SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended June 30, 1998.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ...........to...............
TENGTU INTERNATIONAL CORP.
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(Name of small business issuer in its charter)
Delaware 77-0407366
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Suite 3825
First Canadian Place, 100 King Street West
TORONTO, ONTARIO, CANADA M5X 1E3
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(Address of Principal Executive Offices) (Zip Code)
(416) 368-8400
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(Registrant's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
Not Applicable.
Securities registered under Section 12(g) of the Exchange Act:
Not Applicable.
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Check whether the issuer (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes No X
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Check if there is no disclosure of delinquent filers in response to
item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB. [ X ]
State the issuer's revenues for its most recent fiscal year.
Tengtu International Corp.'s revenues from continuing operations
for the fiscal year ended June 30, 1998 were $4,646,355.
State the aggregate market value of the voting and non-voting common
equity held by non-affiliates computed by reference to the price at which the
common equity was sold, or the average bid and asked price of such common
equity, as of a specified date within the past 60 days. (See definition of
affiliate in Rule 12b-2 of the Exchange Act.)
Note: If determining whether a person is an affiliate will involve an
unreasonable effort and expense, the issuer may calculate the aggregate market
value of the common equity held by non-affiliates on the basis of reasonable
assumptions, if the assumptions are stated.
Aggregate market value of stock held by non-affiliates was
approximately, $2,596,281 as of June 30, 1998. There were a total
of approximately 13,846,832 shares held by non-affiliates as of
such date.
The Company's stock transfer agent is U.S. Stock Transfer Corporation,
1745 Gardena Avenue, Suite 200, Glendale, California 91204.
(ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PAST FIVE YEARS)
Check whether the issuer has filed all documents and reports required
to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes No
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
State the number of shares outstanding of each of the issuer's classes
of common equity, as of the latest practicable date: 19,497,107 shares
outstanding as of June 30, 1998.
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DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly
describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II,
etc.) into which the document is incorporated: (1) any annual report to security
holders; (2) any proxy or information statement; and (3) any prospectus filed
pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act").
The listed documents should be clearly described for identification purposes
(e.g., annual report to security holders for fiscal year ended December 24,
1990).
None of the above documents are incorporated by reference.
Transitional Small Business Disclosure Format (Check one): Yes No X
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PART 1
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ITEM 1. DESCRIPTION OF BUSINESS
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BACKGROUND INFORMATION ON TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
ORGANIZATIONAL HISTORY
The organizational history of Tengtu International Corp. (the
"Company") is set forth in its Form 10-KSB filed for the fiscal year ended June
30, 1997.
THE BUSINESS OF THE COMPANY
The Company's operations are carried out through a joint venture,
Tengtu United Electronics Development, Co. Ltd. ("Tengtu United"), and two
subsidiaries, TIC Beijing Electronics Co., Ltd. ("TIC Beijing")(wholly owned by
the Company) and Iconix International, Inc. ("Iconix")(45% owned by the
Company). These companies engage in the following lines of business in China and
Canada: systems integration, development and marketing of educational and
entertainment software, animation and multimedia.
TENGTU UNITED
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Tengtu United is based in Beijing, China and is 57% owned by the
Company. The remaining 43% is owned by Tengtu China, which is unaffiliated with
the Company and is owned by three Chinese state-owned computer companies, Legend
Computer Group, Taiji Computer Corporation, and Great Wall Computer Group. These
companies, in turn, are controlled by either the Chinese Academy of Science or
the Chinese Ministry of Electronics. Tengtu United had 15 employees as of June
30, 1998 after a significant downsizing of its operations explained below.
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Tengtu United develops educational and entertainment software for sale
to kindergarten through 12 ("K-12") schools in China. The potential market for
such software consists of approximately 800,000 Chinese schools with over 200
million students. Tengtu United commenced operations in the first quarter of
1997 and as of June 30, 1998, developed over 30 CD-ROM titles.
The majority of the software titles developed by Tengtu United are
designed to assist students to prepare for Chinese high school and university
entrance examinations. These software titles are available by subject matter
such as physics, mathematics and chemistry. The remainder of Tengtu United's
software titles are animated entertainment games for children.
Many Chinese schools lack computer systems, networks, operating systems
and teachers with computer knowledge. Therefore, Tengtu United also provides
information technology solutions to Chinese K-12 schools by providing hardware,
networking and operating systems.
Tengtu United has been selected by the Chinese Ministry of Education
and Ministry of Information Technology to advise them on computerized education
and teaching and to assist in implementing computerized education in the Chinese
schools. The Ministries of Education and Information Technology have awarded
Tengtu United two "Torch Projects." Torch Projects are national initiatives
aimed at improving the quality of education designated by the Chinese
government. The two Torch Projects are the development of a Digital Library
System and a General School Computer Networking System. The Digital Library
System is to be a computerized database and catalog of educational books and
reference materials. The purpose of the General School Computer Networking
System is to introduce computer networking to Chinese schools to enable them to
realize greater computer efficiency and sharing of computer software. Iconix'
UserNet(TM) software could be used in this project.
Subsequent to June 30, 1998, Tengtu United entered the final stages of
software development for the Digital Library System and General School Computer
Networking System. The Company's management believes that the software developed
for these projects will be useful to Chinese K-12 schools and will generate
revenues to the Company beginning in late 1999.
As of June 30, 1998, Tengtu United's software sales performance has
been poor because the educational software market has not yet developed as the
Company had anticipated. Specifically, Chinese schools lack adequate computer
hardware, networks and software platforms and Chinese teachers lack computer
training. In addition, computer software piracy is a major problem in China.
However, Tengtu United has turned some of these problems into a business
opportunity by selling computer hardware, systems and systems integration
services to Chinese schools. In doing so, Tengtu United is also creating a
market for its software titles.
The Company had committed an additional $6,000,000 in funding to Tengtu
United for the fiscal year ended June 30, 1998 which it was unable to raise.
Tengtu United was therefore forced to downsize its operations and research and
development activities in late 1997 causing
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substantial disruption of its business plan.(1) This lack of funding combined
with the weak market for educational software in China led to most of the losses
reflected in Tengtu United's financial statements. Despite its downsizing,
Tengtu United has continued to work with the Chinese Ministry of Education and
Ministry of Information Technology to find ways to enable Chinese schools to
incorporate information technology into teaching. However, Tengtu United's
downsizing has led to the delay and cancellation of many software projects
resulting in financial losses reflected in the Company's financial statements.
Tengtu United and Tengtu China have taken on a significant role in
China's initiative to establish an electronic publishing infrastructure with the
Chinese Ministry of Education and Ministry of Information Technology. Tengtu
United will be able to transfer many books onto CD ROM which can be easily
accessed and shared. Tengtu China is one of only eight companies that has been
granted an electronic publishing license in China and the only company in China
with a license to publish educational software. The license is for one year and
is renewable each year thereafter upon approval from the Chinese Government.
In the future, Tengtu United plans to focus on the sale of educational
software systems to Chinese schools to strengthen the market for its software
products and exploit synergies with Iconix and its UserNet product discussed
below.
Tengtu United's competition in China consists of numerous Chinese and
foreign software manufacturers
TIC BEIJING
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TIC Beijing is a wholly owned subsidiary of the Company which commenced
operations in July, 1997 and has 40 employees. Five of the employees are
responsible for marketing, thirty are responsible for production and engineering
and five perform administrative functions. TIC Beijing's primary business is to
provide information technology services to the education and entertainment
industries in China, focusing on animation and multimedia. Specifically, TIC
Beijing has the capability to produce two and three dimensional animation,
digital integration for television post-production and digital visual effects
for movies.
TIC Beijing provides its services to major television stations
including Central China Television ("CCTV") and to Beijing Television. TIC
received three of a total of five CCTV Gold Awards from CCTV's music and opera
channel for its production services. TIC Beijing is seeking to expand its
business to include pre-production, co-production of television shows,
distribution of foreign television programs and co-productions of television
cartoons. This expansion will require an additional investment of approximately
$3 million.
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(1) During the past two fiscal years, Tengtu United has spent $1,552,981 on
research and development. These expenses, a large portion of which were start-up
expenses which had to be written off, were not borne directly by Tengtu United's
customers.
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TIC Beijing's services are marketed by its own in-house marketing staff
with contacts in the Chinese television industry and through attendance at trade
shows and conferences.
TIC Beijing's competition consists of five local Beijing studios.
However, none of these studios have both two and three dimensional animation and
post-production facilities. In addition, TIC Beijing is the only studio that is
foreign owned and has easy access to foreign technology.
TIC Beijing has a license to operate its business from the Chinese
government which is reviewed each year. There is no other significant government
approval or regulation of its business.
ICONIX
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Iconix is a Toronto, Canada based company in which the Company had a
45% interest as of June 30, 1998. Iconix and its UserNet(TM) product were
acquired from Unisys Canada in May, 1997. Iconix has 2 employees and 9
independent contractors. Iconix had been operating for ten years as Iconix
International's education division.
Iconix develops and markets middleware network management software
exclusively for the K-12 educational software market worldwide. Iconix' UserNet
product allows non-technical school staff to manage complex computer networks
with an easy to use tool set. All computing resources, including personal
computers, printers, internet resources, software applications and userfiles can
be centrally managed through UserNet, resulting in savings in costs and
administrative task time. UserNet is already installed in over 1,500 schools on
over 70,000 computers in the United States, Canada, France, South Africa and
China.
Iconix is planning to introduce a Mandarin Chinese version of UserNet
to bundle with Tengtu United's software titles. By bundling UserNet with Tengtu
United's CD-ROM based courses in Mandarin, Tengtu United and Iconix are
attempting to become the major software supplier to the more than 800,000
Chinese schools with over 200 million students. Both Iconix and Tengtu United
plan to make use of TIC Beijing's services to provide leading edge sound,
multimedia and entertainment content to their K-12 software.
UserNet is marketed and distributed through Iconix' sales force and
through its web site at www.iconix.com. Iconix' UserNet name is a registered
trademark in Canada and the UserNet source code is copyrighted.
EMPLOYEES
The Company, exclusive of subsidiaries, has five total employees of
which all are full time employees.
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ITEM 2. DESCRIPTION OF PROPERTY
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The Company has no significant physical properties. The Company's
property and equipment is set forth in its financial statements below.
ITEM 3. LEGAL PROCEEDINGS
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The Company is not currently a party to any pending legal proceeding,
nor does the Company know of any proceeding that any governmental authority may
be contemplating against the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of security holders during the
fourth quarter of the fiscal year ended June 30, 1998.
PART 2
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The principal market where the Company's common equity is traded is the
National Association of Securities Dealers Bulletin Board. The high and low
sales prices of the Company's common stock for each quarter within the last two
fiscal years was:
HIGH LOW
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3rd Quarter 1996 - 5 5
4th Quarter 1996 - 5 3 1/8
1st Quarter 1997 - 3 1 1/4
2nd Quarter 1997 - 1 3/8 3/8
3rd Quarter 1997 - 1/2 3/16
4th Quarter 1997 - 1/2 1/8
1st Quarter 1998 - 1/8 1/8
2nd Quarter 1998 - 3/16 1/16
As of June 30, 1998 there was one class of common equity held by
approximately 395 holders of record.
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No dividends have been declared by the Company during the last two
fiscal years. There are no restrictions which affect or are likely to affect the
Company's ability to pay dividends in the future.
In the past three years, the Company has sold the following securities
without registration under the Securities Act of 1933 in reliance on exemptions
therefrom:
1. Rule 504 distribution of 15,200,000 shares of $.05 per share Common Stock and
attached warrants, raising $760,000 in June and July 1996. The expiration date
of the warrants was either July 30, 1997 or July 30, 1998 and each had an
exercise price of $1.00 per share. None of these warrants were exercised. The
purchasers were primarily Company officers and directors, and close associates.
All purchasers, with two exceptions, were and are non-residents of the United
States. The two United States residents are highly sophisticated professional
investors who participated in the subsequent Section 4(2) offering.
2. Regulation S placement of 2,324,444 shares of Common Stock at $2.25 per share
and attached warrants expiring August 30, 1997 or November 28, 1997, raising
$5,229,999 in October and November 1996. The exercise price of the warrants was
$4.00 per share. None of the warrants were exercised.
3. Section 4(2) private placement of 940,000 shares of Common Stock at $2.25 per
share, and attached warrants expiring August 30, 1997, for an aggregate of
$2,115,000 in November 1996, to the two United States highly sophisticated
professional investors who participated in the Rule 504 distribution. The
exercise price of the warrants was $4.00 per share. None of these warrants were
exercised.
4. Regulation S placement of 154,888 shares of Common Stock at $2.25 per share
and attached warrants, raising $348,498 in February 1997. None of these warrants
were exercised .
5. Rule 701 offering of 185,000 shares of Common Stock in an exchange of shares
concerning the Company's purchase of control of a dormant public corporation on
June 10, 1996.
There were no underwriters involved in any of the above offerings. The
facts relied upon in making the above offerings under each exemption were as
follows:
Rule 504 Offering
The Company was not subject to the reporting requirements under section
13 or 15(d) of the Securities and Exchange Act of 1934, the Company was not an
investment company and the Company was not a development stage company with no
specific business plan or a with a business plan to engage in a merger with an
unidentified company or other entity. In addition, the aggregate offering price
did not exceed $1,000,000.
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Regulation S Offerings
The securities were sold in offshore transactions, with no directed
selling efforts made in the United States by the Company or on the Company's
behalf. Offering restrictions were implemented so that resales of the securities
to U.S. persons, or for the account or benefit of U.S. persons, would not be
made prior to the expiration of a forty day period after the offering.
Section 4(2)
The securities were offered and sold in a private transaction to
sophisticated professional investors, without general solicitation or
advertisement. The purchasers executed investment representation letters stating
that the securities were acquired with an investment intent and not with a view
to their distribution or resale.
Rule 701
The Company was not subject to the reporting requirements under section
13 or 15(d) of the Securities and Exchange Act of 1934 and the aggregate sales
price of the securities sold did not exceed $1,000,000. The stock was issued
pursuant to written contracts with the Company for consulting and advisory
services.
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
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LIQUIDITY AND CAPITAL RESOURCES
The Company has relied on $7,693,527 in capital raised during the
fiscal year ended June 30, 1997 pursuant to Regulation S and section 4(2) of the
Securities Act of 1933 as amended.
For the year ended June 30, 1998, net cash used by operating activities
totaled $1,409,062 including net loss of $4,219,004 and depreciation and
amortization of $311.041. Prepaid expenses, inventories, advances to suppliers
and other receivables decreased by $559,611, $248,840, $180,908 and $90,560,
respectively, primarily due to scaling down of Tengtu United's operations at the
end of the year. Accounts receivable increased by $199,544 due to commencement
of Iconix and TIC Beijing operations in July, 1997.
Accounts payable and accrued expenses increased by $1,286,264 and
$266,146 respectively. To conserve cash, the Company has deferred payments to
consultants of $518,936. Included in the accounts payable was a contingent
liability of approximately $538,000 payable to a former landlord due to a breach
of contract. At the end of the year, the Company wrote down the balance of
goodwill by $180,000, set up a provision for bad debt of $66,900 for overdue
receivables, issued $62,500 in common stock for services rendered and expensed
compensation costs on granting of stock options in the amount of $50,000.
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Net cash used by investing activities was $947,612 which was primarily
attributable to acquisitions of machinery and equipment for TIC Beijing's
animation center. There were no funds provided by financing activities during
the year.
For the year ended June 30, 1997, net cash used by operating activities
totaled $4,392,604 including a net loss of $3,868,453 and depreciation and
amortization of $66,992. Accounts receivable, prepaid expenses, inventories,
advances to suppliers, other receivables, and organization costs increased by
$263,700, $612,635, $474,453, $303,323, $126,500 and $10,294 respectively as
Tengtu United commenced its operations. Likewise, accounts payable, accrued
expenses, amount due to related party and other liabilities increased by
$317,106, $668,130, $74,128 and $94,578 respectively. Net cash used by investing
activities increased by $1,000,729 primarily due to acquisitions of machinery
and equipment for Tengtu United software research and development and the TIC
Beijing animation centers. During the year ended Jun 30, 1997, the Company
raised $7,693,527 capital (see above).
The Company has incurred a net loss of $4,219,004 and utilized
$1,409,062 for operations for the year ended June 30, 1998, and, as of that
date, had a working capital deficiency of $1,090,756. These factors, as well as
significant downsizing of operations in its largest operating entity (Tengtu
United), create an uncertainty about the Company's ability to continue as a
going concern. Management, however, has developed a plan to alleviate these
factors to enable the Company to continue as a going concern. The plan includes
a private placement of stock to inject cash into the Company, reduction of
operating expenses to a minimum, deferral of consulting fee payments, expansion
of Iconix through obtaining additional financing and the use of Chinese
government project financing to expand its operations in China. The ability of
the Company to continue as a going concern is dependent on the success of this
plan.
REVENUES
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The Company derived its revenues from its systems integration,
educational and entertainment software, and animation businesses as explained
above. Sales increased by 117.6% from $2,135,066 for the year ended June 30,
1997 to $4,646,355 for the year ended June 30, 1998. This increase is
attributable to TIC Beijing and Iconix emerging from their start up phases and
generating sales beginning in July, 1997. Sales by Tengtu United amounted to
$2,776,605 ($2,125,702 in FY 1997). Sales by Iconix amounted to $1,423,185
(approximately $9,000 in FY 1997).
GROSS PROFIT
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Gross profit margins, expressed as a percentage of sales, increased
from 0.05% for the year ended June 30, 1997, to 11.4% for the year ended June
30, 1998, due to less overhead costs per unit and a profit margin of 22.2% from
Iconix's systems integration and software sales.
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RESEARCH AND DEVELOPMENT EXPENSES
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Research and development expenses decreased 50.1% from $1,041,092 for
the year ended June 30, 1997, to $511,889 for the year ended June 30, 1998, due
to decreased start up costs associated with the commencement of operations of
Tengtu United in the previous fiscal year. Research and development expenses
significantly decreased in the latter part of the year ended June 30, 1998
because an additional $6,000,000 in financing was not in place and the software
market in China was not developing at the pace expected by Management as
explained above.
GENERAL AND ADMINISTRATIVE EXPENSES
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General and administrative expenses increased by 35.1% from $2,627,152
for the year ended June 30, 1997, to $3,549,003 for the year ended June 30,
1998, primarily due to the commencement of operations by Iconix and TIC Beijing
in July, 1997. In addition, the June 30, 1998 expenses included an accrual of
approximately $538,000 for a contingent liability for a breach of lease
agreement as explained above.
ADVERTISING
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Advertising expenses increased by 233.9% from $41,793 for the year
ended June 30, 1997, to $139,550 for the year ended June 30, 1998, primarily due
to an advertising campaign by Tengtu China to gain a foothold in the Chinese
software market.
SELLING
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Selling expenses increased by 265.3% from $81,875 for the year ended
June 30, 1997, to $299,101 for the year ended June 30, 1998, primarily due to
the commencement of operations by TIC Beijing in July, 1997 and the expansion of
Tengtu United's sales team.
DEPRECIATION AND AMORTIZATION
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Depreciation and amortization expenses increased by 78% from $66,992
for the year ended June 30, 1997, to $119,262 for the year ended June 30, 1998,
primarily due to the acquisition of machinery and equipment for TIC Beijing's
animation center.
WRITE DOWN OF GOODWILL
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The Company recorded a significant loss of $180,000 from the write down
of goodwill during the year ended June 30, 1998. As a result of the current
year's loss and the necessary revisions to the projected future undiscounted
cash flows, there is no longer justification for the carrying value of goodwill
resulting from the Company's investment in Tengtu United (a joint venture) of
$200,000 ($100,000 cash and 2,000,000 common shares valued at $.05 per share) in
June 1996. Therefore, goodwill of $200,000 and related accumulated amortization
of $20,000 was written off.
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INTEREST INCOME
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Interest income decreased by 77.6% from $100,916 for the year ended
June 30, 1997, to $22,578 for the year ended June 30, 1998, primarily due to a
decrease in cash of $2,362,428 during the current year.
OTHER INCOME
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Other income of $38,088 for the year ended June 30, 1998 was primarily
attributable to sales of technical support services and software copyrights
generated by Tengtu United.
OTHER COSTS
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In September and October of 1996, the Company made three payments to
two different vendors totaling $111,620. These payments were authorized by a
former officer of the Company. The Company does not have supporting
documentation from the payees. In fiscal year 1998, legal counsel of the Company
investigated these transactions. Despite these efforts, the Company has been
unsuccessful in discovering the purpose for these payments and therefore
believes these costs should be expensed.
MINORITY INTERESTS IN SUBSIDIARY'S EARNINGS
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Minority interests of $10,038 recorded for the year ended June 30, 1998
were due to a 55% minority interest in Iconix. Although the Company's interest
in Iconix fell below 50%, it retains voting control over Iconix. The Company
therefore consolidated Iconix into its financial statements and the other
shareholders are treated as the minority.
Minority interest in the loss of Tengtu United is limited to the
minority shareholders' capital investment. The cumulative loss of $1,400,355 not
realized by the minority shareholders will be carried over to years in which
Tengtu United has net income or a year in which the minority shareholders
contribute more capital.
PLAN OF OPERATION
The Company will continue to work with the Chinese Government to
provide information technology solutions to the K-12 schools. With the "Torch
Projects" software development soon to be completed, it will proceed with a
marketing plan to install the products starting in late 1999.
The Company recognizes the increasing significance of electronic
publishing and that it is an important industry poised for tremendous growth and
profitability in China. The Company has been aggressively pursuing the right to
be a licensed electronic publisher in China and has recently received a license.
The Company will import foreign materials under the Chinese quota system,
expedite the development of curriculum software and attempt to become the lead
manager for the distribution infrastructure in the Chinese electronic publishing
industry.
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The Company is also focusing on the movie and television industries in
China where the tremendous population and economy can provide significant
opportunities. The Company, with its state-of-the-art technology and experienced
management team, has equipped itself to capture market share in China.
Iconix and its leading edge UserNet family of products was a strategic
acquisition for the Company in 1997. Iconix plans a Mandarin Chinese version of
UserNet to be used as the "Cornerstone Product" of the K-12 market in China. By
bundling Iconix's UserNet, with Tengtu United's current library of over 30
CD-ROM based courses in Mandarin, as well as other planned titles, Tengtu
United, TIC Beijing and Iconix will attempt to be the major total solution
provider to the K-12 education segment in China with 800,000 schools and over
200 million students. Both Tengtu United and Iconix will make significant use of
the TIC Beijing Multimedia Center to provide leading edge sound, multimedia and
entertainment content to the K-12 courseware.
The Company has a strong commitment to its subsidiaries and joint
venture. The Company will focus on raising needed capital and investing the
funds in China for growth and profit.
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ITEM 7. FINANCIAL STATEMENTS
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TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
Financial Statements
June 30, 1998
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TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONTENTS
PAGE
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Independent Auditor's Report F-1
Consolidated Financial Statements:
Balance Sheet as of June 30, 1998 F-2
Statements of Operations for the years ended
June 30, 1998 and 1997 F-3
Statements of Stockholders' Equity for the years ended
June 30, 1998 and 1997 F-4
Statements of Cash Flows for the years ended
June 30, 1998 and 1997 F-5
Notes to Financial Statements F-6 - F-15
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MOORE STEPHENS, P.C.
CERTIFIED PUBLIC ACCOUNTANTS
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders
Tengtu International Corp.
We have audited the accompanying consolidated balance sheet of Tengtu
International Corp. and its subsidiaries as of June 30, 1998 and the related
consolidated statements of operations, stockholders' equity and cash flows for
each of the two fiscal years in the period then ended. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
consolidated financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Tengtu
International Corp. and its subsidiaries as of June 30, 1998, and the results of
their operations and their cash flows for each of the two fiscal years in the
period then ended in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As shown in the financial statements,
the Company incurred a net loss of $4,219,004 and utilized $1,409,062 in cash
for operations for the year ended June 30, 1998, and, as of that date, had a
working capital deficiency of $1,090,756. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. These
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Moore Stephens, P.C.
Certified Public Accountants
New York, New York
April 1, 1999
Except for Note 8b
as to which the date is
May 25, 1999
F-1
<PAGE>
<TABLE>
<CAPTION>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
JUNE 30, 1998
ASSETS
<S> <C>
CURRENT ASSETS
Cash and cash equivalents $ 422,135
Accounts receivable, net of allowance for
doubtful accounts of $66,900 396,344
Due from related party 290,525
Prepaid expenses 35,210
Inventories 255,613
Advances to suppliers 122,415
Other receivables 35,940
-----------
Total Current Assets 1,528,182
PROPERTY AND EQUIPMENT, net 1,612,807
OTHER ASSETS 15,202
-----------
TOTAL ASSETS $ 3,156,191
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 1,607,143
Accrued expenses 934,276
Other liabilities 77,519
-----------
Total Current Liabilities 2,618,938
-----------
COMMITMENTS [Note 8]
MINORITY INTEREST IN SUBSIDIARY 43,292
-----------
STOCKHOLDERS' EQUITY
Preferred stock, par value $.01 per share authorized
10,000,000 shares; issued -0- shares
Common stock, par value $.01 per share; authorized
100,000,000 shares; issued 19,297,107 shares 192,972
Additional paid in capital 8,725,901
Accumulated deficit (8,352,743)
Cumulative translation adjustment (21,385)
-----------
544,745
Less: Treasury stock, at cost, 78,420 common shares (784)
Less: unamortized deferred compensation (50,000)
-----------
Total Stockholders' Equity 493,961
-----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,156,191
===========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-2
<PAGE>
<TABLE>
<CAPTION>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEAR ENDED JUNE 30,
1988 1997
---- ----
<S> <C> <C>
SALES $ 4,646,355 $ 2,135,066
COST OF SALES 4,117,182 2,133,911
------------ ------------
GROSS INCOME 529,173 1,155
------------ ------------
OPERATING EXPENSES
Research and development 511,889 1,041,092
General and administrative 3,549,003 2,627,152
Advertising 139,550 41,793
Selling 299,101 81,875
Depreciation and amortization 119,262 66,992
Write down of goodwill 180,000 -0-
------------ ------------
4,798,805 3,858,904
------------ ------------
OTHER INCOME (EXPENSE)
Interest income 22,578 100,916
Other income 38,088 -0-
Other costs (Note 13) -0- (111,620)
------------ ------------
60,666 (10,704)
------------ ------------
LOSS BEFORE MINORITY INTERESTS $ (4,208,966) $ (3,868,453)
============ ============
MINORITY INTERESTS IN SUBSIDIARY'S
EARNINGS 10,038 -0-
NET LOSS $ (4,219,004) $ (3,868,453)
============ ============
NET LOSS PER COMMON SHARE
[Basic and Diluted] $ (.22) $ (.22)
18,813,545 17,470.174
WEIGHTED AVERAGE NUMBER OF SHARES
</TABLE>
F-3
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED JUNE 30, 1998 AND 1997
ADDITIONAL CUMULATIVE UNAMORTIZED
COMMON STOCK PAID-IN ACCUMULATED TRANSLA- TREASURY DEFERRED STOCKHOLDERS'
------------ TION STOCK COMPEN-
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENT AT COST SATION EQUITY
------ ------ ------- ------- ---------- ------- --------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance-June 30, 1996 15,377,750 $153,778 $ 859,095 $ (265,286) $ -0- $ -0- $ -0- $ 747,587
Issuance of common stock 3,419,357 34,194 7,659,333 -0- -0- -0- -0- 7,693,527
Deferred compensation
related to stock options
issued below market value -0- 150,000 -0- -0- -0- (100,000) 50,000
Translation adjustment -0- -0- -0- (15,631) -0- -0- (15,631)
Treasury stock -0- -0- -0- -0- (784) -0- (784)
Net loss - year ended June
30, 1997 -0- -0- (3,868,453) -0- -0- -0- (3,868,453)
---------- -------- ---------- ----------- -------- ------ -------- -----------
Balance - June 30, 1997 18,797,107 $187,972 $8,668,428 $(4,133,739) $(15,631) $(784) $(100,000) $ 4,606,246
Issuance of common stock
in exchange for services
at fair value - June 19, 500,000 5,000 57,500 -0- -0- -0- -0- 62,500
1998
Amortization of deferred
compensation related to
stock options issued in
year ended June 30, 1997 -0- -0- -0- -0- -0- 50,000 50,000
Adjustment to minority
interest -0- (27) -0- -0- -0- -0- (27)
Translation adjustment -0- -0- (5,754) (5,754)
Net loss - year ended
June 30, 1998 -0- -0- (4,219,004) -0- -0- -0- (4,219,004)
---------- ------- ---------- ----------- -------- ------ --------- -----------
Balance - June 30, 1998 19,297,107 $192,972 $8,725,901 $(8,352,743) $(21,385) $ (784) $ (50,000) $ 493,961
========== ======== ========== =========== ======== ====== ========= ===========
</TABLE>
F-4
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEAR ENDED JUNE 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C>
Net loss $(4,219,004) (3,868,453)
Adjustments to reconcile net loss
to net cash used by operating activities:
Depreciation and amortization 311,041 66,992
Provision for bad debt 66,900 -0-
Issuance of common stock for services 62,500 -0-
Offset of software purchase price by licensing fee revenue -0- (54,180)
Noncash compensation expense on granting of stock options 50,000 50,000
Adjustment of interest in joint venture -0- 50,000
Minority interest in subsidiary 43,265 -0-
Write-down of goodwill 180,000 -0-
Changes in operating assets and liabilities:
Decrease (Increase) in operating assets:
Accounts receivable (199,544) (263,700)
Prepaid expenses 559,611 (612,635)
Inventories 248,840 (474,453)
Advances to suppliers 180,908 (303,323)
Other receivables 90,560 (126,500)
Organization Costs (1,000) (10,294)
Due from related party (258,819) -0-
Other assets 14,457 -0-
Increase (Decrease) in operating liabilities:
Accounts payable 1,286,264 317,106
Accrued expenses 266,146 668,130
Due to related party (74,128) 74,128
Other liabilities (17,059) 94,578
----------- -----------
Net Cash Used by Operating Activities (1,409,062) (4,392,604)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (947,612) (1,000,729)
----------- -----------
Net Cash Used by Investing Activities (947,612) (1,000,729)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of common stock -0- 7,693,527
----------- -----------
Net Cash Provided by Financing Activities -0- 7,693,527
----------- -----------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (5,754) (15,631)
----------- -----------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (2,362,428) 2,284,563
CASH AND CASH EQUIVALENTS, beginning of year 2,784,563 500,000
----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 422,135 $ 2,784,563
=========== ===========
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING AND FINANCING ACTIVITIES:
Issuance of common stock for acquisition (2,000,000 shares) $ -0- $ 100,000
</TABLE>
F-5
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY
Tengtu International Corp. (The "Company") was incorporated in Delaware on May
6, 1988 as Galway Capital Corporation for the purpose of seeking potential
ventures. After operating as a Development Stage Enterprise through 1991, the
Company became inactive and remained so until May 1996, when control of it was
acquired by several individuals. On May 24, 1996 the Company changed its name to
Tengtu International Corp. The Company's main activities, which are carried out
through its subsidiaries, are the development and marketing of educational
software and other forms of electronic publishing in China and Canada.
As shown in the accompanying financial statements, , the Company incurred a net
loss of $4,219,004 and utilized $1,409,062 in cash for operations for the year
ended June 30, 1998, and, as of that date, had a working capital deficiency of
$1,090,756. Those factors, as well as a significant downsizing of operations in
its largest operating subsidiary, create an uncertainty about the Company's
ability to continue as a going concern.
Management has developed a plan to alleviate these factors to enable the Company
to continue as a going concern. The plan includes a private placement of stock
to inject cash into the Company, the reduction of operating expenses to a
minimum and deferral of payments of consulting fees, the expansion of its
Canadian subsidiary through a financing of approximately $650,000, which was
received in January 1999, and the use of government project financing to expand
its operations in China. The ability of the Company to continue as a going
concern is dependent on the success of its plan. The financial statements do not
include any adjustments that might be necessary if the Company is unable to
continue as a going concern.
2. SIGNIFICANT ACCOUNTING POLICIES
a. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the
Company and subsidiaries over which it has operational control,
including a subsidiary with a year end of December 31; however, that
subsidiary's financial books and records have been cut-off at June 30
to allow it to be included in these consolidated financial statements.
Significant intercompany balances and transactions have been eliminated
on consolidation. In accordance with Accounting Research Bulletin 51,
in the case of one subsidiary, the Company has charged to income the
loss applicable to the minority interest as the loss was in excess of
the minority's interest in the equity capital of the subsidiary.
b. USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities at June 30, 1998, and reported amounts of revenues and
expenses during each of the two fiscal years then ended . Actual
results could differ from those estimates.
F-6
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
c. REVENUE RECOGNITION
Revenue from the sale of computer hardware and software is recognized
when the products are delivered to the customer. Revenue from software
license fees is recognized on a straight-line basis over the term of
the license.
d. INVENTORIES
Inventories are priced at the lower of cost, on a weighted-average
basis, or market and consist primarily of computer hardware and
software.
e. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided
primarily by the straight-line method over the estimated useful lives
of the assets, which range from two to ten years.
f. ORGANIZATION COSTS
These costs consist primarily of incorporation and business
registration fees for subsidiaries of the Company and are being
amortized on a straight line basis over sixty months.
g. GOODWILL
Goodwill represented the excess of cost of an acquired subsidiary over
the fair value of net assets acquired, and was to be amortized on the
straight-line basis over ten years. [See Note 4].
h. CASH EQUIVALENTS
The Company considers all highly liquid investments with maturities of
three months or less when purchased to be cash equivalents.
i. INCOME TAXES
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ,
which requires an asset and liability approach to determine deferred
tax assets and liabilities. The deferred assets and liabilities are
determined based upon the differences between financial reporting and
tax bases of assets and liabilities and are measured using the enacted
tax rates and laws that are expected to be in effect when the
differences are assumed to reverse.
The Company files a consolidated return with its subsidiaries that are
eligible to be consolidated. Separate provisions for income tax are
calculated for subsidiaries that are not eligible for consolidation
into the U.S. federal income tax return.
j. EARNINGS PER SHARE
Income per common and common equivalent share is computed based on the
weighted average number of common shares outstanding. Due to the
antidilutive effect of the assumed exercise of outstanding common stock
equivalents at June 30, 1998 and 1997, earnings per share does not give
effect to the exercise of these common stock equivalents in either
year.
F-7
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
2. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
k. ADVERTISING EXPENSE
The Company expenses advertising costs as incurred.
l. IMPAIRMENT
The Company evaluates its long-lived assets to determine whether later
events and circumstances warrant revised estimates of useful lives or a
reduction in carrying value due to impairment. [See Note 4].
m. FOREIGN CURRENCY TRANSACTIONS/TRANSLATION
Assets and liabilities of the financial statements of foreign
subsidiaries are translated into U.S. dollars utilizing the exchange
rate at the balance sheet date, and revenues and expenses are
translated using average exchange rates in effect during the year.
Translation adjustments are accumulated and recorded as a separate
component of stockholders' equity.
Foreign currency transactions are translated into U.S. dollars at the
rate of exchange ruling on the date of the transaction. Material gains
and losses from foreign currency transactions are reflected in the
financial statements in the period in which they are realized.
n. STOCK-BASED COMPENSATION
On July 1, 1996, the Company adopted the disclosure requirements of
Financial Accounting Standards ("SFAS" No. 123, "Accounting for
Stock-Based Compensation" for stock options and similar equity
instruments (collectively, "options") issued to employees; however, the
Company will continue to apply the intrinsic value based method of
accounting for options issued to employees prescribed by Accounting
Principles Board ("PB" Opinion No. 25, "Accounting for Stock Issues to
Employees" rather than the fair value based method of accounting
prescribed by SFAS No. 123. SFAS No. 123 also applies to transactions
in which an entity issues its equity instruments to acquire goods or
services from non-employees. Those transactions must be accounted for
based on the fair value of the consideration received or the fair value
of the equity instruments issued, whichever is more reliably
measurable.
o. SOFTWARE COSTS
Software development costs are capitalized if they are incurred after
technological feasibility has been established. Purchased software is
capitalized if it has an alternative future use. Research and
development costs for new products or enhancement of existing software
and purchased software that do not meet these requirements are expensed
as incurred. Capitalized costs are amortized over the lesser of five
years of the useful life of the related product.
F-8
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
3. PROPERTY AND EQUIPMENT
Property and equipment at June 30, 1998 is comprised as follows:
Computer hardware $ 181,446
Computer software 209,551
Furniture and fixtures 44,886
Automobiles 205,698
Office equipment 81,274
Leasehold improvement 3,816
Production equipment 1,227,683
---------
1,954,354
Less: accumulated depreciation (341,547)
-----------
Net property and equipment $ 1,612,807
===========
Depreciation charged to operations for the year ended June 30, 1998 and 1997was
$311,016 and $46,993, respectively, of which approximately $191,779 was included
in cost of sales for the year ended June 30,1998.
4. IMPAIRMENT OF GOODWILL
During the fiscal year ended June 30, 1998, the Company recorded an
impairment loss of $180,000 from the write down of goodwill. As a
result of the current year's loss and the necessary revisions to the
projected future undiscounted cash flows, there is no longer
justification for the carrying value of goodwill resulting from the
Company's investment in a joint venture of $200,000 ($100,000 cash and
2,000,000 common shares valued at $.05 per share) purchased in June
1996. As of June 30, 1998 and 1997 the Company's interest in the joint
venture was 57%. Fair value of goodwill was based on the present value
of estimated expected future cash flows from the related assets. As of
June 30, 1998, goodwill of $200,000 and related accumulated
amortization of $20,000 was written off.
5. INCOME TAXES
For the current year, none of the Company's operating subsidiaries will
be included in its federal income tax return as these are all foreign
entities and are therefore ineligible for consolidation.
The Company has accumulated approximately $4,370,000 of operating
losses which may be used to offset future federal taxable income. The
utilization of the losses expire in years from 2005 to 2018. Due to an
ownership change in the year ended June 30, 1996, annual utilization of
approximately $265,000 of the losses is expected to be limited to an
estimated $60,000 by current provisions of Section 382 of the Internal
Revenue Code, as amended.
F-9
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
5. INCOME TAXES (CONTINUED)
As the Company is not liable for either current or deferred income
taxes for the years ended June 30, 1998 and 1997, respectively, no
provision is shown on the statement of operations. The Company has
recorded a deferred tax asset of approximately $1,486,000 at June 30,
1998 and $769,000 at June 30, 1997 due principally to net operating
losses. A valuation allowance of an identical amount has been recorded,
as the Company believes that it is more likely than not that the losses
will not be utilized. The allowance has the effect of reducing the
carrying value of the deferred tax asset to $0. The valuation allowance
increased approximately $717,000 and $769,000 during the years ended
June 30, 1998 and 1997 respectively.
6. WARRANTS
The Company has 9,675,000 of warrants outstanding, which can be
exercised to purchase a like number of shares of common stock at a
price of $1.00. The warrants expire on July 30, 1998.
7. CONCENTRATION OF CREDIT RISK
The Company operates through subsidiaries located principally in
Beijing, China and Toronto, Canada; the administrative office is in
Vancouver, Canada. The Company grants credit to its customers in both
geographic regions. At June 30, 1998, approximately 65% of the accounts
receivable balance was due from customers in Canada, while at June 30,
1997, approximately 97% of the accounts receivable balance was due from
customers in China. As of June 30, 1998, balances from two customers
accounted for approximately 49% of the accounts receivable balance
while as of June 30, 1997, a balance from a different customer
accounted for approximately 38% of the accounts receivable balance.
The Company performs certain credit evaluation procedures and does not
require collateral. The Company believes that credit risk is limited
because the Company routinely assesses the financial strength of its
customers, and based upon factors surrounding the credit risk of its
customers, establishes an allowance for uncollectible accounts and, as
a consequence, believes that its accounts receivable credit risk
exposure beyond such allowances is limited. The Company established an
allowance for doubtful accounts at June 30, 1998 of $66,900. The
Company believes any credit risk beyond this amount would be
negligible.
At June 30, 1998, the Company had approximately $445,000 of cash in
banks uninsured. The Company did not have balances in excess of the
federally insured amounts in U.S. banks.
The Company does not require collateral or other securities to support
financial instruments that are subject to credit risk.
F-10
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
9. COMMITMENTS AND CONTINGENCIES
a. The Company has entered into a number of operating leases for
office space. The minimum rental payments on these leases are
as follows:
YEAR ENDED
JUNE 30,
----------
1999 $ 108,200
2000 29,600
2001 14,800
-------------
$ 152,600
=============
Rent expense for the years ended June 30, 1998 and 1997 has been
charged as follows:
YEAR ENDED JUNE 30,
1998 1997
------------------
General and administrative expense $ 808,051 $ 235,379
Research and development 110,810 112,767
Selling expense 79,531 23,357
Cost of sales 72,257 -0-
---------- ---------
Total rent expense $1,070,649 $ 371,503
========== =========
The Company has contracts with various excutives and consultants. The
minimum cash compensation due under these contracts is as follows:
YEAR ENDED
JUNE 30,
----------
1999 $365,000
2000 274,000
--------
$639,000
========
In addition to the cash compensation, the Company is committed to issue
100,000 common shares to a consultant.
b. In January 1998, the Company terminated its contract with a
consultant effective May 1998. The Company completed
negotiating a settlement with the consultant in May 1999. The
settlement requires the Company to pay up to $120,000 to the
consultant depending upon the Company's future cash flows and
payments to other consultants and executives, as well as the
issuance of 80,500 shares of the Company's common stock to the
consultant. The settlement (both cash and fair value of the
common stock) of $130,000 has been recorded as a liability as
of June 30, 1998.
F-11
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
8. COMMITMENTS (CONTINUED)
c. The Company leased office space under an operating lease, expiring
in July 2001. In May 1998, the Company terminated its lease agreement
and rent expense of approximately $538,000 was accrued as of June 30,
1998, representing the remainder of the lease payments due under such
lease. The liability is included in accrued expenses at June 30, 1998
and is part of rent expense within the Statement of Operations for the
year ended June 30, 1998.
d. The Company is committed to contribute $6,000,000 to the joint venture
(see Note 4) upon the completion of its next major financing.
9. FOREIGN OPERATIONS
The Company operates principally in two geographic areas: China and
Canada. Following is a summary of information by area for the years
ended June 30, 1998 and 1997:
<TABLE>
<CAPTION>
Net sales to unaffiliated customers: For the year ended June 30,
1998 1997
---- ----
<S> <C> <C>
China $ 3,223,200 $ 2,125,700
Canada 1,423,200 -0-
----------- -----------
$ 4,646,400 $ 2,125,700
=========== ===========
Income (loss) from operations:
China $(1,999,000) $(1,891,100)
Canada 29,000 24,500
----------- -----------
(1,970,000) (1,915,600)
Other income 58,400 110,300
General corporate expenses (2,307,400) (2,063,100)
Net loss as reported in accompanying statements $(4,219,000) $(3,868,400)
=========== ===========
Identifiable assets:
China $2,475,600 $4,561,500
Canada 479,700 252,500
---------- ----------
2,955,300 4,814,000
General corporate assets 200,900 950,000
---------- ----------
Total assets as reported in
accompanying statements $3,156,200 $5,764,000
========== ==========
</TABLE>
There were no interarea sales in fiscal 1998 or 1997. Identifiable
assets are those that are identifiable with operations in each
geographical area. General corporate assets consist primarily of cash,
cash equivalents, fixed assets, and prepayments.
F-12
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
10. RELATED PARTY TRANSACTIONS
In the normal course of business with the joint venturer, the Company
generated a receivable balance of $290,525 which represents the net balance
of advances to and from the Company during the year ended June 30, 1998.
During 1998 and 1997 respectively, the Company incurred consulting and
related expenses of approximately $708,900 and $693,700 from officers and
directors of the Company or its subsidiaries or companies controlled by
these officers and directors. Approximately $249,500 and $634,200 of these
amounts were paid during the years ended June 30, 1998 and 1997,
respectively.
11. STOCK OPTIONS
In April 1997, the Company granted options to an employee to purchase
150,000 shares of common stock at one-third of the market price of the stock
at the date of grant. As the market price at that date was $1.50 per share,
the option price is $.50 a share. The options are vested equally over three
years, beginning with the year ended June 30, 1997. At June 30, 1998, the
remaining contractual life is one year. Because the exercise price of the
options was below the market price at the date of grant, the Company has
recorded deferred compensation expense of $150,000 in accordance with APB
Opinion No. 25 and related interpretations. The deferral will be recognized
ratably over three years, with $50,000 being charged to operations for the
years ended June 30, 1998 and 1997.
Had the Company elected to recognize compensation expense using the fair
value method prescribed by SFAS 123, the Company's net loss and net loss per
share would be the pro forma amounts indicated below:
YEARS ENDED JUNE 30,
1998 1997
---- ----
Net Loss as Reported $(4,219,004) $(3,868,453)
Pro Forma Net Loss (4,233,338) (3,882,787)
Loss Per Share as Reported (.22) (.22)
Pro Forma Loss Per Share (.23) (.22)
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input
of highly subjective assumptions including the expected stock price
volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do not
necessarily provide a reliable single measure of the fair value of its
employee stock options. The weighted average fair value of stock options
granted to employees used in determining pro forma amounts is estimated at
$1.29 during 1997. The fair value of these options was estimated at the date
of grant using the Black-Scholes option-pricing model for the pro forma
amounts with the following weighted average assumptions:
F-13
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
11. STOCK OPTIONS (CONTINUED)
JUNE 30, 1997
Risk Free Interest Rate 6.5
Expected Life 1.8
Expected Volatility 16.2
Expected Dividends None
AUTHORITATIVE PRONOUNCEMENTS
In June 1997 the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 130, "Reporting
Comprehensive Income" and SFAS No. 131, "Disclosures About Segments of an
Enterprise and Related Information". Both are effective for financial
statements for fiscal years beginning after December 15, 1997. The Company
will adopt both statements on July 1, 1998. Financial position and results
of operation are not expected to be materially affected by adoption of the
statements.
SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components in the financial statements. While
SFAS No. 130 is effective for fiscal years beginning after December 15,
1997, earlier adoption is permitted. Reclassification of the financial
statements for earlier periods is required. Management is in the process of
determining its preferred format. The adoption of SFAS No. 130 will have no
impact on the Company's consolidated results of operations, financial
position or cash flows.
SFAS No. 131 changes how operating segments are reported in the annual
financial statements and requires the reporting of selected information
about operating segments in interim financial reports issued to
shareholders. SFAS No. 131 is effective for financial statements for fiscal
years beginning after December 15, 1997 and comparative information for
earlier years is to be restated. SFAS No. 131 need not be applied to interim
financial statements in the initial year of application. The Company is in
the process of evaluating the disclosure requirements.
In February 1998, the FASB issued SFAS No. 132, "Employers Disclosure about
Pensions and Other Postretirement Benefits", which is effective for fiscal
years beginning after December 15, 1997. The modified disclosure
requirements are not expected to have a material impact on the Company's
results of operations, financial position or cash flows.
The FASB issued SFAS No. 133 "Accounting for Derivative Instruments and
Hedging Activities", which establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments
embedded in other contracts and for hedging activities. SFAS No. 133
requires that entities recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those
instruments at fair value. The accounting for changes in the fair value of a
derivative depends intended use of the derivative and how it is designated,
for example, gains or losses related to changes in the fair value of a
derivative not designated as a hedging instrument is recognized in earnings
in the period of the change, while certain types of hedging may be initially
reported as a component of other comprehensive income (outside earnings)
until the consummation of the underlying transaction.
F-14
<PAGE>
TENGTU INTERNATIONAL CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
12. AUTHORITATIVE PRONOUNCEMENTS (CONTINUED)
SFAS No. 133 is effective for all fiscal quarters of fiscal years beginning
after June 15, 1999. Initial application of SFAS No. 133 should be as of the
beginning of a fiscal quarter; on that date, hedging relationships must be
designated anew and documented pursuant to the provisions of SFAS No. 133.
Earlier application of all the provisions of SFAS No. 133 is not to be
applied retroactively to the financial statements of prior periods. The
Company will evaluate the new standard to determine any required new
disclosures or accounting.
13. OTHER COSTS
In September and October of 1996, the Company made three payments to two
different vendors totaling $111,620. These payments were authorized by a
former officer of the Company. However, the Company does not appear to have
supporting documentation showing that those payments were for the benefit of
the Company and has not been able to obtain such documentation from the
payees. Without this supporting documentation, the Company cannot determine
if these payments were for valid business reasons and, therefore, the total
of the payments is shown as a separate line item on the Statement of
Operations for the year ended June 30, 1997. In fiscal year 1998, legal
counsel of the Company has pursued these transactions. Despite these legal
efforts, the Company has been unsuccessful in its attempt and therefore
continues to believe these costs should be expensed.
F-15
<PAGE>
ITEM 8. CHANGES AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
During the fiscal year ended June 30, 1996, the Company's independent accountant
was Gerald R. Perlstein, C.P.A., 1260 S. Beverly Glen Blvd., Suite 106, Los
Angeles, California 90024. On June 4, 1997, the Company engaged Deloitte &
Touche, LLP as its new independent accountant. On September 17, 1997 Deloitte &
Touche LLP resigned. The reasons for the resignation are set forth in the
Company's September 24, 1997 Form 8-K, which is hereby incorporated by
reference.
As set forth in the Company's January 20, 1998 Form 8-K, which is hereby
incorporated by reference, on January 20, 1998, the Company retained Moore
Stephens, P.C. as its new independent auditor.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The current Directors and Officers of the Company are:
Pak Cheung, Chairman of the Board and C.E.O. (49)
During the past five years, Mr. Cheung has served and continues to
serve as President of BlueLake Industries, Ltd., Seattle, Washington, and
Comadex Industries, Ltd. Vancouver, Canada. Both companies are computer
technology and software firms. Mr. Cheung has served as a Chairman of the Board,
President, and C.E.O. of the Company since June 1996. Mr. Cheung received an
M.B.A. degree from University of British Colombia and was the founder of Comadex
Industries, Ltd., Vancouver, Canada, and BlueLake Industries, Ltd., Seattle,
Washington. Mr. Cheung also has 25 years experience in computer hardware,
software and systems integration.
Barry Clark, Director and President (58)
During the past five years Mr. Clark was an Executive Vice President of
ISM, Canada's largest outsourcing Company, a Vice President of three divisions
of Unisys, Canada and President of B.D. Clark & Associates. Mr. Clark has 30
years of experience in the information technology business with IBM Canada where
he was a Vice President for 15 years. Mr. Clark has been a Director since April,
1997.
Nan Hai, Director (42)
During the past five years Mr. Hai served as the President of Taiji
Computer Company, one of the joint ventures participants in Tengtu United. Taiji
Computer Company is a computer technology company. Mr. Hai has served as a
Director of the Company since June 1996. Mr. Hai is recognized as one of the top
10 contributors to the electronics industry in China.
-34-
<PAGE>
Jing Lian, Director and Vice-President (47)
During the past five years, Mr. Lian has been Vice-President of
BlueLake Industries, Ltd., Seattle, Washington. Mr. Lian has served as a
Director and Vice President of the Company since June 1996. Mr. Lian received an
M.S. degree in Computer Science from Tsing Hua University, Beijing, China. Mr.
Lian was a visiting scholar at the University of Washington, Seattle,
Washington.
John Donald Watt, Director (53)
During the past five years, Mr. Watt has been a businessman and was a
Director General of Federal Department of Communications, Hull Quebec, Canada.
Mr. Watt served as President of the Kerr-Watt Group, Ottawa, Canada, from
October 1990 to October 1992. Mr. Watt has been President of John D. Watt &
Associates, Ottawa, Canada, from November 1992 to the present. Mr. Watt has also
served as a director for Law Protection Benefits, Canada, from December 1994 to
the present. Mr. Watt has served as a Director of the Company since June 1996.
Michael Nikiforuk, Director (45)
During the past five years, Mr. Nikiforuk has been the Executive Vice
President of Banro Explorations in Toronto, Canada.
Gordon Campbell Reid, Director (59)
During the past five years, Mr. Reid has served as President of both
Gordon C. Reid, Ltd. and GenCon Investments, Ltd. Mr. Reid has served as a
Director of the Company since June 1996 and is a director of Canadian Tire,
Ottawa, Canada and Systech Retail Systems, Inc..
There are no persons nominated to become future directors of the Company. There
are no persons chosen to become Executive Officers not currently serving as
such. There currently are no employees aside from the Executive Officers listed
above.
SIGNIFICANT EMPLOYEES AND CONSULTANTS
Gregory McLelland, International Marketing and Distribution (33)
During the past five years, Mr. McLelland has worked as a General
Manager of Iconix International, an education courseware division of Unisys,
Canada, which became a subsidiary of the Company. He has also worked at Lexmark,
Canada, where he was responsible for banking and finance, and IBM Canada, where
he was a marketing Representative with the IBM advanced Function Printing Unit
responsible for servicing the Ontario government. Age: 32.
-35-
<PAGE>
Simon Hui, Controller (41)
During the past five years, Mr. Hui has been employed as a the
Controller of the following companies in Canada: Bluestar Battery Systems, Ltd.,
Glas Aire Industries, Ltd., Yorkfit Micro Memory, Ltd., and Westeel a division
of Janock Steel Fabricating Co. Mr. Hui began working with the Company as of
June 30, 1997. Mr. Hui is a Chartered Accountant.
FAMILY RELATIONSHIPS
There are no family relationships among the Directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past five years, no Director or Executive Officer of the
Company has:
(1) been general partner or executive officer of a business at the time
a bankruptcy petition was filed by, or against it;
(2) been convicted in a criminal proceeding and are not currently
subject to a pending criminal proceeding;
(3) been subject to an order, judgment or decree, permanently or
temporarily enjoining, barring, suspending or otherwise limiting their
involvement in any type of business, securities or banking activities; or
(4) been found by a court of competent jurisdiction (in a civil
action), the Securities and Exchange Commission, or the Commodity Futures
Trading Commission, to have violated a federal of state securities or
commodities law.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Not applicable.
ITEM 10. EXECUTIVE COMPENSATION
- -------- ----------------------
For the fiscal year ended June 30, 1998, the following compensation was
paid to Directors and Officers of the Company:
COMPENSATION OF EXECUTIVE OFFICERS
NAME AND POSITION SALARY OTHER COMPENSATION
- ----------------- ------ ------------------
Jing Lian, Vice President $20,000 $0
-36-
<PAGE>
COMPENSATION OF DIRECTORS
ANNUAL
RETAINER MEETING CONSULTING NUMBER OF
NAME FEES FEES FEES SHARES
---- ---- ---- ---- ------
Barry Clark $0 $0 $ 64,326.93 500,000(2)
(paid to B.D
Clark & Assoc.)
Millard Roth(3) 0 0 30,523.00 0
(paid to
Corporate
Growth
Assistance
Limited)
Pak Cheung 0 0 0 0
John Watt 0 0 49,515.07 0
Gordon Reid 0 0 0 0
Jing Lian 0 0 0(4)
Nan Hai 0 0 9,000.00 0
Pursuant to a resolution passed by the Company's Board of Directors on
April 27, 1997, each outside director, who is not an employee or consultant to
the Company, is entitled to the following compensation:
Annual Fee: $6,000
Each Board of Directors meeting attended: $500
Each Board of Directors Committee meeting attended: $250
Stock Options: Pursuant to the Company's 1997 Stock Option Plan, each
director is entitled to receive a stock option to
purchase the Company's common stock with a fair market
value of $7,500 at the beginning of each term as a
director.
- --------------
(2) These shares were earned by B.D. Clark & Associates in 1997, but
were not issued until June 1998. On the date of issuance, the shares
had a fair market value of $.25 per share.
(3) Mr. Roth was an officer and director of the Company until January
19, 1998.
(4) Mr. Lian received $20,000 in salary as an employee of the Company
as set forth above.
-37-
<PAGE>
No cash or stock option compensation pursuant to the April 27, 1997
resolution has been paid to any director for the fiscal year ended June 30,
1998.
CONSULTING AND EMPLOYMENT AGREEMENTS
The materials terms of the consulting and employment agreements between
the Company and the above directors and officer who have agreements with the
Company.
B.D. CLARK & ASSOCIATES
- -----------------------
On March 21, 1997, B.D. Clark & Associates agreed to provide one of its
officers to assume the position of President of the Company to perform, INTER
ALIA, the following tasks: development and field implementation of strategies
for the Company's product lines, marketing, development of profit and revenue
plan objectives. The term of the agreement is three years . The agreement
provides for payment for services at the rate of $192.00 per hour, with the
total payments not to exceed $612,000 without the Company's prior written
consent, vesting of 500,000 shares of Company stock to B.D. Clark & Associates
upon signing the agreement and incentive compensation upon the achievement of
specified objectives.
CORPORATE GROWTH ASSISTANCE, LTD.
- ---------------------------------
On or about April 23, 1997, Corporate Growth Assistance, Ltd. agreed to
provide Millard Roth as the Company's Chief Administrative Officer to manage the
day-to-day operation of the Company. The term of the agreement was two years but
was terminated by the Company on January 19, 1998. The agreement provided for a
base cash fee of $16,000 and 7,000 shares of Company stock per month with the
possibility of additional stock compensation upon the achievement of specified
objectives.
GREGORY MCLELLAND
- -----------------
On April 8, 1997, the Company entered into an agreement with Gregory
McLelland to provide consulting services and to serve as an officer of the
Company. The term of the agreement is three years. The agreement provides a
$125,000 annual salary, 100,000 shares of Company stock upon signing of the
agreement and 50,000 stock options annually. The agreement also provides for the
possibility of performance and incentive bonuses.
JING LIAN
- ---------
The Company and Jing Lian entered into an agreement effective January
1, 1996 for Mr. Lian to serve as a Vice President of the Company at an annual
salary of $80,000. The agreement also provides for the possibility of
performance and incentive bonuses.
-38-
<PAGE>
JOHN D. WATT & ASSOCIATES, LTD.
- -------------------------------
On November 17, 1996 the Company retained John D. Watt & Associates,
Ltd. to identify and develop strategic alliances to support the Company's
operational needs with suppliers of multimedia educational, animation and
children's entertainment products and to develop government contacts for
financing and the establishment of technology and training centers. The
agreement with John D. Watt & Associates, Ltd. provides for compensation of
$10,000 per month.
NAN HAI
- -------
On September 26, 1998, the Company entered into an agreement for
consulting services with Nan Hai to assist the Company in developing its
educational software business in China. The agreement with Mr. Hai provide for
compensation of $40,000 per year.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- -------- --------------------------------------------------------------
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
1. SECURITY OWNERSHIP OF MANAGEMENT
- --------------------------------------------------------------------------------
Name and Amount and
Address of Nature of
Title Beneficial Beneficial Percent of
of Class Owner Owner Class
- --------------------------------------------------------------------------------
$.01 par Pak Cheung - 7089 Frederick Ave. 2,000,000 10.13%
common
Burnaby, B.C. Canada V5J 3X8 owner
1,130,000* 5.73%
voting trust
$.01 par Jing Lian - 3806 169th Street 2,000,000 10.13%
common
Lynnwood, WA 98037
$.01 par John Watt - 335 Nepean Street 400,000 2.03%
common
Ontario, Ottawa Canada
$.01 par Francis Fox - 90 Berlioz', Apt. 1005 180,000(5) 0.91%
common
- -----------
(5) This stock has been designated by the Company for cancellation.
-39-
<PAGE>
Nuns Island, Quebec Canada H3B
1N1
$.01 par Gordon Reid - 29 Riverbrook Road 550,000 2.79%
common
Nepean, Ontario Canada K2H7W7
$.01 par B.D. Clark & Associates, Inc. 500,000 2.5%
common 2253 Shardawn Mews, Missisauga,
Ontario, Canada L5C 1W6
- --------------------------------------------------------------------------------
* The shares subject to the voting trust are those owned by Messrs. Watt, Reid
and Fox. The voting trusts were agreed to orally for a term of two years
commencing June 30, 1996. Pursuant to these agreements, Mr. Cheung acquired all
voting rights of the subject stock.
2. SECURITY OWNERSHIP OF ALL 5% BENEFICIAL OWNERS
- --------------------------------------------------------------------------------
Name and Amount and
Address of Nature of
Title Beneficial Beneficial Percent of
of Class Owner Owner Class
- --------------------------------------------------------------------------------
$.01 par Pak Cheung - 7089 Frederick Ave. 2,000,000 and 15.86%
common 1,130,000(6)
Burnaby, B.C. Canada V5J 3X8
$.01 par Jing Lian - 3806 169th Street 2,000,000 10.13%
common
Lynnwood, WA 98037
$.01 par Geomat Holdings, Inc. - Charlotte 1,940,000 9.83%
common House
PON 4825, Nassau NP, Bahamas
$.01 par Kensington Enterprises, Ltd. - 410 1,045,000 5.29%
common NBR 2
Chen Guarg St. Dong, Cheng District
Beijing, China 100006
$.01 par Southwood Enterprises, Ltd. - 1,000,000 5.07%
common Charlotte House
- --------
(6) Includes 1,130,000 shares owned by others but subject to a voting
trust in favor of Mr. Cheung.
-40-
<PAGE>
PON 4825 Nassau, NP Bahamas
$.01 par Brooks Tyne, Ltd. - Charlotte House 1,080,000 5.47%
common
PON 4825 Nassau, NP Bahamas
$.01 par Emerald Ocean Investments, Ltd. 1,000,000 5.07%
common
Charlotte House
PON 4825 Nassau, NP Bahamas
$.01 par 574186 Alberta, Ltd. - 3000 500 4th 2,100,000 10.64%
common Ave. S.W.
Calgary, Alberta, Canada
- --------------------------------------------------------------------------------
B. WARRANTS OUTSTANDING
As of June 30, 1998, the Company does not have any warrants
outstanding.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
In the normal course of business with Tengtu United, the Company
generated a receivable balance of $290,525 which represents the net balance of
advances to and from the Company during the fiscal year ended June 30, 1998.
During the fiscal year ended June 30, 1997, the Company incurred consulting and
related expenses of approximately $748,900 from outside consultants and the
following officers and directors of the Company, or companies controlled by
them: Barry Clark, John Watt, Nan Hai and Millard Roth, of which approximately
$249,500 was actually paid.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
- -------- ---------------------------------
Index of Exhibits to this filing:
(3)(i) Articles of Incorporation;
(3)(ii) By-Laws;
(21) List of subsidiaries.
No reports on Form 8-K were filed by the Company during the last
quarter of the period covered by this filing.
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the
registrant caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
-41-
<PAGE>
(Registrant) TENGTU INTERNATIONAL CORP.
By: /s/ Pak Kwan Cheung, Chairman of the Board of Directors and CEO
By: /s/ Simon Hui, Controller
By: /s/ Barry Clark, Director and President
By: /s/ Jing Lian, Director
By: /s/ Michael Nikiforuk, Director
By: /s/ Nan Hai, Director
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH
REPORTS FILED PURSUANT TO SECTION 15(D) OF THE
EXCHANGE ACT BY NON-REPORTING ISSUERS
There were no annual reports to security holders covering the registrant's last
fiscal year. There were proxy no statements sent to more than ten of the
registrant's security holders with respect to any annual or other meeting of
shareholders.
-42-
EXHIBIT (3)(I)
CERTIFICATE OF INCORPORATION
OF
GALWAY CAPITAL CORPORATION
1. The name of the Corporation is:
GALWAY CAPITAL CORPORATION
2. The duration of the Corporation is perpetual.
3. The address of the registered office in the State of Delaware is No. 1102
West Street, in the City of Wilmington, County of New Castle. The name of its
registered agent at such address is The Colonial Charter Company.
4. The purposes for which the Corporation is organized are:
To engage, without limitation, in any lawful activity for which corporations may
be organized under the General Law of Delaware.
(a) To engage, without limitation, in any lawful activity for
which corporations may be organized under the General Law of
Delaware.
(b) To do such acts in pursuit of its general purposes as are not
forbidden by the laws of the State of Delaware, as now in
force or hereafter may be in force.
5. The maximum number of shares which the Corporation shall have the authority
to issue is:
(a) 50,000,000 (Fifty Million) Shares of Common Stock having a value of
$.001 per share; and
(b) 1,000,000 (One Million) Shares of Preferred Stock having a par
value of $.01 per share, such Preferred Stock being issuable
in one of more series as hereafter provided.
No holder of any class of stock of the Corporation shall be entitled as
of right to purchase or subscribe for any part of any class of stock of the
Corporation now authorized or hereafter authorized by any amendment of the
Certificate of Incorporation, or of any bonds, debentures, or other securities
convertible into or evidencing rights to purchase or subscribe for any stock of
the Corporation; and any stock now authorized or any such additional authorized
issue of any stock or any securities convertible into or evidencing rights to
purchase or subscribe for stock may be issued and disposed of by the Board of
Directors to such firms, persons, corporations or associations for such
consideration and upon such terms and in such manner as the Board of Directors
may in its discretion determine without offering any thereof on the same terms,
or on any terms, to the shareholders, or to any class of shareholders.
-43-
<PAGE>
The preferences, restrictions and qualifications applicable to the
Common Stock and the Preferred Stock are as follows:
PART A - COMMON STOCK
Each holder of Common Stock shall be entitled to one vote for each
share of such stock standing in his name on the books of the Corporation.
After the payment or declaration and setting aside for payment of the
full cumulative dividends for all prior and then current dividend periods on all
outstanding shares of Preferred Stock and after setting aside all stock purchase
funds or sinking funds heretofore required to be set aside with respect to the
Preferred Stock, dividends on the Common Stock may be declared and paid, but
only when and as determined by the Board of Directors.
On any dissolution, liquidation or winding up of the Corporation, after
there shall have been paid to or set aside for the holders of all outstanding
shares of Preferred Stock the full preferential amount to which they are
respectively entitled to receive, pro rata in accordance with the number of
shares of each class outstanding, all the remaining assets of the Corporation
will be available for distribution to its shareholders.
The holders of Common Stock will have no redemption or conversion
rights.
PART B - PREFERRED STOCK
The Board of Directors is expressly vested with the authority to divide
any or all of the Preferred Stock into series and to fix and determine the
relative rights and preferences of the shares of each series so established,
provided, however, that the rights and preferences of the various series may
vary only with respect to:
(a) the rate of dividend;
(b) whether the shares may be called and, if so, the call price
and the terms and conditions of call;
(c) the amount payable upon the shares in the event of voluntary and
involuntary liquidation;
(d) sinking fund provisions, if any, for the call or redemption of the
shares;
(e) the terms and conditions, if any, on which the shares may be converted;
(f) voting rights; and
(g) whether the shares will be cumulative, noncumulative or
partially cumulative as to dividends and the dates from which
any cumulative dividends are to accumulate.
-44-
<PAGE>
The Board of Directors shall exercise the foregoing authority by
adopting a resolution setting forth the designation of each series and the
number of shares therein, and fixing and determining the relative rights and
preferences thereof. The Board of Directors may make any change in the
designations, terms, limitations or relative rights or preferences of any series
in the same manner, so long as no shares of such series are outstanding at such
time.
Within the limits and restrictions, if any, stated in any resolution of
the Board of Directors originally fixing the number of shares constituting any
series, the Board of Directors is authorized to increase or decrease (but not
below the number of shares of such series then outstanding) the number of shares
of any series subsequent to the issue of shares of such series. In case the
number of shares of any series shall be so decreased, the share constituting
such decrease shall resume the status which they had prior to the adoption of
the resolution originally fixing the number of shares of such series.
6. The Corporation will not commence business until consideration of One
Thousand Dollars ($1,000.00) has been received for the issuance of shares.
7. The shareholders of the Corporation may take any action which they are
required or permitted to take without a meeting on written consent, setting
forth the action so taken, signed by all of the persons or entities entitled to
vote thereon.
8. A. Any Business Combination Transaction (as defined in Section 8.B(3) below)
shall require the affirmative vote of the holders of at least 80% of the voting
power of all of the shares of capital stock of the Corporation then entitled to
vote generally in the election of directors, voting together as a single class.
Such affirmative vote shall be required, notwithstanding the fact that no vote
may be required, or that a lesser percentage may be specified, by law or in any
agreement with any national securities exchange or otherwise.
B. For the purposes of this Paragraph 8:
(1) "Affiliate" or "Associate" shall have the respective
meanings ascribed to such terms in Rule 12b-2 of the
General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange
Act"), as in effect on December 31, 1985.
(2) "Beneficial owner" shall have the meaning ascribed to
such terms in Rule 13d-3 of the General Rules and
Regulations under the Exchange Act, as in effect on
December 31, 1985.
(3) "Business Combination Transaction" shall mean:
(a) any merger or consolidation of the
Corporation or any Subsidiary with (i) an
Interested Stockholder or (ii) any other
Person (whether or not itself an Interested
Stockholder) which is, or after such merger
or consolidation would be, an Affiliate or
Associate of an Interested Stockholder; or
(b) any sale, lease, exchange, mortgage, pledge,
transfer or other disposition (in one
transaction or a series of transactions) to
or with, or proposed by or on behalf of, an
Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder, of
any assets of
-45-
<PAGE>
the Corporation or any Subsidiary
constituting not less than 5% of the total
assets of the Corporation as reported in the
consolidation balance sheet of the
Corporation as of the end of the most recent
quarter with respect to which such balance
sheet has been prepared; or
(c) the issuance or transfer by the Corporation or any
Subsidiary (in one transaction or a series of
transactions) of any securities of the Corporation or
any Subsidiary to, or proposed by or on behalf of an
Interested Stockholder or an Affiliate or Associate of
an Interested Stockholder in exchange for cash,
securities or other property (or a combination
thereof) constituting not less than 5% of the total
assets of the Corporation as reported in the
consolidated balance sheet of the Corporation as of
the end of the most recent quarter with respect to
which such balance sheet has been prepared; or
(d) the adoption of any plan or proposal for the
liquidation or dissolution of the
Corporation, or any spin-off or split-up of
any kind of the Corporation or any
Subsidiary, proposed by or on behalf of an
Interested Stockholder or an Affiliate or
Associate of an Interested Stockholder; or
(e) any reclassification of securities (including any
reverse stock split), or recapitalization of the
Corporation, or any merger or consolidation of the
Corporation with any Subsidiary or any other
transaction (whether or not with or into or otherwise
involving an Interested Stockholder) which has the
effect, directly or indirectly, of increasing the
percentage of the outstanding shares of (i) any class
of equity securities of the Corporation or any
Subsidiary or (ii) any class of securities of the
Corporation or any Subsidiary convertible into equity
securities of the Corporation or any Subsidiary,
represented by securities of such class which are
directly or indirectly owned by an Interested
Stockholder and all of its Affiliates and Associates.
(4) "Continuing Director" means (a) any member of the Board of
Directors of the Corporation who (i) is neither the Interested
Stockholder involved in the Business Combination Transaction as
to which a vote of Continuing Directors is provided hereunder,
nor an Affiliate, Associate, employee, agent, or nominee of
such Interested Stockholder, or the relative of any of the
foregoing, and (ii) was a member of the Board of Directors of
the Corporation prior to the time that such Interested
Stockholder became an Interested Stockholder, and (b) any
successor of a Continuing Director described in clause (a) who
is recommended or elected to succeed a Continuing Director by
the affirmative vote of a majority of Continuing Directors then
on the Board of Directors of the Corporation.
-46-
<PAGE>
(5) "Fair Market Value" means: (a) in the case of stock, the
highest closing sale price during the 30-day period immediately
preceding the date in question of a share of such stock on the
Composite Tape, on the New York Stock Exchange-Listed Stocks,
or, if such stock is not reported on the Composite Tape, on the
New York Stock Exchange, or, if such stock is not listed on
such Exchange, in the principal United States securities
exchange registered under the Exchange Act on which such stock
is listed, or, if such stock is not listed on any such
exchange, the highest closing bid quotation with respect to a
share of such stock during the 30-day period preceding the date
in question on the National Association of Securities Dealers,
Inc. Automated Quotations System or any similar interdealer
quotation system then in use, or, if no such quotation is
available, the fair market value on the date in question of a
share of such stock as determined by a majority of the
Continuing Directors in good faith; and (b) in the case of
property other than cash or stock, the fair market value of
such property on the date in question as determined by a
majority of the Continuing Directors in good faith.
(6) "Interested Stockholder" shall mean any Person (other than
the Corporation or any Subsidiary, any employee benefit plan
maintained by the Corporation or any Subsidiary or any trustee
or fiduciary with respect to any such plan when acting in such
capacity) who or which:
(a) is or was at any time within the two-year
period immediately prior to the date in
question, the Beneficial Owner, directly or
indirectly, or 10% or more of the voting
power of the then outstanding Voting Stock
of the Corporation; or
(b) is an Affiliate of the Corporation and at
any time within the two-year period
immediately prior to the date in question
was the Beneficial Owner, directly or
indirectly, of 10% of more of the voting
power of the outstanding Voting Stock of the
Corporation; or
(c) is an assignee of, or has otherwise
succeeded to, any shares of Voting Stock of
the Corporation of which an interested
Stockholder was the Beneficial Owner,
directly or indirectly, at any time within
the two-year period immediately prior to the
date in question, if such assignment or
succession shall have occurred in the course
of a transaction, or series of transactions,
not involving a public offering within the
meaning of the Securities Act of 1933, as
amended.
For the purpose of determining whether a Person is an Interested
Stockholder, the outstanding Voting Stock of the Corporation shall include
unissued shares of Voting Stock of the Corporation of which the Interested
Stockholder is the Beneficial Owner but shall not include any other shares of
Voting Stock of the Corporation which may be issuable pursuant to any agreement,
arrangement or understanding, or upon exercise of conversion rights, warrants or
options, or otherwise, to any Person who is not the Interested Stockholder.
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<PAGE>
(7) A "Person" means any individual, partnership, firm,
corporation, association, trust, unincorporated organization or
other entity, as well as any syndicate or group deemed to be a
person pursuant to Section 14(d)(2) of the Exchange Act.
(8) "Subsidiary" means any corporation of which the Corporation
owns, directly or indirectly, (a) a majority of the outstanding
shares of equity securities of such corporation, or (b) shares
having a majority of the voting power represented by all of the
outstanding Voting Stock of such corporation. For the purpose
of determining whether a corporation is a Subsidiary, the
outstanding Voting Stock and shares of equity securities
thereof shall include unissued shares of which the Corporation
is the Beneficial Owner but, except for the purposes of
Paragraph 8.B(6), shall not include any other shares which may
be issuable pursuant to any agreement, arrangement or
understanding, or upon the exercise of conversion rights,
warrants or options, or otherwise, to any Person who is not the
Corporation.
(9) "Voting Stock" shall mean outstanding shares of capital
stock of the relevant corporation entitled to vote generally in
the election of directors.
C. The provisions of Paragraph 8.A shall not be applicable to any
particular Business Combination Transaction, and such Business
Combination Transaction shall require only such affirmative vote of the
stockholders, if the conditions specified in either of the following
paragraphs (1) and (2) are met:
(1) The Business Combination Transaction shall have been
approved by the affirmative vote of a majority of the
Continuing Directors, even if the Continuing Directors do not
constitute a quorum of the entire Board of Directors.
(2) All of the following conditions shall have been met:
a) With respect to each share of each class of outstanding
Voting Stock of the Corporation (including Common Stock), the
holder thereof shall be entitled to receive on or before the
date of the consummation of the Business Combination
Transaction (the "Consummation Date"), cash and consideration,
in the form specified in Paragraph 8.C(2)(b) hereof, with an
aggregate Fair Market Value as of the Consummation Date at
least equal to the highest of the following:
(i) the highest per share price (including brokerage
commissions, transfer taxes and the soliciting dealers'
fees) paid by the Interested Stockholder to which the
Business Combination Transaction relates, or by any
Affiliate or Associate of such Interested Stockholder,
for any shares of such class of Voting Stock acquired
by it (x) within the two-year period immediately prior
to the first public announcement of the proposal of the
Business Combination Transaction (the "Announcement
Date") or (y) in the transaction in which it became an
Interested Stockholder, whichever is higher;
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<PAGE>
(ii) the Fair Market Value per share of such class Voting
Stock of the Corporation on the Announcement Date; and
(iii)the highest preferential amount per share, if any, to
which the holders of shares of such class of Voting
Stock of the Corporation are entitled in the event of
any voluntary or involuntary liquidation, dissolution
or winding up of the Corporation.
(b) The consideration to be received by holders of a particular
class of outstanding Voting Stock of the Corporation
(including Common Stock) as described in Paragraph 8.C(2)(a)
hereof shall be in cash or, if the consideration previously
paid by or on behalf of the Interested Stockholder in
connection with its acquisition of beneficial ownership of
shares of such class of Voting Stock consisted, in whole or
in part, of consideration other than cash, then in the same
form as such consideration. If such payment for shares of any
class of Voting Stock of the Corporation has been made in
varying forms of consideration, the form of consideration for
such class of Voting Stock shall be either cash or the form
used to acquire the beneficial ownership of the largest
number of shares of such class of Voting Stock previously
acquired by the Interested Stockholder.
(c) After such Interested Stockholder has become an Interested
Stockholder and prior to the Consummation Date: (1) there
shall have been no failure to declare and pay at the regular
date therefor any full dividends (whether or not cumulative)
on the outstanding Preferred Stock of the Corporation, if
any, except as approved by the affirmative vote of a majority
of the Continuing Directors; (ii) there shall have been (x)
no reduction in the annual rate of dividends paid on the
Common Stock of the Corporation (except as necessary to
reflect any subdivision of the Common Stock), except as
approved by the affirmative vote of a majority of the
Continuing Directors, and (y) an increase in such annual rate
of dividends as necessary to reflect any reclassification
(including any reverse stock split), recapitalization,
reorganization or any similar transaction which has the
effect of reducing the number of outstanding shares of the
Common Stock, unless the failure so to increase such annual
rate is approved by the affirmative vote of a majority of the
Continuing Directors; and (iii) such Interested Stockholders
shall not have become the Beneficial Owner of any additional
shares of Voting Stock of the Corporation except as part of
the transaction which results in such Interested Stockholder
becoming an Interested Stockholder.
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<PAGE>
(d) After such Interested Stockholder has become an Interested
Stockholder, neither such Interested Stockholder nor any
Affiliate or Associate thereof shall have received the
benefit, directly or indirectly (except proportionately as
shareholder of the Corporation), of any loans, advances,
guarantees, pledges or other financial assistance or any tax
credits or other tax advantages provided by the Corporation.
(e) A proxy or information statement describing the proposed
Business Combination Transaction and complying with the
requirements of the Exchange Act and the General Rules and
Regulations thereunder (or any subsequent provisions
replacing such Act, Rules or Regulations) shall be mailed to
the shareholders of the Corporation at least 30 days prior to
the Consummation Date (whether or not such proxy or
information statement is required to be mailed pursuant to
such Act or subsequent provisions thereof).
D. A majority of the Continuing Directors shall have the power and duty to
determine, on the basis of information known to them after reasonable
inquiry, all facts necessary to determine compliance with this
Paragraph 8, including without limitation, (1) whether a Person is an
Interested Stockholder, (2) the number of shares of Voting Stock of the
Corporation beneficially owned by any Person, (3) whether a Person is
an Affiliate or Associate of another, (4) whether the requirements of
Paragraph 8.C(2) have been met with respect to any Business Combination
Transaction, and (5) whether the assets which are the subject of any
Business Combination Transaction have, or the consideration to be
received for the issuance or transfer of securities by the Corporation
or any Subsidiary in any Business Combination Transaction constitutes
not less than 5% of the total assets of the Corporation as reported in
the consolidated balance sheet of the Corporation as of the end of the
most recent quarter with respect to which determination of a majority
of the Continuing Directors on such matters shall be conclusive and
binding for all the purposes of this Paragraph 8.
E. Nothing contained in this Paragraph shall be construed to relieve the
members of the Board of Directors or an Interested Stockholder from any
fiduciary obligation imposed by law. The fact that any Business
Combination Transaction complies with the provisions of Paragraph 8.C
shall not be construed to impose any fiduciary duty, obligation or
responsibility on the Board of Directors, or any member thereof, to
approve such Business Combination Transaction or recommend its adoption
or approval to the shareholders of the Corporation, nor shall such
compliance limit, prohibit or otherwise restrict in any manner the
Board of Directors, or any member thereof, with respect to evaluations
of or actions and responses taken with respect to such Business
Combination Transactions.
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<PAGE>
9. In the event the Board of Directors should consist of in excess of two
directors, the Board of Directors shall be divided into three classes as nearly
equal in number as possible. The initial terms of directors elected in 1988
shall expire as of the annual meeting of shareholders for the years indicated
below:
Class I Directors................................................1991
Class II Directors...............................................1990
Class III Directors..............................................1989
Upon expiration of the initial terms specified for each class of directors,
their successors shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes so as to maintain or attain if possible, the equality of the number of
directors in each class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. If an equality in number
is not possible, the increase or decrease shall be apportioned among the classes
in such a way that the difference in the number of directors in any two classes
shall not exceed one.
Any vacancies in the Board of Directors for any reason and any newly created
directorships resulting by reason of any increase in the number of directors
shall be filled by the Board of Directors, acting by a majority of the remaining
directors then in office, although less than a quorum, and any directors so
chosen shall hold office until the next election of the class for which such
directors have been chosen and until their successors are elected and qualified.
A written ballot shall not be required for the election of directors unless the
bylaws of the Corporation so provide.
10. A quorum of the Board of Directors of the Corporation shall consist of two
directors, but in the event that the Board should consist of in excess of six
directors, one-third of the directors in office shall constitute a quorum.
11. In furtherance and not in limitation of the powers conferred by statute, the
Board of Directors is expressly authorized:
(a) To adopt, amend or repeal the Bylaws of the Corporation by
vote of a majority of the members of the Board of Directors,
but any Bylaws adopted by the Board of Directors may be
amended or repealed by the shareholders of the Corporation;
(b) To distribute too the shareholders of the Corporation out of
capital surplus of the Corporation a portion of its assets, in
cash or property, subject to the requirements of law, and such
distribution is expressly permitted without the vote of the
shareholders;
(c) To cause the Corporation to make purchases of its shares,
directly or indirectly, to the extent of unreserved and
unrestricted earned surplus available therefor, without the
vote of the shareholders;
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<PAGE>
(d) If at any time the Corporation has more than one class of
authorized or outstanding stock, to pay dividends in shares of
any class to the holders of shares of any class, without the
vote of the shareholders of the class in which the payment is
to be made; and
(e) To take any action which the Board of Directors is required or
permitted to take without a meeting or written consent,
setting forth the action so taken, signed by all of the
directors entitled to vote thereon.
12. In evaluating a Business Combination (as defined in Paragraph 8 above) or a
tender or exchange offer and other acquisition proposal, the Board of Directors
in determining what is in the best interest of the Corporation, may consider,
among others, the following factors:
(a) the financial aspects of the offer, the long-term interests of
the Corporation's shareholders, the present and historical
market value of the Corporation's shares and the premiums paid
in other relevant transactions, the liquidation value of the
Corporation's assets and component operations, the prospects
of the Corporation, and (to the extent estimable) its stock on
a going-concern basis over the subsequent several years;
(b) the prospects for obtaining and methods of achieving a better
offer, such as seeking other bids, pursuing negotiating
strategies (which may include defensive tactics), and partial
or total liquidation;
(c) the impact, if the offer is partial or two-tier, on the
remaining shareholders and on the prospects of the Corporation
in the event the offer is successful;
(d) the value and investment attributes of the noncash
consideration if the offer involves considerations other than
cash;
(e) the potential of the offer (if partial or two-tier), including
the offer or's competence, experience, integrity, management,
reputation and financial condition;
(f) legal and regulatory matters, or other considerations that
could impede or prevent the transaction's consummation;
(g) the effect of the transaction on the Corporation's (and its
Subsidiaries') customers, including policyholders, suppliers
and employees; and
(h) local community interests.
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<PAGE>
13. The affirmative vote of the holders of at lest 80% of the voting power of
all of the shares of capital stock of the Corporation then entitled to vote
generally in the election of directors, voting together as a single class, shall
be required to amend, alter, change or repeal, or adopt any provision or
provisions inconsistent with any provision of Paragraphs 8, 9, 12 or 13 hereof,
unless such amendment, alteration, change, re peal or adoption of any
inconsistent provision or provisions is declared advisable by the Board of
Directors by the affirmative vote of (A) two-thirds of the entire Board of
Directors and (b) a majority of the Continuing Directors (as defined in
Paragraph 8).
14. The name and mailing address of the incorporator is as follows:
NAME MAILING ADDRESS
---- ---------------
Patrick C. Brooks 1701 Altivo Way
Los Angeles, CA 90026
I, THE UNDERSIGNED, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly have hereunto set my hand this 22nd day of April, 1988.
Patrick C. Brooks, Incorporator
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<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
GALWAY CAPITAL CORPORATION
GALWAY CAPITAL CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: The first sentence of Paragraph 5 of the Certificate of
Incorporation of the Corporation, which sentence now reads, "The maximum number
of shares which the Corporation shall have the authority to issue is: (a)
50,000,000 (Fifty Million) Shares of Common Stock having value of $.001 per
share; and (b) 1,000,000 (One Million) Shares of Preferred Stock having a par
value of $.01 per share, such Preferred Stock being issuable in one or more
series as hereafter provided.", is amended to read in full as follows:
"5. Effective on the date upon which this Certificate of
Amendment of Certificate of Incorporation is duly filed with the
Secretary of State of the State of Delaware (the "Effective Date"),
each share of the Common Stock, $.001 par value, authorized and
outstanding on the Effective Date shall be combined, reconstituted, and
converted by reverse stock split into one-tenth (1/10) share of Common
Stock, $.01 per value. The Board of Directors is authorized to
determine by resolution all matters reasonably required by, or
ancillary to, said reverse stock split, including but not limited to
the manner and terms upon which new share certificates shall be issued,
certificates for existing share certificates shall be surrendered, and
fractional shares (if any) shall be issued. Upon the occurrence of said
reverse stock split, the maximum number of shares which the Corporation
shall have the authority to issue is:
"(a) 5,000,000 (Five Million) Shares of Common Stock having a
par value of $.01 per share; and
"(b) 1,000,000 (One Million) Shares of Preferred Stock having a
par value of $.01 per share, such Preferred Stock being issuable in one
or more series as hereinafter provided."
SECOND: The capital of the Corporation will not be reduced by reason
of the foregoing amendment.
THIRD: The foregoing amendment was duly approved and adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware. The foregoing amendment was duly
approved and adopted by the unanimous written consent of the directors of the
Corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware. The foregoing amendment was thereupon duly approved and
adopted pursuant to Section 228 of the General Corporation Law of the State of
Delaware by the written consent of the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to approve and
adopt the foregoing amendment at a regular or special meeting of shareholders
entitled to vote thereon, said minimum number being a majority of the
outstanding shares of Common Stock. Notice of such written consent of
shareholders was thereupon promptly given to all persons entitled to receive
said notice (except such persons with whom communication is unlawful) in
accordance with said Section 228.
-1-
<PAGE>
IN WITNESS WHEREOF, on the 4th day of August, 1989, said GALWAY CAPITAL
CORPORATION has caused this Certificate to be signed by Patrick C. Brooks, its
President, and attested by Stephanie A. Brooks, its Secretary, both of whom
affirm and acknowledge, under penalties of perjury, that this Certificate is the
act and deed of the Corporation and that the facts stated herein are true.
GALWAY CAPITAL CORPORATION
By: /s/ Patrick C. Brooks,
----------------------
President
ATTEST:
/s/ Stephanie A. Brooks,
--------------------
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT OF
CERTIFICATE OF INCORPORATION OF
GALWAY CAPITAL CORPORATION
GALWAY CAPITAL CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation law of the State of Delaware, does
hereby certify as follows:
FIRST: Article "1." of the Certificate of Incorporation of this
corporation is amended
to read in full as follows:
"1. The name of the corporation is TOWER BROADCAST, INC.
SECOND: The capital of the corporation will not be reduced, increased,
or in any way affected by reason of the foregoing amendment.
THIRD: The foregoing amendment was duly approved and adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware. Initially, the foregoing amendment was
duly approved and adopted by the unanimous written consent of the directors of
the corporation pursuant to Section 141(f) of the General Corporation Law of the
State of Delaware. Thereupon, the foregoing amendment was duly approved and
adopted pursuant to Section 228 of the General Corporation Law of the State of
Delaware by the written consent of the holders of outstanding stock having not
less than the minimum number of votes that would be necessary to approve and
adopt the foregoing amendment at a regular or special meeting of shareholders
entitled to vote thereon, said minimum number being a majority of the
outstanding shares of Common Stock, par value $.0002 per share. Notice of such
written consent of shareholders was thereupon promptly given to all persons
entitled to receive said notice (except such persons with whom communication is
unlawful) in accordance with said Section 228.
IN WITNESS WHEREOF, on this 18th day of August, 1993, said Galway
Capital Corporation has caused this Certificate to be signed by Patrick C.
Brooks, its President, and attested by Stephanie A. Brooks, its Secretary, both
of whom affirm and acknowledge, under penalties of perjury, that this
Certificate is the act and deed of the corporation and that the facts stated
herein are true.
/s/ Patrick C. Brooks,
-----------------------
President
/s/ Stephanie A. Brooks,
-------------------------
Secretary
-1-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
*************
TOWER BROADCAST, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of TOWER BROADCAST,
INC. be amended by changing Paragraph 5 thereof so that, as amended,
said Paragraph shall be and read as follows:
"5. The maximum number of shares which the Corporation shall
have the authority to issue is:
(a) 50,000,000 (Fifty Million) Shares of Common Stock having a
par value of $.01 per share; and
(b) 5,000,000 (Five Million) Shares of Preferred Stock having
a par value of $.01 per share, such Preferred Stock being issuable in
one or more series as hereinafter provided."
"Effective on the date upon which this Certificate of
Amendment of Certificate of Incorporation is duly filed (the "Effective
Date"), every four (4) shares of the Common Stock outstanding is
reverse split into one (1) share of Common Stock. The Board of
Directors is authorized to determine by resolution all matters
reasonably required by, or ancillary to, said reverse stock split,
including but not limited to the manner and terms upon which new share
certificates shall be issued, certificates for existing share
certificates shall be surrendered, and fractional shares (if any) shall
be issued."
SECOND: The capital of the Corporation will not be reduced by reason of
the foregoing amendment.
THIRD: The foregoing amendment was duly approved and adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware. The foregoing amendment was duly
approved and adopted pursuant to Section 228 of the General Corporation Law of
the State of Delaware by the written consent of the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
approve and adopt the foregoing amendment at a regular or special meting of
shareholders entitled to vote thereon, said
-1-
<PAGE>
minimum number being a majority of the outstanding shares of Common Stock.
Notice of such written consent of shareholders was then promptly given to all
persons entitled to receive said notice in accordance with said Section 228.
IN WITNESS WHEREOF, on this 20th day of March, 1995, said TOWER
BROADCAST, INC. has caused this Certificate to be signed by Mark Di Salvo, its
President, and attested by its Secretary, Leah Di Salvo, both of whom affirm and
acknowledge under penalty of perjury, that this Certificate is the act and deed
of the Corporation and that the facts stated herein are true.
TOWER BROADCAST, INC.
BY: /S/ Mark Di Salvo,
-----------------
President
ATTEST:
/s/ Leah Di Salvo,
- ------------------
Secretary
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TOWER BROADCAST, INC.
TOWER BROADCAST, INC., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware, does hereby
certify as follows:
FIRST: Article "1." of the Certificate of Incorporation of this
corporation is amended to read as follows:
"1. The name of the corporation is TENGTU INTERNATIONAL
CORP."
SECOND: The capital of the corporation will not be reduced, increased,
or in any way affected by reason of the foregoing amendment.
THIRD: The foregoing amendment was duly approved and adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware. Thereupon, the foregoing amendment was
duly approved and adopted pursuant to Section 228 of the General Corporation Law
of the State of Delaware by the written consent of the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to approve the adopt the amendment at a regular or special meeting of
shareholders entitled to vote thereon, said minimum number being a majority of
the outstanding shares of common stock, par value $.01 per share. Notice of such
written consent was thereupon promptly given to all persons entitled to receive
said notice in accordance with Section 228.
IN WITNESS WHEREOF, on this 24th day of May, 1996, said TOWER
BROADCAST, INC. has caused this Certificate to be signed by Mark Di Salvo, its
President, and attested by its Secretary, Leah Di Salvo, both of whom affirm and
acknowledge under penalty of perjury, that this Certificate is the act and deed
of this Corporation and that the fact stated herein are true.
TOWER BROADCAST, INC.
By: /s/ Mark Di Salvo
------------------
ATTEST:
/s/ Leah Di Salvo
- ------------------
-1-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENGTU INTERNATIONAL CORP.
TENGTU INTERNATIONAL CORP., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: That the Board of Directors of said corporation, by the
unanimous written consent of its members, filed with the minutes of the Board,
adopted a resolution proposing and declaring advisable the following amendment
to the Certificate of Incorporation of said corporation:
RESOLVED, that the Certificate of Incorporation of TENGTU International
Corp. by amended by changing Paragraph 5 to read as follows:
"5. The maximum number of shares which the Corporation shall have
the authority to issue is:
(a) 100,000,000 (One Hundred Million) Shares of Common Stock
having a par value of $.01 per share; and
(b) 10,000,000 (Ten Million) Shares of Preferred Stock, having a
par value of $.01 per share, being issuable in one or more series as
hereinafter provided."
"Effective on the date upon which this Certificate of Amendment
of Certificate of Incorporation is duly filed (the "Effective Date),
every two (2) shares of the Common Stock outstanding is reverse split
into one (1) share of Common Stock. The Board of Directors is
authorized to determine by resolution all matters reasonably required
by, or ancillary to, said reverse stock split, including but no limited
to the manner and terms upon which new share certificates shall be
issued, certificates for existing shares certificates shall be
surrendered, and fractional shares (if any) shall be issued."
SECOND: The capital of the corporation will not be reduced, increased,
or in any way affected by reason of the foregoing amendment.
THIRD: The foregoing amendment was duly approved and adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware. Thereupon, the foregoing amendment was
duly approved and adopted pursuant to Section 228 of the General Corporation Law
of the State of Delaware by the written consent of the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
to approve and adopt the amendment at a regular or special meeting of
shareholders entitled to vote
-1-
<PAGE>
thereon, said minimum number being a majority of the outstanding shares of
common stock, par value $.01 per share. Notice of such written consent was
thereupon promptly given to all persons entitled to receive said notice in
accordance with Section 228.
IN WITNESS WHEREOF, on this 29th day of May, 1996, said TENGTU
INTERNATIONAL CORP. has caused this Certificate to be signed by Mark Di Salvo,
its President, and attested by its Secretary, Leah Di Salvo, both of whom affirm
and acknowledge under penalty of perjury, that this Certificate is the act and
deed of this Corporation and that the facts stated herein are true.
TENGTU INTERNATIONAL CORP.
By: /s/ Mark Di Salvo
-----------------
ATTEST:
/s/ Leah Di Salvo
- ------------------
-2-
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
TENGTU INTERNATIONAL CORP.
WE, Pak Cheung, Chairman, and Gerald A. Eppner, Assistant Secretary of
Tengtu International Corp., a corporation existing under the laws of the State
of Delaware, do hereby certify as follows:
FIRST: That the name of the Corporation (hereinafter called the
"Corporation") is Tengtu International Corp.
SECOND: That the Certificate of Incorporation of the Corporation has
been amended as follows:
By striking out the whole of Paragraphs 7 and 9 of the Certificate of
Incorporation.
THIRD: That such amendment has been duly adopted in accordance with the
provisions of the General Corporation Law of the State of Delaware by the
majority of all the stockholders entitled to vote in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, we have signed this Certificate this 2nd day of
April, 1997.
/s/ Pak Cheung
--------------
ATTEST:
/s/ Gerald A. Eppner,
- ---------------------
Assistant Secretary
-1-
EXHIBIT (3)(II)
BYLAWS OF
TENGTU INTERNATIONAL CORP.
ARTICLE 1.
Section 1.01 NAME. The name of this corporation is Tengtu International
Corp. The Corporation may conduct operations under such other trade names as the
Board of Directors may designate.
Section 1.02 SEAL. The Corporation shall be authorized, but not
required to use a corporate seal, which if used shall be circular in form and
contain the name of the Corporation and the words "Corporate Seal." The
corporate seal shall be affixed by the Secretary upon such instruments or
documents as may be deemed necessary. The presence or absence of such seal on
any instrument shall not, however, affect its character or validity or legal
effect in any respect.
Section 1.03 OFFICES. The registered office shall be in the City of
Wilmington, County of New Castle, State of Delaware. The Corporation may also
have offices at such other places as the Board of Directors may from time to
time determine or the business of the corporation may require.
The books of the Corporation may be kept (subject to any provision
contained in the statutes) outside the State of Delaware at such place or places
as may be designated from time to time by the Board of Directors.
Section 1.04 FISCAL YEAR. The fiscal year of the Corporation shall end
on June 30, unless otherwise amended by the Board of Directors.
ARTICLE 2.
CAPITAL STOCK
Section 2.01 CONSIDERATION FOR SHARES. Except as otherwise permitted by
law, the Capital Stock having par value may be issued for such consideration,
expressed in dollars, not less than the par value thereof, as shall be fixed
from time to time by the Board of Directors. Treasury shares may be disposed of
by the Corporation for such consideration expressed in dollars as may be fixed
from time to time by the Board of Directors.
Except as otherwise permitted by law, Capital Stock without par value
may be issued for such consideration as may be fixed by the Board of Directors,
all of which consideration shall constitute stated capital unless prior to or
within sixty (60) days after issuance the Board of Directors allocates to
capital surplus a portion, but not all, of such consideration.
Section 2.02 PAYMENT OF SHARES. The consideration for the issuance of
shares may be paid, in whole or in part, in money, in other property, tangible
or intangible, or in labor or services already performed for the Corporation.
When payment of the consideration for which shares are to be issued shall have
been received by the Corporation, such shares shall be deemed to be fully paid
and nonassessable. Neither promissory notes nor future services shall constitute
payment or part payment
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for shares of the Corporation. In absence of fraud in the transaction, the
judgment of the Board of directors as to the value of the consideration received
for shares shall be conclusive. No certificate shall be issued for any share
until the share is fully paid.
Section 2.03 CERTIFICATION REPRESENTING SHARES. The certificates of
stock of the Corporation shall be numbered consecutively and entered in the
books of the Corporation as they are issued. Each holder of the Capital Stock of
the Corporation shall be entitled to a certificate exhibiting the holder's name
and number of shares and signed by the President or a Vice President and the
Secretary of the corporation certifying the number of shares owned by him in the
Corporation. Where any such certificate is signed by a transfer agent the
signature of either or both of such officers may be facsimile, engraved or
printed. Each certificate shall have noted thereon any restriction on voting or
transferability or any preferences or call provision.
Section 2.04 CERTIFICATE LEGEND AND REPRESENTATION FROM SHAREHOLDERS.
Unless not necessary in the opinion of counsel for the Company, each certificate
representing shares of the Corporation's capital stock shall bear a legend to
the following effect:
The sale of the shares represented by this certificate was not
registered under the Securities Act of 1933. Accordingly,
these shares may not be resold, transferred or hypothecated
without (a) the registration of such shares under the
Securities Act of 1933; or (b) an opinion of counsel for the
company to the effect that such registration is not necessary.
and each person subscribing for shares shall be informed about, and shall
represent to the corporation prior to or at the time he makes payment for shares
that he understands the impact of the restrictions on transfer of the
Corporation's capital stock resulting from the lack of registration as well as
the application of any state securities or "Blue Sky" law.
ARTICLE 3.
MEETINGS OF SHAREHOLDERS
Section 3.01 PLACE OF MEETING. Meetings of the shareholders of the
Corporation shall be held in the City of Los Angeles, State of California, or at
such other place as shall be determined by the Board of Directors.
Section 3.02 ANNUAL MEETING. The annual meeting of the shareholders
shall be held within 150 days after the close of the fiscal year of the
Corporation, at which annual meeting the shareholders shall elect a Board of
Directors and transact such other business as may properly come before the
meeting. Failure to hold the annual meeting within the designated time shall not
work a forfeiture or dissolution of the Corporation. As permitted by the
Certificate of Incorporation and Article 7 of these Bylaws, the shareholders may
take action by consent in lieu of the annual meeting.
Section 3.03 SPECIAL MEETINGS. Special meetings of the shareholders may
be called by the President and shall be called by the Secretary or any other
officer at the request in writing of a majority of the Board of Directors or the
holders of not less than one-tenth (1/10) of all shares entitled to vote at the
meeting. Any written request for a meeting shall state the purpose or purposes
of the proposed meeting and no action other than that specified in the notice
may be considered.
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Section 3.04 NOTICE OF MEETINGS - WAIVER. Written notice stating the
place, day, and hour of the meeting, and in case of a special meeting , the
purpose or purposes for which the meeting is called, shall be delivered not less
than ten, nor more than forty, days before the date of the meeting, either
personally or by mail to each shareholder entitled to vote at such meeting.
Waive by a shareholder in writing or by telegram of notice of a shareholders'
meeting, signed by him whether before or after the time of the meeting, shall be
equivalent to the giving of such notice. Attendance by a shareholder, without
the objection to the notice, whether in person or by proxy at a shareholders'
meeting shall constitute a waiver of notice of the meeting.
Section 3.05 RECORD DATE. In determining the shareholders entitled to
notice of and to vote at any annual or special meeting of shareholders, the
stock transfer books of the Corporation shall not be closed, but in lieu thereof
the Board of Directors shall fix a date no less than ten nor more than sixty
days before any such meeting as a record date and only the shareholders whose
names appear on the stock transfer books at the close of business on that date
shall be entitled to notice of and to vote at such meeting, notwithstanding the
transfer of shares thereafter.
Section 3.06 QUORUM. A majority of the shares entitled to vote,
represented in person or by proxy, shall constitute a quorum at a meeting of
shareholders. The shareholders present at a duly organized meeting may continue
to do business until adjournment, notwithstanding the withdrawal of a number of
shareholders so that less than a quorum remains. A meeting may be adjourned
despite the absence of a quorum.
Section 3.07 PROXIES AND VOTING. Unless otherwise provided by the
Certificate of Incorporation, each shareholder entitled to notice of and to vote
at a meeting of shareholders shall be entitled to one vote at a meeting of
shareholders shall be entitled to one vote for each share of Capital Stock
standing in his name on the transfer books of the Corporation on the record date
fixed for such meeting. A shareholder may vote either in person or by proxy
executed in writing by the shareholder. No proxy shall be valid after eleven
months from the date of its execution, unless otherwise provided in the proxy.
Section 3.08 SHAREHOLDER LIST. The Secretary of the Corporation shall
produce at each meeting of shareholders a list of the shareholders entitled to
notice of and to vote at such meeting.
Section 3.09 ORDER OF BUSINESS. Unless otherwise specified by the
Chairman of the Board or the Chairman of the meeting, the order of business at
the annual meeting, and as far as practicable, at all other meetings of the
shareholders, shall be (1) calling of roll, (2) proof of due notice of meetings,
(3) reading and disposal of any unapproved minutes, (4) annual reports of
officers and committees, (5) election of directors, (6) unfinished business, (7)
new business and (8) adjournment. The Chairman of the Board shall preside at all
meetings of the shareholders and in his absence the President or his designate.
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ARTICLE 4.
THE BOARD OF DIRECTORS
Section 4.01 GENERAL POWERS. The business and affairs of the
Corporation shall be managed by a Board of Directors. The directors shall in all
cases act as a Board and they may adopt such rules and regulations for the
conduct of their meetings and the management of the Corporation, as they may
deem proper, not inconsistent with these Bylaws and the laws of this state.
Section 4.02 [Deleted]
Section 4.03 REMOVAL OF DIRECTORS. Directors may be removed from office
at any time by a majority vote of the shareholders at their annual meeting, or
at a special meeting called for that purpose, and may be removed for cause at
any time by a majority of the Board of Directors at its annual meeting, or at a
special meeting called for the purpose.
Section 4.04 VACANCIES. Any vacancies in the Board of Directors for any
reason and any newly-created directorships resulting by reason of any increase
in the number of directors shall be filled by the Board of Directors, acting by
a majority of the remaining directors then in office, although less than a
quorum, and any directors so chosen shall hold office until the next election of
the class for which directors have been chosen and until their successors are
elected and qualified.
Section 4.05 PLACE OF MEETING. Meetings of the Board of Directors,
annual, regular, or special, may be held either within or without the State of
Delaware at such place as shall be designated by the Board of Directors and
stated in the notice of the meeting.
Section 4.06 ANNUAL AND REGULAR MEETINGS. Subject to the authority of
the Board to take action by consent as permitted by the Certificate of
Incorporation immediately after the annual meeting of the shareholders, the
Board of Directors shall meet each year for the purpose of organization,
election of officers, and consideration of any other business that may properly
be brought before the meeting. Regular meetings shall be held at such time and
place as the Board of Directors may determine. No notice of any kind to either
old or new members of the Board of Directors for the annual meeting or any
regular meeting shall be required.
Section 4.07 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held upon notice by letter, telegram, cable, or radiogram,
delivered for transmission not later than during the third day immediately
preceding the day for the meeting, or by word of mouth, telephone, or radiophone
received not later than during the second day immediately preceding the day for
the meeting, upon the call of the majority of the Directors, the Chairman of the
Board, the President or the Secretary of the Corporation. Special meetings shall
be called by the President, any Vice President or the Secretary in a like manner
upon the written request of a majority of the Directors. Attendance in person at
a special meeting without objection to the notice shall constitute a waiver of
notice of the meeting. Notice of any meeting of the Board of directors may be
waived orally if confirmed in writing or by telegram sign before or after the
time of the meeting. Neither the business to be transacted at, not the purpose
of, any meeting of the Board of Directors need by specified in the notice or
waiver of notice of the meeting.
Section 4.08 QUORUM AND VOTING. A majority of the Board of directors
shall constitute a quorum for the transaction of business. The act of the
majority of the Directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors unless the act of a greater number is
required by these Bylaws or by the law.
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Section 4.09 TELEPHONE CONFERENCES. Members of the Board of Directors,
or any committee designated by the Board, may participate in a meeting of such
Board or committee by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this subsection shall
constitute presence in person at such meeting.
Section 4.10 CHAIRMAN OF THE BOARD. At its annual organization meeting,
the Board of Directors shall elect by vote of a majority of the entire Board a
Chairman of the Board who shall preside at all meetings of the Board.
Section 4.11 ADVISORY BOARD. In addition to the Board of Directors, the
Corporation shall have an Advisory Board consisting of a maximum of ten members.
The Board of Directors, by resolution adopted by a majority of the Directors,
may designate and appoint persons to act as members of the Advisory Board.
Persons appointed to serve as members of the Advisory Board shall be either
former members of the Board of Directors, or persons who have a special
expertise in the use of computer technology in education or such other persons
who have an expertise in any matters as may constitute a material part of the
business plan of the Corporation in effect at any time or from time to time. The
members of the Advisory Board shall meet annually, or as requested from time to
time by the Board of Directors, to review and evaluate the research and
development projects of the Corporation and other technology intensive aspects
of the Corporation's business plan as in effect at any time or from time to time
and shall render a report (which may be in the form of the minutes of such
meeting) to the Board of Directors concerning the action taken and matters
discussed at the meeting. The members of the Advisory Board shall be compensated
as determined by the Board of Directors by resolution adopted by a majority of
the Directors which may include, at the discretion of the Board of Directors,
participation in any stock incentive plan of the Corporation.
Section 4.12 COMMITTEES: NUMBER, TENURE AND QUALIFICATIONS. The Board
of Directors may appoint from among its members an Executive Committee, an Audit
Committee and a Compensation Committee and other committees, composed of two or
more directors, to serve at the pleasure of the Board of Directors. A majority
of the Compensation Committee shall at all times consist of a majority of
Directors who are neither employees of nor consultants to the Corporation.
Section 4.13 POWERS. The Board of Directors may delegate to committees
appointed under Section 4.12 of this Article any of the powers of the Board of
Directors, except as prohibited by law.
Section 4.14 MEETINGS. Notice of committee meetings shall be given in
the same manner as notice for special meetings of the Board of Directors. A
majority of the members of the committee shall constitute a quorum for the
transaction of business at any meeting of the committee. The act of a majority
of the committee members present at a meeting shall be the act of such
committee. The Board of Directors may designate a chairman of any committee, and
such chairman or any two members of any committee may fix the time and place of
its meeting unless the Board shall otherwise provide. In the absence of any
member of any such committee, the members thereof present at any meeting,
whether or not they constitute a quorum, may appoint another director to act in
the place of such absent member. Each committee shall keep minutes of its
proceedings.
Section 4.16 TELEPHONE MEETINGS. Members of a committee of the Board of
Directors may participate in a meeting by means of a conference telephone or
similar communications equipment if all persons participating in the meeting can
hear each other at the same time. Participation in a meeting by these means
shall constitute presence in person at the meeting.
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Section 4.17 INFORMAL ACTION BY COMMITTEES. Any action required or
permitted to be taken at any meeting of a committee of the Board of Directors
may be taken without a meeting, if a consent in writing to such action is signed
by each member of the committee and such written consent is filed with the
minutes of proceedings of such committee.
Section 4.18 VACANCIES. Subject to the provisions hereof, the Board of
Directors shall have the power at any time to change the membership of any
committee, to fill all vacancies, to designate alternate members to replace any
absent or disqualified member or to dissolve any such committee.
ARTICLE 5.
THE OFFICERS
Section 5.01 OFFICERS. The officers of the Corporation shall consist of
a President and Secretary and, as deemed appropriate by the board of Directors,
one or more Vice Presidents, Assistant Secretaries, Treasurers, Assistant
Treasurers, and such other officers and assistant officers and agents as may be
deemed necessary by the Board of Directors. Any two or more offices may be held
by the same person, except the offices of President and Secretary. Officers need
not be Directors or shareholders of the Corporation.
Section 5.02 VACANCIES. Vacancies occurring in any office shall be
filled by the Board of Directors as any regular or special meeting.
Section 5.03 THE PRESIDENT. The President shall be the chief executive
officer and have active executive management and supervision of the operation of
the Corporation. He shall perform such duties as these Bylaws provide or the
Board of Directors may prescribe or his capacity as chief executive officer by
custom may provide.
Section 5.04 THE VICE PRESIDENT. The Vice President or Vice Presidents,
in the order designated by the Board of Directors, shall be vested with all the
executive powers and required to perform all the duties of that portion or area
of responsibility of the President and shall perform such other duties as may be
prescribed by the Board of Directors. Each Vice President shall report to the
President or his delegate who shall be responsible for the Vice President's
actions.
Section 5.05 THE SECRETARY. The Secretary shall attend all meetings of
the shareholders and of the Board of Directors and shall keep a true and
complete record of the proceedings of these meetings. He shall be custodian of
the records of the Corporation. He shall attend to the giving of all notices,
attest, when requested, to the authority of the President or other officers, as
revealed by the minutes of these Bylaws, to execute legal documents binding the
Corporation, and shall perform such other duties as these Bylaws may provide or
the Board of Directors may prescribe.
Section 5.06 THE TREASURER. The Treasurer shall keep correct and
complete records of account, showing accurately at all times the financial
condition and results of operation of the Corporation. He shall be the legal
custodian of all monies, notes, securities and other valuable that may from time
to time come into possession of the Corporation. He shall immediately deposit
all funds of the Corporation coming into his hands in some reliable bank or
other depository to be designated by the Board of Directors, or whenever
requested, a statement of the financial condition and results of the
Corporation, and shall perform such other duties as these Bylaws may provide or
the Board of Directors may prescribe. The Treasurer may be required to furnish
bond in such amount as shall be determined by the Board of Directors.
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Section 5.07 OTHER OFFICERS. The duties of other officers elected by
the Board of Directors shall be such as are customary to their respective
offices and as shall be given them by the President.
ARTICLE 6.
SPECIAL CORPORATE ACTS
NEGOTIABLE INSTRUMENTS, DEEDS AND CONTRACTS
All checks, drafts, notes, bonds, bills of exchange, and orders for the
payment of money of the Corporation; all deeds, mortgages, and other written
contracts and agreements to which the Corporation shall be party; and all
assignments or endorsements of stock certificates, shall, unless otherwise
directed by the Board of Directors, be signed by the chief executive officer of
this Corporation. The Board of Directors or such officer may, however, designate
other officers, directors or employees of the Corporation any may authorize the
use of facsimile signatures of any such persons. Any shares of stock issued by
any other corporation and owned or controlled by the Corporation may be voted in
accordance with instructions approved by the Board of Directors, at any
shareholders' meeting of the other corporation by the chief executive officer of
the Corporation, if he is present or, in his absence, by such person as he
shall, by duly executed proxy, designate to represent the Corporation at such
shareholders' meeting.
ARTICLE 7.
ACTION WITHOUT MEETING
Any action which properly may be taken by the directors, shareholders
or subscribers before there are shareholders may be taken without a meeting on
written consent, setting forth the action so taken, signed by all the persons or
entities entitled to vote thereon.
ARTICLE 8.
INDEMNIFICATION
Section 8.01 INDEMNIFICATION AND ADVANCES OF EXPENSES. To the fullest
extent permitted by the General Corporation Law of the State of Delaware
("GCL"), as the same now exists or may hereafter be amended, and, to the extent
required by the GCL, only as authorized in the specific case upon the making of
a determination that indemnification of the person is proper in the
circumstances because he or she has met the applicable standard of conduct
prescribed in Sections 145(a) and (b) of the GCL, the Corporation shall
indemnify and hold harmless any person who was or is a director, consultant,
officer or incorporator of the Corporation from and against any and all expenses
(including counsel fees and disbursements), judgments, fines (including excise
taxes assessed on a person with respect to an employee benefit plan), and
amounts paid in settlement that may be imposed upon or incurred by him in
connection with, or as a result of, any threatened, pending, or completed
proceeding, whether civil, criminal, administrative or investigative (whether or
not by or in the right of the Corporation), in which he is or may become
involved, as a party or otherwise, by
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reason of the fact that he is or was such a director, consultant, officer, or
incorporator of the Corporation or is or was serving at the request of the
Corporation as a director, consultant, officer, incorporator, employee, partner,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise (including an employee benefit plan), whether or not he
continues to be such at the time such expenses and judgments, fines and amounts
paid in settlement shall have been imposed or incurred. The Corporation shall be
required to indemnify such a person who is or was a director, consultant,
officer, or incorporator in connection with a proceeding (or part thereof)
initiated by such person, however, only if the initiation of such proceeding (or
part thereof) by such person was authorized by the Board. Such right of
indemnification shall insure whether or not such expenses and judgments, fines
and amounts paid in settlement are imposed or incurred based on matters which
antedate the adoption of this Article Eight. Such right of indemnification shall
continue as to a person who has ceased to be a director, consultant, officer or
incorporator of the Corporation, and shall inure to the benefit of the heirs and
personal representatives of such a person.
Expenses incurred by a person who is or was a director, consultant,
officer, or incorporator of the Corporation in defending or investigating a
threatened or pending action, suit or proceeding in which such person is or may
become involved, as a party or otherwise, by reason of the fact that he is or
was a director, consultant, officer, or incorporator of the Corporation or is or
was serving at the request of the Corporation as a director, consultant,
officer, incorporator, employee, partner, trustee, or agent of another
corporation, partnership, joint venture, trust or other enterprise (including an
employee benefit plan), shall be paid by the Corporation in advance of final
disposition of such action, suit or proceeding upon receipt of an undertaking by
or on behalf of such person to repay such amount if it shall ultimately be
determined that he or she was not entitled to be indemnified by the Corporation
under this Article Eight or otherwise.
The rights of indemnification and advancement of expenses provided by
this Article Eight shall not be deemed exclusive of any other rights which are
or may be provided now or in the future under any provision currently in effect
or hereafter adopted of these Bylaws, by any agreement, by vote of stockholders,
by resolution of directors, by provision of law or otherwise.
Section 8.02 EMPLOYEES AND AGENTS. The Corporation may, to the extent
authorized from time to time by the Board of Directors, provide to employees and
agents of the Corporation who are not directors, consultants, officers or
incorporators, rights to indemnification and advancement of expenses similar to
those conferred in this Article Eight on directors, consultants, officers and
incorporators of the Corporation.
Section 8.03 REPEAL OR MODIFICATION. Any repeal or modification of this
Article Eight shall not adversely affect any rights to indemnification and
advancement of expenses of a director, consultant, officer or incorporator of
the Corporation existing pursuant to this Article Eight with respect to any acts
or omissions occurring prior to such repeal or modification.
Section 8.04 OTHER INDEMNIFICATION. The Corporation's obligation, if
any, to indemnify any person who is or was serving at its request as a director,
consultant, officer, incorporator, employee, partner, trustee, or agent of
another corporation, partnership, joint venture, trust or other enterprise
(including an employee benefit plan), shall be reduced by any amount such person
actually receives as indemnification from such other corporation, partnership,
joint venture, trust or other enterprise.
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ARTICLE 9.
AMENDMENTS
These Bylaws may be altered, amended or replaced and new Bylaws adopted
by the affirmative vote of the holders of a majority of the outstanding stock at
any regular meeting of the shareholders or special meeting called for the
purpose, or by the affirmative vote of a majority of the entire Board of
Directors at any regular or special meeting of the Board, provided, however,
that if any shareholder or Director, as the case may be, should object to the
consideration of any proposed amendment, the proposal may not be voted upon
unless notice of the proposed amendment was given at least ten (10) days prior
to the meeting at which such objecting shareholder or Director is entitled to
vote. Any amendment, modification, repeal or addition to these Bylaws adopted by
the Board of Directors may be amended or repealed by the shareholders. The Board
is without authority to amend this Article 9.
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EXHIBIT (21)
LIST OF SUBSIDIARIES
NAME PERCENTAGE OWNERSHIP
Tengtu United Electronics Development, Co. Ltd. 57%
(Joint Venture)
Iconix International, Inc. 45%
TIC Beijing Electronics Co., Ltd. 100%
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