same.
16. The holder of registered shares may request that such
shares be exchanged for shares issued to bearer and the
directors shall cancel the certificate evidencing
registered shares and the entry in the share register
and instead issue a certificate evidendng shares issued
to bearer with and subject to such evidence of intent
as the directors may consider appropriate.
17. The holder of a certificate evidencing shares issued to
bearer may request that such shares be exchanged for
registered shares and the directors shall cancel the
certificate evidencing shares issued to bearer and
instead issue a certificate evidencing registered
shares and enter the name and address of the holder
thereof in the share register with and subject to such
evidence of intent as the directors may consider
appropriate.
18. 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,
identified by reference to the number of the
certificate to bearer, the directors shall forthwith
amend the register maintained for this purpose.
TRANSMISSION OF SHARES
19. 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 persons
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
holder or holders, shall be the only persons recognised
by the Company as having any title to the share but
they shall not be entitled to exercise any rights as a
member of the Company until they have proceeded as set
forth in the following two Regulations.
20. 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.
21. 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 or shares
and such request shall likewise be treated as if it
were a transfer.
FORFEITURE OF SHARES
22. Where shares of the company are issued for a promissory
note or other written binding obligation to contribute
money or property and the terms of the promissory note
or other written binding obligation are not met:
<PAGE>
(j) Written notice specifying a date for payment to be made
shall be served on the member who defaults in making
payment pursuant to the promissory note or other
written binding obligation to pay a debt,
(ii)The written notice referred to in (i) above shall name a
further date not earlier than the expiration of 14 days
from the date of service of the notice on or before
which the payment required by the notice is to be made
and shall contain a statement that in the event of non
payment at or before the time named in the notice the
shares, or any of them, in respect of which payment is
not made will be liable to be forfeited;
(iii)Where notice has been issued and the requirements of
the notice have not been complied with, the directors
may, at any time before tender of payment, by
resolution of directors forfeit and cancel the shares
to which the notice relates;
and the Company shall have no obligation to refund any
monies to the member whose shares have been cancelled and
that member shall be discharged from any further obligation
to the Company.
ACQUISITION OF OWN SHARES
23. 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 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
24. Subject to the terms of any resolution passed 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 may be thought expedient.
25. 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.
26. The company may by resolution:
(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
<PAGE>
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.
27. 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
28. 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 per cent of the votes of the
outstanding voting shares in the Company.
29. Seven days' notice at the least specifying the place, the
day and the hour of the meeting and the general nature of
the business to be conducted shall be given in 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 and are entitled to vote at the
meeting and to the agent or attorney of record of the
holders of bearer shares.
30. 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 29, if notice of the meeting is waived by at
least 60 per cent in number of the members or holders of
bearer shares having a right to attend and vote at the
meeting; and forthis purpose, the presence of a member at
the meeting shall be deemed to constitute waiver on his
part.
31. 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
32. 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.
33. If within half an hour from the time appointed for the
meeting a quorum is not present, the meeting shall be
dissolved.
34. At every meeting the members present shall choose some one
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.
<PAGE>
35. 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.
36. At any meeting a resolution put to the vote of the meeting
shall be dedded on a show of hands by simple majority unless
a poll is (before or on the dedaratton 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.
37. Unless a poll be so demanded, a dedaration 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.
38. 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.
39. 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
40. 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.
41. 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 facsimile, telex, telegram,
cable or other written electronic communication shall
forthwith, without the need for any notice, become effectual
as a resolution of the members.
42. If a committee be appointed for any member who is of unsound
mind he may vote by his committee.
43. If two or more persons are jointly entitled to i share or
shares:
(a) each of them may be present in person or by proxy at a
meeting of members and may speak as a member;
(b) if only one of them is present in person or by proxy he
may vote on behalf of all of them; and
(c) if two or more are present in person or by proxy. they
must vote as one.
44. Votes may be given either personally or by proxy.
<PAGE>
45. 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.
46. 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.
47. 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
authonsed 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. In the case of a proxy being given by the holder of
a share issued to bearer, it shall be sufficient for the
appointer to identify himself by writing the identifying number
of the certificate evidencing the shares issued to bearer.
CORPORATIONS OR TRUSTS
ACTING BY REPRESENTATIVES
AT MEETINGS
48. Any corporation or other form of corporate legal entity or any
voting trust which is a member of the Company may by resolution
of its directors, trustees 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 or trust which he
represents as that corporation or trust could exercise if it were
an individual member of the Company.
DIRECTORS
49. Subject to any subsequent amendment to change the number of
directors, the number of the directors shall be not less than
one.
50. The first directors shall be elected by the subscriber(s) to the
Memorandum. Thereafter, additional directors may be elected
either by the members or the existing directors for such term as
the members or the directors may determine.
51. Each director holds office until his successor takes office or
until his earlier death, resignation or removal.
52. A vacancy arising in the board of directors may be filled either
by the members a or by the remaining directors.
53. 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.
54. 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
<PAGE>
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 79 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 his 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.
55. 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.
56. 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 Board 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.
57. 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.
58. 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.
59. (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.
<PAGE>
(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 mayvote in
favour of the exercise of such voting rights in 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 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
dedared 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 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
60. 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
<PAGE>
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.
61. 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.
62. 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.
POWERS OF DIRECTORS
63. 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.
64. The Board of Directors may entrust to and confer upon any
director or officer any of the powers exercisable by it, except
such powers as are exercisable under the Act by resolutions of
the directors upon such terms and conditions and with such
restrictions as it thinks fit, and either collaterally with, or
to the exdusion of, its 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 formed shall in the exercise of the powers
so delegated conform to any regulation that may be imposed on it
by the directors.
65. 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,
except that no officer or attorney of the Company may have any
power of authority with respect to matters requiring a resolution
of directors under the Act, nor may any officer or attorney have
any power to pass or purport to pass resolutions on behalf of the
Company.
<PAGE>
66. Any director who is a body corporate may appoint any person its
duly authorised representative for the purpose of representing it
at Board Meetings and of transacting any of the business of the
directors,
67. 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.
68. 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.
69. 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 in the Board there shall be only one continuing director
he shall be authorised to act alone only for the purpose of
appointing another director.
PROCEEDINGS OF DIRECTORS
70. The meetings of the Board of Directors and any committee thereof
shall be held at such place or places as the directors shall
decide.
71. 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.
72. 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 the
directors. Such note or memorandum shall constitute sufficient
evidence of such resolution for all purposes.
73. A director shall be given not less than three days notice of a
meeting of the directors.
74. Notwithstanding Regulation 73 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; and, for this purpose, the presence of a
director at the meeting shall be deemed to constitute waiver on
his part.
75. 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.
<PAGE>
76. 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.
77. If within half an hour from the time appointed for the meeting a
quorum is not present the meeting shall be dissolved.
78. Any one or more members of the Board of Directors or any
committee thereof may participate in a meeting of such Board or
committee 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.
79. A resolution which has been notified to all directors and which
has been 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 facsimile, 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
80. 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
81. The directors shall provide for the safe custody of the
common seal of the Company. The common seal when affixed to
any instrument, except as provided in Regulation 3, 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. An imprint of the common seal
shall be kept at the Registered Office of the Company.
DIVIDENDS AND RESERVES
82. 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.
<PAGE>
83. Dividends when and if declared may be paid to one class of
holder to the exdusion of the holders of other dasses, or in
unequal amounts to holders of the various dasses of shares.
84. Dividends may be dedared and paid in money shares or other
property.
85. In computing the surplus for the purpose of resolving to
declare and pay a dividend, the directors may indude in
their computation the net unrealised appreciation of the
assets of the Company.
86. The directors 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.
87. Subject to the rights of 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, exduding those shares which are held by the
Company as Treasury shares at the date of declaration of the
dividend.
88. 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.
89. 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.
90. In the case of shares issued to bearer, the directors may
provide for the payment of dividend by reference to
counterfoils or warrants issued with the certificate for
such shares, and the production of such dividend counterfoil
or warrant shall evidence entitlement to receipt of such
dividend in the same way and to the same extent as
production of the certificate itself. At the time of
presentation of the counterfoil or warrant, the directors
may issue such further counterfoilsor warrants as may be
required to permit receipt by the holder thereof of
subsequent dividends.
91. 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.
92. No dividend shall bear interest against the Company.
BOOKS AND RECORDS
93. 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.
94. 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.
<PAGE>
95. The books, records and minutes required by Regulations 93
and 94 shall be kept at the Registered Office of the Company
or at such other place as the directors determine, and shall
be open to the inspection of the directors at all times.
96. 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
97. 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.
98. The auditor may be a member of the Company but no director
or officer shall be eligible during his continuance in
office.
99. Every auditor of the Company shall have a right of access at
all times to the books of account 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.
100. 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
101. Any notice, information or written statement required to be
given to members shall be served:
(a) in the case of members holding registered shares, by
mail (airmail service if available) addressed to each
member at the address shown in the share register; and
(b) in the case of members holding shares issued to bearer
(i) by mail (airmail service if available) addressed to the
agent or attorney whose name and address has been given
for service of notice by the bearer of the share
(identified for this purpose by the number of the share
certificate), or
(ii) in the absence of an address for service being given,
or if the notice, information or written statement
cannot be served for any other reason, by publishing
the notice, information or written statement in one or
more newspapers published or circulated in the British
Virgin Islands and in a newspaper in the place where
the Company has its principal office.
<PAGE>
102. All notices directed to be given to the members shaH,
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.
103. 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.
PENSION AND SUPERANNUA11ON
FUNDS
104. The directors may establish and maintain or procure the
establishment and maintenance of any non-contributory
or contributory pensiOn or superannuation funds for the
benefit of, and give or procure the giving of
donations, gratuities, pensions, allowances or
emoluments to any person 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 shall be entitled to participate
in and retain for his own benefit any such donation,
gratuity, pension, allowance or emolument.
WINDING UP
105. If the Company shall be wound up, the Liquidator may,
in accordance with a resolution of members, divide
amongst 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.
AKWTKATION
106. Whenever any difference arises between the Company on
the one hand ando 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 Act 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 on the reference
appoint an umpire.
<PAGE>
107. 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 AR11CLES
108. 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 members
or by a resolution of directors.
<PAGE>
WE, the undersigned Registered Agent, subscribe our name to these Articles of
Association.
- --------------------------------------------------------------------------------
NAME, ADDRESS AND DESCRIPTION OF SUBSCRIBER
- --------------------------------------------------------------------------------
lntegro Corporate Services (BVI) Limited
Tropic Isle Building
P.O. Box438
Road Town, Tortola
British Virgin Islands
Registered Agent CLAUDEUE I. FRANCIS (Sdg.)
-----------------------------
Authorised Signatory
- --------------------------------------------------------------------------------
DATED this 30th day of June, 1999.
WITNESS to the above signature: V. JOSEPH (Sdg.)
-----------------------------
Road Town
Tortola
British Virgin Islands
<PAGE>
Integro Corporate Services (BVI) Limited
Tropic Isle Building
P.O. Box 438
Road Town
Tortola
British Virgin Islands
Telephone (+1 284) 494 2616
Facsimile (+i 284) 494 2704
Exhibit 3.5
No. 671355
COMPANIES ORDINANCE
(CHAPTER 32)
CERTIFICATE OF INCORPORATION
I hereby certify that
CHINA WEALTHY LIMITED
is this day incorporated in Hong Kong under the Companies Ordinance,
and that this company is limited.
Issued by the undersigned on 31 March 1999.
MISS R. CHEUNG
--------------
for Registrar of Companies
Hong Kong
<PAGE>
No. 671355
COMPANIES ORDINANCE
(CHAPTER 32)
CERTIFICATE OF INCORPORATION
ON CHANGE OF NAME
I hereby certify that
CHINA WEALTHY LIMITED
having by special resolution changed its name, is now incorporated under
the name of
CATHAYONLINE TECHNOLOGIES (HONG KONG)
LIMITED
Issued by the undersigned on 21 June 1999.
MISS R. CHEUNG
--------------
for Registrar of Companies
Hong Kong
<PAGE>
MEMORANDUM
AND
ARTICLES OF ASSOCIATION
OF
CHINA WEALTHY LIMITED
**************
Incorporated the 31st day of March, 1999
**************
HONG KONG
**************
No. 671355
(COPY)
COMPANIES ORDINANCE
(CHAPTER 32)
CERTIFICATE OF INCORPORATION
I hereby certify that
CHiNA WEALTHY LIMITED
is this day incorporated in Hong Kong under the Companies Ordinance, and that
this company is limited. Issued by the undersigned on 31 March 1999.
(Sd.) MISS R. CHEUNG
for Registrar of Companies
Hong Kong
<PAGE>
Company No. 671355
THE COMPANIES ORDINANCE (CHAPTER 32)
SPECIAL RESOLUTION
OF
CHINA WEALTHY LIMITED
Passed on the 11th day of June, 1999
By a resolution in writing signed by all the Shareholders of China Wealthy
Limited pursuant to Article 23 of the Articles of Association of the Company,
the following resolution was duly passed as a Special Resolution:
THAT the name of the Company be changed to CATHAYONL[NE TECHNOLOGIES
(HONG KONG) LIMITED
Silkton Company Limited Tomsett Company Limited
Shareholder Shareholder
Presented by: Stikeman, Elliott
Solicitors
Suite 1103, China Building
29 Queen's Road Central
Hong Kong
Ref: GZ/12353134/sw
Exhibit 3.6
THE COMPANIES ORDINANCE (CHAPTER 32)
Private Company Limited by Shares
MEMORANDUM OF ASSOCiATION
OF
CHINA WEALTHY LIMITED
First:- The name of the Company is "CHINA WEALTHY LIMITED".
Second:- The Registered Office of the Company will be situated in Hong
Kong.
Third:- The liability of the Members is limited.
Fourth:- The capital of the company is HK$10,000.00 divided into 10,000 shares
of HK$1.00 each. Upon any increase of capital the company is to be at liberty to
issue any new shares either in Hong Kong Dollars or in any other currency or
partly in one currency and partly in another and with any preferential,
deferred, qualified or special rights, privileges or conditions attached
thereto. The rights for the time being attached to any shares having
preferential, deferred, qualified, or special rights, privileges or conditions
attached thereto may be altered or dealt with in accordance with the
accompanying Articles of Association but not otherwise.
<PAGE>
THE COMPANIES ORDINANCE (CHAPTER 32)
Private Company Limited by Shares
ARTICLES OF ASSOCIATION
OF
CHINA WEALTHY LIMITED
PRELIMINARY
1. The regulations contained in Table "A" in the First Schedule to the
Companies Ordinance (Chapter 32) shall apply to the Company save in so
far as they are hereby expressly excluded or modified. In case of
conflict between the provisions of Table "A" and these presents, the
provisions herein contained shall prevail.
2. The company is a private company and accordingly:-
(a) the right to transfer shares is restricted in manner
hereinafter prescribed;
(b) the number of members of the company (exclusive of persons who
are in the employment of the company and of persons who having
been formerly in the employment of the company were while in
such employment and have continued after the determination of
such employment to be members of the company) is limited to
50. Provided that where 2 or more persons hold one or more
shares in the company jointly they shall for the purpose of
this regulations be treated as a single member;
(c) any invitation to the public to subscribe for any shares or
debentures of the company is prohibited.
TRANSFER OF SHARES
3. The Directors may decline to register any transfer of shares to any
person without giving any reason therefor. The Directors may suspend
the registration of transfers during the twenty-one days immediately
preceding the Annual General Meeting in each year. The Directors may
decline to register any instrument of transfer, unless (a) a fee not
exceeding two dollars is paid to the Company in respect thereof, and
(b) the instrument of transfer is accompanied by the Certificate of the
shares to which it relates, and such other evidence as the Directors
may reasonably require to show the right of the transferor to make the
transfer.
DIRECTORS
4. The Directors may elect a chairman of their meetings, and determine the
period for which he is to hold office, and unless otherwise determined
the chairman shall be elected annually. If no chairman is elected, or
if at any meeting the chairman is not present within half an hour of
the time appointed for holding the same, the Directors present shall
choose someone of their member to be the chairman of such meeting.
<PAGE>
5. Unless and until the Company in General Meeting shall otherwise
determine, theo -number of Directors shall not be less than two. The
first Directors of the Company shall be determined in writing by the
Subscribers of the Memorandum of Association or a majority of them.
6. A Director who is about to go away from or is absent from Hong Kong may
with the approval of the majority of the other Directors nominate any
person to be his substitute and such substitute whilst he holds office
as such shall be entitled to notice of Meetings of the Directors and to
attend and vote thereat accordingly and he shall ipso facto vacate
office if and when the appointor returns to Hong Kong or vacate office
as a Director or removes the substitute from office and any appointment
and removal under this Article shall be effected by notice in writing
under the hand of or by cable from the Director making the same. A
Director may appoint (subject as above provided) one of the other
Directors to be his substitute who shall thereupon be entitled to
exercise (in addition to his own right of voting as a Director) such
appointor's rights at Meetings of the Directors.
7. At the first Annual General Meeting to be held next after the adoption
of these Articles and at every succeeding Annual General Meeting all
Directors, except Permanent Directors if any are appointed, shall
retire from office and shall be eligible for reelection.
8. A Director shall not require any qualification shares.
9. The office of a Director shall be vacated if the Director:-
(a) becomes bankrupt or makes any arrangement or composition with
his creditors generally; or
(b) becomes of unsound mind; or
(C) resigns his office by notice in writing with section
157D(3)(a) of the Ordinance.
But any act done in good faith by a Director whose office is vacated as
aforesaid shall be valid unless, prior to the doing of such act,
written notice shall have been served upon the Company or an entry
shall have been made in the Directors' Minute Book stating that such
Director has ceased to be a Director of the Company.
10. (a) No Director shall be disqualified by his office from contracting
with the Company, nor shall any such contract or any contract entered
into by or on behalf of the Company in which any Director shall be in
any way interested be avoided, 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 by reason only of such Director holding
that office, or of the fiduciary relations thereby established but it
is declared that the nature of his interest must be disclosed by him at
the meeting of the Directors at which the contract is determined on if
his interest then exists, or, in any other case, at the first meeting
of the Directors after the acquisition of his interest. A Director may
vote in respect of any contract or arrangement in which he is
interested.
(b) A Director of the Company may be or become a Director of any
company promoted by this Company or in which it may be interested as a
vendor, shareholder or otherwise and no such Director shall be
accountable for any benefits received as a Director or shareholder of
such company.
11. The Directors may meet together for the dispatch of business, adjourn
and otherwise regulate their Meetings as they think fit and determine
the quorum necessary for the transaction of business. Until otherwise
determined, two Directors shall constitute a quo ru rn.
<PAGE>
12. Any casual vacancy occurring in the Board of Directors may be filled up
by the
Directors, but the person so chosen shall be subject to retirement at
the same time as if he had become a Director on the day on which the
Director in whose place he is appointed was last elected a Director.
13. Subject to the provisions of Article 6 hereof, the Directors shall have
power at any time, and from time to time, to appoint a person as an
additional Director who shall retire from office at the next following
Annual General Meeting, but shall be eligible for election for the
Company at that meeting as an additional Director.
14. The Company may by special resolution remove any Director and may by an
ordinary resolution appoint another person in his stead. The person so
appointed shall be subject to retirement at the same time as if he had
become a Director on the day on which the Director in whose place he is
appointed was last elected a Director.
15. Any Resolution of the Board of Directors in writing signed by the
majority of the Directors, in whatever part of the world they may be,
shall be valid and binding as a resolution of the Directors provided
that notice shall have been given to all the Directors of the Company
capable of being communicated with conveniently according to the last
notification of address by each such Director given to the Registered
Office of the Company.
16. Where any notice is required either by these Articles, by Table "A", by
the Ordinance or otherwise, to be given to any Director or to any
Member of the Company, such shall be valid if given by cable and where
any consent, agreement, signature, notice by or authority from any
Director or Member of the Company such shall be good and valid if given
by cable in spite of the fact that neither the cable nor the document
by which the cable is sent bears a written signature. This clause shall
not apply to Special Resolution.
POWERS OF DIRECTORS
17. The Directors, in addition to the powers and authorities by these
Articles or otherwise expressly conferred upon them, may exercise all
such powers and do all such acts and things as may be exercised or done
by the Company in General Meeting subject nevertheless to the
provisions of the Companies Ordinance, (Chapter 32), to these Articles,
and to any regulations from time to time made by the Company in General
Meetings, provided that no such regulation so made shall invalidate any
prior act of the Directors which would have been valid if such
regulations had not been made.
18. Without prejudice to the general powers conferred by the preceding
Article and the other powers conferred by these Articles, it is hereby
expressly declared that the Directors shall have the following powers,
that is to say, power:-
(1) To pay the costs, charges and expenses preliminary and
incidental to the promotion, formation, establishment and
registration of the Company.
(2) To purchase or otherwise acquire for the Company or sell or
otherwise dispose of any property, rights or privileges which
the Company is authorised to acquire at such price and
generally on such terms and conditions as they shall think fit.
(3) To engage, suspend or dismiss the employees of the Company, and
to fix and vary their salaries or emoluments.
(4) To institute, conduct, defend, compromise or abandon any legal
proceedings by or against the Company or its officers, or
otherwise concerning the affairs of the Company, and also to
compound and allow time for payment or satisfaction of any
debts due and of any claims or demands by or against the
Company.
<PAGE>
(5) To refer any claims or demands by or against the Company to
arbitration and observe and perform the awards.
(6) To make and give receipts, releases and other discharges for
moneys payable to the Company, and for claims and demands of
the Company.
(7) To invest, lend or otherwise deal with any of the moneys or
property of the Company in such manner as they think fit,
having regard to the Company's Memorandum of Association and
from time to time to vary or realise any such investment.
(8) To borrow money on behalf of the Company, and to pledge,
mortgage or hypothecate any of the property of the Company.
(9) To open a current account with themselves for the Company and
to advance any money to the Company with or without interest
and upon such terms and conditions as they shall think fit.
(10) To enter into all such negotiations and contracts, and rescind
and vary all such contracts, and execute and do all such acts,
deeds and things in the name and on behalf of the Company as
they may consider expedient for, or in relation to, any of the
matters aforesaid, or otherwise for the purpose of the
Company.
(11) To give to any Director, officer or other person employed by
the Company a commission on the profits of any particular
business or transaction, and such commission shall be treated
as part of the working expenses of the Company, and to pay
commissions and make allowances (either by way of a share in
the general profits of the Company or otherwise) to any
persons introducing business to the Company or otherwise
promoting or serving the interest thereof.
(12) To sell, improve, manage, exchange, lease, let, mortgage or
turn to account all or any part of the land, property, rights
and privileges of the Company.
(13) To employ, invest or otherwise deal with any Reserve Fund or
Reserve Funds in such manner and for such purposes as the
Directors may think fit.
(14) To execute, in the name and on behalf of the Company, in
favour of any Director or other person who may incur or be
about to incur any personal liability for the benefit of the
Company, such mortgages of the Company's property (present or
future) as they think fit, and any such mortgage may contain a
power of sale and such other powers, convenants and provision
as shall be agreed upon.
(15) From time to time to provide for the management of the affairs
of the Company abroad in such manner as they think fit, and in
particular to appoint any persons to be the attorneys or
agents of the Company with such powers (including power to
sub-delegate) and upon such terms as they think fit.
(16) From time to time to make, vary or repeal rules and by-laws
for the regulation of the business of the Company, its
officers and servants.
(17) To delegate any or all of the powers herein to any Director or
other person or persons as the Directors may at any time think
fit.
19. Clause 81 of Table "A" shall not apply.
SEAL AND CHEQUES
20. The Directors shall provide for the safe custody of the seal, which
shall only be used by the authority of the Directors or of a committee
of the Directors authorized by the Directors in that behalf, and every
instrument to which the seal shall be affixed shall be signed by a
Director or by some other person or persons appointed by the Directors
for
<PAGE>
21. All cheques, promissory notes, drafts, bills of exchange, and other
negotiable instruments, shall be made, signed, drawn, accepted and
endorsed, or otherwise executed by the person or persons from time to
time authorised by a resolution of the Board of Directors.
GENERAL MEETINGS
22. For all purposes, the quorum for all general meetings shall be two
members personally present and holding either in his own right or by
proxy at least fifty-one per cent of the paid-up capital of the
Company, and no business shall be transacted at any General Meeting
unless the requisite quorum be present at the commencement of the
business.
23. A resolution in writing signed by all the shareholders shall be as
valid and effectual as a resolution passed at a general meeting duly
convened and held.
VOTES AND MEMBERS
24. All voting of members in respect of any matter or matters shall be by
poll and every member present in person or by proxy shall have one vote
for each share of which he is the holder.
DIVISIONS OF PROFITS
25. The net profits of the Company in each year shall be applied in or
towards the formation of such reserve fund or funds and in or towards
the payment of such dividends and bonuses as the Directors subject to
the approval of the Company in General Meeting may direct.
26. No dividend shall be payable except out of the profits of the Company,
and no dividend shall carry interest as against the Company.
27. A transfer of shares shall not pass the right to any dividend declared
thereon before the registration of the transfer.
28. If two or more persons are registered as joint holders of any share,
any one of such persons may give effectual receipts for any dividends
or for other moneys payable in respect of such share.
29. The Directors may retain any dividends payable on shares on which the
Company has a lien, and may apply the same in or towards satisfaction
of the debts, liabilities or engagements in respect of which the lien
exists.
30. All dividends unclaimed for one year after having been declared may be
invested or otherwise made use of by the Directors for benefit for the
Company until claimed.
SECRETARY
31. The first Secretary of the Company shall be CENTURY CORPORATE SERVICES
LIMITED who may resign from this office upon giving notice to Company
of such intention and such resignation shall take effect upon the
expiration of such notice or its earlier acceptance.
NOTICE
32. Any notice required to be given to the shareholders under these
Articles may be in the Chinese or English language or both.
<PAGE>
Names, Addresses and Description of Subscribers
For and on behalf of
CENTURY CORPORATE SERVICES LIMITED
PAULCHER WONG, Director
Flat B, 19/F., 88 Commercial Building,
28 Wing Lok Street,
Sheung Wan,
Hong Kong.
(Corporation)
For and on behalf of
KANWAY SERVICE LIMITED
PAULCHER WONG, Director
Flat B, 19/F., 88 Commercial Building,
28 Wing Lok Street,
Sheung Wan,
Hong Kong.
(Corporation)
Dated the 1st day of March, 1999.
WITNESS to the above signatures:-
KENNY SHUM
Company Secretary
Flat B, 19/F., 88 Commercial Building,
28 Wing Lok Street, Sheung Wan,
Hong Kong.
<PAGE>
DECLARAIION OF TRUST
The undersigned (the "Nominee") hereby declares that :-
the registered shareholding of the Nominee in the Company referred to below (the
"Shareholding") does not belong to the Nominee but to the Beneficial Owner
referred to below (the "Beneficial Owner");
the Nominee holds the Shareholding upon trust for the Beneficial Owner and the -
successors and assigns of the Beneficial Owner and will transfer, pay and
otherwise deal with the Shareholding and any dividends, interest arid other
rights attached thereto as the Beneficial Owner shall from time to time direct
by written notice to the Nominee; and
the Nominee will attend such meetings as it shall be entitled to attend by
virtue of its ~ Shareholding and will vote or abstain from voting at any such
meeting or, alternatively, < shall appoint a representative of the Nominee for
such purposes, in all cases as the Beneficial Owner shall direct by written
notice to the Nominee.
Nominee : Silkton Company Limited
Company : CHINA WEALTHY LIMITED
Shareholding : ONE (1) share of HKSl.00 each
Beneficial Owner CathayOnline Inc.
In witness whereof this Declaration of Trust has been executed this day of 15
JUN 1999.
EXECUTED UNDER SEAL )
)
by the Nominee )
)
-------------------------
SILKTON COMPANY LIMITED
<PAGE>
DECLARATIQN OF TRU$T
The undersigned (the "Nominee") hereby declares that
the registered shareholding of the Nominee in the Company referred to below (the
"Shareholding") does not belong to the Nominee but to the Beneficial Owner
referred to below (the "Beneficial Owner");
the Nominee holds the Shareholding upon trust for the Beneficial Owner and the
successors and assigns of the Beneficial Owner and will transfer, pay and
otherwise deal with the Shareholding and any dividends, interest and other
rights attached thereto as the Beneficial Owner shall from time to tune direct
by written notice to the Nominee; and
the Nominee will attend such meetings as it shall be entitled to attend by
virtue of its Shareholding and will vote or abstain from voting at any such
meeting or, alternatively, shall appoint a representative of the Nominee for
such purposes, in all cases as the Beneficial Owner shall direct by written
notice to the Nominee.
Nominee : Tomsett Company Limited
Company : CHINA WEALTI~Y LIMITED
Shareholding : ONE (1) share of HKS1.OO each
Beneficial Owner : CathayOnllne Inc.
In witness whereof this Declaration of Trust has been executed this day of 15
JUN 1999.
EXECUTED UNDER SEAL )
)
by the Nominee )
)
-------------------------
TOMSETT COMPANY LIMITED
<PAGE>
We, the several persons, whose names, addresses and descriptions are hereto
subscribed, are~ desirous of being formed into a Company in pursuance of this
Memorandum of Association, and we respectively agree to take the number of
shares in the capital of the Company set opposite to our respective names:
- -------------------------------------------------------------------------------
Names, Addresses and Descriptions of Subscribers Number of Shares
taken
by each Subscriber
- -------------------------------------------------------------------------------
For and on behalf of
CENTURY CORPORATE SERVICES LIMITED ONE
PAULCHER WONG, Director
Flat B, 19/F., 88 Commercial Building,
28 Wing Lok Street,
Sheung Wan,
Hong Kong.
(Corporation)
For and on behalf of
KANWAY SERVICE LIMITED ONE
PAULCHER WONG, Director
Flat B, 19/F., 88 Commercial Building,
28 Wing Lok Street,
Sheung Wan,
Hong Kong.
(Corporation)
- -------------------------------------------------------------------------------
Total Number of Shares Taken.... TWO
- -------------------------------------------------------------------------------
Dated the 1st day of March, 1999.
WITNESS to the above signatures:-
KENNY SHUM
Company Secretary
Flat B, 19fF., 88 Commercial Building,
28 Wing Lok Street, Sheung Wan,
Hong Kong.
Exhibit 3.7
[GRAPHIC OMITTED]
CERTIFICATE OF APPROVAL
FOR ESTABLISHMENT OF ENTERPRISES WITH FOREIGN
INVESTMENT IN THE PEOPLES REPUBLIC OF CHINA
[GRAPHIC OMITTED]
Sichuan CathayOnline Technologies Co., Ltd.
Exhibit 3.8
ARTICLES OF ASSOCIATION
OF
SICHUAN CATHAYONLINE TECHNOLOGIES CO. LTD.
A Wholly Foreign-Owned Enterprise
Established in Chengdu, Sichuan Province, the PRC
Stikeman, Elliott
Suite 1103, China Building
29 Queen's Road Central
Hong Kong
Ref : GIZ/13741-001/rl
<PAGE>
ARTICLES OF ASSOCIATION
OF
SICHUAN CATHAYONLINE TECHNOLOGIES CO. LTD.
Pursuant to the Law of the People's Republic of China on Wholly
Foreign-owned Enterprise, its implementing regulations and other
relevant PRC Law, CathayOnline Technologies (Hong Kong) Ltd. wishes to
establish in Chengdu, the People's Republic of China (the "PRC") a
wholly foreign owned enterprise named Sichuan CathayOnline Technologies
Co. Ltd. and therefore formulates these Articles of Association (the
"Articles").
ARTICLE 1 INTERPRETATION
1.1 In these Articles, unless the context otherwise indicates, the
following definitions apply:
(a) "Board" means the board of directors of the Company, formed in
accordance with these Articles;
(b) "Company" means the wholly foreign-owned enterprise
established in accordance with these Articles and named
Sichuan CathayOnline Technologies Co. Ltd.;
(c) "PRC Law" means all written laws, regulations, ordinances,
rules, measures, provisions and guidelines enacted by the PRC
central and various local governments, including those that
are temporarily in force or on trial implementation, but
excluding all internal documents the disclosure of which is
prohibited to foreign business.
1.2 Words importing the singular only also include the plural and vice
versa where the context requires. Words importing the masculine only
also include the feminine and vice versa where the context requires.
1.3 Headings used herein are for ease of reference only and shall not
affect interpretation of these Articles.
ARTICLE 2 THE FOREIGN INVESTOR
2.1 The foreign investor to the Company is CathayOnline Technologies (Hong
Kong) Ltd. (the "Investor") with the following particulars:
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Registered Office: 1103 China Building,
29 Queen's Road Central,
Hong Kong
The Investor is wholly-owned beneficially by CathayOnline Inc., a
company incorporated under the laws of the State of Nevada, the United
States of America.
ARTICLE 3 ESTABLISHMENT OF THE COMPANY
3.1 The name of the Company shall be "_______________" in Chinese and
Sichuan CathayOnline Technologies Co. Ltd. in English. The Company is
established on the date when its business licence is issued by
appropriate level of State Administration of Industry and Commerce.
3.2 The legal residence of the Company shall be ________________________,
610041, Chengdu, the PRC.
3.3 The Company is hereby formed as a Chinese enterprise legal person with
limited liability status under the PRC Law and shall only be liable for
its debts to the extent of its assets. The liability of the Investor
shall be limited to its capital contributions to the Company's
registered capital.
ARTICLE 4 OBJECTIVE, SCOPE AND SCALE OF OPERATION
4.1 The objective of the Company shall be to strengthen the introduction
and use of advanced technology, equipment and scientific management
methods from the international market into Sichuan in order to promote
the economic development of Sichuan Province by using competitive
advantages of the Investor.
4.2 The Company's scope of business shall be importing advanced electronic
communication technology and equipment; providing value added services
in relation to data processing and computer networking related
planning, designing and implementation; providing services relating to
computer and electronic communication related project development,
consulting and management and selling related computer software and
hardware.
4.3 The Company is projected to reach an annual service volume of around
RMB9,000,000.
ARTICLE 5 TOTAL INVESTMENT AND REGISTERED CAPITAL
5.1 The Company's total amount of investment is US$1,000,000, of which
US$700,000 is the registered capital. The amount of US$300,000, being
the difference between the total investment and the registered capital,
will be funded by a loan from the Investor or other third parties to be
approved by the Board.
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5.2 The Investor's contribution to the Company's registered capital will be
made in accordance with the following terms and conditions:
(a) Contributing to the Company US$105,000 cash by transferring
such amount to an account designated by the Company within 90
days of the establishment of the Company; and
(b) Contributing to the Company the balance of the registered
capital in US dollar cash and/or in the form of computer
hardware/software at such time(s) determined by the Board
within 18 months of the establishment of the Company.
5.3 The Company shall appoint a PRC chartered accountant to verify the
capital contribution made by the Investor and issue a capital
verification report, on the basis of which the Company shall issue to
the Investor an investment certificate.
5.4 The Company shall not reduce its registered capital during its term of
operation.
ARTICLE 6 PROFIT DISTRIBUTION
6.1 The Company's profits shall be distributed to the Investor in
accordance with relevant provisions of the PRC Law.
ARTICLE 7 BOARD OF DIRECTORS
7.1 The Board shall be established on the date when the Company is
established. It shall be comprised of three (3) directors appointed by
the Investor for a term of three (3) years. One of the directors will
be appointed by the Investor as the Chairman of the Board and one as
Vice-Chairman.
7.2 The Chairman of the Board is the legal representative of the Company.
Where the Chairman is unable to perform his functions, he shall appoint
in writing the Vice-Chairman to act on his behalf. Where the
Vice-Chairman is unable to perform such function, the Chairman may
appoint in writing any director to act on his behalf.
7.3 A secretary of the Board (the "Secretary") may be appointed by the
Board to handle all administrative matters relating to the Board. The
Secretary shall keep minutes of the Board meeting, maintain records and
files of all Board resolutions and generally perform all functions
delegated to the Secretary by the Board.
7.4 In performing their powers and functions, the directors shall act in
good faith and in the best interest of the Company. Without prior
written consent of the Board and exclusive of performing his functions
within the scope of the Investor, no director may (a) receive personal
gains other than salary and related benefits by using his position or
solely by virtue of his position; (b) engage in any activity which
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competes with that of the Company; (c) request and obtain from a third
party commissions, kick-backs or any other form of remuneration; and
(d) disclose confidential information to any person external to the
Company other than the Investor, unless compelled to do so as required
by law. Where the Board examines or votes on any resolutions concerning
a particular director, such director shall refrain from the examination
and shall request permission of the Chairman to leave the meeting.
7.5 The Board is the highest authority of the Company and shall decide all
important matters for the Company. Resolutions in respect of the
following matters shall require a unanimous vote of all directors
present at the Board meetings:
(a) Amendments of these Articles;
(b) Termination or dissolution of the Company; and
(c) Increase of the Company's registered capital.
All other matters shall be decided by a simple majority vote of
directors present at the Board meeting.
7.6 Meetings of the Board shall be convened at least twice a year. The
first meeting of the Board shall be held within one (1) month from the
date of the establishment of the Company which shall be called for and
chaired by the Chairman. The Chairman shall call for a special meeting
of the Board at the request of at least one-third (1/3) of the
directors and such meeting shall be held within forty-five (45) days of
receipt of the request.
7.7 The Chairman or the Secretary of the Board shall issue written notice
of the Board meeting to each of the directors at least twenty-one (21)
days prior to the meeting unless all directors agree to a shorter
notice period. Such notice shall state the agenda, time and place of
the meeting.
7.8 Meetings of the Board shall be held at the legal address of the Company
and English language shall be the working language of such meetings.
The Board meeting may be held in person or by way of telephone
conference call or other communication facilities which enable all the
participants to communicate with efficient means with each other. A
resolution in writing (including by fax transmission) signed by all the
directors is as valid as if it had been passed at the Board meeting.
7.9 The directors of the Board may attend and vote at the Board meeting in
person or by appointing in writing proxies on their behalf or by
telephone or other means of communication as referred to in Section 7.8
herein.
7.10 The quorum for meetings of the Board shall be two-thirds (2/3) of all
directors of which one must be the Vice-Chairman or a person
representing the Vice-Chairman by proxy and the other one the Chairman
or a person representing the Chairman by proxy. Resolutions adopted at
a Board meeting without a quorum shall have no legal force or effect.
7.11 All resolutions and minutes of the Board shall be kept by the Secretary
of the Board, copies of which shall be sent to all directors and
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proxies who attended the meeting. The minutes shall be approved by all
directors and proxies by signing their names thereto, or by a
resolution at the next Board meeting. The minutes shall be written in
English and may be translated into Chinese. In case of conflict between
the two language versions, the English version shall prevail.
7.12 With the consent of the Board, the directors may be reimbursed by the
Company for their reasonable costs, expenditures, travel and other
expenses incurred in the performance of their functions, including
attending the Board meetings.
ARTICLE 8 OPERATION AND MANAGEMENT
8.1 The Board will set up a management body in charge of day-to-day
operation and management of the Company. Such management body may
consist of a General Manager, a Deputy General Manager and a Financial
Controller (collectively, the "Officers"), whose term of office and job
description shall be decided by the Board.
8.2 In performing their functions, all Officers shall act in good faith and
for the best interest of the Company. The Officers shall refrain from
any actual or potential conflict of their personal interests with those
of the Company. No officer may (a) receive personal gains other than
salary and related benefits by using his position or solely by virtue
of his position; (b) engage in any activity which competes with that of
the Company; (c) request and obtain from a third party commissions,
kick-backs or any other form of remuneration; and (d) disclose
confidential information to any person external to the Company other
than the Investor, unless compelled to do so by law or with prior
written approval of the Board.
8.3 The duties of the General Manager shall include implementing
resolutions of the Board and organizing and directing the ordinary
operation and management of the Company. The Deputy General Manager
shall report to the General Manager, assist the General Manager and
conduct other affairs entrusted to them by the General Manager or the
Board through and with the full knowledge of the General Manager. The
rights and duties of the General Manager shall be stipulated in the
Articles or prescribed by the Board and those of the Deputy General
Manager determined by the General Manager and the Board.
8.4 The Financial Controller shall be responsible for the accounting and
financial matters of the Company. The Financial Controller shall assist
the General Manager in handling the needs, transfer and use by the
Company of its funds. The Financial Controller shall report from time
to time to the General Manager and the Board on the accounting and
financial state of the Company and carry out accounting and financial
assignments entrusted by the General Manager and the Board through and
with the full knowledge of the General Manager.
8.5 The Board shall, within the terms of office of the General Manager and
the Financial Controller, carry out annual evaluation of their
performances against the targets set by the Board.
8.6 The remuneration of employees of foreign nationality and of senior
employees of the Company shall be fixed by the Board.
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8.7 The Board may at any time dismiss or replace any Officer and other
management personnel who has abused his powers for personal gains,
embezzled corporate funds, neglected his duties, or failed to carry out
his assignments, or for any other just cause. No officers, senior
management personnel (as determined by the Board from time to time) of
the Company may hold any position in any other economic entity while in
the employ of the Company without prior written approval of the Board.
ARTICLE 9 PURCHASE OF GOODS
9.1 The Company shall purchase all required machinery, equipment and other
necessary goods from sources in the PRC where the conditions are
competitive in terms of quality, price, availability and other normal
commercial considerations.
ARTICLE 10 LABOUR MANAGEMENT
10.1 In respect of the recruitment, employment, dismissal, wages, salary,
working hours, labour insurance, welfare, rewards and punishment of the
employees of the Company, a proposal shall be formulated through
deliberation by the Board in accordance with the PRC Law and be
ascertained by labour contracts to be collectively or individually
entered into by the Company and the individual employee or the labour
union concerned. The labour contracts, upon execution, shall be
submitted to the local labour department for record.
ARTICLE 11 TRADE UNION
11.1 The employees of the Company (the "Employees") have rights, pursuant to
the PRC Law, to organize grass-root trade union (the "Union") and carry
out activities in relation thereto.
11.2 The Union represents the interests of the Employees and shall have
rights to enter, on behalf of the Employees, into collective labour
contracts with the Company and supervise the performance of such
contracts.
11.3 The rights, responsibilities and activities of the Union shall be in
accordance with relevant provisions of the PRC Law, which include
upholding legitimate interests of the Employees; assisting the Company
in proper allocation and use of employee welfare and reward funds;
organizing study sessions for the Employees in relation to politics,
science, technology and business; organizing sports and arts events;
and educating the Employees to comply with labour discipline and to
make great efforts to fulfil various economic tasks assigned by the
Company.
11.4 Where the Company is discussing matters in relation to the Employee's
reward and punishment, wage system, welfare, labour protection and
insurance, the Union has rights to participate in such meetings as an
observer (but without right to vote) and express its opinions thereon.
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11.5 The company shall support the works of the Union and shall, pursuant to
relevant PRC Law, provide the Union facilities necessary as office
premise and necessary for meeting, and collective welfare, cultural and
sporting activities. The company shall also, in accordance with the PRC
Law, allocate funds for the Union's activities.
ARTICLE 12 TAXATION, FINANCE AND AUDITING
12.1 The Company shall pay all taxes in accordance with the PRC Law and
shall enjoy preferential treatment granted to foreign investment
enterprises with respect to taxation including reduction in and
exemption from taxation.
12.2 The staff of the Company shall pay personal income tax and personal
income adjustment tax in accordance with relevant PRC Law.
12.3 The Company shall withdraw from its after-tax profits reserve funds and
employee bonus and welfare funds in accordance with relevant PRC Law.
The annual amount allocated for the reserve funds shall not be less
than 10% of the Company's after tax profit, provided that the Company
may choose not to make any allocation to the reserve funds if the
accumulated amounts allocated reach 50% of its registered capital. The
amount allocated to employee bonus and welfare funds shall be decided
by the Board with reference to the operations and other circumstances
of the Company.
12.4 The financial year of the Company shall be from the first day of
January to the thirty-first day of December of each year. The first
financial year of the Company shall be from the establishment of the
Company to the thirty-first day of December of that year. The last
financial year of the Company shall be from the first day of January of
the last year to the date of termination of the Company.
12.5 The Company shall keep its accounts in accordance with relevant PRC Law
as required by any laws and/or regulations to which the Investor is
subject and by using the internationally recognized, generally accepted
accounting principles. The Company may use RMB as the accounting unit
for all internal accounting purposes but both the RMB and the US dollar
shall be used as the currency accounting unit for all annual, quarterly
and monthly accounting and financial statements.
12.6 During the first one (1) month of each financial year, the Financial
Controller shall organise and draw up a balance sheet, a profit and
loss account and available profit distribution for the preceding
financial year and submit the same to the Board for approval. The
Financial Controller shall present to the Board within ten (10) working
days of the end of each month management accounts showing the financial
performance for the preceding month period.
12.7 At the end of each financial year, the Company may hire chartered
accountants registered in the PRC and internationally to audit the
accounts and books of the Company in accordance with the generally
accepted accounting principles in the PRC and internationally.
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12.8 The Company shall provide, within the time frame requested by the
Investor, full data needed by the Investor to file tax returns and meet
other legal and regulatory requirements in the jurisdiction of its
registration.
ARTICLE 13 ANNUAL OPERATION PLAN AND BUDGET
13.1 The General Manager shall prepare quarterly operation plans and budget
of the Company. Such plans and budget (including balance sheet, income
statement and cash flow projections) shall be submitted before the 10th
day of April, July, October and January of each year to the Board for
review and shall include, in addition to financial statements, the
following details:
(a) purchase of machinery, equipment and other assets;
(b) raising and use of funds (including foreign currency and Renminbi):
(c) marketing plans;
(d) repair and maintenance of assets;
(e) profit projections;
(f) personnel training plans; and
(g) supply of water, electricity and other utilities for the next
accounting year.
ARTICLE 14 FOREIGN EXCHANGE MANAGEMENT
14.1 All matters relating to foreign exchange of the Company shall be dealt
with in accordance with relevant PRC Law. The Company will use its best
efforts to balance its foreign exchange revenues and expenditures.
14.2 The use of foreign exchange legally retained in its foreign exchange
settlement account by the Company shall be made in the following order
of priority, unless otherwise decided by the Board:
(a) salary and other expenses of foreign employees of the Company
that must be paid in foreign currency;
(b) payment of interest or repayment of principal on a foreign
exchange loan where such amounts fall due or the Company may
prepay such amounts without penalty and the Company decides to
do so;
(c) expenses that must be paid in foreign exchange for purchasing
equipment, parts and services which are required for the
operation of the Company;
(d) administrative expenses that must be paid in foreign exchange
which are required for the operation of the Company; and
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(e) payment of profits allocated to the Investor.
ARTICLE 15 TERM OF THE COMPANY
15.1 The term of the Company is Twenty (20) years, commencing from the date
when the Company's business license is issued. The Board may adopt a
resolution to apply to the competent PRC authorities for extension of
the Company's term in accordance with relevant PRC Law.
ARTICLE 16 AMENDMENT TO THESE ARTICLES
AND TERMINATION OF THE COMPANY
16.1 Any amendment to these Articles must be in writing and signed by the
Investor and shall only be effective upon approval by competent
authorities.
16.2 Should any of the following events occur, the Company may be terminated
and its accounts settled pursuant to relevant PRC Law:
(a) The term of the Company expires;
(b) The Company cannot meet its liabilities as they become due or
the Company's assets, if liquidated at fair market value,
would not be sufficient to satisfy its debts and obligations
as they become due, and the Company is unable to remedy such
situation and become profitable in a reasonably foreseeable
future;
(c) The Company is rendered unprofitable by force majeure or by
serious and irreparable harm or damages inflicted upon the
Company;
(d) Other circumstances where the Board decides that it is
necessary to terminate the Company; or
(e) Other circumstances prescribed by relevant PRC Law.
ARTICLE 17 LIQUIDATION
17.1 Where the Company is terminated in accordance with Article 16, its
assets shall be liquidated in accordance with relevant PRC Law,
including Foreign Investment Enterprise Liquidation Measures (the
"Liquidation Measures").
17.2 The liquidation committee, established in accordance with the
Liquidation Measures, shall make its best efforts to obtain the highest
price possible for the Company in disposing its assets, including
conducting an auction sale.
17.3 Subject to Article 17.1, after paying the Company's debts and
liabilities, if any, the proceeds of the liquidation shall be
distributed to the Investor in accordance with relevant PRC Law.
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ARTICLE 18 INSURANCE
18.1 The insurance of the Company shall be underwritten by the People's
Insurance Company of China or any other insurance company licensed to
carry on insurance business in the PRC and approved by the Board. The
coverage, insured value and term of such insurance shall be determined
by the Board and in accordance with the provisions of the insurance
company chosen.
ARTICLE 19 LANGUAGE
19.1 These Articles shall be written in Chinese and English and both
language versions shall have equal force and effect. These Articles are
made in Five (5) original copies in each language version.
ARTICLE 20 COMING INTO EFFECT
20.1 These Articles will come into force upon approval by the
Ministry of Foreign Trade and Economic Co-operation or it
entrusted authorities.
THESE ARTICLES ARE SIGNED on the______ day of __________, 1999 by the
representatives of the Investor in ___________________.
CathayOnline Technologies (Hong Kong) Ltd.
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Authorized Signatory: _____________________________
Name: _____________________________
Title: _____________________________
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TABLE OF CONTENTS
Page
ARTICLE 1 INTERPRETATION.................................................-1
ARTICLE 2 THE FOREIGN INVESTOR...........................................-1
ARTICLE 3 ESTABLISHMENT OF THE COMPANY...................................-2
ARTICLE 4 OBJECTIVE, SCOPE AND SCALE OF OPERATION .......................-2
ARTICLE 5 TOTAL INVESTMENT AND REGISTERED CAPITAL........................-2
ARTICLE 6 PROFIT DISTRIBUTION............................................-3
ARTICLE 7 BOARD OF DIRECTORS.............................................-3
ARTICLE 8 OPERATION AND MANAGEMENT.......................................-5
ARTICLE 9 PURCHASE OF GOODS..............................................-6
ARTICLE 10 LABOUR MANAGEMENT..............................................-6
ARTICLE 11 TRADE UNION....................................................-6
ARTICLE 12 TAXATION, FINANCE AND AUDITING.................................-7-
ARTICLE 13 ANNUAL OPERATION PLAN AND BUDGET...............................-8-
ARTICLE 14 FOREIGN EXCHANGE MANAGEMENT....................................-8
ARTICLE 15 TERM OF THE COMPANY............................................-9-
ARTICLE 16 AMENDMENT TO THESE ARTICLES
AND TERMINATION OF THE COMPANY ...........................-9-
ARTICLE 17 LIQUIDATION....................................................-9
ARTICLE 18 INSURANCE.....................................................-10
ARTICLE 19 LANGUAGE......................................................-10
ARTICLE 20 COMING INTO EFFECT............................................-10
Exhibit 3.9
(GRAPHIC OMITTED)
TURKS AND CAICOS ISLANDS
THE COMPANIES ORDINANCE 1981
CERTIFICATE OF INCORPORATION
EXEMPTED COMPANY
CONCERT CONSULTANTS INTERNATIONAL INC.
is this day incorporated under the Companies Ordinance 1981 and registered as a
Exempted Company under the provissions of Section 181(1) of the said Ordinance.
Dated this 9th day of February 1999
Deborah C. Ashton
----------------------
Registrar of Companies
Registered No. E. 26119
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(GRAPHIC OMITTED)
TO SHOM IT MAY CONCERN
THE COMPANIES ORDINANCE 1981
CERTIFICATE OF CHANGE OF NAME
This is to Certify that
CONCERT CONSULTANTS INTERNATIONAL INC.
-----------------------------------------------------------------
Incorporated under the Companies Ordinance 1981 on the
9th day if February 1999 has changed its name to
Torchmail.com, Inc.
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Dated the 30th day of June 1999
------------------------------
Registrar of Companies
Turks & Caicos Islands
Registered No. E. 26119
Exhibit 3.10
LAWS OF THE TURKS AND CAICOS ISLANDS, B.W.I
The Companies Ordinance, 1981.
MEMORANDUM OF ASSOCIATION
OF
CONCERT CONSULTANTS INTERNATIONAL INC.
Capital $5,000 Dollars U.S.
Shares: 5,000 Common Shares
Registered Office:
TEMPLE TRUST COMPANY LTD.
Temple Building
Tropicana Plaza
Leeward Highway
Providenciales
Turks & Caicos Islands
British West Indies
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MEMORANDUM OF ASSOCIATION
OF
CONCERT CONSULTANTS INTERNATIONAL INC.
The Companies Ordinance
Laws of the Turks and Caicos Islands
Company Limited by Shares
1. The name of the Company is CONCERT CONSULTANTS INTERNATIONAL INC.
2. The Registered Office of the Company will be situated at Temple Building,
Tropicana Plaza, Leeward Highway, Providenciales, Turks and Caicos Islands,
B.W.I.
3. The objects for which the Company is established are:
3.1(a) To operate as an investment and trading company in any form of
investment, whether to be stocks, bonds, mutual funds, or any other investments
whatsoever.
3.1(b) To conduct and carry on the business of a holding company, and to
transact all business which Holding Companies are authorized and empowered to
transact in and by the provisions of the laws of the Turks and Caicos Islands.
3.1(c) To act as agent for others in the investment of funds or the promotion of
companies and undertakings, and to conduct the general business of holding,
investment, promoting and brokerage corporations and real estate agencies.
3.1(d) To carry on the business of a finance and investment company and to
invest in shares, stocks, bonds, debentures and other securities and other
evidence of indebtedness and obligations issued or guaranteed by any
corporation, company, chartered bank, association, partnership, syndicate,
entity, person or governmental, municipal or public authority, domestic or
foreign, and to lend money without security or upon the security of real or
personal property and to change, alter or realize upon any investments and to
re-invest any monies which may at any time be available for that purpose;
3.1(e) To manage, act as holding, fiscal or financial agent or otherwise as
agent for or on behalf of any company, individual, partnership, joint venture,
agency or organization.
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3.1(f) To act as broker for any of those entities set forth in 1(e).
3.1(g) To lend and advance money or give credit to such persons, companies or
entities on such terms as may seem expedient, and in particular to customers and
others having dealings with the Company and to guarantee the performance of any
contract, liabilities or obligation and the payment of money of or by such
persons, companies or entities and generally to give guarantees and indemnities.
3.1(h) To receive money on loan and borrow or raise money in such manner as the
Company shall think fit, and in particular by the issue of bonds, debentures, or
debenture stock (perpetual or otherwise) and to secure the repayment of any
money borrowed, raised or owing by mortgage, charge, encumbrance or lien upon
all or any of the property or assets of the Company (both present and future)
including its uncalled capital, and also by a similar mortgage, charge,
encumbrance or lien to secure and guarantee the performance by the Company or
any other person or company of any obligation undertaken by the Company or any
other person or company as the case may be.
3.1(i) To apply for, promote, and obtain under any law of any country,
territory, state, province, city, municipality, colony, or protectorate any
charter, privilege, concession, licence or authorization capable of being
granted, issued or otherwise obtained from any government, whether national,
state, provincial, city, colonial, territorial, regional, or that of a
protectorate, or municipality enabling the Company to carry any of its objects
into effect or for extending any of the powers of the Company or for any other
purpose which may seem expedient, and to oppose any proceedings or applications
which may seem calculated directly or indirectly to prejudice the interests of
the Company.
3.1(j) To carry on the business of either a wholesale or retail establishment
which shall include but not be limited to the import, export, sale and or lease
of foodstuffs, package goods, beer, wine, spirits, beverages, automobiles,
scooters, motorcycles, boats, construction equipment, construction and building
materials and supplies, furniture and fixtures, mechanical, electrical, boat,
motorcycle or automobile parts, office equipment and supplies, artwork, jewelry,
clothing and leisure products.
3.2 To purchase, take on lease or exchange, or otherwise acquire lands,
buildings and hereditaments of any tenure or description anywhere outside of the
Turks & Caicos Islands and any estate or interest in any rights connected with
any such lands, buildings and hereditaments.
3.3 To purchase for investment or resale and to deal in land and other property
of any tenure and any interest therein and to make advances upon the security of
land or other property, or any interest therein and to deal in the traffic by
way of sale, mortgage, lease, exchange or other property whether real or
personal and generally to carry on the business of a developer, Landlord,
Farmer, Real Estate Broker, Agent or Dealers in all of its branches.
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3.4 To develop and turn to account land acquired by the Company or in which the
Company is interested and in particular by laying out and preparing the same for
building purposes, constructing, altering, pulling down, decorating,
maintaining, furnishing, fitting up and improving buildings, and by planting,
paving, draining, farming, cultivating, letting on building lease or building
agreement and by advancing money to and into contracts and arrangements of all
kinds with builders, tenants and others.
3.5 To construct, maintain, improve, develop, work, control and manage any
waterworks, gasworks, reservoirs, coals, tramways, electric power, heat and
light supply works, telephone works, hotel, clubs, restaurants, pleasure
grounds, parks, gardens, reading rooms, stores,
shops, dairies and other works and conveniences which the Company may think
directly or indirectly conductive to these objects and to contribute or
otherwise assist or take part in the construction, maintenance, development,
working, control and management thereof.
3.6 To carry on all or any of the following businesses namely, builders and
contractors, decorators, merchants and dealers in stone, sand, lime, bricks,
timber, hardware and all other building requisites, brick and tiles and
terracotta makers, jobmasters, carriers, licensed victuallers and house agents.
3.7 To lend money with or without security and generally to lend to such persons
and upon such terms and conditions as the Company may think fit and in
particular to persons undertaking to build on or improve any property in which
the Company is interested and to tenants, builders and contractors.
3.8 To undertake and exercise any trusts the undertaking of which may seem to
the Company desirable.
3.9 To act as agents or attorneys for the transaction of any business, the
management of estates, the sale of property, the investment and collection of
moneys, rents, interests, dividends, mortgages, bonds, bills, notes and other
securities.
3.10 To remunerate any person or persons or corporation for services rendered,
or to be rendered, in placing or assisting to place, or guaranteeing the placing
of any share of the Company's capital, or any debentures or other securities of
the Company, or in or about the formation or promotion of the Company or its
business.
3.11 To use funds or stock of the Company to purchase or acquire the capital
stock, bonds or other securities of any other Company, corporation or individual
carrying on or engaging or engaged in any business which the Company is
empowered to carry on or engage in; and to acquire, hold, pledge, hypothecate or
otherwise dispose of such shares, bonds or other securities.
<PAGE>
3.12 To manufacture, purchase, or otherwise acquire, hold, own, mortgage, sell,
assign and transfer, invest, trade, deal in, and deal with goods, wares and
merchandise and property of every class and description.
3.13 To issue paid up shares, debentures, debenture stock, debenture bonds, or
other securities of the Company in payment or part payment of any property,
shares, stocks, debentures, debenture stock, bonds, obligations or other
securities, rights and easements which may be acquired by the Company for any
services rendered to or work done for the Company and in or towards the payment
or satisfaction of debts and liabilities owing to the Company.
3.14 To carry on business, whether of a general trading or commercial character
or otherwise, which may seem to the Company capable of being conveniently
carried on in connection the Company's property or rights.
3.15 To acquire and undertake the whole or any part of the business, property
and liabilities of any person or company carrying on business which this company
is authorized to carry on, or possessed of property suitable for the purpose of
this Company and to amalgamate with any other company having objects altogether
or in part similar to those of this Company.
3.16 To enter into partnership or into any arrangements for sharing profits,
union of interest, cooperation, joint venture, reciprocal concessions, or
otherwise, with any person or company carrying on or engaged in, or about to
carry on or engage in any business or transaction which the Company is
authorized to carry on or engaged in, or any business or transaction capable of
being conducted directly or indirectly to benefit this Company.
3.17 To take, or otherwise acquire and hold shares and securities in any other
Company having objects altogether or in part similar to those of this Company,
or carrying on any business capable of being conducted so as directly or
indirectly to benefit this Company and to hold, release, with or without
guarantee, sell or otherwise deal with the same.
3.18 To enter into any arrangements with government or authorities, municipal,
local or otherwise, that may seem conductive to the Company's objects or any of
them and to obtain from any such government or authority any right, privileges
and concessions which the Company may think it desirable to obtain and carry
out, exercise and comply with any such arrangements, rights, privileges and
concessions.
3.19 To promote any company or companies for the purpose of acquiring and
undertaking all or any of the property and liabilities of this Company, or for
any other purpose which may seem directly or indirectly calculated to benefit
this Company.
3.20 To invest, reinvest and deal with moneys and funds of the Company, not
immediately required upon such securities and in such manner as may from time to
time be determined.
<PAGE>
3.21 To borrow or raise or secure payment of money in such other manner as the
Company shall think fit, and in particular by the issue of debenture or
debenture stock (perpetual or otherwise), bonds, mortgages, preference shares or
other securities, charged upon any of the Company's property (both present and
future) including its uncalled capital, and to redeem or pay off any such
securities.
3.22 To raise and to assist in raising money for, and to aid by way of bonus,
loan, promise, endorsement, guarantee or otherwise, any company whatsoever and
to give security for any such promise, endorsement, guarantee or other form of
aid and to secure the payment and performance of any and all bonds, contracts or
other obligations of any company in any manner whatsoever and without limiting
the generality of the foregoing, by way of mortgage or other charge upon all or
part of the Company's assets and undertaking.
3.23 To draw, make, accept, indorse, discount, execute and issue promissory
notes, bills of exchange, bills of lading, warrants, debentures and other
negotiable or transferable instruments.
3.24 To sell, issue or otherwise dispose of the assets, property and
undertakings of the Company or any part thereof for such consideration as the
Company may think fit, and in particular for shares, debentures, bonds,
mortgages or all other securities of any other company.
3.25 To adopt such means of making known the business of the Company, as may
seem expedient.
3.26 To procure the Company to be registered and recognized in any part of the
world.
3.27 To sell, improve, manage, develop. manage lease, mortgage, dispose, turn to
account, or otherwise to deal with all or part of the property and rights of the
Company.
3.28 To do all or any of the above acts and things and to have and exercise all
or any of the above powers in the same manner and with the same force and effect
as if the Company were individuals or as principals, agents, contractors,
trustees or otherwise and whether alone or in conjunction with others.
3.29 To distribute in specie by way of dividends or otherwise, among
shareholders, customers or employees of the Company any share or securities
belonging to the Company or property or assets of the Company.
3.30 To conduct its business in foreign countries and to have an office, or more
than one office, and to keep the books of the Company outside of the Turks &
Caicos Islands except as otherwise provided by law.
<PAGE>
3.31 To do all such other things as are incidental or conductive to the
attainment of the above objects or any of them.
3.32 To carry out those activities and business set forth in the First Schedule
to the Companies Ordinance 1981 not included herein in addition to those objects
set forth herein.
3.33 For greater certainty it is declared, the objects of the company shall be
unrestricted and the company shall have all the powers and discretions of a
natural person of full capacity.
And it is hereby declared that:
4. The liability of the members of the Company is limited to the amount unpaid
on any shares issued to them.
5. The authorized capital of the Company is five thousand dollars ($5,000.00)
divided into five thousand (5,000) shares with a nominal or par value of one
dollar (US$1.00) each, with power to divide the shares in the capital for the
time being, whether original or increased into several classes and to attach
hereto respectively any preferential, deferred, qualified or special rights,
privileges or conditions whether as to voting or otherwise.
6. The Articles of Association of the Company shall be those set forth in the
document entitled "Articles of Association" and attached hereto, subject to
repeal, amendment, alteration or addition as provided therein or in the
Companies Ordinance of the Turks and Caicos Islands.
7.(a) the word "Company" in this clause except where used in reference to this
Company shall be deemed to include any partnership or other body or persons
whether domiciled in the Turks and Caicos Islands or elsewhere and
7.(b) the objects specified in each of the paragraphs of this clause shall be
regarded as independent objects and accordingly shall in no way be limited or
restricted (except where otherwise expressed in such paragraph) by reference to
or inference from the terms of any other paragraph or the name of the Company,
but may be carried out in as full and ample a manner and constructed in as wide
a sense as if each of the said paragraphs defined the objects of a separate and
distinct company.
<PAGE>
8. The Board of Directors of the Company until otherwise determined as provided
in the Articles of Association, shall consist of members and the first Directors
of the Company, with their names, occupations and places of residence, shall be
the following:
TEMPLE DIRECTORS LTD.
McLEAN BUILDING, PROVIDENCIALES,
(TURKS & CAICOS COMPANY)
Per:______________________________________________
Authorized Signatory
The first Directors shall hold office until the first annual meeting of
the company, or until such earlier time as may be determined by the
shareholders thereof at an extraordinary or special general meeting,
and the subsequent Directors shall be elected at either an
extraordinary or special meeting of the shareholders or the annual
meeting of the shareholders by a majority vote of the shares
represented at such meeting, but such Directors shall hold office until
their successors are appointed. The management and working of the
Company shall be under the control of the Board of Directors from time
to time subject to the provisions of the Companies Ordinance of the
Turks and Caicos Islands.
<PAGE>
We, the several persons whose names and addresses are
subscribed, are desirous of being formed into a company in pursuance of this
Memorandum of Association and we respectively agree to take the number of shares
of the Capital set opposite our respective names.
- --------------------------------------------------------------------------------
Names and Addresses and Description Number of Shares
of the subscribers Taken by Each Subscriber
- --------------------------------------------------------------------------------
WINDSOR NOMINEES LTD.
TROPICANA PLAZA
LEEWARD HIGHWAY
PROVIDENCIALES
BRITISH WEST INDIES
(A Turks & Caicos Corporation) (2) TWO SHARES
Per:_______________________________________________
Authorized Signatory
DATED at Providenciales, Turks & Caicos Islands, B.W.I.
this 4th day of February, 1999.
Witness:_______________________________________
VERONICA BEEN
Occupation: CORPORATE PARALEGAL
of: PROVIDENCIALES, TURKS & CAICOS ISLANDS
<PAGE>
ARTICLES OF ASSOCIATION
OF
CONCERT CONSULTANTS INTERNATIONAL INC.
Table "B"
(Section 21)
REGULATIONS FOR MANAGEMENT OF A COMPANY LIMITED BY SHARES
The Company hereby adopts Table "B" of the Companies
Ordinance, 1981.
- --------------------------------------------------------------------------------
NAME, ADDRESSES AND DESCRIPTION OF SUBSCRIBERS
- --------------------------------------------------------------------------------
WINDSOR NOMINEES LTD.
TROPICANA PLAZA
LEEWARD HIGHWAY
PROVIDENCIALES
TURKS & CAICOS ISLANDS
B.W.I.
A TURKS AND CAICOS COMPANY
Per:______________________________________________
Authorized Signatory
DATED at Providenciales, Turks & Caicos Islands, British West Indies.
this 4th day of February, 1999.
Witness:______________________________________
VERONICA BEEN
Occupation: CORPORATE PARALEGAL
of: PROVIDENCIALES, TURKS & CAICOS ISLANDS
<PAGE>
AFFIDAVIT OF DECLARATION
IN THE MATTER OF THE
I, ANDREW L. MEADE Authorized
COMPANIES ORDINANCE, 1981,
Signatory of subscribing company Windsor
TURKS & CAICOS ISLANDS
Nominees Ltd., Providenciales, Turks & Caicos
Islands, British West Indies, DECLARE on behalf
of the said subscribers:
TO WIT:
1. THAT I have personal knowledge of the business intentions of a company known
as CONCERT CONSULTANTS INTERNATIONAL INC. be registered with the Companies
Branch of the Turks & personal knowledge of the business intentions of a company
known as Caicos Islands as an exempt company.
2. THAT to the best of my knowledge and belief the operations of the said
CONCERT CONSULTANTS INTERNATIONAL INC. be conducted mainly outside the Turks &
Caicos Islands.of my knowledge and belief the operations of the said company
3. THAT I, ANDREW L. MEADE elect pursuant to Section 180 of the Companies
Ordinance, 1981, on behalf of said company to be classified as an Exempted
Company within the meaning of Section 180 of the said Ordinance.
4. THAT I, ANDREW L. MEADE make this Declaration believing it to be true within
the scope of my knowledge of the affairs of the Company.
----------------------------------------
DATED this 4th day of February A.D., 1999.
Witness:_________________________________________
VERONICA BEEN
Occupation: CORPORATE PARALEGAL
of: PROVIDENCIALES, TURKS & CAICOS ISLANDS Ref:9-105
Exhibit 4.1
[GRAPHIC OMITTED]
NUMBER SHARES
CATHAYONLINE, INC.
INCORPORATED UNDER THE LAWS OF THE STATE OF NEVADA
PAR VALUE $0.001 CUSIP NO. 14915R 105
COMMON STOCK
THIS CERTIFIES THAT SPECIMEN CERTIFICATE-VOID
is the owner of
FULLY PAID AND NON-ASSESSABLE SHARES OF THE COMMON STOCK PAR VALUE OF $0.001
EACH OF
CATHAYONLINE, INC.
transferable on the books of the Corporation in person or by duly authorized
attorney upon surrender of this Certificate properly endorsed. This Certificate
is not valid until countersigned by the Transfer Agent and registered by the
Registrar.
Witness the facsimile seal of the Corporation and the facsimile signatures of
its duly authorized officers.
DATED:
Countersigned and Registered:
SIGNATURE STOCK TRANSFER, INC.
(Dallas, Texas) Transfer Agent
By
PRESIDENT
Authorized Signature
Exhibit 4.2
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
CATHAYONLINE INC.
WARRANT
Dated: October 26, 1999
CATHAYONLINE INC., a corporation organized under the laws of the State
of Nevada (the "Company"), hereby certifies that, for value received,
____________________ or its registered assigns ("Holder"), is entitled, subject
to the terms set forth below, to purchase from the Company up to a total of
_____________ shares of Common Stock, $.001 par value per share (the "Common
Stock"), of the Company (each such share, a "Warrant Share" and all such shares,
the "Warrant Shares") at an exercise price equal to $0.33 per share (as adjusted
from time to time as provided in Section 9, the "Exercise Price"), at any time
and from time to time from and after the 26th of October, 1999 and through and
including October 26, 2002 (the "Expiration Date"), and subject to the following
terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
<PAGE>
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the Form
of Assignment attached hereto duly completed and signed, to the Transfer Agent
or to the Company at the office specified in or pursuant to Section 3(b). Upon
any such registration or transfer, a new warrant to purchase Common Stock, in
substantially the form of this Warrant (any such new warrant, a "New Warrant"),
evidencing the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this Warrant
not so transferred, if any, shall be issued to the transferring Holder. The
acceptance of the New Warrant by the transferee thereof shall be deemed the
acceptance of such transferee of all of the rights and obligations of a holder
of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company specified in or pursuant to Section 3(b) for
one or more New Warrants, evidencing in the aggregate the right to purchase the
number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder on any
business day before 8:00 P.M., New York City time, at any time and from time to
time on or after the date hereof to and including the Expiration Date. At 8:00
P.M., New York City time on the Expiration Date, the portion of this Warrant not
exercised prior thereto shall be and become void and of no value. Prior to the
Expiration Date, the Company may not call or otherwise redeem this Warrant
without the prior written consent of the Holder.
<PAGE>
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this Warrant,
with the Form of Election to Purchase attached hereto duly completed and signed,
to the Company at its address for notice set forth in Section 12 and upon
payment of the Exercise Price multiplied by the number of Warrant Shares that
the Holder intends to purchase hereunder, in the manner provided hereunder, all
as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except (i) either in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall have
received (i) this Warrant (or any New Warrant, as applicable), with the Form of
Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(c) This Warrant shall be exercisable, either in its entirety or, from
time to time, for a portion of the number of Warrant Shares. If less than all of
the Warrant Shares which may be purchased under this Warrant are exercised at
any time, the Company shall issue or cause to be issued, at its expense, a New
Warrant evidencing the right to purchase the remaining number of Warrant Shares
for which no exercise has been evidenced by this Warrant.
4. (a) Piggyback Registration Rights. During the term of this Warrant,
the Company may not file any registration statement with the Securities and
Exchange Commission (other than registration statements of the Company filed on
Form S-8 or Form S-4, each as promulgated under the Securities Act, pursuant to
which the Company is registering securities pursuant to a Company employee
benefit plan or pursuant to a merger, acquisition or similar transaction
including supplements thereto, but not additionally filed registration
statements in respect of such securities) at any time when there is not an
effective registration statement covering the resale of the Warrant Shares and
naming the Holder as a selling stockholder thereunder, unless the Company
provides the Holder with not less than 20 days notice of its intention to file
such registration statement and provides the Holder the option to include any or
all of the applicable Warrant Shares therein. The piggyback registration rights
granted to the Holder pursuant to this Section shall continue until all of the
Holder's Warrant Shares have been sold in accordance with an effective
registration statement or upon the Expiration Date. The Company will pay all
registration expenses in connection therewith.
<PAGE>
(b) Demand Registration Rights. At any time after the two hundred and
seventieth (270th) day following the date ---------------------------- of
issuance of this Warrant, when the Warrant Shares are not registered pursuant to
an effective registration statement, the Holder may make a written request for
the registration under the Securities Act (a "Demand Registration"), of all of
the Warrant Shares (the "Registrable Securities"), and the Company shall use its
best efforts to effect such Demand Registration as promptly as possible, but in
any case within 270 days thereafter. Any request for a Demand Registration shall
specify the aggregate number of Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. The right to
cause a registration of the Registrable Securities under this Section 4(b) shall
be limited to one such registration. In any registration initiated as a Demand
Registration, the Company will pay all of its registration expenses in
connection therewith. A Demand Registration shall not be counted as a Demand
Registration hereunder until the registration statement filed pursuant to the
Demand Registration has been declared effective by the Securities and Exchange
Commission and maintained continuously effective for a period of at least 3
Years or such shorter period when all Registrable Securities included therein
have been sold in accordance with such registration statement, provided, however
that any days on which such registration statement is not effective or on which
the Holder is not permitted by the Company or any governmental authority to sell
Warrant Shares under such registration statement shall not count towards such 3
Year period.
5. Resale of Warrant Shares Upon Registration Under the Securities Act.
Notwithstanding registration of the Warrant Shares pursuant to Section 4, above,
the Holder covenants and agrees that the Holder will the Warrant Shares only as
follows:
(1) after the expiration of six (6) months from the effective date of
the registration statement pursuant to which the Warrant Shares are registered
under the Securities Act, the Consultant shall be entitled to sell up to one
third of the Warrant Shares;
(2) after the expiration of twelve (12) months from the effective date
of the registration statement pursuant to which the Warrant Shares are
registered under the Securities Act, the Consultant shall be entitled to sell up
to an additional one third of the Warrant Shares; and
(3) after the expiration of eighteen (18) months from the effective
date of the registration statement pursuant to which the Warrant Shares are
registered under the Securities Act, the Consultant shall be entitled to sell up
to the balance of the Warrant Shares.
<PAGE>
5. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder. The Holder shall be responsible for all other tax liability that may
arise as a result of holding or transferring this Warrant or receiving Warrant
Shares upon exercise hereof.
6. Replacement of Warrant. If this Warrant is mutilated, lost, stolen
or destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and indemnity, if
requested, satisfactory to it. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price in accordance with the terms hereof, be duly and
validly authorized, issued and fully paid and nonassessable.
8. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9. Upon each such adjustment of the Exercise
Price pursuant to this Section 9, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding, (i)
shall pay a stock dividend (except scheduled dividends paid on outstanding
preferred stock as of the date hereof which contain a stated dividend rate) or
otherwise make a distribution or distributions on shares of its Common Stock or
on any other class of capital stock and not the Common Stock payable in shares
of Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
<PAGE>
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of this
Warrant) evidences of its indebtedness or assets or rights or warrants to
subscribe for or purchase any security (excluding those referred to in Sections
9(a), (b) and (d)), then in each such case the Exercise Price shall be
determined by multiplying the Exercise Price in effect immediately prior to the
record date fixed for determination of stockholders entitled to receive such
distribution by a fraction of which the denominator shall be the Exercise Price
determined as of the record date mentioned above, and of which the numerator
shall be such Exercise Price on such record date less the then fair market value
at such record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined by
the Company's independent certified public accountants that regularly examines
the financial statements of the Company (an "Appraiser").
(d) If, at any time while this Warrant is outstanding, the Company
shall issue or cause to be issued rights or warrants to acquire or otherwise
sell or distribute shares of Common Stock for a consideration per share less
than the Exercise Price then in effect, then, forthwith upon such issue or sale,
the Exercise Price shall be reduced to the price (calculated to the nearest
cent) determined by multiplying the Exercise Price in effect immediately prior
thereto by a fraction, the numerator of which shall be the sum of (i) the number
of shares of Common Stock outstanding immediately prior to such issuance, and
(ii) the number of shares of Common Stock which the aggregate consideration
received (or to be received, assuming exercise or conversion in full of such
rights, warrants and convertible securities) for the issuance of such additional
shares of Common Stock would purchase at the Exercise Price, and the denominator
of which shall be the sum of the number of shares of Common Stock outstanding
immediately after the issuance of such additional shares. Such adjustment shall
be made successively whenever such an issuance is made.
(e) For the purposes of this Section 9, the following clauses shall
also be applicable:
<PAGE>
(i) Record Date. In case the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them (A) to receive a dividend
or other distribution payable in Common Stock or in securities convertible or
exchangeable into shares of Common Stock, or (B) to subscribe for or purchase
Common Stock or securities convertible or exchangeable into shares of Common
Stock, then such record date shall be deemed to be the date of the issue or sale
of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
(ii) Treasury Shares. The number of shares of Common Stock outstanding
at any given time shall not include shares owned or held by or for the account
of the Company, and the disposition of any such shares shall be considered an
issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the nearest
cent or the nearest 1/100th of a share, as the case may be.
(g) Whenever the Exercise Price is adjusted pursuant to Section 9(c)
above, the Holder, after receipt of the determination by the Appraiser, shall
have the right to select an additional appraiser (which shall be a nationally
recognized accounting firm), in which case the adjustment shall be equal to the
average of the adjustments recommended by each of the Appraiser and such
appraiser. The Holder shall promptly mail or cause to be mailed to the Company,
a notice setting forth the Exercise Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment. Such adjustment
shall become effective immediately after the record date mentioned above.
(h) If:
(i) the Company shall declare a dividend (or any other distribution) on
its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash dividend on
or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be required
in connection with any reclassification of the Common Stock of the Company, any
consolidation or merger to which the Company is a party, any sale or transfer of
all or substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash or
property; or
<PAGE>
(v) the Company shall authorize the voluntary dissolution, liquidation
or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
9. Payment of Exercise Price. The Holder may pay the Exercise Price in
one of the following -------------------------- manners:
(a) Cash Exercise. The Holder shall deliver immediately available
funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant to the
Company together with a notice of cashless exercise, in which event the Company
shall issue to the Holder the number of Warrant Shares determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the average of the closing sale prices of the
Common Stock for the five (5) trading days
immediately prior to (but not including) the Date of
Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
<PAGE>
10. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
11. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 8:00 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 8:00 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company,
Suite 1000, 6 East 45th Street, New York, New York, USA 10017, Attention:
Corporate Secretary, or to facsimile no. (212) 867-6908, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 12.
12. Warrant Agent. The Company shall serve as warrant agent under this
Warrant. Upon thirty (30) days' notice to the Holder, the Company may appoint a
new warrant agent. Any corporation into which the Company or any new warrant
agent may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation to
which the Company or any new warrant agent transfers substantially all of its
corporate trust or shareholders services business shall be a successor warrant
agent under this Warrant without any further act. Any such successor warrant
agent shall promptly cause notice of its succession as warrant agent to be
mailed (by first class mail, postage prepaid) to the Holder at the Holder's last
address as shown on the Warrant Register.
13. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and assigns. This Warrant may be
amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant shall be
construed to give to any person or corporation other than the Company and the
Holder any legal or equitable right, remedy or cause under this Warrant. This
Warrant shall inure to the sole and exclusive benefit of the Company and the
Holder.
<PAGE>
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard to the
principles of conflicts of law thereof. The Company and the Holder hereby
irrevocably submit to the exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, or that such suit,
action or proceeding is improper. Each of the Company and the Holder hereby
irrevocably waives personal service of process and consents to process being
served in any such suit, action or proceeding by receiving a copy thereof sent
to the Company at the address in effect for notices to it under this instrument
and agrees that such service shall constitute good and sufficient service of
process and notice thereof. Nothing contained herein shall be deemed to limit in
any way any right to serve process in any manner permitted by law.
(d) The headings herein are for convenience only, do not constitute a
part of this Warrant and shall not be deemed to limit or affect any of the
provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall be
invalid or unenforceable in any respect, the validity and enforceability of the
remaining terms and provisions of this Warrant shall not in any way be affected
or impaired thereby and the parties will attempt in good faith to agree upon a
valid and enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed by its authorized officer as of the date first indicated above.
CATHAYONLINE INC.
By:
Name:
Title:
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To CathayOnline Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.001 par value per share, of
CathayOnline Inc. and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common
Stock issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise
shall not be all of the shares of Common Stock which the undersigned is entitled
to purchase in accordance with the enclosed Warrant, the undersigned requests
that a New Warrant (as defined in the Warrant) evidencing the right to purchase
the shares of Common Stock not issuable pursuant to the exercise evidenced
hereby be issued in the name of and delivered to:
(Please print name and address)
Dated: , Name of Holder:
(Print)
(By:)
(Name:)
(Title:)
(Signature must conform in all respects to name of holder
as specified on the face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of CathayOnline Inc. to
which the within Warrant relates and appoints ________________ attorney to
transfer said right on the books of CathayOnline Inc. with full power of
substitution in the premises.
Dated:
- ---------------, ----
---------------------------------------
(Signature must conform in all respects to name of holder as specified on
the face of the Warrant)
---------------------------------------
Address of Transferee
---------------------------------------
---------------------------------------
In the presence of:
- --------------------------
Exhibit 4.3
SHARE PURCHASE WARRANT CERTIFICATE
WARRANT TO PURCHASE ________ COMMON SHARES
OF
KYOCERA MANAGEMENT, LTD.
(Incorporated under the laws of the State of Nevada)
SHARE PURCHASE WARRANT
(the "Warrant")
THIS SHARE PURCHASE WARRANT CERTIFICATE AND ANY SECURITIES ISSUED PURSUANT TO
THE TERMS HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT")
THIS IS TO CERTIFY THAT for value received, _______________ (the "Holder"), is
entitled to purchase ______ fully paid and non-assessable shares of US $0.001
Par Value (each a "Share") in the common stock (the "Common Stock") of KYOCERA
MANAGEMENT, LTD. (the "Corporation") at any time up to 5:00 p.m. local time in
the city of Vancouver, Province of British Columbia at a purchase price of U.S.
$0.60 per Share, prior to the first anniversary of the sate of acceptance of
this Agreement by the Corporation, and at any time after the first anniversary,
but prior to the second anniversary from the date of acceptance of this
Agreement by the Corporation at U.S.$0.70 per Share.
1. The aforesaid right to purchase Shares may be exercised by the Holder
at times and from time to time within the time period required herein
before set out by (i) duly completing in the manner indicated and
executing the subscription form attached hereto, (ii) surrendering this
Warrant to the Corporate Secretary of the Corporation, and, (iii)
paying the appropriate purchase price for the Shares subscribed for
together with the requisite share transfer tax, if any, either in cash
or by certified cheque payable at par, in Las Vegas, Nevada, to the
order of the Corporation. Upon said surrender and payment, the
Corporation will issue to the Holder of the subscription form the
number of Shares subscribed for and the said Holder will become a
shareholder of the Corporation in respect of the Shares as of the date
of such surrender and payment. subject to the Terms and Conditions of
this Warrant, the Corporation will, as soon as practicable after said
surrender and payment, mail to the person or persons at the address or
addresses specified in the subscription form a certificate or
certificates evidencing the Shares subscribed for. If the Holder of
this Warrant subscribes for a lesser number of Shares than the number
of shares referred to in the Warrant, the Holder shall be entitled to
receive a further Warrant in respect of Shares not subscribed for.
2. The Holder may, at its sole discretion, transfer or assign the Share
Purchase Warrants to another party or parties.
3. Nothing contained herein shall confer any right upon the Holder hereof
or any other person to subscribe for or purchase any Shares at any time
subsequent to 5:00 o'clock in the afternoon (Las Vegas time) on April
29th, 2001, and from and after such time, this Warrant and all rights
hereunder shall be void and of no value.
4. This Warrant shall not constitute the Holder a member of the Corporation.
5. This Warrant is subject to the Terms and Conditions that are attached to this
Warrant as Schedule "A".
6. Time shall be of the essence hereof.
IN WITNESS WHEREOF, KYOCERA MANAGEMENT, LTD. has caused its common seal to be
affixed and this Warrant to be signed by its authorized representative effective
on this 29th day of April, 1999.
THE CORPORATE SEAL OF
KYOCERA MANAGEMENT, LTD.
Was affixed hereto in the presence of:
- ---------------------------------
Authorized Signatory
<PAGE>
FORM OF SUBSCRIPTION
To: KYOCERA MANAGEMENT, LTD.
And to: THE CORPORATE SECRETARY OF KYOCERA MANAGEMENT, LTD.
The undersigned holder of the attached Warrant hereby subscribes for ________
Shares of Common Stock of KYOCERA MANAGEMENT, LTD. (again the "Corporation")
pursuant to the attached Warrant at any time up to 5:00 p.m. local time in the
city of Vancouver, Province of British Columbia at a purchase price of U.S.
$0.60 per Share, prior to the first anniversary of the sate of acceptance of
this Agreement by the Corporation, and at any time after the first anniversary,
but prior to the second anniversary from the date of acceptance of this
Agreement by the Corporation at U.S.$0.70 per Share. This subscription is
accompanied by a certified cheque or money order payable to, or to the order of,
the Corporation for the whole amount of the purchase price of the said Shares,
together with the amount of any issue tax that may be imposed on issue of such
Shares (or if such tax has been paid, evidence satisfactory to the trustee of
such payment).
The undersigned hereby directs that the said Shares be registered as follows:
=========================== ========================= =========================
Name in Full Address Number of Shares
=========================== ========================= =========================
=========================== ========================= =========================
=========================== ========================= =========================
DATED this ____ day of _________, _____
In the presence of:
- ---------------------- ------------------------------------
Witness Signature of Warrant Holder
Please print your name and address in full:
Name: ____________________________________
Address: ____________________________________
------------------------------------
<PAGE>
SCHEDULE "A"
TERMS AND CONDITIONS
OF
WARRANTS
These are the Terms and Conditions that are attached to the Share Purchase
Warrants issued by Kyocera Management, Ltd.
ARTICLE ONE - INTERPRETATION
Section 1.01 - Definitions
In these Terms and Conditions, unless there is something in the subject matter
or context inconsistent:
a) "Corporation" means Kyocera Management, Ltd. until a successor
corporation or its successor is present in Article 6;
b) "Corporations Auditors" means an independent firm of accountants duly
appointed as auditors of the Corporation;
c) "Director" means a director of the Corporation for the time being, and
reference, without more, to action by the directors of the Corporation
as a board, or whenever duly empowered, action by an executive
committee of the board;
d) "herein", "hereby" and similar expressions refer to these Terms and
Conditions as the same may be amended or modified from time to time;
and the expression "Article" or "Section" followed by a number refer to
the specified Article or Section of these Terms and Conditions;
e) "Issuance Date" means that date on which the Corporation issued the
attached Warrants;
f) "person" means an individual, corporation, partnership, trustee or any
unincorporated organization, and any words importing persons have a
similar meaning;
g) "shares" means the US $0.001 par value common shares in the capital of
the Corporation as constituted at the Issuance Date and any shares
resulting from any subdivision or consolidation of the shares;
h) "Transfer Agent" means Signature Stock Transfer, Inc., of 14675 Midway
Road, Suite 221, Dallas, Texas, 75244;
i) "Warrants" means the Warrants of the Corporation issued and presently
authorized, as set out in Section 2.01 and for the time being
outstanding, and any other warrants made subject to these Terms and
Conditions;
j) "Warrant Holders" or "Holders" means the bearers of the Warrants for
the time being; and
k) words importing the singular number include the plural and vice-versa,
and words importing the masculine gender include the feminine and
neuter genders.
Section 1.02 - Interpretation Not Affect By Headings
The division of these Terms and Conditions in to Articles and Sections and the
insertion of headings are for convenience of reference only and will not affect
their construction of interpretation.
Section 1.03 - Applicable Law
The Warrants will be construed in accordance with the laws of Nevada and will be
treated in all respects as Nevada contracts.
ARTICLE TWO - ISSUE OF WARRANTS
Section 2.01 - Issue of Warrants
Warrants entitling the Holders thereof to purchase an aggregate of _______
shares and hereby authorized to be issued by the Corporation where one Warrant
is required to purchase one share of the Corporation.
Section 2.02 - Additional Warrants
Nothing contained herein shall preclude the Corporation from time to time to
make further equity or debt offerings and sell additional shares, warrants or
grant options or similar rights to purchase shares of its capital stock.
Section 2.03 - Issue In Substitution for Lost Warrants
a) Subject to Section 2.03(b), if a Warrant is mutilated, lost, destroyed or
stolen, the Corporation shall issue and deliver a new Warrant of like, date
and tenor as the one mutilated, lost, destroyed or stolen, in exchange for,
and in place of, and upon cancellation of such mutilated Warrant, or in
lieu of, and in substitution for such lost, destroyed or stolen Warrant.
The substituted Warrant will be entitled to the benefit of these Terms and
Conditions and rank equally in accordance with its terms with all other
Warrants issued, or to be issued, by the Corporation.
b) The applicant for the issue of a new Warrant will bear the cost of its
issue and in case of loss, destruction or theft, furnish to the Corporation
such evidence of ownership and of loss, destruction or theft of the Warrant
so lost, destroyed or stolen, as will be satisfactory to the Corporation in
its discretion, and such applicant may also be required to furnish
indemnity in an amount and form satisfactory to the Corporation, in its
discretion, and will pay the reasonable charges of the Corporation.
Section 2.04 - Warrant Holder Not a Shareholder
The holders of a Warrant will not constitute the Holder a member of the
Corporation, nor entitle him to any right or interest except as expressly
provided in the Warrant and herein.
ARTICLE THREE - OWNERSHIP AND TRANSFER
Section 3.01 - Exchange of Warrants
a) Warrants in any authorized denomination may, upon compliance with the
reasonable requirements of the Corporation, be exchanged for Warrants in
any other authorized denomination, of the same class and date of expiry,
entitling the Holder to purchase any equal aggregate number of shares at
the same subscription price and on the same terms as the Warrants so
exchanged.
b) Warrants may be exchanged only at the office of the Corporate Secretary of
the Corporation and any Warrants tendered for exchange will be surrendered
and cancelled.
Section 3.02 - Ownership and Transfer of Warrants
a) The Corporation may deem and treat the registered holder of any Warrant as
absolute owner of such Warrant, for all purposes, and will not e affected
by any notice or knowledge to the contrary.
b) The registered holder of any Warrant will be entitled to the rights
evidenced by such Warrant free from all equities or rights of set-off or
counterclaim between the Corporation and the original or any intermediate
Holder and all persons may act accordingly, and the receipt of any such
bearer for the shares will be a good discharge to the Corporation for the
same and the Corporation will not be bound to inquire into the title of any
such bearer.
Section 4.01 - Notice to Warrant Holders
Any notice to be given to Warrant Holders will be deemed to be validly given on
the date on which it has been published if such notice is published once in the
City of Las Vegas, such publication to be made in the daily newspaper in the
English language of general circulation in such city.
ARTICLE FOUR - EXERCISE OF WARRANTS
Section 4.01 - Method of Exercise Warrants
The right to purchase shares conferred by the Warrants may be exercised, before
its expiry time, by the Holder of such Warrant surrendering it, with a duly
completed and executed subscription in the form attached thereto and cash or a
certified cheque payable to or to the order of the Corporation, at par in such
city as the Corporation may reside from time to time, for the purchase price
applicable at the time of surrender in respect of the shares subscribed for in
lawful money of the United States of America, to the Corporate Secretary of the
Corporation.
Section 4.02 - Effect of Exercise Warrants
As soon as practicable after surrender and payment, and subject to the Terms and
conditions set forth herein, the Corporation will cause to be delivered to the
person or persons in whose name or names the shares subscribed for are to be
issued as specified in such subscription or mailed to him or them at his or
their respective addresses specified in such subscription, a certificate or
certificates for the appropriate number of shares not exceeding those which the
Warrant Holder is entitled to purchase pursuant to the Warrant surrendered. Upon
issuance, such person or persons shall be deemed to become the holder or holders
of record of such shares on the date of surrender and payment.
Section 4.03 - Subscription For Less than Entitlement
The Holder of any Warrant may subscribe for and purchase a number of shares less
than the number which he is entitled to purchase pursuant to the surrendered
Warrant. In the event of any purchase of a number of shares less than the number
that can be purchased pursuant to a Warrant, the Corporation will endorse the
Warrant, note the number of Warrants exercised and return the Warrant
Certificate to the Holder or may issue a new Warrant in respect of the balance
of the shares which the Holder was entitled to purchase pursuant to the
surrendered Warrant and which were not then purchased.
Section 4.04 - Warrants For Fractions of Shares
To the extent that the Holder of any Warrant is entitled to receive on the
exercise or partial exercise, a fraction of a common share, such right may be
exercised in respect of such fraction only in combination with another Warrant
or other Warrants which in the aggregate entitles the Holder to receive a whole
number of such shares.
Section 4.05 - Expiration of Warrants
After the expiration of the period within which a Warrant is exercisable, all
rights will wholly cease and terminate and such Warrant will be void and of no
effect.
Section 4.06 - Exercise Price
The price per share which must be paid to exercise a Warrant is as prescribed by
resolution of the Board of Directors of the Corporation and set forth on the
face of the Warrant Certificate.
Section 4.07 - Adjustment of Exercise Price
The exercise price and the number of shares deliverable upon the exercise of the
Warrants will be subject to adjustment in the events and in the manner
following:
a) in the event of any subdivision or subdivisions of the shares of the
Corporation as such shares are constituted on the Issuance Date, at any
time while the Warrants are outstanding, into a greater number of shares,
the Corporation will deliver at the time of purchase of shares, in addition
to the number of shares in respect of which the right to purchase is then
being exercised, such additional number of shares as a result from such
subdivision or subdivisions without the bearer of the Warrant making any
additional payment or giving any other consideration;
b) in the event of any consolidation or consolidations of the shares of the
Corporation as such shares are constituted on the Issuance Date, at any
time while the Warrants are outstanding, into a lesser number of shares,
the Corporation will deliver and the bearer will accept, at the time of
purchase, in lieu of the number of shares in respect of which the right to
purchase is then being exercised, the lesser number of shares as a result
from such consolidation or consolidations;
c) in the event of any change of the shares of the Corporation as such shares
are constituted on the Issuance Date, at any time while the Warrants are
outstanding, the Corporation will deliver at the time of purchase the
number of shares of the appropriate class resulting from such change as the
bearer would have been entitled to receive in respect of the number of
shares so purchased, had the right to purchase been exercised before such
change;
d) in the event of any capital reorganization, reclassification or change of
outstanding equity shares of the Corporation or in the event of any
consolidation, merger or amalgamation of the Corporation with or into any
other company, then the Holder of each Warrant then outstanding will have
the right to purchase and receive, in lieu of the shares receivable upon
the exercise of the rights represented by the Warrants, the kind and amount
of shares and other securities and property receivable upon such capital
reorganization, reclassification, change, consolidation, merger or
amalgamation which the Holder of a number of shares equal to the number of
shares receivable upon the exercise of the rights represented by the
Warrants would have received as a result of such event, but the subdivision
or consolidation of shares at any time outstanding into a greater or lesser
number of shares, whether with or without par value, will not be deemed to
be a capital reorganization or a reclassification of the capital of the
Corporation for the purposes of this paragraphs (d);
e) if the Corporation, at any time while the Warrants are outstanding, pays
any stock dividend or stock dividends upon the shares of the Corporation in
respect of which the right to purchase is then given, the Corporation will
deliver at the time of purchase of shares in addition to the number of
shares in respect of which the right of purchase is then being exercised,
the additional number of shares of the appropriate class as would have been
payable on the shares so purchased as if they had been outstanding on the
record date for the payment of such stock dividend;
f) the adjustments provided for in this Section in the subscription rights
pursuant to any Warrants are cumulative; and,
g) the Corporation will not be required to issue fractional shares in
satisfaction of its obligations but, if any fractional interest in a shares
would, except for the provisions of this paragraph (g), be deliverable upon
the exercise of Warrant, the Corporation will, at its option, in lieu of
delivering a fractional share, satisfy the right to receive such fractional
interest by payment to the Holder of such Warrant of an amount in cash
equal, computed in the case of a fraction of a cent to the next lower cent,
to the current market value of the right to subscribe for such fractional
interest, computed on the basis of the last sale price of shares of the
Corporation on the Nasdaq Bulletin Board preceding the day on which such
exercise takes place.
Section 4.08 - Determination of Adjustments
If any questions arise with respect to the exercise price, such question will be
conclusively determined by the Corporation's auditors, or, if they decline to
act, any other national firm of Chartered Accountants, in Las Vegas, that the
Corporation may designate and who will have access to all appropriate records,
and such determination will be binding upon the Corporation and the Holders of
the Warrants.
ARTICLE FIVE - COVENANTS BY THE COMPANY
The Corporation will reserve and there will remain unissued out of its
authorized capital a sufficient number of shares to satisfy the rights of
purchase in the Warrants should the Holders of all the Warrants, from time to
time outstanding, determine to exercise such rights in respect of all shares
which they are or may be entitled to purchase pursuant thereto.
ARTICLE SIX - MODIFICATION OF TERMS, MERGER, SUCCESSORS
Section 6.01 - Modification of Terms for Certain Purposes
From time to time the Corporation may modify these Terms and Conditions, for any
one or more, or all of the following purposes:
a) adding to or altering these provisions in respect of the registration and
transfer of Warrants making provision for the exchange of Warrants of
different denominations; and making any modification in the form of the
Warrants which does not affect their substance;
b) for any other purpose, including the correction or rectification of any
ambiguous, defective provisions, errors or omissions herein; or,
c) to evidence any succession of any corporation and the assumption by any
successor of the covenants of the Corporation and in the Warrants contained
as provided in this Article.
Section 6.02 - No Extension of Expiry Date
Notwithstanding Section 6.01, no modification will be made to the Expiry Date of
Warrants without the prior consent of the Holder.
Section 6.03 - Corporation May Consolidate etc. On Certain Terms
Nothing will prevent any consolidation, amalgamation or merger of the
Corporation with or into any other corporation, but the corporation formed by
such consolidation or into which such merger will have been made will be a
corporation organized and existing under the laws of Canada or the United States
of America, or any Province, State, District or Territory thereof, and will,
simultaneously with such consolidation, amalgamation or merger assume the due
and punctual performance and observance of all the covenants and conditions
hereof to be performed or observed by the Corporation.
Section 6.04 - Successor Corporation Substituted
In case the Corporation is consolidated, amalgamated or merged with or into any
other corporation or corporations, the successor corporation formed by such
consolidation or amalgamation, or into which the Corporation will have been
merged, will succeed to and be substituted for the Corporation hereunder. Such
changes in phraseology and form (but not in substance) may be made in the
Warrants as may be appropriate in view of such consolidation, amalgamation or
merger.
Exhibit 4.4
SHARE PURCHASE WARRANT CERTIFICATE
WARRANT TO PURCHASE ________ COMMON SHARES
OF
CATHAYONLINE INC.
(Incorporated under the laws of the State of Nevada)
SHARE PURCHASE WARRANT
(the "Warrant")
THIS SHARE PURCHASE WARRANT CERTIFICATE AND ANY SERCURITIES ISSUED PURSUANT TO
THE TERMS HEREOF HAVE NOT BEEN REGISTERED UNDER THE UNITED STATES SECURITIES ACT
OF 1933, AS AMENDED (THE "ACT")
THIS IS TO CERTIFY THAT for value received, _______________ (the "Holder"), is
entitled to purchase ______ fully paid and non-assessable shares of US $0.001
Par Value (each a "Share") in the common stock (the "Common Stock") of
CATHAYONLINE INC. (the "Corporation") at any time up to 5:00 p.m. local time in
the city of Vancouver, British Columbia, at a purchase price of U.S. $0.35 per
Share prior to the second anniversary of the date of acceptance of this
Agreement by the Corporation.
1. The aforesaid right to purchase Shares may be exercised by the Holder
at times and from time to time within the time period required herein
before set out by (i) duly completing in the manner indicated and
executing the subscription form attached hereto, (ii) surrendering this
Warrant to the Corporate Secretary of the Corporation, and, (iii)
paying the appropriate purchase price for the Shares subscribed for
together with the requisite share transfer tax, if any, either in cash
or by certified cheque payable at par, in Las Vegas, Nevada, to the
order of the Corporation. Upon said surrender and payment, the
Corporation will issue to the Holder of the subscription form the
number of Shares subscribed for and the said Holder will become a
shareholder of the Corporation in respect of the Shares as of the date
of such surrender and payment. subject to the Terms and Conditions of
this Warrant, the Corporation will, as soon as practicable after said
surrender and payment, mail to the person or persons at the address or
addresses specified in the subscription form a certificate or
certificates evidencing the Shares subscribed for. If the Holder of
this Warrant subscribes for a lesser number of Shares than the number
of shares referred to in the Warrant, the Holder shall be entitled to
receive a further Warrant in respect of Shares not subscribed for.
2. The Holder may, at its sole discretion, transfer or assign the Share
Purchase Warrants to another party or parties.
Nothing contained herein shall confer any right upon the Holder hereof or any
other person to subscribe for or purchase any Shares at any time subsequent to
5:00 o'clock in the afternoon local time in the city of Vancouver, British
Columbia to the second anniversary of the date of acceptance of this Agreement
by the Corporation. and from and after such time, this Warrant and all rights
hereunder shall be void and of no value.
3. This Warrant shall not constitute the Holder a member of the Corporation.
4. This Warrant is subject to the Terms and Conditions that are attached to this
Warrant as Schedule "A".
5. Time shall be of the essence hereof.
IN WITNESS WHEREOF, CATHAYONLINE INC. has caused its common seal to be affixed
and this Warrant to be signed by its authorized representative effective on this
24th day of June, 1999.
THE CORPORATE SEAL OF
CATHAYONLINE INC.
Was affixed hereto in the presence of:
- ---------------------------------
Authorized Signatory
<PAGE>
FORM OF SUBSCRIPTION
To: CATHAYONLINE INC.
And to: THE CORPORATE SECRETARY OF CATHAYONLINE INC.
The undersigned holder of the attached Warrant hereby subscribes for ________
Shares of Common Stock of CATHAYONLINE INC. (again the "Corporation") pursuant
to the attached Warrant at any time up to 5:00 p.m. local time in the city of
Vancouver, British Columbia, at a purchase price of U.S. $0.35 per Share prior
to the second anniversary of the date of acceptance of the Agreement by the
Corporation. This subscription is accompanied by a certified cheque or money
order payable to, or to the order of, the Corporation for the whole amount of
the purchase price of the said Shares, together with the amount of any issue tax
that may be imposed on issue of such Shares (or if such tax has been paid,
evidence satisfactory to the trustee of such payment).
The undersigned hereby directs that the said Shares be registered as follows:
=========================== ========================= =========================
Name in Full Address Number of Shares
=========================== ========================= =========================
=========================== ========================= =========================
=========================== ========================= =========================
DATED this ____ day of _________, _____
In the presence of:
- ---------------------- ------------------------------------
Witness Signature of Warrant Holder
Please print your name and address in full:
Name: ____________________________________
Address: ____________________________________
------------------------------------
<PAGE>
SCHEDULE "A"
TERMS AND CONDITIONS
OF
WARRANTS
These are the Terms and Conditions that are attached to the Share Purchase
Warrants issued by CATHAYONLINE INC.
ARTICLE ONE - INTERPRETATION
Section 1.01 - Definitions
In these Terms and Conditions, unless there is something in the subject matter
or context inconsistent:
a) "Corporation" means CATHAYONLINE INC. until a successor corporation or its
successor is present in
Article 6;
b) "Corporations Auditors" means an independent firm of accountants duly
appointed as auditors of the Corporation;
c) "Director" means a director of the Corporation for the time being, and
reference, without more, to action by the directors of the Corporation as a
board, or whenever duly empowered, action by an executive committee of the
board;
d) "herein", "hereby" and similar expressions refer to these Terms and
Conditions as the same may be amended or modified from time to time; and
the expression "Article" or "Section" followed by a number refer to the
specified Article or Section of these Terms and Conditions;
e) "Issuance Date" means that date on which the Corporation issued the
attached Warrants;
f) "person" means an individual, corporation, partnership, trustee or any
unincorporated organization, and any words importing persons have a similar
meaning;
g) "shares" means the US $0.001 par value common shares in the capital of the
Corporation as constituted at the Issuance Date and any shares resulting
from any subdivision or consolidation of the shares;
h) "Transfer Agent" means Signature Stock Transfer, Inc., of 14675 Midway
Road, Suite 221, Dallas, Texas, 75244;
i) "Warrants" means the Warrants of the Corporation issued and presently
authorized, as set out in Section 2.01 and for the time being outstanding,
and any other warrants made subject to these Terms and Conditions;
j) "Warrant Holders" or "Holders" means the bearers of the Warrants for the
time being; and
k) words importing the singular number include the plural and vice-versa, and
words importing the masculine gender include the feminine and neuter
genders.
Section 1.02 - Interpretation Not Affect By Headings
The division of these Terms and Conditions in to Articles and Sections and the
insertion of headings are for convenience of reference only and will not affect
their construction of interpretation.
Section 1.03 - Applicable Law
The Warrants will be construed in accordance with the laws of Nevada and will be
treated in all respects as Nevada contracts.
ARTICLE TWO - ISSUE OF WARRANTS
Section 2.01 - Issue of Warrants
Warrants entitling the Holders thereof to purchase an aggregate of _______
shares and hereby authorized to be issued by the Corporation where one Warrant
is required to purchase one share of the Corporation.
Section 2.02 - Additional Warrants
Nothing contained herein shall preclude the Corporation from time to time to
make further equity or debt offerings and sell additional shares, warrants or
grant options or similar rights to purchase shares of its capital stock.
Section 2.03 - Issue In Substitution for Lost Warrants
a) Subject to Section 2.03(b), if a Warrant is mutilated, lost, destroyed or
stolen, the Corporation shall issue and deliver a new Warrant of like, date
and tenor as the one mutilated, lost, destroyed or stolen, in exchange for,
and in place of, and upon cancellation of such mutilated Warrant, or in
lieu of, and in substitution for such lost, destroyed or stolen Warrant.
The substituted Warrant will be entitled to the benefit of these Terms and
Conditions and rank equally in accordance with its terms with all other
Warrants issued, or to be issued, by the Corporation.
b) The applicant for the issue of a new Warrant will bear the cost of its
issue and in case of loss, destruction or theft, furnish to the Corporation
such evidence of ownership and of loss, destruction or theft of the Warrant
so lost, destroyed or stolen, as will be satisfactory to the Corporation in
its discretion, and such applicant may also be required to furnish
indemnity in an amount and form satisfactory to the Corporation, in its
discretion, and will pay the reasonable charges of the Corporation.
Section 2.04 - Warrant Holder Not a Shareholder
The holders of a Warrant will not constitute the Holder a member of the
Corporation, nor entitle him to any right or interest except as expressly
provided in the Warrant and herein.
ARTICLE THREE - OWNERSHIP AND TRANSFER
Section 3.01 - Exchange of Warrants
a) Warrants in any authorized denomination may, upon compliance with the
reasonable requirements of the Corporation, be exchanged for Warrants in
any other authorized denomination, of the same class and date of expiry,
entitling the Holder to purchase any equal aggregate number of shares at
the same subscription price and on the same terms as the Warrants so
exchanged.
b) Warrants may be exchanged only at the office of the Corporate Secretary of
the Corporation and any Warrants tendered for exchange will be surrendered
and cancelled.
Section 3.02 - Ownership and Transfer of Warrants
a) The Corporation may deem and treat the registered holder of any Warrant as
absolute owner of such Warrant, for all purposes, and will not e affected
by any notice or knowledge to the contrary.
b) The registered holder of any Warrant will be entitled to the rights
evidenced by such Warrant free from all equities or rights of set-off or
counterclaim between the Corporation and the original or any intermediate
Holder and all persons may act accordingly, and the receipt of any such
bearer for the shares will be a good discharge to the Corporation for the
same and the Corporation will not be bound to inquire into the title of any
such bearer.
Section 4.01 - Notice to Warrant Holders
Any notice to be given to Warrant Holders will be deemed to be validly given on
the date on which it has been published if such notice is published once in the
City of Las Vegas, such publication to be made in the daily newspaper in the
English language of general circulation in such city.
ARTICLE FOUR - EXERCISE OF WARRANTS
Section 4.01 - Method of Exercise Warrants
The right to purchase shares conferred by the Warrants may be exercised, before
its expiry time, by the Holder of such Warrant surrendering it, with a duly
completed and executed subscription in the form attached thereto and cash or a
certified cheque payable to or to the order of the Corporation, at par in such
city as the Corporation may reside from time to time, for the purchase price
applicable at the time of surrender in respect of the shares subscribed for in
lawful money of the United States of America, to the Corporate Secretary of the
Corporation.
Section 4.02 - Effect of Exercise Warrants
As soon as practicable after surrender and payment, and subject to the Terms and
conditions set forth herein, the Corporation will cause to be delivered to the
person or persons in whose name or names the shares subscribed for are to be
issued as specified in such subscription or mailed to him or them at his or
their respective addresses specified in such subscription, a certificate or
certificates for the appropriate number of shares not exceeding those which the
Warrant Holder is entitled to purchase pursuant to the Warrant surrendered. Upon
issuance, such person or persons shall be deemed to become the holder or holders
of record of such shares on the date of surrender and payment.
Section 4.03 - Subscription For Less than Entitlement
The Holder of any Warrant may subscribe for and purchase a number of shares less
than the number which he is entitled to purchase pursuant to the surrendered
Warrant. In the event of any purchase of a number of shares less than the number
that can be purchased pursuant to a Warrant, the Corporation will endorse the
Warrant, note the number of Warrants exercised and return the Warrant
Certificate to the Holder or may issue a new Warrant in respect of the balance
of the shares which the Holder was entitled to purchase pursuant to the
surrendered Warrant and which were not then purchased.
Section 4.04 - Warrants For Fractions of Shares
To the extent that the Holder of any Warrant is entitled to receive on the
exercise or partial exercise, a fraction of a common share, such right may be
exercised in respect of such fraction only in combination with another Warrant
or other Warrants which in the aggregate entitles the Holder to receive a whole
number of such shares.
Section 4.05 - Expiration of Warrants
After the expiration of the period within which a Warrant is exercisable, all
rights will wholly cease and terminate and such Warrant will be void and of no
effect.
Section 4.06 - Exercise Price
The price per share which must be paid to exercise a Warrant is as prescribed by
resolution of the Board of Directors of the Corporation and set forth on the
face of the Warrant Certificate.
Section 4.07 - Adjustment of Exercise Price
The exercise price and the number of shares deliverable upon the exercise of the
Warrants will be subject to adjustment in the events and in the manner
following:
a) in the event of any subdivision or subdivisions of the shares of the
Corporation as such shares are constituted on the Issuance Date, at any
time while the Warrants are outstanding, into a greater number of shares,
the Corporation will deliver at the time of purchase of shares, in addition
to the number of shares in respect of which the right to purchase is then
being exercised, such additional number of shares as a result from such
subdivision or subdivisions without the bearer of the Warrant making any
additional payment or giving any other consideration;
b) in the event of any consolidation or consolidations of the shares of the
Corporation as such shares are constituted on the Issuance Date, at any
time while the Warrants are outstanding, into a lesser number of shares,
the Corporation will deliver and the bearer will accept, at the time of
purchase, in lieu of the number of shares in respect of which the right to
purchase is then being exercised, the lesser number of shares as a result
from such consolidation or consolidations;
c) in the event of any change of the shares of the Corporation as such shares
are constituted on the Issuance Date, at any time while the Warrants are
outstanding, the Corporation will deliver at the time of purchase the
number of shares of the appropriate class resulting from such change as the
bearer would have been entitled to receive in respect of the number of
shares so purchased, had the right to purchase been exercised before such
change;
d) in the event of any capital reorganization, reclassification or change of
outstanding equity shares of the Corporation or in the event of any
consolidation, merger or amalgamation of the Corporation with or into any
other company, then the Holder of each Warrant then outstanding will have
the right to purchase and receive, in lieu of the shares receivable upon
the exercise of the rights represented by the Warrants, the kind and amount
of shares and other securities and property receivable upon such capital
reorganization, reclassification, change, consolidation, merger or
amalgamation which the Holder of a number of shares equal to the number of
shares receivable upon the exercise of the rights represented by the
Warrants would have received as a result of such event, but the subdivision
or consolidation of shares at any time outstanding into a greater or lesser
number of shares, whether with or without par value, will not be deemed to
be a capital reorganization or a reclassification of the capital of the
Corporation for the purposes of this paragraphs (d);
e) if the Corporation, at any time while the Warrants are outstanding, pays
any stock dividend or stock dividends upon the shares of the Corporation in
respect of which the right to purchase is then given, the Corporation will
deliver at the time of purchase of shares in addition to the number of
shares in respect of which the right of purchase is then being exercised,
the additional number of shares of the appropriate class as would have been
payable on the shares so purchased as if they had been outstanding on the
record date for the payment of such stock dividend;
f) the adjustments provided for in this Section in the subscription rights
pursuant to any Warrants are cumulative; and,
g) the Corporation will not be required to issue fractional shares in
satisfaction of its obligations but, if any fractional interest in a shares
would, except for the provisions of this paragraph (g), be deliverable upon
the exercise of Warrant, the Corporation will, at its option, in lieu of
delivering a fractional share, satisfy the right to receive such fractional
interest by payment to the Holder of such Warrant of an amount in cash
equal, computed in the case of a fraction of a cent to the next lower cent,
to the current market value of the right to subscribe for such fractional
interest, computed on the basis of the last sale price of shares of the
Corporation on the Nasdaq Bulletin Board preceding the day on which such
exercise takes place.
Section 4.08 - Determination of Adjustments
If any questions arise with respect to the exercise price, such question will be
conclusively determined by the Corporation's auditors, or, if they decline to
act, any other national firm of Chartered Accountants, in Las Vegas, that the
Corporation may designate and who will have access to all appropriate records,
and such determination will be binding upon the Corporation and the Holders of
the Warrants.
ARTICLE FIVE - COVENANTS BY THE COMPANY
The Corporation will reserve and there will remain unissued out of its
authorized capital a sufficient number of shares to satisfy the rights of
purchase in the Warrants should the Holders of all the Warrants, from time to
time outstanding, determine to exercise such rights in respect of all shares
which they are or may be entitled to purchase pursuant thereto.
ARTICLE SIX - MODIFICATION OF TERMS, MERGER, SUCCESSORS
Section 6.01 - Modification of Terms for Certain Purposes
From time to time the Corporation may modify these Terms and Conditions, for any
one or more, or all of the following purposes:
a) adding to or altering these provisions in respect of the registration and
transfer of Warrants making provision for the exchange of Warrants of
different denominations; and making any modification in the form of the
Warrants which does not affect their substance;
b) for any other purpose, including the correction or rectification of any
ambiguous, defective provisions, errors or omissions herein; or,
c) to evidence any succession of any corporation and the assumption by any
successor of the covenants of the Corporation and in the Warrants contained
as provided in this Article.
Section 6.02 - No Extension of Expiry Date
Notwithstanding Section 6.01, no modification will be made to the Expiry Date of
Warrants without the prior consent of the Holder.
Section 6.03 - Corporation May Consolidate etc. On Certain Terms
Nothing will prevent any consolidation, amalgamation or merger of the
Corporation with or into any other corporation, but the corporation formed by
such consolidation or into which such merger will have been made will be a
corporation organized and existing under the laws of Canada or the United States
of America, or any Province, State, District or Territory thereof, and will,
simultaneously with such consolidation, amalgamation or merger assume the due
and punctual performance and observance of all the covenants and conditions
hereof to be performed or observed by the Corporation.
Section 6.04 - Successor Corporation Substituted
In case the Corporation is consolidated, amalgamated or merged with or into any
other corporation or corporations, the successor corporation formed by such
consolidation or amalgamation, or into which the Corporation will have been
merged, will succeed to and be substituted for the Corporation hereunder. Such
changes in phraseology and form (but not in substance) may be made in the
Warrants as may be appropriate in view of such consolidation, amalgamation or
merger.
Exhibit 10.1
MANAGEMENT AND CONSULTANCY SERVICE AGREEMENT
This Agreement is dated this _______ day of _________________, 1999
BETWEEN
Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Si, a company incorporated
under the laws of the People's Republic of China (the "PRC") ("Party
A")
AND
Sichuan CathayOnline Technologies Co. Ltd., a wholly foreign-owned
enterprise established under the laws of the PRC ("Party B")
WHEREAS:
A. Party A holds a PRC Computer Information Network International
Networking Business Operating Licence No.9923 (the "Licence"), pursuant
to which Party A is duly authorized by Sichuan Telecommunication
Administration Bureau to engage in the operation of computer
information network international networking business (the "Business")
in certain cities specified in the Licence (the "Cities") from
September 8, 1999 to March 23, 2003 (the "Term");
B. Party B is a wholly foreign-owned enterprise duly established and
approved to engage in the business of providing value added services in
relation to data processing and computer networking related business;
and
C. Party A wishes to retain certain management, consultancy and technical
assistance services of Party B in relation to the carrying out of the
Business and Party B wishes to provide such services to Party A.
IN CONSIDERATION OF mutual promises and other valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I - INTERPRETATION
1.1 In this Agreement, the following definitions apply:
(1) "Assets" means assets such as computer hardware and software required
for the Project and owned by Party B;
(2) "Asset Usage Fee" means the fees to be paid by Party A for the use of
the Assets which are calculated as amounts equal to the Depreciation
Charge for any given accounting period;
(3) "Depreciation Charge" for any given accounting period means the total
depreciation charge for that accounting period based on the total
capital expenditure of Party B in relation to the Project depreciated
over a five year period on a straight-line basis or otherwise in
accordance with generally accepted accounting principles in the PRC;
(4) "Net Profit" means the income deriving from the Project for a given
accounting period less the Operating Expenses, the Asset Usage Fee, and
the income tax and other applicable taxes (including business tax)
payable to the PRC central and/or local governments in relation to the
Project for such accounting period;
(5) "Operating Expenses" means the legitimate costs and expenses which are
allowed by the PRC Law to be deducted for enterprise income tax
purposes for any accounting period in relation to the Project and shall
include salary and other expenses for employees of Party B seconded for
the Project at the recommendation of the Committee;
(6) "PRC Law" means all written laws, regulations, ordinances, rules,
measures, provisions and guidelines enacted by the PRC central and
various local governments, including those that are temporarily in
force or on trial implementation, but excluding all internal documents
the disclosure of which is prohibited to foreign business;
(7) "Project" means the carrying out of the Business to customers
("Customers") in the Cities by Party A with the assistance of Party B
during the Term;
(8) "Services" means the following management, consultancy and technical
assistance services:
(a) value added services in relation to data processing and computer
networking related planning, designing and implementation;
(b) services relating to computer and electronic communication related
project development, consulting and management;
(c) other services required for the Project (including certain
administrative services such as collecting accounts from the Customers)
and agreed to by Party B.
(9) "Service Fees" means ninety (90) percent of the Net Profit for any
given accounting period.
1.2 Headings used herein are for ease of reference only and shall not
affect the interpretation of this Agreement.
ARTICLE II - PROVISION OF SERVICES AND USE OF ASSETS
2.1 Subject to the terms and conditions of this Agreement, Party A hereby
retains Party B for the provision of the Services and Party B agrees to
provide such Services during the Term.
2.2 In addition to the provision of Services, Party B will during the Term
provide the Assets for the use of the Project.
ARTICLE III - ACCOUNTING, FEES AND PAYMENT
3.1 A separate accounting system and records will be kept and maintained
and separate accounting reports and statements prepared for the Project
("Accounting Records"). Such accounts for the Project shall be kept in
accordance with relevant PRC Law and by using internationally
recognized, generally accepted accounting principles.
3.2 The Accounting Records shall be available for the inspection of Party B
any time reasonably requested by Party B.
3.3 For the provisions of the Services, Party B shall be paid the Service
Fees and 10% of the Net Profit shall be paid to Party A.
3.4 For the use of the Assets, Party B shall be paid the Asset Usage Fee.
ARTICLE IV - PARTY A'S OBLIGATIONS AND REPRESENTATIONS
4.1 In addition to its obligations set out in other provisions of this
Agreement, Party A agrees that Party A will:
(1) Take all actions and steps required for the successful implementation
of the Project;
(2) Use the Assets and operate and manage the Project in an efficient,
prudent and lawful manner in order to maximise the Net Profit and in
accordance with the recommendations of the Committee; and
(3) Make its best efforts, acting in good faith, to take all necessary
actions and complete all necessary procedures to renew the Term of the
Licence six (6) months prior to the expiry of the Term or at such other
advance time allowed under the PRC Law.
4.2 Party A represents and warrants that:
(1) It is an independent legal person established under the PRC Law and is
validly subsisting and has complied with all the reporting requirements
under the PRC Law;
(2) It hold all licences, approvals, permissions and authorizations issued
by competent PRC authorities required for the legally carrying out of
the Business to customers in the Cities;
(3) It has legal capacity to enter into this Agreement and has taken all
corporate actions and steps required for entering into this Agreement;
(4) It is not at present involved in any legal dispute or civil suit which
may have any effect on the Project in a substantial manner; and
(5) It is legally bound by this Agreement.
ARTICLE V - COOPERATION COMMITTEE
5.1 Upon the execution of this Agreement, the Parties shall establish a
cooperation management committee ("Committee") for the Project. The
Committee shall, at its discretion, decide upon matters of importance
to the Project. Other matters concerning the Project shall be delegated
to Party B.
5.2 The Committee shall consist of three (3) members, two (2) appointed by
Party B and one (1) by Party A (hereinafter referred to individually as
the "Member" and collectively as "Members"). One of the Members will be
appointed by Party B as the Chairman of the Committee.
5.3 The decision of the Committee shall be made at meetings of the
Committee by a simple majority vote of the Members present at such
meetings.
5.4 Unless otherwise decided by the Committee, its meetings shall be held
in Chengdu, the PRC and English language shall be the working language
of such meetings. The meeting of the Committee may be held in person or
by way of telephone conference call or other communication facilities
which enable all the Members to communicate at ease with each other. A
resolution in writing (including by fax transmission) signed by all the
Members is as valid as if it had been passed at the meeting.
5.5 The Members may attend and vote at the meeting of the Committee in
person or by appointing in writing proxies on their behalf or by
telephone or other means of communication as referred to in Section 5.5
herein.
5.6 The quorum for meetings of the Committee shall be two-thirds (2/3) of
the Members. Resolutions adopted at a meeting without a quorum shall
have no legal force or effect.
ARTICLE VI - INDEMNITY
6.1 As a separate and distinct obligation, Party A undertakes to keep Party
B harmless and to indemnify Party B from and against any and all loss,
damage or liability suffered and legal fees and costs incurred by Party
B resulting from the failure of the Project due to lack of appropriate
government authorization and permission.
6.2 For greater certainty, the obligations under Article 6.1 shall not be
affected by any invalidity or ineffectiveness of any provisions hereof
or this Agreement.
ARTICLE VII - EXCLUSIVITY AND CONFIDENTIALITY
7.1 Each of the Parties agrees that during the Term (including the extended
term) it or any of its affiliates or related agencies shall not discuss
or sign with any other party, in the PRC or abroad, any memorandum of
understanding, letter of intent, agreement or understanding in respect
of carrying out business, whether by joint venture or otherwise,
involving the Project.
7.2 The Parties recognize and affirm that any oral or written information
exchanged between them is confidential proprietary information and
undertake to keep such information in strict confidence and shall not
disclose such information to any third party or use such information
other than in connection with the Project without prior written consent
of the other party which provided such information, except, where such
information is available to the public (but not as a result of
unauthorized disclosure into the public domain of such information by
the Party receiving the information) or required to be disclosed by any
applicable law or regulations.
7.3 Except as may be required by law or the rules of any stock exchange on
which the shares of any Party or any of its affiliates are listed
and/or traded, no Party shall make any public announcement or issue any
press release concerning this Agreement and/or the Project without
prior written consent of the other Party.
ARTICLE VIII - TERM AND TERMINATION
8.1 This Agreement is valid and legally binding on the Parties for the Term
provided that this Agreement shall be automatically renewed for a
period equal to the renewed term of the Licence should the Term of the
Licence be renewed. In such case, the words "Term" shall be read to
mean a period which will end at the expiry of the Licence as renewed.
8.2 One Party may serve a termination notice on the other party not less
than seven (7) days prior to the intended date of termination to
terminate this Agreement if the other Party is adjudicated to be
bankrupt or file an application for its bankruptcy or liquidation, or
an application is filed by any third party for its bankruptcy or
liquidation.
ARTICLE IX - GENERAL PROVISIONS
9.1 This Agreement is governed by and construed in accordance with the PRC
Law.
9.2 The courts of the PRC shall have jurisdiction to adjudicate any
disputes arising from and in relation to this Agreement unless the
Parties agree to submit the disputes to an arbitration body in the PRC
for arbitration.
9.3 Any provisions hereof held by a competent court or arbitration tribunal
to be invalid or illegal shall not affect the validity of other
provisions hereof which shall remain intact and legally binding. The
Parties shall continue to implement such other provisions.
9.4 This Agreement shall be binding on and enure to the benefits of heirs,
executors, administrators, successors and assigns of the Parties hereto
provided that Party A shall not assign his rights and obligations
hereunder unless with express prior written consent of Party B.
9.5 This Agreement is prepared in both English and Chinese with 5 original
copies in each language version. Should the two versions conflict, the
English version shall prevail.
Executed by the Parties at the place and on the date first above mentioned.
Witness Sichuan Guo Xun Xin Xi Chan Ye You Xian Gong Si.
_____________________________ Per:_________________ (corporate seal)
Witness Sichuan CathayOnline Technologies Co. Ltd.
_____________________________ Per:_________________(corporate seal)
Exhibit 10.2
OFFER TO ACQUIRE TORCHMAIL.COM INC SHARES
This Agreement sets out the terms and conditions upon which CathayOnline Inc.
offers to acquire all of the issued and outstanding shares of the TorchMail.com
Inc., which currently holds an appointment as USA.NET, Inc.'s Non-Exclusive
Reseller with First to Market those Services, which terms are more particularly
defined in agreement dated July 2, 1999 between USA.NET, Inc and TorchMail.com,
Inc. and which agreement is appended hereto as Schedule A forming part of this
Agreement. This Agreement also set out the terms and conditions of the agreement
by each of the undersigned shareholders to transfer all of the shares of
TorchMail.com Inc.
1. DEFINITIONS
1.1 Definitions: As used in this Agreement, the following terms shall have
the meanings ascribed hereto:
"Agreement" means this Agreement, including all written amendments and
modifications thereof and all schedules and exhibits thereto;
"Cathay" means CathayOnline Inc., a company incorporated under the laws
of the State of Nevada;
"Cathay Shares" means the common shares of $0.001 par value;
"Closing" means the completion by Cathay and the Shareholders of Torch
of the
transaction set forth herein; "Closing Date" has the meaning set out in
section 5.1;
"Shareholders" means collectively all of the shareholders of Torch;
"Torch" means TorchMail.com Inc., as company incorporated under the
laws of the Turks & Caicos, BWI;
"Torch Shares" means the common shares of $1.00 par value;
"USA.NET" means a company incorporated under the laws of the State of
Delaware.
"USA.NET Agreement" means that Reseller Agreement contained in Schedule
A herto.
<PAGE>
2.PURCHASE AND SALE
2.1 Purchase and Sale Relying upon the representations and warranties
herein contained and subject to the terms and conditions hereof, Cathay
hereby offers to acquire from each of the Shareholders and each of the
Shareholders hereby agrees to sell to Cathay that number of Torch
Shares held by each of the Shareholders representing in the aggregate
all of the issued and outstanding Shares of Torch.
2.2 Consideration : In consideration for the sale of the Torch Shares to
Cathay, Cathay agrees to issue Cathay Shares to the Shareholders pro
rata in accordance with the percentage of Torch Shares held by each
Shareholder as set forth as Schedule B, attached hereto and forming
part of this Agreement.
2.3 Cathay Share Resale Restrictions: Each of the Shareholders acknowledges
that:
a) Cathay is a non reporting issuer list on NASDAQ OTC Bulletin
Board; and
B) THE CATHAY SHARES HAVE NOT BEEN AND WILL NO BE REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE
SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED
("1933 ACT') AND REGULATION S OF THE RULES AND REGULATIONS
PROMULGATED THEREUNDER, AND MAY NOT BE SOLD OR OFFERED WITHIN
THE UNITED STATES (AS DEFINED IN REGULATION S) EXCEPT PURSUANT
TO THE REGISTRATION UNDER OF AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE "1933 ACT".
c) The Cathay Shares will be subject to a hold period imposed
under the appropriate securities laws and certificates
representing the Cathay Shares will be restricted with a
legend in respect to such hold period; and
d) The Cathay Shares may, pursuant to requirements imposed by
applicable securities regulatory authorities or by virtue of a
Shareholder becoming a "control person", as defined under the
appropriate US Securities Act, be subject to restrictions in
terms of issuance, escrow arrangements, resale or such other
limitations as may be mandated by such securities regulatory
authority; and
e) The Cathay Shares will be issued in accordance with the rules
and regulations of the Securities and Exchange Commission
(SEC), under the Securities Act of 1933 as amended.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES
3.1 Representations and Warranties of Sbareholder~: Each Shareholder
represents and warrants, in respect of that number of Torch Shares held
by him as set forth in Schedule B, to and in favour of Cathay as
follows and acknowledges that Cathay is relying upon such
representations and warranties in consummating the transaction
contemplated by this Agreement.
a) Such Shareholder is, or shall at the Closing Date be, the
registered and beneficial owner of that number of Torch Shares
set forth in Schedule B with good and marketable title
thereto, free and clear of all charges, liens or encumbrances,
any option or similar right or right of first refusal or any
other right to acquire any such Torch Shares.
b) Such Shareholder, if an individual, has the full power and
authority to transfer its Torch Shares to Cathay without
restriction;
c) Such Shareholder has the full power and authority to transfer
its Torch Shares to Cathay and all necessary corporate action
has been taken and authority granted to allow such
Shareholders to enter into this Agreement and to complete the
transaction contemplated hereby;
d) This Agreement has been duly authorized, executed, and
delivered by such Shareholder, constitutes a legal and binding
obligation of such Shareholder in accordance with these terms;
3.2 Representations and Warranties of Cathay: Cathay represents and
warrants to and in favour of each of the Shareholders as follows and
acknowledges that each of the Shareholders in relying upon such
representations and warranties in consummating the transaction
contemplated by this Agreement:
a) Cathay is a corporation incorporated in the State of Nevada
and trades on the NASDAQ OTC Bulletin Board under the symbol
"CAOL";
b) Cathay has the corporate power and authority to enter into
this Agreement and to perform its obligations hereunder:
c) The Cathay Shares will in accordance with Schedule B, be
validly issued as fully paid and non-assessable Shares in the
capital of Cathay; and
d) The execution and delivery of this Agreement and the
completion of the transaction herein will, upon approval of
the Board of Directors constitute a valid and binding
obligation of Cathay enforceable against it in accordance with
its terms.
4. CONDITION OF CLOSING
The obligation of Cathay to complete the transaction as contemplated herein
shall be subject to the following conditions:
a) This Agreement has been duly executed by each of the
Shareholders.
<PAGE>
b) All representatives and warranties of the Shareholders set
forth in section 3.1 shall be true and correct as at the
Closing Date;
c) Torch shall have no outstanding debts or liabilities a the
Closing Date;
d) Completion of due diligence by Cathay with results
satisfactory to Cathay, in its absolute discretion. Torch
shall provide and deliver in timely manner to Cathay any and
all reasonable requests for information, documentation
(including financial information) to enable Cathay complete
its stated due diligence.
5. CLOSING
5.1 Closing: The closing shall take place on the third business day
following the notice from Cathay to Torch stating that Cathay has
completed its due diligence to its sole and absolute satisfaction and
is ready to proceed to Close the transaction as contemplated herein;
5.2 Delivery by the Shareholders: At the Closing, each of the Shareholders
shall deliver to Cathay the following:
a) A certified true copy of resolution of the Board of Directors
of Torch evidencing its approval to this Agreement and the
transactions contemplated there under;
b) Share certificate or certificates for each of the Shareholders
and representation in the aggregate all of the Torch Shares
duly canceled:
c) A new share certificate issued by the Torch representing the
Torch Shares registered in the name of Cathay, together with
confirmation of registration of Cathay as the holder of all
the Torch Shares; and
d) Such other documents, certificates and legal opinions that are
in the opinion of the legal counsel of Cathay, reasonably
required to complete the transaction contemplated here under.
5.3 Delivery by Cathay: At the closing, Cathay shall deliver to each of the
Shareholders the following:
a) a certified true copy of resolution of the Board of Directors
of Cathay evidencing their approval of this Agreement and the
transaction contemplated hereunder;
b) A share certificate or certificates in the name of each
Shareholder or in such name or names as the Shareholder may
direct, representing that number of Cathay Shares as is listed
for each Shareholder in Schedule "B" attached hereto.
c) Such other documents, certificates and legal opinions that
are, in the opinion of legal counsel of Torch or the
Shareholders, reasonably required to complete the transaction
hereunder.
<PAGE>
6.0 GENERAL
6.1 Binding Agreement: Upon acceptance of the terms of this
Agreement by the parties hereto, this Agreement shall be
deemed to constitute and shall be a legally valid and binding
Agreement.
6.2 Further Assurances: The parties hereto agree to execute and
deliver or cause to be delivered all such further documents
and instruments and do all such acts and things as either
party may reasonably request to give full effect to the terms
and conditions set forth or referred to herein.
6.3 Entire Agreement This Agreement constitutes the entire
Agreement between the parties hereto and in respect of the
matters referred to herein and there are no representations,
warranties, convenent, agreements expressed or implied,
collateral hereto other than as expressly set forth or
referred to herein.
6.4 Time of the Essence: Time shall be of the essence to this
Agreement.
6.5 Legal Costs: Legal costs incurred in connection with the
preparation of the Agreement and the completion of the
transaction contemplated herein shall be for the account of
each party having incurred such cost.
6.6 Applicable laws and Attornment: This Agreement shall be
governed and interpreted in accordance with the laws of the
State of Nevada and the parties hereto irrevocably attom to
the non-exclusive jurisdiction of the courts of the State of
Nevada.
6.7 Enurement: This Agreement shall ensure to the benefit of and
be binding upon the parties hereto and their respective
successors and assigns.
6.8 Counterparts: This Agreement may be executed in any number of
counterparts with the same effect as if all the parties hereto
have signed the same agreement and all counterparts will be
construed together and constitute one and the same instrument.
6.9 Notice: Any notice, request, demand or other communication to
be given under this Agreement shall be in writing and shall be
delivered by hand or by telecopy to the party at the following
respective addresses:
6.9.1 To Cathay:
Attention: President
543 -- 302 Granville Street
Vancouver, B.C.
Canada V6C 1X8
Facsimile: (604) 688-1436
<PAGE>
6.9.2 To Torch:
Attention: President
McLean Building
P.O. Box 62
2001 Leeward Highway
Providenciales
Turks & Caicos, BWI
Facsimile: (649) 946-4484
The foregoing is hereby accepted and agreed to as of the 2'~" day of July, 1999.
CATHAYONLINE INC.
Per:
-----------------------------------------
Brian W. Ransom - Authorized Signatory
TORCHMAIL.COM, [NC.
Per:
-----------------------------------------
Andrew Meade -- Director
SHAREHOLDER
Per:
-----------------------------------------
Michele Parker
<PAGE>
Schedule B
Names of the Shareholders and the number of Torch Shares held by each:
NAME No. of Shares Held
- -------------------------------------------------------------------------------
Michelle Parker
Cathay shall release to the Shareholders on a pro rata basis Cathay Shares in
accordance with the following schedule:
A.
o On Closing of the Agreement: 2,500,000 Cathay Shares;
o Upon the resale of 360,000 Seats (as defined in Schedule A) or
more as called for under 3.3 (a) of Schedule A, Cathay shall
issue further 2,500,000 Cathay Shares;
o Upon the resale of 500,000 Seats or more by Torch, Cathay
shall further issue 1,250,000 Cathay Shares;
o Upon the resale of 750,000 Seats or more by Torch, Cathay
shall issue further 1,250,000 Cathay Shares.
B. In addition to the issuance of the above Cathay Shares, at Closing
Cathay shall pay US$ 10,000 to the Shareholders.
C. The Shareholders shall receive monetary compensation in respect of
resale of the Seats. This monetary compensation shall be in accordance
with the following schedule:
o Upon the resale of 35,000 Seats and up to the resale of 99,999
Seats by Torch, Torch shall pay to the Shareholders $0.01 per
Seat per month for each and every Seat.
o Upon the resale of 100,000 Seats and up to the resale of
199,999 Seats by Torch, Torch shall pay to the Shareholders
$0.03 per Seat per month for each and every Seat.
o Upon the resale of 200,000 Seats and up to the resale of
299,999 Seats by Torch, Torch shall pay to the Shareholders
$0.05 per Seat per month for each and every Seat.
<PAGE>
o Upon the resale of 300,000 Seats and up to the resale of
399,999 Seats by Torch, Torch shall pay to the Shareholders
$0.07 per Seat per month for each and every Seat.
o Upon the resale of 400,000 or more Seats by Torch, Torch shall
pay to the Shareholders $0.10 per Seat per month for each and
every Seat.
It is hereby expressly agreed, acknowledged and understood that Cathay's
obligation to issue Cathay Shares and make the payments under (C) above are
solely predicated upon Torch achieving the various sales targets as set forth in
the Reseller Agreement continued in Schedule A of this Agreement.
EXHIBIT 10.3
Reseller Agreement between TorchMail.com Inc. and USA.NET Inc.
THIS AGREEMENT HAS BEEN SUBMITTED TO THE SECURITIES AND EXCHANGE COMMISSION
UNDER SEPARATE COVER WITH A REQUEST THAT THE EXHIBIT BE GRANTED CONFIDENTIAL
TREATMENT.
Exhibit 10.4
SHARE PURCHASE AGREEMENT
AGREEMENT made as of November 30, 1999
BETWEEN
CATHAYONLINE TECHNOLOGIES (HONG KONG) LIMITED of Suite 1103, Aon China
Building, 29 Queen's Road Central, Hong Kong, a company duly
incorporated under the laws of Hong Kong Special Administrative Region
(the "Vendor");
AND
MOORGATE MANAGEMENT INC. of Vancouver, Canada, a company duly
incorporated under the laws of British Columbia, Canada (the
"Purchaser")
WHEREAS:
A. The Vendor is the sole beneficial owner of all the issued share capital
of China Lottery (Hong Kong) Limited;
B. China Lottery (Hong Kong) Limited is a company duly incorporated under
the laws of Hong Kong Special Administrative Region; and
C. China Lottery (Hong Kong) Limited beneficially owns certain lottery business
in China.
NOW THEREFORE in consideration of the mutual covenants in this Agreement and of
other consideration, the receipt and sufficiency of which are acknowledged, the
parties agree as follows:
<PAGE>
1. INTERPRETATION
1.1 Definitions
In this Agreement,
"Business Day" means any day of the week other than a Saturday or
Sunday on which banks are open for business in HKSAR;
"Company" means China Lottery (Hong Kong) Limited, a company duly
incorporated under the laws of HKSAR;
"Effective Date" means January 31, 2000, or such other date as the
parties hereto agree;
"Effective Time" means 10:30 a.m. on the Effective Date or such other
time on the Effective Date as the parties hereto may agree;
"Encumbrance" means any encumbrance of any kind whatever, choate or
inchoate, and includes, without limitation, a security interest,
mortgage, lien, hypothec, pledge, hypothecation, charge, trust or
deemed trust, whether contractual, statutory or otherwise arising;
"HK$" means Hong Kong dollars;
"HKSAR" means Hong Kong Special Administrative Region;
"Person" includes an individual, corporation, partnership, joint
venture, trust, syndicate, unincorporated organization, the Crown or
any agency or instrumentality thereof or any other entity recognized by
law;
"Purchase Price" has the meaning ascribed thereto in Section 2.2;
"Purchased Shares" means all of the issued ordinary shares of the
Company beneficially owned by the Vendor as at the Effective Time,
being 2 ordinary shares of the Company of HK$1.00 each;
"US$" means United States dollars.
2. PURCHASE AND SALE OF SHARES
2.1 Purchase and Sale of Shares
Subject to the terms and conditions of this Agreement, the Vendor
hereby agrees to sell and transfer the Purchased Shares to the
Purchaser at the Effective Time on the Effective Date, free and clear
of all Encumbrances and the Purchaser agrees to purchase from the
Vendor the Purchased Shares.
2.2 Purchase Price
The purchase price (the "Purchase Price") for the Purchased Shares
shall be US$150,000. The Purchaser shall pay the Purchase Price by
cashier's order as provided in Section 3.1 or otherwise directed by the
Vendor.
3. SATISFACTION OF PURCHASE PRICE
3.1 Cashier's Order
In consideration of the transfer by the Vendor to the Purchaser of the
Purchased Shares, the Purchaser agrees to pay to the Vendor the
Purchase Price by means of a Cashier's Order drawn in favour of the
Vendor or in the form of other consideration acceptable to the Vendor.
The parties acknowledge that the Purchase Price of US$150,000
represents the fair value of the Purchased Shares as mutually agreed by
the parties hereto.
4. CONDITIONS PRECEDENT
4.1 Conditions for the Benefit of the Purchaser. The purchase and sale of
the Purchased Shares are subject to the following conditions to be
fulfilled or performed at or prior to the Effective Time, which
conditions are for the exclusive benefit of the Purchaser and may be
waived in whole or in part by the Purchaser in its sole discretion:
(a) Truth of Representations and Warranties. The representations
and warranties of the Vendor for the benefit of the Purchaser
contained in this Agreement shall be true and correct as at
the Effective Time with the same force and effect as if such
representations and warranties had been made on and as at such
time.
(b) Performance of Covenants. The Vendor shall have fulfilled or
complied with all covenants herein contained required to be
performed by them at or prior to the Effective Time.
(c) Consents and Authorizations. All relevant consents and
authorizations required (if any) in respect of the transaction
contemplated hereunder shall have been obtained on terms
acceptable to the Purchaser acting reasonably.
(d) Deliveries. The Vendor shall have delivered or caused to be
delivered to the Purchaser the following:
(i) instruments of transfers and sold notes in respect of
the Purchased Shares in favour of the Purchaser
and/or its nominee executed by the Vendor and/or its
nominee;
(ii) new share certificate representing the Purchased
Shares in the name of the Purchaser and/or its
nominee;
(iii) a cashier's order drawn in favour of the government
of HKSAR in the sum of HK$752.31 representing the
stamp duty payable on the sale of the Purchased
Shares by the Vendor;
(iv) certified copies of (i) all resolutions of the board
of directors of the Vendor approving the entering
into of this Agreement and the completion of all
transactions contemplated hereunder; and (ii) all
other instruments evidencing necessary corporate
action of the Vendor, if any, with respect to such
matters; and,
(v) the completion by the Purchaser prior to the
Effective Date of such due diligence investigations
as the Purchaser or its advisors, accountants and
solicitors deem appropriate and the results thereof
being to the satisfaction of the Purchaser, as the
Purchaser in its sole desirability may determine.
4.2 Conditions for the Benefit of the Vendor. The purchase and sale of the
Purchased Shares are subject to the following conditions to be
fulfilled or performed at or prior to the Effective Time, which
conditions are for the exclusive benefit of the Vendor and may be
waived by the Vendor in its sole discretion:
(a) Truth of Representations and Warranties. The representations
and warranties of the Purchaser for the benefit of the Vendor
contained in this Agreement shall be true and correct as at
the Effective Time with the same force and effect as if such
representations and warranties had been made on and as at such
time.
(b) Performance of Covenants. The Purchaser shall have fulfilled
or complied with all covenants herein contained required to be
performed by it at or prior to the Effective Time.
(c) Consents and Authorizations. All relevant consents and
authorizations required (if any) in respect of the transaction
contemplated hereunder shall have been obtained on terms
acceptable to the Vendor acting reasonably.
(d) Deliveries. The Purchaser shall have delivered to the Vendor
the following:
(i) a cashier's order drawn in favour of the Vendor in
the sum of US$150,000 representing the Purchase Price
or other equal consideration; and
(ii) certified copies of (i) all resolutions of the board
of directors of the Purchaser approving the entering
into of this Agreement and the completion of all
transactions contemplated hereunder; and (ii) all
other instruments evidencing necessary corporate
action of the Purchaser, if any, with respect to such
matters.
4.3 The Vendor will cause a meeting of the board of directors of the
Company to be held at which resolutions shall be passed to:
(a) approve and register (subject to stamping) the transfer of the
Purchased Shares and to issue new share certificate for the
Purchased Shares in the name of the Purchaser;
(b) authorize such other matters as reasonably requested by the
Purchaser to give effect to the transactions herein
contemplated; and,
(c) the Vendor covenants to make available to the Purchaser all
data and information that it has relating to the Company and
its business or officers.
5. REPRESENTATIONS AND WARRANTIES
5.1 Representations and Warranties of the Vendor
The Vendor represents and warrants to the Purchaser that :
(a) it is a corporation duly incorporated, organized and validly
subsisting under the laws of HKSAR;
(b) it has the corporate power and capacity to, and has taken all
corporate action necessary to, enter into, execute, deliver
and perform its obligations under this Agreement;
(c) it is the sole beneficial owner of the Purchased Shares and
the Purchaser shall acquire from it good title to the
Purchased Shares free and clear of all Encumbrances;
(d) this Agreement constitutes a valid and binding obligation
enforceable against it in accordance with its terms, provided
that enforcement may be limited by bankruptcy, insolvency,
liquidation, reorganization, reconstruction and other laws,
whether or not similar, generally affecting enforceability of
creditors' rights and that equitable remedies such as specific
performance and injunctive relief are in the discretion of the
court from which they are sought;
(e) no Person other than the Purchaser has any agreement, option,
claim or right of any kind capable of becoming an agreement
for the transfer to that Person of any of the Purchased Shares
or any other security of the Company; and
(f) the authorized capital of the Company consists of HK$10,000
divided into 10,000 ordinary shares of HK$1.00 each, of which
only the Purchased Shares have been duly issued and are
outstanding as fully paid shares.
5.2 Representations and Warranties of the Purchaser
The Purchaser represents and warrants to the Vendor that :
(a) the Purchaser is a corporation duly incorporated, organized
and validly subsisting under the laws of Nevada, the United
States of America;
(b) the Purchaser has the corporate power and capacity to, and has
taken all corporate power and capacity to, and has taken all
corporate action necessary to, enter into, execute, deliver
and perform its obligations under this Agreement; and
(c) this Agreement constitutes a valid and binding obligation of
the Purchaser enforceable against it in accordance with its
terms, provided that enforcement may be limited by bankruptcy,
insolvency, liquidation, reorganization, reconstruction and
other laws, whether or not similar, generally affecting
enforceability of creditors' rights and that equitable
remedies such as specific performance and injunctive relief
are in the discretion of the court from which they are sought.
5.3 Survival
The representations and warranties set forth in Sections 5.1 and 5.2
shall survive the sale and transfer of the Purchased Shares for a
period of 1 year after the date hereof. No claim in respect of any
misrepresentation or breach of warranty hereunder shall be made by any
party more than 1 year after the date hereof.
6. General
6.1 Notice
Any notice, demand or other communication (in this section, a "notice")
required or permitted to be given or made hereunder shall be in writing
and shall be sufficiently given or made if :
(a) delivered in person (including by commercial courier) during
normal business hours on a Business Day and left with a
receptionist or other responsible employee of the relevant
party at the applicable address set forth below;
(b) sent by prepaid first class mail; or
(c) sent by any electronic means of sending messages, including
telex or facsimile transmission which produces a paper record
("Electronic Transmission"), during normal business hours on a
Business Day charges prepaid and confirmed by prepaid first
class mail;
addressed
(a) in the case of a notice to the Vendor, to it at :
CathayOnline Inc.
Suite 1000, 6 East 45th Street
New York, New York
U.S.A. 10017
Attention : President
Fax: 1-212-867-6908
And copied to:
Stikeman, Elliott
Suite 1103 Aon China Building
29 Queen's Road Central
Hong Kong
Attention: Mr. Guanxi Zheng
Fax: (852) 2845-9076
(b) and in the case of a notice to the Purchaser, to it at :
Moorgate Management Inc.
Suite 303 - 543 Granville St.
Vancouver, B.C.
Canada V6C 1X8
Attention : President
Fax:
Each notice sent in accordance with this section shall be deemed to
have been received:
(a) on the day it was delivered;
(b) on the third Business Day after it was mailed (excluding each
Business Day during which there existed any general or
rotating interruption of postal services due to strike,
lockout or other cause); or
(c) on the same day that it was sent by Electronic Transmission,
or on the first Business Day thereafter if the day on which it
was sent by Electronic Transmission was not a Business Day.
The Vendor or the Purchaser may change its address for notice by
notifying the other party of such changes.
6.2 Further Assurances
The Vendor and the Purchaser shall do such acts and execute such
further documents, conveyances, deeds, assignments, transfers and the
like, and will cause the doing of such acts and the execution of such
further documents as are within their power, as either the Vendor or
the Purchaser may in writing at any time and from time to time
reasonably request be done or executed, in order to give full effect to
the provisions of this Agreement.
6.3 Costs and Expenses
(a) Each party shall pay its own costs and expenses in relation to
the negotiations leading up to the sale and purchase of the
Purchased Shares and to the preparation and execution of this
Agreement If for any reason the sale and purchase of the
Purchased Shares does not complete, each party shall be
responsible for its own costs only.
(b) The Vendor shall pay all stamp duty on the sale of the Purchased Shares.
(c) The Purchaser shall pay all stamp duty on the purchase of the Purchased
Shares.
6.4 Time of Essence
Time shall be of the essence of each provision of this Agreement.
6.5 Number
Words expressed in the singular include the plural and vice-versa,
except when the context clearly indicates to the contrary.
6.6 Headings
The division of this Agreement into articles and sections and the
insertion of headings are for convenience of reference only and shall
not affect the construction or interpretation of this Agreement. The
article and section headings in this Agreement are not intended to be
full or precise descriptions of the text to which they refer and shall
not be considered part of this Agreement.
6.7 Governing Law and Jurisdiction
(a) This Agreement shall be governed by, and construed and
enforced in accordance with, the laws in force in the HKSAR.
Each party irrevocably submits to the non-exclusive
jurisdiction of the courts of HKSAR with respect to any matter
arising hereunder or related hereto.
(b) The Purchaser irrevocably appoints ____________________ as its
agent to receive and acknowledge on its behalf service of any
writ, summons, order, judgment or other notice of legal
process in HKSAR in connection with or arising out of this
Agreement. If for any reason the aforementioned agent of the
Purchaser no longer services as agent of the Purchaser, the
Purchaser shall promptly appoint a successor agent in HKSAR
and notify the Vendor accordingly, provided that until the
Vendor receive such notification of change of agent, it shall
be entitled to treat the aforementioned agent as the agent of
the Purchaser.
(c) Each of the parties have agrees that any legal process in
connection with or arising out of this Agreement shall be
sufficiently served on it if delivered to the Vendor at the
abovementioned address or to the Purchaser's agent at such
agent's address for the time being in HKSAR whether or not
such agent gives notice thereof to the Purchaser.
6.8 Counterparts
This Agreement may be executed in any number of counterparts. Each
executed counterpart shall be deemed to be an original. All executed
counterparts taken together shall constitute one agreement.
6.9 Successors and Assigns
This Agreement shall enure to the benefit of and be binding upon the
Vendor and its successors and assigns and upon the Purchaser and its
successors and assigns. The successors of either party include its
successors by amalgamation The Purchaser shall be entitled to assign
this Agreement without the consent of the Vendor, and upon notice to
the Vendor such assignment, the Purchaser shall be deemed to be
relieved of all obligations hereunder.
IN WITNESS WHEREOF the parties have executed this Agreement.
CATHAYONLINE TECHNOLOGIES (HONG
KONG) LIMITED
by :
Name :
Title :
by :
Name :
Title :
MOORGATE MANAGEMENT INC.
by :
Name :
Title :
by :
Name :
Title:
Exhibit 10.5
LETTER OF INTENT
THIS LETTER OF INTENT is made as of this 24TH day of August. 1999.
BETWEEN
TorchMail.com, Inc.
C/o Suite 302 543 Granville Street
Vancouver. British Columbia
Canada V6C 1X8
A company incorporated in
(hereinafter individually and collectively referred to as "the Recipient")
OF THE FIRST PART
AND:
Clean Way Corp.
Suite #200 N 1200 W. Pender Street
Vancouver, British Columbia
Canada V6E 2S9
a company incorporated In NEVADA
(hereinafter referred to as the Provider)
OF THE SECOND PART
WHEREAS:
A. The Provider has the right to provide, as the result of an agreement it has
with Standard and Poors Corporation (hereinafter "S&P") to the Recipient, live
end deOayed finencial quotes (a full list of which is attached hereto as
Schedule NAO) and financial news services as provided by S&P and itOs
subsidiaries (all of the services listed in the schedules attached hereto In
addition to the news services and other services provided by the Provider, as
mentioned hereinunder. hereinafter are collectively reterred to as (he
"Services").
B. The Recipient markets and promotes USA.net's e-mail and advanced messaging
services under (he name TorchMail, both as a freeN e-mail product in addition to
the advance messaging solutions to fulfill the needs of corpcwations using
e-mail.
C. The Redpient desires to receive, and the Providers desires to provide, live
and delayed stock quotes, portfolios services and other Services as provided by
the Provider. D. The Provider and the Recipient (the "Parties") wish to enteiO
into this Letter of Intent (the Letter of Intenr or "Agreement") to define th&r
respective rights 2nd responsibilities in connection with the transaction
proposed herein.
<PAGE>
NOW THEREFORE, in consideration of the mutual covenants hereinafter contained
and other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged. the parties hereto agree as follows:
ARTICLE 1
TERMS
1.1 The Provider shaft be responsible for providing:
1.1.1 on. or about. 6 weeks after the signing of a Definitive Agreement by
the Parties tweto, real time quotes from all of the North American
exchanges, delayed quotes es provided for in Schedule B and news services
as provided through S&P and Comtex.
1.1.2 a web page customized to the requirements and needs of TorchMail
(hereinafter the "Web Page"):
1.1.3 explore the development of investment and linanclal related, Chinese
language, video streamed "TV" shows;
1.1.4 development of a user customizable, portfolio page with the
integration of automated e-mail, pager and cell phone notiflcatians to the
user concerning any Ouser establishedu share price changes, in a format
mutually acceptabOe to the Parties;
1.1.5 as available, real time quotes for other financial markets, as listed
in Schedule B;
1.1.6as available, the news services translated into the Chinese and other
languages.
1.2 The Recipient shall be responsible for providing:
1.2.1 directly or through third parties, paying advertisers on the Web Page
and (he customized portfolio pages (the Recipient and the Provider shall
work together In the provision o( paying advertisers on the Web Page and
both Parties agree that it may be mutually beneficial if the Provider is
responsIbOe to acquiring the paying advertiserS to the Web Page);
1.2.2 permitting portions of the content and news to be provided, on an
Oopt
in" basis, to those subscribers of TorchMailOs free e-mail service who so
desire;
1.2.3 permit there to be sign-up and opt-in forms within TorchMadOs free
email service to enable TorchMails subscribers to subscribe to the Services
prnvided by the Provider;
1.3 The Recipient and the Provider shall share in the revenues generated by
the banner advertising, as provided on the Web Page and as provided on the
customized portfolio pages. 50N50. after the deduction of fees and
commissions paid to obtain advertisers und the direct coats of exchange
tees, quote rees payable to 8&P and c-mail costs;
<PAGE>
1.4 The Recipient and the Provider shall share in the revenues generated by
the opt-in lists and the tmrent(ngO thereof, 50 50. after the deduction of
fees and commissions paid to obtain advertisers;
1.5 The Term of the Definitive Agreement shall be for at te?st five years.
subject to termin?tion clauses in the event o(: 1.5.1 Non performance by
one of the Parties hereto, such specific non performance dauses to be
negotiated and placed in the Definitive Agreement; and, 1.5.2 The Provider
being unable to provide the Services due to termination of itOs agreement
with S&P, under the terms of that ogreement. in which case the Provider
shall immediately notify, with sufficient notice, the Recipient that it
shall not be able to provide such Services.
1.6 The Recipient will have the first right of refusal to, on terms
acceptabOe to the Recipient, provide Its free email or branded email, to
any and all other sites on which the Provider provides its services. In
instances in which the Recipient charges for those seMces, the Recipient
will share the revenues, net of costs, with the Provider.
1.7 The Recipient and the Provider agree to promote each others Services
and products, as may be feasible, and provide such leads 10 the other Party
ARTICLE 2
GENERAL PROVISIONS
2.1. Term. This Agreement shall continue in force until the first to occur
of: 2.1 .1. The entering into of a definitive agreement (the "Definitive
AgreementO) between the Parties; and, 2.1.2. The 15th of September. 1999.
2.2. Time of Essence. Time shall be o( the essence hereof
2.3 Confidentiality. The Provider has previously executed a Confidentiality
and Non-Disclosure Agreement which Is attached hereto as Schedule C and is
deemed to be Incorporated in fuI$ as part of this Agreement.
2.4 Entire Agreement. Except as otherwise expressly set forth herein, this
Agreement embodies me complete agreement and understanding among the
parties hereto with respect to the subject matter hereof and supersedes and
pre-empts any prior understandings, agreements or representations by or
among the parties or any other thareholder, written or oral, which may have
related to the subject matter hereof in any way.
2.5 News Releases. The Parties hereto sh,II not i5sue any News Release(s)
or in any manner use the other Partys name, trademarks, service marks or
Other documentation without the specific written permission of (he other
Party.
2.6 Counterparts. This Agreement may be signed in one or more counterparts,
which
<PAGE>
together shall constitute one instrument. Delivery of counterparts may be
effected by facsimile transmIssion thereof.
IN WITNESS WHEREOF, this Agreement has been executed by the parties as ol the
date first above wdtten.
CLEAN WAY CORP.
By:
Authorized Signatory
TORCHMAIL.COM, INC.
By:
Authorized Signatory
Exhibit 10.6
Employment Agreement
AGREEMENT dated 26th day of October 1999, between CathayOnline Inc. of Nevada
("CathayOnline" or "Employer"), and Mr. Brian W. Ransom, a Canadian citizen
("Mr. RANSOM" or the "Executive").
WHEREAS:
I. Employer desires to retain the services of Mr. RANSOM as the Chief
Executive Officer and President of the company on terms and conditions
provided in this Agreement;
II. Mr. RANSOM desires to render such services to the Employer on the terms
and conditions provided in this Agreement;
III. TorchMail.com, Inc. is a wholly owned subsidiary of CathayOnline Inc..
THEREFORE it is agreed as follows:
1. Employment and Duties. During the Term (as defined hereinafter) of this
Agreement, Mr. RANSOM agrees to serve as Chief Executive Officer and
President of CathayOnline, performing such duties and services during
the Term and such other duties and servies as the Board of Directors of
CathayOnline (the "Board") may reasonably request. Mr. RANSOM hereby
accepts such engagement, all upon and subject to the terms and
conditions hereinafter set forth.
During the Term, Mr. RANSOM shall devote reasonable attention, time
during normal business hours (exclusive of normal holidays, vacations
and periods of sickness or disability) and energy to providing the
services requested by CathayOnline pursuant to this Section 1 hereof.
During the Term it shall not be a violation of this Agreement for Mr.
RANSOM to service on corporate, civic or charitable boards, committees
and manage personal investments, so long as such activities do not
significantly interfere with the performance of Mr. RANSOM's
responsibilities as an employee of CathayOnline in accordance with this
Agreement.
2. Term. Subject to earlier termination as provided hereinafter, and also
subject to 3.b) below, the term of Mr. RANSOM's employmentthis
Agreement shall begin on the 26th day of October, 1999 and shall be on
a 2 (two) year renewable basis as agreed by both parties.
3. Compensation. In exchange for the services that Mr. RANSOM provides to
CathayOnline and its subsidiaries, Mr. RANSOM shall be remunerated in
the following manner:
a) Annual compensation equal to US$60,000 paid monthly in equal
installments, to be retroactive from the 1st of July;
b) To, upon the resale of 35,000 Seats, a Seat being defined as
an individual web based professional messaging email account
as provided by USA.NET, and up to the resale of 99,999 Seats
by TorchMail.com, Inc. ("TorchMail"), CathayOnline and
TorchMail shall pay to Mr. RANSOM US$0.01 per Seat per month
for each and every Seat. Upon the resale of 100,000 Seats and
up to the resale of 199,999 Seats by TorchMail, CathayOnline
and TorchMail shall pay to Mr. RANSOM US$0.03 per Seat per
month for each and every Seat. Upon the resale of 200,000
Seats and up to the resale of 299,999 Seats by TorchMail,
CathayOnline and TorchMail shall pay to Mr. RANSOM $0.05 per
Seat per month for each and every Seat. Upon the resale of
300,000 Seats and up to the resale of 399,999 Seats by
TorchMail, CathayOnline and TorchMail shall pay to Mr. RANSOM
$0.07 per Seat per month for each and every Seat. Upon the
resale of 400,000 or more Seats by TorchMail, CathayOnline and
TorchMail shall pay to Mr. RANSOM $0.10 per Seat per month for
each and every Seat. Such payments by CathayOnline and
TorchMail shall be made to Mr. RANSOM no later than the 10th
day after the month end. Such benefits will continue beyond
the Term of Mr. RANSOM's employment with CathayOnline and
shall continue to be paid to Mr. RANSOM or per the direction
of Mr. RANSOM.
c) Issue issue to the Employee a warrant (s), in such names and
denominations as Employees reasonably shall request, the form
of which is attached hereto as Exhibit A ("Warrant"), to
purchase up to an aggregate of 15,000,000 shares (the "Warrant
Shares") of the Company's common stock, par value $.001 per
share ("Common Stock").
i) Provisions Governing the Warrant and the Warrant Shares. The following
provisions shall govern the Warrant and the Warrant Shares:
(a) Neither the Warrant nor the Warrant Shares have been
registered under the Act, or registered or qualified under any
state securities laws and that such Warrant and Warrant Shares
are and will be restricted securities as such term is defined
under the Act and that the Warrant and the Warrant Shares are
being and will have been issued in a transaction exempt from
the registration requirements of the Act and the registration
or qualification requirements of applicable state securities
laws. The Warrant and the Warrant Shares are being and will
have been acquired by the Employee for investment purposes
only and not with a view to distribution or resale and may not
be made subject to a security interest, pledged, hypothecated,
sold or otherwise transferred unless such Warrant and Warrant
Shares are subsequently registered under the Act and qualified
or registered under applicable state securities laws or an
exemption from registration and qualification is available,
and that, except as otherwise provided in this Agreement, the
Company is under no obligation to register or qualify the
Shares. The Company may require an opinion of the Employee's
counsel prior to authorizing the registration of any transfer
of the Warrant or the Warrant Shares in reliance on an
exemption from registration or qualification to the effect
that such transfer is exempt from such registration or
qualification. Certificates evidencing the Warrant and the
Warrant Shares, if and when issued (and if such Warrant Shares
have not been registered at the time of issuance), shall bear
a Securities and Exchange Commission ("SEC") restrictive
legend and any such other legends as required by applicable
federal and state laws and the transfer agent for the
Company's class of Common Stock shall be instructed to place a
stop transfer order on the stock books of the Company
restricting the transfer of the Warrant Shares.
(b) The Company has agreed to register the Warrant Shares as
provided in the Warrant and the Employee agrees to abide by
all terms of the Warrant with respect to the resale of the
Warrant Shares after registration thereof under the Act.
(c) The Employee and the Company agree to execute such other
documents and instruments as counsel for the Company
reasonably deems necessary to effect the compliance of the
issuance of the Shares with federal and state laws.
(d) The Company covenants and agrees that the Warrant shall, upon
issuance, in accordance with the terms hereof, be legally and
validly issued and outstanding and fully-paid and
non-assessable securities of the Company.
d) To receive other such bonuses and compensation as the Board may so
dictate.
4. Disclosure of information. Mr. RANSOM acknowledges that the list of
CathayOnline's customers, as CathayOnline may determine from time to
time, is a valuable, special, and unique asset of CathayOnline's
business. Mr. RANSOM shall not, during and after the term of his
employment, disclose all or any part of CathayOnline's customer list to
any person, firm, corporation, association, or other entity unless so
required by law.
5. Expenses. Mr. RANSOM may incur reasonable budgeted expenses for
promoting CathayOnline's business, including expenses for
entertainment, travel, telephone, and similar items, including business
class air travel and first class hotel accommodations. CathayOnline
will reimburse Mr. RANSOM for all such expenses upon Mr. RANSOM 's
periodic presentation of an itemized account of such expenditures. Mr.
RANSOM shall participate in the budgeting process and CathayOnline
shall have final discretion as to the reasonableness of expenses
incurred.
6. Termination without cause. CathayOnline may, without cause, terminate
this Agreement at any time by giving 60 days' written notice to Mr.
RANSOM . In that event, Mr. RANSOM, if requested by CathayOnline, shall
continue to render his services, and shall be paid his regular
compensation up to the date of termination. Mr. RANSOM may, without
cause, terminate this Agreement by giving 60 days' written notice to
CathayOnline. In such event, Mr. RANSOM shall continue to render his
services and shall be paid his regular compensation up to the date of
termination. This clause 7 is subject to clause 3 (b).
7. Death during employment. If Mr. RANSOM dies during the term of
employment, CathayOnline shall pay to Mr. RANSOM 's estate the
compensation that would otherwise be payable to Mr. RANSOM up to the
end of the month in which his death occurs. This clause 7 is subject to
clause 3 (b).
8. Disability. In the event of disability of the Executive, the Company
will continue to pay the Executive, the Company will continue to pay
the Executive the period of his disability; provided, however, that if
the disability continues for a period of three (3) months, the Company
may terminate this Agreement. Following such termination, the company
will continue to pay the Base Salary for a period of six (6) months,
but shall not be obligated to pay any other compensation, except for
earned but unpaid Annual Incentive Compensation awards and any accrued
amounts under all compensation of employee benefit plans which shall be
payable on a pro-rated basis for the year in which the disability
occurs, through the date of termination in accordance with the
applicable provisions of any then existing plan, practice, policy or
program established by the Company for employees. "Disability" shall be
defined as any illness of injury which prevents Executive from
performing the essential functions of his employment with reasonable
accommodation. The Company shall be responsible for determining the
essential functions of Executive's employment consistent with the terms
of this Agreement. In the event the Company determines that Executive
cannot safely perform one or more essential functions of employment,
Executive may request an accommodation that would allow Executive to
safely perform the essential functions of Executive's employment
despite the disability. The Company shall determine whether or not the
accommodation requested is reasonable and whether an alternative
reasonable accommodation could be made that would allow Executive to
safely perform the essential functions of employment. In the event the
Company cannot reasonably accommodate Executive's disability so
Executive can safely perform the essential functions of employment,
Executive's employment and Corporation's obligations under this
Agreement will terminate pursuant to the terms of this provision. The
meaning of the terms "essential functions: and "reasonable
accommodation" shall be defined in 29 CFR Part 1630 and related
regulations, if any. During the period the Executive is physically and
mentally able to do son, the Executive will furnish information and
assistance to the Company and from time to time will make himself
available to the company to undertake assignments consistent with his
prior position with the company and his physical and mental health.
This clause 8 is subject to clause 3 (b).
9. Code Section 280G. Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment
or distribution by the company to or for the benefit of the Executive
(whether paid or payable or distributed or distributable pursuant to
the terms of this Agreement of otherwise, but determined without regard
to any additional payments required under this Section 9 (a "Payment")
would be subject to the exercise tax imposed by Section 4999 of the
Code or any interest or penalties are incurred by the Executive with
respect to such excise tax (such excise tax, together with any such
interest and penalties imposed with respect to such taxes), including,
without limitation, any income taxes (and any interest and penalties
imposed with respect thereto) and Excise Tax imposed upon the Gross-Up
Payment, the Executive retains an amount of the Gross-Up Payment, the
Executive retains an amount of the Gross-Up Payment equal to the Excise
Tax imposed upon the Payments.
(ii) Subject to the provisions of Section 9 (iii), all
determinations required to be made under this Section 9,
including whether and when the Gross-Up Payment is required
and the amount of such Gross-Up Payment is required and the
amount of such Gross-Up payment and the assumptions to be
utilized in arriving at such determination, shall be made, at
the Executive's sole discretion, by the Company's independent
auditor's of such other certified public accounting firm as
may be designated by the Executive (the "Accounting Firm"),
which shall provide detailed supporting calculations both to
the Company and the Executive within fifteen (15) business
days of the receipt of notice from the Executive that there
has been a Payment, or such earlier time as is requested by
the Company. In the event that the Accounting Firm is serving
as accountant or auditor for the individual, entity or group
effecting the Change in Control, the Executive shall appoint
another nationally recognized accounting firm to make the
determinations required hereunder (which accounting firm shall
then be referred to as the Accounting Firm hereunder). All
fees and expenses of the Accounting Firm shall be borne solely
by the company. Any Gross-Up Payment, as determined pursuant
to this Section 9, shall be paid by the company to the
Executive within five(5) days of the receipt of the Accounting
Firm's determination. Any determination by the Accounting Firm
shall be binding upon the Company and the Executive. As a
result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the
Accounting Firm hereunder, it is possible that Gross-Up
Payments which will not have been made by the Company should
have been made ("Underpayment"), consistent with the
calculations required to be made hereunder. In the event that
the Company exhausts its remedies pursuant to this Section
6(e) and the Executive thereafter is required to make a
payment of any Excise Tax, the Accounting Firm shall determine
the amount of the Underpayment that has occurred and any such
Underpayment shall be promptly paid by the Company to or for
the benefit of the Executive.
(iii) The Executive shall notify the Company in writing of any claim
by the Internal Revenue Service that, if successful, would
require the payment by the Company of the Gross-Up Payment.
Such notification shall be given as soon as practicable but
not later than ten (10) business days after the Executive is
informed in writing of such claim and shall apprise the
Company of the nature of such claim and the date on which such
claim is requested to be paid. the Executive shall not pay
such claim prior to the expiration of the 30-day period
following the date on which the Executive gives such notice to
the Company (or such shorter period ending on the date that
any payment of taxes with respect to such claim is due). If
the Company notifies the Executive in writing prior to the
expiration of such period that it desires to contest such
claim, the Executive shall:
(A) give the Company any information reasonably requested
by the Company relating to such claim,
<PAGE>
(B) take such action in connection with contesting such
claim as the Company shall reasonably request in
writing from time to time, including, without
limitation, accepting legal representation with
respect to such claim by an attorney reasonably
selected by the Company,
(C) cooperate with the Company in good faith in order
effectively to contest such claim and
(D) permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs
and expenses (including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the Executive
harmless, on an after-tax basis, for any Excise Tax or income tax
(including interest and penalties with respect thereto) imposed as a
result of such representation and payment of costs and expenses. Without
limitation on the foregoing provisions of this Section 9, the Company
shall control all proceedings taken in connection with such contest and,
at its sole option, may pursue or forge any and all administrative
appeals, proceedings, hearing and conferences with the taxing authority
in respect of such claim and may, at its sole option, either direct the
Executive to pay the tax claimed and sue for a refund or contest the
claim in any permissible manner, and the Executive agrees to prosecute
such contest to a determination before any administrative tribunal, in a
court of initial jurisdiction and in one or more appellate courts ad the
Company shall determine; provided, however, that if the Company directs
the Executive to pay such claim and sue for a refund, the Company shall
advance the amount of such payment to the Executive, on an interest-free
basis and shall indemnify and hold the Executive harmless, on an
after-tax basis from any Excise Tax or income tax (including interest of
penalties with respect thereto) imposed with respect to such advance; and
provided, further, that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with
respect to which such contested amount is claimed to be due is limited
solely to such contested amount. Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Gross-Up
Payment would be payable hereunder and the Executive shall be entitled to
settle or contest, as the case may be, any other issue raised by the
Internal Revenue Service or any other taxing authority.
<PAGE>
(iv) If, after the receipt of the Executive of an amount
advance by the Company pursuant to Section 9, the
Executive becomes entitled to receive any refund with
respect to such claim, the Executive shall (subject
to the company's complying with the requirements of
Section 9) promptly pay to the Company the amount of
such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If,
after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 9, a
determination is made that the Executive shall not be
entitled to any refund with respect to such claim and
the Company does not notify the Executive in writing
of its intent to contest such denial of refund prior
to the expiration of thirty (30) days after such
determination, then such advance shall be forgiven
and shall not be required to be repaid and the amount
of such advance shall offset, to the extent thereof,
the amount of Gross-Up Payment required to be paid.
10. Arbitration. Any controversy or claim arising out of or relating to
this Agreement, or the breach thereof, shall be settled by arbitration
in accordance with the commercial arbitration rules and supplementary
procedures for international commercial arbitration of the American
Arbitration Association, and judgment upon the award rendered by the
arbitrator(s) may be entered in any court having jurisdiction. The
governing law shall be the laws of the United States, state of Nevada,
and said Agreement shall be construed and governed in accord with such
laws. The Arbitration shall take place in the state of Nevada, U.S.A.
and the Arbitration shall be conducted in English.
11. Notices. Any notice required or desired to be given under this
Agreement shall be deemed given if in writing and sent by certified
mail, return receipt requested, to Mr. RANSOM 's residence or to
CathayOnline's principal office, as the case may be.
12. Waiver of breach. CathayOnline's waiver of a breach of any provision of
this Agreement by Mr. RANSOM shall not operate or be construed as a
waiver of any subsequent breach by Mr. RANSOM. No waiver shall be valid
unless in writing and signed by an authorized officer of CathayOnline.
Mr. RANSOM's waiver of a breach of any provision of this Agreement by
CathayOnline shall not operate or be construed as a waiver of any
subsequent breach by CathayOnline. No waiver shall be valid unless in
writing and signed by Mr.
RANSOM.
13. Assignment. CathayOnline's rights and obligations, including those
obligations of CathayOnline's subsidiary TorchMail.com, Inc., under
this Agreement shall inure to the benefit of, and shall be binding
upon, CathayOnline's successors and assigns. Mr. RANSOM may, if such
direction is made to CathayOnline in writing, assign, transfer and/or
sell any benefits that he is entitled to receive to any entity or
person that he may so choose at any time or from time to time.
14. Entire agreement. This Agreement contains the entire understanding of
the parties. It may not be changed orally but only by an agreement in
writing signed by the party against whom enforcement of any waiver,
change, modification, extension, or discharge is sought.
15. Headings. Headings in this Agreement are for convenience only and shall
not be used to interpret or construe its provisions.
16. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of
which together shall constitute one and the same instrument.
IN WITNESS HEREOF the parties have executed this Agreement effective the date
first above written.
CathayOnline Inc. Mr. Brian W. Ransom
- -------------------------- ---------------------------
Duly Authorized Representative
TorchMail.com, Inc.
- ---------------------------
Duly Authorized Representative
Exhibit 10.7
MANAGEMENT AGREEMENT
This Agreement is dated this 29th day of June, 1999
BETWEEN
CathayOnline Technologies (Hong Kong) Ltd., a company duly incorporated
under the laws of the Hong Kong Special Administrative Region ("Hong
Kong"), the People's Republic of China ("PRC") (the "Company")
AND
Owen Li LI, a Canadian citizen, having an address at 10831 Anahim
Drive, Richmond, B.C., V7A 3C6 Canada (the "General Manager")
WHEREAS:
<PAGE>
A. The Company is wholly owned beneficially by CathayOnline Inc. (the
"Parent");
B. The Company wholly owns Sichuan CathayOnline Technologies Co. Ltd.
("WOFE"), which is a wholly foreign-owned enterprise duly established under
the laws of the PRC;
C. The Parent is a limited liability company duly incorporated under the laws
of Nevada, the United States of America and is currently a publicly traded
company on NASDAQ OTC: BB (Stock Symbol: CAOL);
D. The Company intends, through the WOFE, to invest up to US$1,000,000 in the
first phase of its projected business operations in internet-related sector
in the PRC (the "PRC Project");
E. For the first phase operation, the WOFE entered, in June, 1999 with Sichuan
Guo Xun Xin Xi Chan Ye You Xian Gong Si("Sichuan Guo Xun."), into a
management and consultancy service agreement ("Management/Consultancy
Agreement"), pursuant to which the WOFE will provide certain management,
consultancy and technical assistance services to Sichuan Guo Xun in
relation to the Project; and
F. The Company wishes to retain the services of the General Manager in
relation to the carrying out the business and affairs of the WOFE,
implementing the Management/Consultancy Agreement, the Project, as well as
the PRC Project and the General Manager wishes to provide such services to
the Company.
IN CONSIDERATION OF mutual promises and other valuable considerations, the
receipt and sufficiency of which are hereby acknowledged, the Parties agree as
follows:
ARTICLE I - INTERPRETATION
1.1 In this Agreement, the following definitions apply:
(1) "Working Day" in relation to performance of any obligation by
a party means a day other than a Saturday, Sunday or a
statutory holiday in the place where such obligations will be
performed;
(2) "Services" means the following managerial and other services:
(a) Recruiting and training personnel for the WOFE in relation to the Project;
(b) Managing the day to day business and affairs of the
WOFE, including keep monthly report and accounts of
the WOFE;
(c) Marketing the services of the Project to customers; and
(d) Any other reasonable service requested by the Company
from time to time in relation to the Project and the
PRC Project in general.
(3) "Term" means a period of three (3) years, commencing from the date of this
Agreement; and
(4) Where applicable, the definitions contained in the
Management/Consultancy Agreement and the WOFE's Articles of
Association are hereby incorporated by reference as an
integral part of this Agreement and shall have the same legal
effect as other parts of this Agreement.
1.2 Words importing the singular only also include the plural and vice versa
where the context so requires.
1.3 Headings used herein are for ease of reference only and shall not affect
the interpretation of this Agreement.
ARTICLE II - PROVISION OF SERVICES
2.1 Subject to the terms and conditions of this Agreement, the Company
hereby retains the General Manager for the provision of the Services
and the General Manager agrees to provide such Services during the
Term.
2.2 The Company reserves the rights to adjust the scope of the Services and
to perform part or all of the Services by itself, when and if necessary
and practical.
ARTICLE III - THE PARTIES' OBLIGATIONS AND COVENANTS
3.1 The Company agrees with the General Manager throughout the Term that the
Company will:
(1) Support the General Manager in its efforts to provide the Services to the
Company;
(2) Supply the General Manager with information in its possession
as permitted by law and/or regulatory authorities to which it
may be subject which may assist the General Manager in
providing the Services; and
(3) Indemnify the General Manager from and against any and all
loss, damage or liability whether criminal or civil suffered
and legal fees and costs incurred by the General Manager
resulting from the breach of this Agreement by the Company
including any act, neglect or default of the Company provided
that such liability has not been incurred through any default
by the General Manager in relation to his obligations under
this Agreement.
3.2 The General Manager agrees with the Company throughout the Term that the
General Manager will:
(1) At all time work diligently to provide the Services to the Company;
(2) Without the prior written consent of the Company, not receive
any undisclosed, hidden or illegal profit or benefit, whether
in cash, in kind or otherwise, from any third parties during
the provision of the Services;
(3) Pay the Company and/or the WOFE promptly all sums due to the Company;
(4) In all matters act loyally and faithfully, as the Company
Vice-President (China Project Development) and in other
capacity, for the best interest of the Company;
(5) Obey the Company's reasonable orders and instructions in relation to the
provision of the Services;
(6) In the provision of its Services strictly comply with all
applicable laws, by-laws and requirements of any governmental
or regulatory authorities of every jurisdiction in which the
General Manager, the Company or the Parent operates;
(7) Not at any time during the Term and for three years thereafter
divulge or allow to be divulged to any person any confidential
information concerning the Company's and/or the WOFE's
business (including confidential information protected by or
subject to other agreements to which the Parent, the Company,
the WOFE or any affiliates of the Parent is a party) other
than to persons who have signed a confidentiality undertaking
in the form approved by the Company or to governmental or
judicial authorities under compulsion of law; and
(8) Indemnify the Company from and against any and all loss,
damage or liability whether criminal or civil suffered and
legal fees and costs incurred by the Company resulting from
the breach of this Agreement by the General Manager including
any act, neglect or default of the General Manager provided
that such liability has not been incurred through any default
by the Company in relation to its obligations under this
Agreement.
ARTICLE IV - PERFORMANCE
4.1 In providing the Services, the General Manager will try all means to
achieve the following to the best of his ability for the WOFE during
the Term:
(1) To procure 2,500 internet service provider ("ISP") customers for the
Project within 12 months of this Agreement;
(2) To procure 7,500 ISP customers for the Project within 24 months of this
Agreement; and
(3) To procure 16,000 ISP customers for the Project within 36 months of this
Agreement.
ARTICLE V - COMPENSATION
5.1 For the General Manager's Services, the Company shall compensate the
General Manager in accordance with the following terms and conditions:
(1) pay US$10,000 per month to the General Manager at the end of each calendar
month as follows:
(a) US$6,500 in cash to be paid by the WOFE; and
(b) US$3,500 equivalent in the form of common shares issued by the Parent (the
Shares will be priced at 10% discount of the average bid for the last 5
trading days of the month);
(2) to the best of its ability cause the Parent to issue notice to
issue in trust for the General Manager its shares (the
"Shares") in the following numbers and schedules:
(a) common shares with a value equal to US$60,000 divided
by lower of (i) US$0.50 and (ii) the average closing
price of the shares of the Parent for three (3) days
preceding the date of this Agreement within 15
Working Days of the date of this Agreement;
(b) common shares with a value equal to US$75,000 divided
by lower of (i) US$0.50 and (ii) the average closing
price of the shares of the Parent for three (3) days
preceding the date of this Agreement within 10
Working Days after the General Manager has notified,
in writing to the Parent, that he has brought 2,500
ISP subscribers into the Project;
(c) common shares with a value equal to US$75,000 divided
by lower of (i) US$0.50 and (ii) the average closing
price of the shares of the Parent for three (3) days
preceding the date of this Agreement within 10
Working Days after the General Manager has notified,
in writing to the Parent, that he has brought 7,500
ISP subscribers into the Project; and
(d) common shares with a value equal to US$90,000 divided
by lower of (i) US$0.50 and (ii) the average closing
price of the shares of the Parent for three (3) days
preceding the date of this Agreement within 10
Working Days after the General Manager has notified,
in writing to the Parent, that he has brought 16,000
ISP subscribers to the Project.
5.2 The General Manager will distribute or transfer certain numbers of the
Shares to other employees of the WOFE as part of employee incentive. In
such case, the Company shall cause the Parent to complete necessary
procedures to effect such distribution or transfer as permitted by
applicable laws and/or regulations.
ARTICLE VI - NON-COMPETITION
6.1 The General Manager hereby covenants that, without written permission
of the Parent, during the Term and three years thereafter he will not
carry on any business or activities which are in competition with that
of the Company, the WOFE, and/or in relation to the Project (the
"Competing Business") within the territory of PRC provided that during
the three years after the Term the Parent will not unreasonably
withhold any permission to allow the General Manager to carry on the
Competing Business in such areas within the PRC where the Parent, the
Company, the WOFE and/or other affiliates of the Parent do not have any
business interests. This non-competition clause shall not be deemed to
include any companies, ventures, joint ventures, projects or the like,
with which the Parent is a shareholder or is working with and the
General Manager's valued input is required.
6.2 The General Manager hereby expressly acknowledges that the restrictions
contained in Article 6.1 above are fair and reasonable in all
circumstances and may be enforceable by judicial remedies available to
the Company including injunctions. The Parties further agree that if
the restrictions in Article 6.1 above shall be adjudicated to be void
and ineffective for whatever reason but would be adjudicated to be
valid and effective should part of the wording thereof be deleted or
the restrictive period or the restrictive area reduced in scope, the
said restrictions shall apply with such modifications as may be
necessary to make the restrictions valid and effective.
ARTICLE VII TERMINATION
7.1 The Company may serve a termination notice on the General Manager not
less than five (5) Working Days prior to the intended date of
termination to terminate this Agreement if the General Manager fails to
perform his obligations under Article IV hereof and such failure, if
capable of remedy, is not remedied within 10 Working Days of receipt of
a written notice of such failure from the Company.
7.2 The General Manager may serve a termination notice on the Company not
less than five (5) Working Days prior to the intended date of
termination to terminate this Agreement if the Company fails to perform
its obligations under Article 5.1 hereof and such failure, if capable
of remedy, is not remedied within ten (10) Working Days of receipt of a
written notice of such failure from the General Manager.
7.3 Any right or remedy to which either party is or may become entitled
hereunder or in consequence of the other's conduct may be enforced from
time to time separately or concurrently with any right or remedy given
hereby or now or afterwards provided for and arising by operation of
law so that such rights and remedies are not exclusive of the other or
others but cumulative.
7.4 All works, relationships, concepts, business plans, clients, client
lists and all related information and materials ("Information and
Materials") are the property of the Company and not the General Manager
and in the event that this Agreement is terminated for whatever
reasons, all such Information and Materials are to be returned
immediately to the Company without any copies having been made or
taken.
ARTICLE VIII - NO PARTNERSHIP OR JOINT VENTURE
8.1 Parties agree and acknowledge that they are not partners or joint
ventures and nothing herein shall be construed to give rise to a
partnership or joint venture relationship between the Parties.
8.2 The General Manager shall not act or purport to act as a General
Manager of the Company save as expressly stated in this Agreement.
ARTICLE IX - GENERAL PROVISIONS
9.1 This Agreement is governed by and construed in accordance with the laws of
Hong Kong.
9.2 The courts of Hong Kong shall have jurisdiction to adjudicate any
disputes arising from and in relation to this Agreement. The General
Manager hereby expressly submit to the non-exclusive jurisdiction of
the courts of Hong Kong and hereby appoints _________________________
in Hong Kong as his agent to receive any legal process in relation
hereto.
9.3 Any provisions hereof held by a competent court or arbitration tribunal to
be invalid or illegal shall not affect the validity of other provisions
hereof which shall remain intact and legally binding. The Parties shall
continue to implement such other provisions.
9.4 This Agreement shall be binding on and enure to the benefits of heirs,
executors, administrators, successors and assigns of the Parties hereto
provided that the General Manager shall not assign his rights and
obligations hereunder unless with express prior written consent of the
Company.
Executed by the Parties at the place and on the date first above mentioned.
Witness CathayOnline Technologies (Hong Kong)
Ltd.
_____________________________ Per:_________________ (corporate seal)
Witness Owen Li LI
- ----------------------------- ------------------------------
Exhibit 10.8
CONSULTING AGREEMENT
Consulting Agreement made effective 1st of October, 1999, by and
between CathayOnline Inc., a Nevada Corporation ("CATHAY"), which maintains its
principle place of business at 6 E. 45th Street, Suite 1000, New York, NY 10017,
and Peter Lau, who resides at 40 Park Avenue, 19B, New York, NY 10016.
W I T N E S S E T H
WHEREAS, CATHAY is seeking a part-time Chief Financial Officer to advise, assist
and manage the financial affairs for CATHAY; and
WHEREAS, CATHAY seeks the part-time services of Peter Lau as CFO to CATHAY;
WHEREAS, Peter Lau seeks to take the position of CFO with CATHAY;
NOW THEREFORE, in consideration of the promises and mutual covenants and
conditions contained in this Agreement, CATHAY and Mr. Lau agrees as follows:
SEC. 1. Consulting Work. CATHAY hereby agrees to hire Mr. Lau as a part time
CFO to CATHAY. Mr. Lau shall be responsible for the management of
CATHAY's financial affairs and report directly to the President of the
Company or his designee.
SEC. 2. Consulting Term. The term of consulting hereunder is for the period
commencing on October 1, 1999, and ending on October 1, 2000, unless
earlier terminated by either party with thirty days notice or
terminated pursuant to the provisions of Section 8 hereof.
SEC. 3. Performance. Mr. Lau shall use his best efforts to manage the
financial affairs of CATHAY. He shall devote 2 days a week to those
efforts.
SEC. 4. Compensation.
a. Consulting Fees: As basic compensation for Mr. Lau's services
as CFO during this consulting term, CATHAY shall pay Mr. Lau
the monthly compensation of Four Thousand ($4,000) dollars per
month.
b. In addition, Mr. Lau shall receive 3,000 shares of common
stock payable monthly. Mr. Lau shall have the rights to
registration of common stock under Security Exchange
Commission rule 144 and will be entitled to piggyback
registration rights similar to other common stock
shareholders.
c. Other Fees: For work outside the scope of CFO, CATHAY shall
pay Mr. Lau additional fees for the following:
d. Finders' Fees: If Mr. Lau introduces CATHAY or its affiliates,
subsidiaries of associate companies to investors or lenders
who provide capital, loans or other financial to CATHAY or its
affiliates, subsidiaries or associate companies; Mr. Lau shall
receive 3% cash bonus of the funds actually provided. Mr. Lau
remains entitled to these fees after the termination of
Consulting Agreement.
1. Investment Banking Transactions: If Mr. Lau
introduces a transaction with respect to a proposed
mergers or acquisitions or disposition of assets of
the CATHAY, subsidiaries or associate companies of
CATHAY (for investment banking work) then Mr. Lau
shall receive five percent (5%) fees generated by the
client. These fees may include cash, stock or
warrants. If. Mr. Lau introduces a transaction Lau
remains entitled to these fees after termination of
the consulting contract.
2. Serving on Board of Directors: CATHAY may request
Peter Lau to serve on the Board of Directors of a
private or public company. Additional compensation
will be provided for this service. The amount of
compensation will be determined at a later date.
e. Bonuses: In addition to his other compensation, Mr. Lau shall
receive an annual bonus that may include cash, stock or stock
options. The amount of this bonus shall be mutually agreed
upon by the parties.
Sec. 5. Other Entitlement: Mr. Lau shall be entitled during the consulting
term to:
(a) Participate in such benefit plans, arrangements and programs
as are afforded senior executive officers and directors of the
Company, including without limitation, all health, disability
and life insurance plans, and all retirement, savings, thrift
and profit sharing plans;
(b) Participate in such incentive compensation programs or other
arrangements as are afforded from time to time to senior
executive officers and directors of the Company;
(c) Reimbursement of all reasonable expenses incurred by Mr. Lau
in the performance of his duties as CFO;
SEC. 6. Non-Circumvention. Each party agrees not to circumvent the other
causing the other loss of potential or actual revenues. A project that
Mr. Lau has initiated, worked toward or had substantial progress with
while in the employ of CATHAY gives Mr. Lau the rights to CATHAY's
share of the revenues derived from such project. This right to revenue
shall continue after Mr. Lau leaves CATHAY.
SEC. 7. Confidentiality. The nature of services provided by CATHAY requires
information to be handled in a private confidential manner. Information
about CATHAY's business, employees or clients will only be released to
people or agencies outside the Company with CATHAY's consent. All
reports, memoranda, notes or other documents will remain part of the
Company's confidential records.
SEC. 8. Termination of Agreement. Without cause the Company may terminate
this Agreement at any time upon 30 days written notice to the
consultant. Should the Company request, the consultant shall continue
to work and be paid up to the date of termination. Further, without
cause, the consultant may terminate this Agreement upon 30 days'
written notice to the Company. Consultant shall work and be paid the
regular compensation up to the date of termination, but will not
receive a severance allowance. In addition, and notwithstanding
anything to the contrary contained in this Agreement, the Company may
terminate the consultant's employment upon 30 days' notice to the
consultant upon any of the following events:
(a) Sale of substantially all of the Company's assets to a single
purchaser or group of associate purchasers; or
(b) Sales, exchange, or other disposition of fifty percent (50%)
or more of the Company's outstanding corporate shares; or
(c) Company's termination of its business; or
(d) Merger or consolidation of the Company in a transaction in
which the Company's shareholders receive less than fifty
percent (50%) of the outstanding voting shares of the
surviving corporation.
The Company may immediately terminate Mr. Lau for cause for any of the
following:
(a) A commission by Mr. Lau of any fraud upon the Company which
causes material harm to the Company; or
(b) The conviction of Mr. Lau to pleas of nolo contenders by Mr.
Lau with respect to a felony; or
(c) Mr. Lau's habitual absenteeism, chronic alcoholism or other
form of chemical addiction; or
(d) Any material breaches by Mr. Lau or his obligations under this
Agreement which cause him harm to the Company.
SEC. 9. Investment Banking Transactions. The Parties CATHAY and Mr. Lau
agree that all client transactions shall require the prior written
approval of the President or its assignee of CATHAY. CATHAY may
terminate any existing transaction if it finds the transaction is not
in the best interest of CATHAY.
SEC. 10. Dispute Resolution and Choice of Law. In the event of any dispute
between the parties concerning the interpretation of this Agreement,
performing thereof, or compliance by any party therewith such dispute
shall be resolved in New York City by arbitration to be conducted
before a panel of three (3) arbitrators in accordance with the
Commercial Arbitration Rules of the American Arbitration Association
(AAA). Such AAA administer arbitration shall be conducted in New York
City and the jurisdiction of New York State Law. Any decision of the
arbitrators may be enforced by a court of competent jurisdiction. In
deciding any dispute between parties, the arbitrators shall apply to
laws of New York State.
SEC. 11. Cancellation, Termination or Revocation. If this Agreement is
cancelled, terminated or revoked for any reason all of its
compensation, non-circumvention and dispute resolution provisions shall
survive such cancellation, termination, or revocation and the parties
will continue to be bound thereby.
SEC. 12. Entire Agreement. This document constitutes the entire agreement of
the parties. Any modification, amendment, addendum thereto or
cancellation thereof by mutual consent must be in writing.
SEC. 13. Notices. Any notices required or permitted to be given under this
Agreement shall be in writing and sent certified mail to:
For CATHAY: CathayOnline Inc.
6 E. 45th Street, Suite 1000
New York, New York 10017
For Mr. Lau: Peter Lau
40 Park Avenue, 19B
New York, NY 10016
In Witness whereof, the parties have executed and delivered this
Agreement effective as of the date first set forth above.
By: By:
Peter Lau Brian Ransom, President
CathayOnline Inc.
Date: Date:
Exhibit 10.9
PUBLIC RELATIONS / INVESTOR RELATIONS
CONSULTING AGREEMENT
This Public Relations/Investor Relations Consulting Agreement, made as of this
23rd day pf September, 1999, by and between TALK STOCK WITH ME INC., a
California corporati/oon having its principal office located at 1875 Century
Park East, Suite 150, Century City, CA 90067 (hereinafter referred to as the
OConsultantO) and Cathay Online, Inc., a N a corporation having its principal
office located at Suite #302 N593 Granville Street Vene~uw~, BCV~ 1~&(the
OCOMPANYO). ~.dc.too~, (ea.s+ ui 4, tc~oi~. Recitals
WHEREAS, the COMPANY, a public COMPANY, requires public relations/investor
relations services and assistance and desires to employ Consultant, as an
independent contractor Consultant, to provide such services, and Consultant is
agreeable to such employment, and the parties desire a written document
formalizing their relationship and evidencing the terms of their agreement;
Agreement
NOW, THEREFORE, intending to be legally bound and in consideration of the
mutual promises and covenants, the parties have agreed as follows:
1. Appointment. The COMPANY hereby retains the Consultant as its non-exclusive
public relations/investor relations counsel and hereby retains and employs
Consultant, on the terms and conditions of this Agreement. The Consultant
accepts such appointment and agrees to perform the services in accordance
with the terms and conditions of this Agreement.
2. Term. The term of this Agreement shall begin on September 23, 1999 and
shall terminate on September 23, 2000.
3. Services
(a) Consultant shall act, generally, as a non-exclusive public
relations/investor relations counsel essentially, acting
(1) as a liaison between the COMPANY and its stockholders
(2) as an advisor to the COMPANY with respect to existing and
potential market makers, broker-dealers, underwriters, and
investors as well as being a liaison between the COMPANY and such
persons; and
<PAGE>
(3) as an advisor to the COMPANY with respect to communications and
information (e.g., interviews, pre recorded or live conferences,
COMPANY information on talk-stock.com etc.) As well as planning,
designing, developing, organizing, writing and distributing such
communications and information as the COMPANY may request or
direct. (Press releases, content and distribution are the
exclusive responsibility of the COMPANY.)
(b) As the COMPANY shall request or direct, Consultant shall assist in
establishing, and advise the COMPANY with respect to: shareholder
meetings, interviews of COMPANY officers by analysts, market makers,
broker-dealers, end other members of the financial community, in the
United States and/or Canada and/orEurope.
(c) Consultant shall seek to make the COMPANY, its management, its
products, and its financial situation and prospects, known to the
financial press and publications, broker-dealers, and other members of
the financial community, in the United States and/or Canada and/or
Europe.
(d) As the COMPANY shall request or direct, Consultant shall act,
generally as a public relations/investor relations counsel or to the
COMPANY, including:
(1) introducing the COMPANY to broker-dealers, market makers, banks,
financial advisors, financial institutions and potential
investors, in the United States and/or Canada and/or Europe;
(2) Arrange interviews and analyst meetings, and securing invitation
of the COMPANY to appropriate conferences and business events,
and similar public relations/investor relations events.
(3) Internet: Online Broadcast special target, Online Broadcast (pre
event - to email list created by targeted broadcast), Online
Conference setup & design, Online Conference, (approximately two
2 per month) Online Investor Chatroom (setup & design), Online
Investor Chatroozn (hosting).
(e) The initial services to be rendered by Consultant, at COMPANTS
expense, shall be: per Venue Description, Schedule OAO
(1) Broker and investor introductions to COMPANY via internet;
(2) the fulfillment and distribution of leads generated by promotions
throughout the broker network derived through internet venues;
(3) conference dialogue (chat) with brokers and investors as
prescribed in (d); [1], (2], and [3], shall be mutually agreed
upon by both Consultant and the COMPANY. The funds required to
fulfill these obligations are to be expended out and mutually
agreed upon by both Consultant and the COMPANY prior to
expenditure.
<PAGE>
4. Umitations on Services. The parties recognize that certain responsibilities
and obligations are imposed by both U.S. and foreign securities laws as
well as by the applicable rules and reguLations of the NASD, In-house Odue
diligenceO or OcomplianceO departments of brokerage houses, etc.
Accordingly, Consultant agrees:
(a) Consultant shall NOT release any financial or other information or
data about the COMPANY without the consent and approval of the
COMPANY.
(b) Consultant shall NOT conduct any meeting with financial analyst
without informing the COMPANY in advance of the proposed meeting and
the format or agenda of such meeting and the COMPANY may elect to have
a representative of the COMPANY attend at such meeting.
(c) Consultant shall NOT release any information or data about the COMPANY
to any selected or limited person(s), entity, or group If the
Consultant is aware that such information or data has not been
generally released or promulgated.
(d) After notice by the COMPANY of filing for a proposed public offering
of securities of the COMPANY, and during any period of restriction on
publicity, the Consultant shall not engage in any public relations
efforts not in the normal course without approval of counsel for the
Consultant and of counsel for the underwriter(s), if any.
(e) The Consultant shall NOT take any action or advise or knowingly permit
the COMPANY to take any action, which would violate any domestic or
foreign securities, laws or rules and regulations issued thereunder.
5. Duties of COMPANY.
(a) The COMPANY shall supply Consultant, on a regular and timely basis,
with all approved data and information about the COMPANY, Its
management, its products, and its operations and the COMPANY shall be
responsible for advising Consultant of any facts which would affect
the accuracy. of any prior data and information previously supplied
Oto Consultant so that Consultant may take corrective action.
(b) The COMPANY shall, from time to time as applicable, promptly supply
Consultant:
(1) . with full and complete copies of any and all filings with the
Securities and Exchange Commission and all foreign securities
agencies;
<PAGE>
(2) with full and complete copies of all filings with any stock
exchanges; (3) with full end complete copies of all shareholder
reports and communications whether or not prepared with
CONSULTANTOS assistance; (4) with all data and information
supplied to any analyst, broker-dealer, market maker, or other
member of the financial community; and (5) with all
product/services brochures, sales materials, etc.
(c) The COMPANY shall promptly notify Consultant of any event which
triggers any restrictions on publicity, together with a statement
as to the countries, included within the publicity restriction
requirements.
(d) The COMPANY shall, contemporaneously with supplying information
or data to Consultant, notify Consultant if any information or
data being supplied to Consultant has not been generally released
or promulgated.
6. Representation and Indemnification:
(a) The COMPANY shall be deemed to make a continuing representation of the
accuracy of any and all material facts, material information, and
material data which it supplies to Consultant and the COMPANY
acknowledges its awareness that Consultant will rely on such
continuing representation in disseminating such information and
otherwise performing their public relations functions.
(b) Consultant, in the absence of notice in writing from COMPANY, will
rely on the continuing accuracy of material, information, and data
supplied by the COMPANY.
(c) The COMPANY hereby agrees to indemnify Consultant against, and to hold
Consultant harmless from, any claims, demands, suits, losses, damages,
etc. arising out of CONSULTANTS reliance upon the accuracy and
continuing accuracy of such material facts, material information, and
material data, unless Consultant has been negligent in fulfilling its
duties and obligations hereunder.
(d) The COMPANY hereby agrees to indemnify Consultant against, and to hold
Consultant harmless from, any claims, demands, suits, losses, damages,
etc. arising out of CONSULTANTS reliance on the general availability
of infonnation supplied to Consultant unless Consultant has been
negligent in fulfilling their duties and obligations hereunder.
<PAGE>
(e) OThe COMPANY hereby authorizes Consultant to issue correctly;
amendatory, supplemental, or explanatory, shareholder communications
and reports, or data supplied to analysts, broker-dealers, market
makers, or other members of the financial community.
7. Compensation. For all public relations/investor relations services rendered
hereunder during the term hercof COMPANY and/or certain stockholders
("STOCKHOLDERS") shall issue Consultant as follows:
(a) COMPANY shall pay Consultant $3,500.00 U.S. This agreement is for
twelve (12) months beginnIng September 23, 1999 and ending September
23,2000. First end last months are due and payable upon execution of
this agreement Payment hereafter will be due and payable on the first
(13t) of each month~
(b) COMPANY shall issue to Consultant immediately following execution
hereof, $25,000.00 U.S. cash value free trading shares of the common
stock of Cathay Online, Inc..
(c) Campaign (public relations/investor relations) will commence upon the
receipt of(a) and (b) in its entirety.
(d) The parties acknowledge that in negotiating these fees they recognize
that the services contemplated under this Agreement may not be
performed in equal monthly segments, but may be substantial during the
earlier portion of the term of this Agreement, but less after the
relationships and communication lines are established directly by the
COMPANY. Accordingly, the lessening of the proportion of servces over
the later portion of this Agreement shall not constitute a breach of
Agreement or termination.
(e) The COMPANY shall pay its own costs and expenses incurred by
Consultant in providing the contemplated public relations/investor
relations services, including, but not limited to: out-of pocket
expenses for telephone/facsimile charges, postage and delivery
services charges, as well as compensation to third party vendors,
copywriters, stafF writers, art and graphic personnel, printing, etc.
COMPANY approves all costs in excess of $500.00 prior to incurrence. A
Proposed Monthly Investor Relations Expenses report, which outlines
the monthly expenses, is attached hereto and incorporated herein as
Exhibit A
(f) For all special services, not within the scope of this Agreement,
COMPANY shall pay Consultant such fees, costs, and expenses as, and
when, the parties shall determine in advance of performance of the
special
<PAGE>
services provided that the COMPANY has agreed in advance to the
special services.
8. Billing and Payment For all services contemplated to be rendered hereunder,
and the costs and expenses thereof, the COMPANY shall pay Consultant as
outlined in paragraph 7(a), and (b).
9. RelationshIp of Parties. Consultant is an independent contractor,
responsible for compensation of its own affiliates, agents, employees and
representatives, as well as all applicable withholding therefrom and taxes
thereon (including unemployment compensation) and all workmenOs
compensation insurance. This Agreement does not establish any partnership,
joint venture, or other business entity or association between the parties
and no party is intended to have any interest in the business or property
of the other by reason of this Agreement
10. Terminatwn. This Agreement may be terminated by either the COMPANY or the
Consultant prior to the expiration of the term provided in paragraph (2)
above as follows:
(a) Upon failure of the other party to cure default under, or a breach of,
this agreement within ninety (90) days after written notice is given
to such default or breach by the terminating party;
(b) upon the, bankruptcy or liquidation of the other party; whether
voluntary or Involuntary;
(c) upon the other party taking the benefit of any insolvency law; and/or
(d) upon the other party having or applying for a receiver appointed for
all or a substantial part of such party's assets or business.
(e) The COMPANY may terminate this agreement with ninety (90) dayOs
notice. All monthly cash payments wilt cease upon the date of
termination. The options issued under section 7(c) in this agreement
axe exempt from this clause and remain effective for twenty - four
(24) months.
11. Waiver of Breach. The waiver by a party of a breach of any provision of
this Agreement by another party shall not operate or be construed as a
waiver of any subsequent breach by the breaching party.O
12. Assignment. The rights and obligations of the parties under this Agreement
shall inure to the benefit of, and shall be binding upon, the successors
and assigns of the parties.
13. Notices. Any notice required or permitted to be given under this Agreement
shall be sufficient if in writing, via fax transmittal and followed by
certified mail, return receipt requested, to the principal office of the
party being notified.
<PAGE>
14. Entire Agreement, This instrument contains the entire Agreement of the
parties and may be modified only by agreement in writing, signed by the
party against whom enforcement of any waiver, change, modification,
extension or discharge is sought If any provision of this Agreement is
declared void, such provision shall be severed from this Agreement, which
shall otherwise remain in full force and effect.
15. Governing Law. This Agreement shall be a contract made in the State of
California and shall be interpreted and governed by, and construed in
accordance with, the laws of the State of California.
16. taxes. Any and all taxes, excises, assessments, levies, interest and
penalties, which may be assessed, levied, demanded, or imposed by any
governmental agency in connection with this Agreement, shall be paid by the
party upon which they are imposed and shall be the sole obligation of such
party.
17. brbltration. Any Controversy or claim arising out of or relating to this
Agreement shall be settled by arbitration in Los Angeles, California, in
accordance with the applicable rules of the American Arbitration
Association.
18. Counteruarts. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which together shall
constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound, have
executed this Agreement
COMPANY: CatbayOnline, Inc.
By: Date:
TALK STOCK WITH ME, INC.
By: Date:
Exhibit 10.10
LEASE CONTRACT
A. Sichuan DongFu Group Company
B. Sichuan CathayOnline Technologies Co. Ltd.
- --------------------------------------------------------------------------------
Party A agrees to lease office space located at 9/F, DongFu Mansion, No. 3 YuLin
Road, Chengdu to Party B. According to this understanding Party A and Party B
reach the following agreement:
1) Construction Area of the DongFu Mansion, No. 3 YuLin Road is 11 00m2. Party
A agrees to lease this space to Party B. Party B agrees to pay Party A RMB
Y60,000/month, and RMB Y720,000/year in total.
2) Otherpublic expenses like water supply, sewer processing, cleaning, plant
decoration, security, and postal services will be charged separately based
on the ratio of construction areas of the whole building. Electricity will
be charged on a basis of the real usage.
3) Leaseduration is five years from September 1, 1999 to August 30, 2004. The
lease can be renewed based on a mutual agreement. Party B should provide
Party A written notice three months in advance of the expiry date if Party
B does not wish to renew, otherwise Party A will charge Party B another
three months rental.
4) Party B agrees to pay Party A rental on a quarterly basis, and agrees to
pay other expenses monthly according to Points 2 and 3. Party B agrees to
pay a daily fine of I % of the total expenses owed to Party A if Party B
does not pay Party A on time.
5) This Agreement has four copies. Party A and Party B each have two of them.
Party A: Sichuan DongFu Group Company
(stamp)
----------------------------
Representative: Tang FuQuan (signature)
Party B: Sichuan CathayOnline Technologies Co. Ltd.
----------------------------
Representative: Owen Li (signature)
August 9, 1999
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration Statement
of CathayOnline Inc. on Form 10-SB of our reports dated October 7, 1999, and to
reference to us under the heading "Experts" in this Registration Statement.
ROBISON, HILL & CO.
/s/ Robison, Hill & Co.
Salt Lake City, Utah
December 10, 1999
Exhibit 23.2
BEIJING SAGE LAW FIRM
To the Board of Directors of
CathayOnline, Inc.
Gentleman:
We hereby consent to references to our name in CathayOnline, Inc.'s
filing on Form 10-SB with the United States Securities and Exchange Commission
and to the inclusion of our opinion as an exhibit therewith.
Dated: November 29, 1999
Very truly yours,
Beijing Sage Law Firm
/s/ ZIIANG Wei
Exhibit 99.1
BEIJING SAGE LAW FIRM
Add: Room 615 Shang Fang Building, No27 Bei
100029 San Husa Zhowg La Beijing, China, 100029
010-62073679 6205522-3018 Tel: 010-62073679 62005522-3018
010-6207389R Fax: 010-62073898
To: Stikeman, Elliott Fax: 00852-28459076
Date: 10/9/1999
Attn: _________________
Date: September 16, 1999
Cathay Online Inc.
c/o 302-543 Granville Street
Vancouver, B.C.
V6C 1X8 Canada
And
Stikeman, Elliott
Solicitors
1103 China Building
29 Queen's Road Central
Hong Kong
Dear Sirs,
Re: Cooperation project with Sichuan Cathay Online Telecom Co. Ltd (SI CHUAN
GUO XUN XIN XI CHAN YE YOU XIAN GONG SI) ("Telecom Co.") a licensed
Internet Service Provider In Sichuan Province (the "Project")
We act as your special legal counsel on the laws of the People a Republic of
China ("PRC") in relation to the above Project. This legal opinion is provided
at your request. The following sets out our opinions as well as the premises,
assumptions and documents on which such opinions are based.
A. Documents Reviewed:
In the process of formulation our opinions, we have reviewed the following
documents (collectively the "Documents"):
1. The Articles of Association of Sichuan Cathay Online Technologies Co, Ltd.
(the
<PAGE>
"WOFE");
2. The approval letter and approval certificate for the establishment of the
WOFE:
3. The Business License of the WOFE: dated August 10, 1999;
4. The Articles of Association and current Business Licence of the Telecom
Co.:
5. A PRC Computer Information Network International Networking Business
Operation License (the "Licence" ) issued by Sichuan Telecommunication
Administration Bureau in the name of the Telecom Co; and
6. Arrangement and consultancy service agreement dated September 9, 1999 (the
"Project Agreement") between the WOFE and the Telecom Co.
In our examination of the documents listed above, we have assumed:
1. That all signatures, seals and chops on the Documents are genuine; and
2. That the faxed copies of the Documents received y us are true copies and
conform to the originals.
This legal opinion is based on the Documents as at the date hereof and we have
assumed for the purposes hereof that the Documents have not been amended,
modified, recanted or revoked as of the date hereof and that as the date hereof,
no circumstances exist and no governmental, judicial or other action has
occurred which would affect the validity, enforceability and accuracy of the
Documents.
B. Our Opinions
Based on the foregoing, we are of the opinion that under the PRC law us of the
date hereof:
1. The WOFE is a wholly owned foreign enterprise, with Cathay Online Inc. {of
the United States of America} as its sole investor, duly established,
validly exists and is in good standing in all its filings under the laws of
the PRC
2. Based on its Articles of Association and Business Licence, the WOFE is duly
licensed to legally carry on the business specified in its Business
Licence, including development., production and sale of electronic
information, telecommunication system and network products, international
computer networking: information system and project construction: and
services related thereto.
3. Based on the Licence, the Telecom Co. is legally authorized to carry on the
business of operation computer information network international networking
(the "Business") from September 8, 1999 to March 23, 2003 in the cities
specified in the licence.
<PAGE>
4. Based on its Articles of Association, Business Licence and the laws of the
PRC the WOFE laws the request corporate power and capacity to enter into
the Project Agreement.
5. Based on its Articles of Association, Business License and the laws of the
PRC, the Telecom Co. has the requisite corporate power and capacity to
enter into the Project Agreement.
6. The Project Agreement is legally binding on and enforceable against the
WOFE and the Telecom Co. in accordance with its terms and conditions under
the laws of the PRC.
7. The entering into the Project Agreement by the WOFE as well as the exercise
of its rights and the performance of its obligations thereunder do not
exceed the business scope of the WOFE, stipulated in its business licence.
In particular, by entering into the Project Agreement as well as the
exercise of its rights and the performance of its obligations thereunder,
the WOFE will not be construed to be carrying on the business of operation
and managing telecommunication services in the PRC.
8. The entering into the Project Agreement by the WOFE and the Telecom Co. and
the performance of their respective obligations thereunder do not violate
any laws and regulations of the PRC.
This opinion is provided to the above addresses who have our express permission
to submit the same to relevant parties in relation to the financing of the
Project.
Yours truly,
Beijing Sage Law Firm
/s/ZHANG WEI
LLM Beijing University
LLB Xiamen University
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
BALANCE OF CATHAYONLINE, INC. AS OF SEPTEMBER 30, 1999 AND JUNE 30, 1999 AND
1998 AND THE RELATED STATEMENTS OF OPERATIONS AND CASH FLOWS FOR THE THREE
MONTHS AND THE YEARS THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
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<NAME> CATHAYONLINE INC
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<COMMON> 17 12 3
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<EPS-BASIC> (0.01) (0.06) 0
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