YIFAN COMMUNICATIONS, INC.
a Delaware Corporation
INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND
RULE 14f-1 THEREUNDER
NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS IS REQUIRED IN
CONNECTION WITH THIS INFORMATION STATEMENT. NO PROXIES ARE BEING SOLICITED
AND YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY.
This Information Statement, which is being mailed on or about August 7,
2000 to the holders of shares of the common stock, par value $0.0002 per share
(the "Old Common") of Yifan Communications, Inc, a Delaware corporation formerly
known as Smart Games Interactive, Inc. (the "Company"), is being furnished in
connection with the appointment of the four persons identified herein (the
"Designees") to the Board of Directors of the Company (the "Board"). These
appointments will become effective on August 17, 2000, the tenth day after the
filing of this Information Statement with the Securities and Exchange Commission
(the "SEC") and the mailing of such Information Statement to all persons who
were holders of record of the Common Stock at the close of business on July 21,
2000. On August 17, 2000, Sally A. Fonner, who is currently the sole member of
the Company's Board, will appoint: Yifan He, Michael Yung, Jeffery Wu and Ahn
Tran to serve as additional members of the Company's Board until the next annual
meeting of the stockholders. Messrs. He, Yung, Wu and Tran are designees of the
former stockholders of Yifan, Inc. ("Yifan") and are being appointed to the
Board pursuant to the terms of the Yifan Transaction (defined hereafter).
On March 30, 2000, the Board approved the sale of 15,000,000 shares of the
Company's Old Common to Tobem Investments Limited ("Tobem") for a price of
$0.005 per share, or $75,000 in the aggregate. In connection with the sale of a
majority interest to Tobem, the Board appointed Tobem's nominee, Sally A.
Fonner, to serve as a member of the Board until the next annual meeting of the
stockholders, and amended the Company's By-laws to permit a single member Board.
Thereafter, James Chuma, Peter Waite and Donald Miller resigned as members of
the Board and Ms. Fonner has been the Company's sole Director since March 30,
2000.
On March 31, 2000, the Company and Tobem entered into a Project Management
Agreement (the "PMA") with Capston Network Company ("Capston"), a Delaware
corporation owned by Ms. Fonner. Under the PMA, Capston was specifically
authorized and obligated to:
o manage the ministerial accounting and administrative functions associated
with preparing and filing the Company's required reports under the
Securities Exchange Act of 1934 (the "Exchange Act"),
o negotiate the payment and/or compromise of the outstanding liabilities
of the Company,
o negotiate a business combination agreement with a suitable privately
held company, and
o pay, at its sole risk, the costs and expenses associated with maintaining
the Company's status as a reporting issuer under the Exchange Act and
locating and investigating business combination opportunities.
Capston was also specifically authorized to purchase for its own account,
at a price of not less than $.01 per share, additional shares of the Company's
common stock if such purchases were necessary to provide sufficient cash
resources for the satisfaction of the Company's outstanding obligations. Since
April 2, 2000, Capston has been actively managing the Company's affairs and
negotiating settlement agreements with its' creditors. In connection with these
activities, Capston has spent the entire $75,000 contributed by Tobem, and
contributed an additional $35,000 in cash from its own funds. In accordance with
the terms of the PMA, these cash contributions from Capston have been accounted
for as a cash purchase of 3,500,000 shares of Old Common by Capston at a price
of $0.01 per share.
After giving effect to the sale of 15,000,000 shares of Old Common to
Tobem, the issuance of an additional 3,500,000 shares of Old Common to Capston
for $35,000 in cash and the issuance of 1,351,756 shares of Old Common to the
Issuer's former legal counsel in settlement of claims for unpaid fees, the
Issuer has a total of 32,500,000 shares of Old Common issued and outstanding on
the date of this Information Statement.
No action is required by the stockholders of the Company in connection
with the appointment of the Designees to the Board. However, Section 14(f) of
the Exchange Act and Rule 14f-1 promulgated thereunder, require the mailing to
the Company's stockholders of the information set forth in this Information
Statement at least 10 days before the date a change in a majority of the
Company's directors occurs.
The principal executive offices of the Company are located at 41-60 Main
Street, Suite 210, Flushing, Queens, New York 11355
VOTING SECURITIES
General
As of July 28, 2000, the issued and outstanding securities of the Company
entitled to vote consisted of 32,500,000 shares of Old Common. Each outstanding
share of Old Common is entitled to one vote.
On July 28, 2000, Tobem and Capston, who collectively own 18,500,000
shares, or approximately 57%, of the Company's issued and outstanding Old Common
executed written consents to a proposed amendment to the Company's Certificate
of Incorporation (the "Amendment"). This Amendment was subsequently filed in the
office of the Delaware Secretary of Sate. On its effective date, the Amendment
will (a) implement a 1 for 40 reverse split of the Company's Old Common and (b)
increase the authorized capitalization of the Company to 100,000,000 shares of
$0.008 par value common stock ("New Common") and 10,000,000 shares of $0.008 par
value preferred stock ("New Preferred"). The Amendment was a negotiated element
of the Yifan Transaction and will not take effect until September 30, 2000.
On July 30, 2000, Company entered into a reorganization agreement (the
"Agreement") with Yifan, Inc., a New York corporation ("Yifan"), and all of its
stockholders. Under the terms of the Agreement, (a) the Company changed its name
to Yifan Communications, Inc., (b) the Company filed the Amendment, (c) the
stockholders of Yifan contributed all of their interest in Yifan to the Company
solely in exchange for the right to receive 11,755,688 shares of New Common on
the effective date of the Amendment, (d) the Company agreed to issue 176,335
shares of New Common to certain finders who assisted in the negotiation of the
Yifan transaction; and (c) Capston agreed to transfer an additional 88,168
shares of New Common to such finders.
Taking all of the foregoing into account, and after giving pro forma effect
to the Amendment, there will be approximately 12,744,523 shares of New Common
issued and outstanding on September 30, 2000. No shares of Preferred Stock will
be issued and outstanding.
In connection with the Yifan Transaction, Sally A. Fonner appointed the
following persons, designated by Yifan, to serve as executive officers of the
Company: Yifan He, President and Chief Executive Officer; Michael Yung,
Treasurer, Chief Financial Officer and Sally A. Fonner, Secretary.
Under the terms of the Agreement, promptly after compliance with Section
14(f) of the Exchange Act, the Board will have a meeting and Ms. Fonner will
elect as members of the Board a total of four individuals designated by the
former stockholders of Yifan. Ms. Fonner will not resign her position as a
member of the Board in connection with the appointment of four additional
members. Instead, it is anticipated that Ms. Fonner will continue to serve as a
member of the Board until the next meeting of the stockholders.
Security Ownership of Certain Beneficial Owners
and Management Before Yifan Transaction
The following table sets forth certain information concerning the
beneficial ownership of the Company's Old Common on the date of the Agreement,
by (i) each person who is known to the Company to be the beneficial owner of
more than 5 percent of the Old Common; (ii) all directors and executive officers
of the Company; and (iii) directors and executive officers of the Company as a
group:
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1) of Class
==============================================================================
Tobem Investments Limited (1)(2) 15,000,000 46.15%
3rd Floor, Whitehall House
P.O. Box 2097
Georgetown, Grand Cayman BWI
Sally A. Fonner (1)(2)(3) 15,500,000 47.69%
c/o Capston Network Co.
1621 N. Osceola Avenue
Clearwater, Florida 33755
Executive Officers and Directors 15,500,000 47.69%
as a Group (1 persons)
(1) As its principal compensation under the PMA, Tobem agreed to sell Capston
12,000,000 shares of Old Common at a price of $0.005 per share, or $60,000
in the aggregate.
(2) In connection with the Yifan Transaction, Capston has notified Tobem that
it intends to purchase 11,000,000 shares of Old Common from Tobem for
$55,000 and relinquish its rights with respect to 1,000,000 shares of Old
Common.
(3) The stock attributed to Capston in the foregoing table includes 3,500,000
shares of Old Common owned by Capston and 12,000,000 shares of Old Common
owned by Tobem that were subject to a stock purchase right in favor of
Capston.
Security Ownership of Certain Beneficial Owners
and Management After Yifan Transaction
As noted above, the Amendment will not become effective until September
30, 2000 and shares of New Common will not be issued to the former stockholders
of Yifan until that date. After giving pro forma effect to the Amendment and the
issuance of New Common pursuant to the Agreement, the following table sets forth
certain pro forma information concerning the beneficial ownership of the
Company's Old Common as of September 30, 2000, by (i) each person who is known
to the Company to be the beneficial owner of more than 5 percent of the New
Common; (ii) all directors and executive officers of the Company; and (iii)
directors and executive officers of the Company as a group:
Amount and
Nature of
Name and Address Beneficial Percent
of Beneficial Owner Ownership(1) of Class
==============================================================================
Yifan He (1) 3,054,938 23.97%
Jeffery Wu (1)(2) 3,293,100 25.84%
Michael Yung (1)(3) 2,167,088 17.00%
Ahn Tran (1) 585,000 4.59%
Tobem Investments (4) 100,000 0.78%
Sally A. Fonner (5)(6) 248,833 1.93%
Executive Officers and Directors 9,348,958 72.34%
as a Group (1 persons)
(1) 41-60 Main Street, Suite 210, Flushing, Queens, New York 11355
(2) Includes 2,843,100 shares owned by Mr. Wu and 450,000 shares owned by
Mr. Wu as custodian for his minor child.
(3) Includes 1,154,588 shares of New Common owned by Mr. Yung's wife Michelle
Yung and 1,012,500 shares owned by Michelle Yung as custodian for their
minor children.
(4) Gives effect to Capston's purchase of 11,000,000 shares of Old Common from
Tobem for $55,000 and the 1 for 40 reverse split provided for by the
Amendment.
(5) Gives effect to Capston's purchase of 11,000,000 shares of Old Common from
Tobem, the 1 for 40 reverse split provided for by the Amendment, the
assignment of 205,499 shares of New Common to certain individuals who
assisted Capston in the reorganization of the Company's affairs, the
assignment of 88,168 shares of New Common to certain finders who assisted
in the Yifan transaction, and the issuance of 180,000 shares of New Common
to Ms. Fonner under the terms of her employment agreement.
(6) Capston has agreed to refund a $350,000 acquisition fee to the Company if,
prior to the first anniversary of the Yifan Transaction, the New Common is
listed on the Nasdaq Stock Market and the average trading price of the New
Common is in excess of $10 per share. To secure its obligations under this
Agreement, Capston has agreed to place 35,000 shares of New Common in
escrow with a bank selected by the Company.
INFORMATION REGARDING THE DESIGNEES,
DIRECTORS AND EXECUTIVE OFFICERS
Executive Officers and Designees
The following table contains information regarding the Designees and
executive officers of the Company.
Name Age Positions
Yifan He 24 President, Chief Executive Officer and Director
Designee
Michael Yung 36 Treasurer, Chief Financial Officer and Director
Designee
Sally A. Fonner 51 Secretary, Director
Jeffery Wu 36 Director Designee
Ahn Tran 48 Director Designee
On August 17, 2000, the tenth day after the filing of this Information
Statement with the Commission and the mailing of such Information Statement to
all record holders of the Company's Old Common, Ms. Fonner, the current sole
Director, will appoint Yifan He, Michael Yung, Jeffery Wu and Ahn Tran to serve
as additional members of the Company's Board until the next annual meeting of
the stockholders.
There are no family relationships among any of the Designees, however,
Messrs. Wu and Tran are involved in several joint business ventures. The
following information is furnished for each of the executive officers of the
Company and for the Designees:
Mr. Yifan He serves as our President and Chief Executive Officer, and is
also a Director Designee. Mr. He established the original yifan.com web-site in
1997 while studying computer science at the State University of New York at
Stonybrook. For the last three years, Mr. He has been responsible for daily
management, operations, strategy development, technical design, product
development and quality assurance. Mr. He has managed the growth of the Company
from a sole proprietorship through the formation of an LLC, a reorganization of
the LLC into Yifan, Inc. and the subsequent combination of Yifan, Inc. with the
Company. During this development period, Mr. He supervised the expansion of the
Company's staff to over 30 consultants and employees, including a total of 7
PhDs. In addition to daily management responsibilities, Mr. He is primarily
responsible for administration of the Company, including hiring of personnel.
Mr. He's education also includes a Major in International Business with a Minor
in Computer Science from Northwestern Polytechnic University in Xi'an, China.
Mr. He was born in Xi'an, China, and has been a U.S. resident since 1996.
Mr. Michael Yung serves as our Treasurer and Chief Financial Officer, and
is also a Director Designee. Mr. Yung is responsible for overall financial
management of the Company, raising market awareness and developing the Company's
business. In addition to his duties as an officer of the Company, Mr. Yung is
employed full-time as Senior Vice President, Asian Markets for PaineWebber Inc.,
a position he has held since 197. Mr. Yung's duties at Paine Webber include
developing Asian markets in the United States and overseas for that Company.
Before joining PaineWebber, Mr. Yung held a similar position with Citigroup as
Vice President, Asia Development. Prior to Citigroup, Michael held positions in
sales and marketing, including two years as Vice President, International
Marketing, with Highfu International, a producer and marketer of police
equipment, where he was in charge of developing and marketing new products. Mr.
Yung holds investment licenses Series 7, 24 and 63, and is a graduate of The New
York Institute of Technology, where he earned a Bachelor of Science Degree in
Marketing. Mr. Yung was born in Taipei, Taiwan and relocated to the U.S. as a
teenager in 1977.
Mr. Jeffery Wu is part-time consultant to the Company and a Director
Designee. As Chief Executive Officer of Hong Kong Supermarket, the largest
Chinese specialty supermarket in the Northeastern U.S., Mr. Wu manages a
business that achieved over $100 million in sales in 1999. Mr. Wu was founder
(1979) and also serves as President of Moo Chung Loong (MCL) Trading, Inc., a
$50 million wholesale food distributor that services Hong Kong Supermarket and
other retail grocery outlets, and is currently the largest Asian food
distributor in the Northeast. MCL has recently expanded to San Francisco and
Houston. Mr. Wu is also actively involved in real estate investments and has
expanded his holdings from 3 thousand square feet in 1985 to over 2 million
square feet.
Mr. Ahn Tran is part-time consultant to the Company and a Director
Designee. Mr. Tran, has been president of Hong Kong Supermarket since 1994 and
is responsible for the daily operations of six supermarkets averaging nearly $20
million in annual revenue each, with plans for expansion of an additional two
stores in year 2000. Mr. Tran is also a principal stockholder of MCL Trading.
Mr. Tran brings additional key strategic and partnership expertise to the
Company. Mr. Tran relocated to the U.S. 1980 with his family and has quickly
adapted to the entrepreneurial environment.
Ms. Sally A. Fonner serves as our Secretary and has been the sole member
of the Company's Board since March 30, 2000. For most of the last 15 years, Ms.
Fonner has worked as an independently employed business consultant. She
graduated from Stephens University in 1969 with a Bachelor of Arts Degree in
Social Systems. After a stint in the private sector, Ms. Fonner returned to
further her education and obtained her MBA Degree from the Executive Program of
the University of Illinois in 1979. For the past five years Ms. Fonner has been
engaged in the business of restructuring public companies and arranging business
combination transactions. In addition to her work on behalf of the Company, Ms.
Fonner has previously served as the sole director of and arranged business
combinations for a total of four other inactive public companies:
Telemetrix, Inc. (TLXT), formerly Arnox Corporation.
eNote.com, Inc. (ENOT), formerly Webcor Electronics, Inc.
Dupont Direct Financial Holdings, Inc. (DIRX) formerly Marci International
Imports, Inc.
Liberty Group Holdings, Inc. (LGHI), formerly Bio Response, Inc.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On April 5, 1999, the Company acquired Yifan in a transaction whereby the
stockholders of Yifan exchanged all of their Yifan stock for the right to
receive 11,755,688 shares of New Common on the effective date of the Amendment
(or approximately 92% of the pro forma capitalization of the Company on that
date), and Yifan became a wholly-owned subsidiary of the Company. Under the
terms of the Agreement, the former officers and directors of Yifan acquired the
contractual right to designate four individuals for appointment to the Board.
These persons will become the beneficial owners of approximately 71% of the
Company's outstanding New Common on the effective date of the Amendment. Prior
to the Yifan Transaction, none of the Yifan shareholders were directors,
officers or shareholders of the Company and there was no direct or indirect
relationship between the Company and Yifan.
In connection with the Yifan Transaction, the Company agreed to issue
176,335 shares of New Common to certain finders who assisted in the negotiation
of the Yifan transaction and Capston agreed to transfer an additional 88,168
shares of New Common to these finders.
In connection with the Yifan Transaction, Capston notified Tobem that it
intended to exercise its right to purchase 11,000,000 shares of Old Common from
Tobem for a total of $55,000 in cash. As a result of this transaction, Capston
is the beneficial owner of 14,500,000 shares of Old Common at the date of this
Information Statement and will be the beneficial owner of 362,500 shares of New
Common on the effective date of the Amendment. Capston has advised the Company
it intends to transfer 88,168 shares of New Common to the finders who assisted
in the negotiation of the Yifan transaction. Capston has also advised the
Company it intends to transfer 205,449 shares of New Common to certain employees
and consultants who assisted Capston in connection with the management of the
Company and the restructuring of the Company's affairs prior to the Yifan
Transaction. The remaining 68,833 shares of New Common will be retained by
Capston for its own account.
In connection with the Agreement, Yifan paid $350,000 in cash to Capston
as a merger and acquisition fee. A collateral agreement between Capston and
Yifan requires Capston to refund its' $350,000 merger and acquisition fee in the
event that the New Common (i) is traded on the Nasdaq Stock Market or a national
securities exchange on the first anniversary of the Agreement, and (ii) trades
at or above $10 per share for at least 45 consecutive trading days during such
period. To secure its obligations under this Agreement, Capston has agreed to
place 35,000 shares of New Common in escrow with a bank selected by the Company.
The Company rents approximately 1,000 square feet of office space in
Flushing New York from Mr. Jeffery Wu, a Director Designee. The rental agreement
is on a month to month basis and requires the Company to pay $1,500 per month in
rent, commencing September 1, 2000. The Company believes the terms of the rental
agreement are not less favorable than terms determined by arms-length
negotiation between unrelated parties.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The following persons, who were directors, officers, or beneficial owners
of more than 10% of the Old Common have failed to file on a timely basis reports
required by Section 16(a) of the Exchange Act: Ms. Fonner did not timely file a
Form 3 when she was elected a Director on March 30, 2000, but intends to file a
Form 3 reporting her status as a Director as well as the securities that she
beneficially owned as of the filing date within 5 days. Tobem did not timely
file a Form 3 when it purchased 15,000,000 shares of Old Common on March 30,
2000, but intends to file a Form 3 reporting its status as a 10% beneficial
owner as well as the securities that it beneficially owned as of the filing date
within 5 days.
CERTAIN INFORMATION ABOUT THE BOARD OF DIRECTORS
The Company has no standing audit, nominating or compensation committees
of the Board, or committees performing similar functions. During the fiscal year
ended March 31, 1999, the Board held one meeting, which was attended by the sole
director.
EXECUTIVE COMPENSATION
Yifan He established the yifan.com web-site in 1997 and has been the
principal executive officer of Yifan and its predecessors since that date.
During the periods ended December 31, 1997, 1998 and 1999, Mr. He received total
compensation of $50,000, $60,000 and $80,000 respectively.
The Company has recently entered into a three-year employment agreement
with Mr. He who will be entitled to receive an annual salary of $80,000
commencing on the date of the Agreement. Mr. He's salary will increase to
$100,000 during the second year of the agreement and to $120,000 during the
third year. In addition, Mr. He will be entitled to receive certain performance
bonuses, annual incentive bonuses and annual cost of living increases, at the
discretion of the Board of Directors, plus any fringe benefits offered generally
to all the Company's employees, and reimbursement for expenses incurred for the
benefit of the Company. Under the terms of his Employment Agreement, Mr. He is
required to devote substantially all of his business time to the affairs of the
Company.
Ms. Fonner served as the sole officer of the Company during the period
from March 30, 2000 through July 30, 2000. She received no cash compensation
from the Company for such services. Notwithstanding the foregoing, Capston was
granted the right to purchase up to 12,000,000 shares of Old Common from Tobem
at a price of $.005 per share and subsequently exercised its right with respect
to 11,000,000 shares. In addition, Capston received a $350,000 merger and
acquisition fee from Yifan in connection with the execution of the Agreement.
This merger and acquisition fee is fully refundable under circumstances
described elsewhere herein.
Ms. Fonner has agreed to remain a member of the Company's Board and work
as the Company's Secretary and Director of Regulatory Affairs for a one-year
term commencing on the date of the Agreement. In this capacity, Ms. Fonner will
manage, operate and maintain all required internal accounting and external
financial reporting systems on behalf of the Company until such operations have
expanded to a point where it is economically feasible for the Company to retain
its own in-house accounting and financial reporting staff. Ms. Fonner will also
manage the preparation and filing of all required reports and registration
statements with the Commission, the NASD and other regulatory authorities, and
manage all of the Company's relationships with its transfer agents, financial
printers, public relations firms and investor communications firms. Under the
terms of her employment agreement, Ms. Fonner is obligated to pay all expenses
associated with the operation and maintenance of her office, including the cost
of any required support staff, and the Company will have no obligation to make
any contribution to such costs. Ms. Fonner's sole compensation will be 180,000
shares of New Common that will be issued to her on the effective date of the
Amendment. Under the terms of her Employment Agreement, Ms. Fonner is required
to devote such time to the affairs of the Company as may be reasonably required
under the circumstances.
The other executive officers of the Company serve without regular
compensation but may, from time to time, be entitled to receive performance
bonuses and incentive bonuses at the discretion of the Board of Directors. All
of the Company's employment agreements prohibit direct competition with the
Company during their term, and for a period of two years after termination.
Except as set forth above, the Company's executive officers are required to
devote such time to the affairs of the Company as may be reasonably required
under the circumstances. Notwithstanding the foregoing, each of the Company's
officers has retained the right to pursue other business interests to the extent
that such interests are not competitive with the Company and do not adversely
affect their performance as officers. Accordingly, the Company may not have a
first right to exploit all opportunities that may come to the attention of its
officers.
Pension and Long-Term Incentive Plans
The Company did not have a pension plan in the year ended December 31,
1999. No stock options or long-term incentive awards were issued to any
executive officer or director by the Company in the year ended December 31,
1999.
Incentive stock plan
In connection with the approval of the Amendment, Tobem and Capston
consented to the creation of an Incentive Stock Plan (the "Incentive Stock
Plan") for the benefit of the future employees of the Company. Capston, Ms.
Fonner and their employees, agents and affiliates will not be eligible for
incentive awards under the Incentive Stock Plan. The following material provides
a summary description of such plan.
The Incentive Stock Plan provides for the grant of (i) non-qualified stock
options, (ii) incentive stock options, (iii) shares of restricted stock, (iv)
shares of phantom stock and (v) stock bonuses (collectively, "Incentive
Awards'). In addition, the Incentive Stock Plan permits the grant of cash
bonuses payable when a participant is required to recognize income for federal
income tax purposes in connection with the vesting of shares of restricted stock
or the grant of a stock bonus. Full-time employees of the Company and its
subsidiaries, including officers and employee directors, will be eligible to
participate in the Incentive Stock Plan.
The Incentive Stock Plan will be administered by a Compensation Committee
of the Board of Directors (the "Committee"), which will consist of two or more
directors, each of whom shall be a "disinterested person" within the meaning of
Rule 16b-3(c)(2)promulgated under Section 16 of the Exchange Act. The Committee
will determine which employees receive grants of Incentive Awards, the type of
Incentive Awards and bonuses granted and the number of shares subject to each
Incentive Award. The Incentive Stock Plan does not prescribe any specific
factors to be considered by the Committee in determining who is to receive
Incentive Awards and the amount of such awards. The Incentive Stock Plan will
permit the grant of incentive equity awards covering up to 1,500,000 shares of
New Common.
The Company believes its Incentive Stock Plan will allow the Company to
emphasize equity-based compensation in structuring compensation packages for its
employees. The Company also believes that an emphasis on equity-based
compensation will yield the greatest benefit for the shareholders, as the
employee's compensation will be directly dependent on the return on
shareholders' investments.
The class of persons who will be eligible to receive awards under the
Incentive Stock Plan includes full-time employees of the Company and its
subsidiaries, and independent consultants who are not employees but who devote
substantially full-time to the business of the Company. On the date hereof, a
total of 10 employees and 8 consultants are eligible to receive awards under the
Incentive Stock Plan. Beyond the requirement that all participants be full-time
employees of or consultants to the Company and its subsidiaries, the Committee
will have absolute discretion in selecting the persons to whom awards will be
granted and the terms of such awards.
Subject to the terms of the Incentive Stock Plan, the Committee will also
determine the prices, expiration dates and other material features of the
Incentive Awards granted under the Plan. The Committee may, in its absolute
discretion, (i) accelerate the date on which an option granted under the
Incentive Stock Plan becomes exercisable, (ii) accelerate the date on which a
share of restricted stock or phantom stock vests and waive any conditions
imposed by the Committee on the vesting of a share of restricted stock and (iii)
grant Incentive Awards to a participant on the condition that the participant
surrender to the Company for cancellation such other Incentive Awards
(including, without limitation, Incentive Awards with higher exercise prices) as
the Committee specifies.
The Committee will have the authority to interpret and construe any
provision of the Incentive Stock Plan and to adopt such rules and regulations
for administering the Incentive Stock Plan as it deems necessary. All decisions
and determinations of the Committee are final and binding on all parties. The
Company will indemnify each member of the Committee against any cost, expenses
or liability arising out of any action, omission or determination relating to
the Incentive Stock Plan, unless such action, omission or determination was
taken or made in bad faith and without reasonable belief that it was in the best
interest of the Company.
The Board may at any time amend the Incentive Stock Plan in any respect;
provided, that without the approval of the Company's shareholders, no amendment
may (i) increase the number of shares of Common Stock that may be issued under
the Incentive Stock Plan, (ii) materially increase the benefits accruing to
individuals holding Incentive Awards, or (iii) materially modify the
requirements as to eligibility for participation in the Incentive Stock Plan. A
summary of the most significant features of the Incentive Awards and the tax
consequences to recipients thereof follows.
Non-Qualified and Incentive Stock Options. The exercise price of each
incentive stock option ("ISO") granted under the Incentive Stock Plan is the
fair market value (as defined) of a share of Common Stock of the Company on the
date on which such ISO is granted. The exercise price of each non-qualified
stock option("NQO") granted under the Incentive Stock Plan will be determined by
the Committee. NQOs and ISOs are referred to herein as `Options." Except in
certain limited cases regarding grants of ISOs, each ISO and NQO is exercisable
for a period not to exceed ten years. For each Option, the Committee will
establish (i) the term of each Option and (ii) the time or period of time in
which the Option will vest. The exercise price shall be paid in cash or, subject
to the approval of the Committee, in shares of Common Stock valued at their fair
market value on the date of exercise.
Except in the event of the death or disability (as defined) of an optionee
or the termination of the employment of an optionee for cause (as defined),
Options are exercisable only while an optionee is employed by the Company or
within one month after such employment has terminated to the extent that such
Options were exercisable on the last day of employment. In the event of the
death or disability of an optionee, Options are exercisable within one year
after such death or disability to the extent that such Options were exercisable
on the last day of employment. In the event of the termination of the employment
of an optionee for cause, all Options held by such optionee terminate
immediately. Options are not transferable other than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations order.
Upon a change in control of the Company (a "Change in Control"), all
Options become immediately exercisable. The Incentive Stock Plan defines Change
in Control to mean (i) a "change in control" as that term is defined in the
federal securities laws, (ii) the acquisition by any person, after the effective
date of the Incentive Stock Plan, of 20% or more of the shares of voting
securities of the Company, (iii) certain changes in the composition of the Board
as a result of a contested election for positions on the Board or (iv) any other
event which the Committee determines to constitute a change in control of the
Company.
An optionee will not recognize any income for federal tax purposes at the
time an NQO is granted, nor will the Company be entitled to a deduction at that
time. However, when any part of an NQO is exercised, the optionee will recognize
ordinary income in an amount equal to the difference between the exercise price
of the NQO and the fair market value of the shares received, and the Company
will recognize a tax deduction in the same amount.
A participant will not recognize any income at the time an ISO is granted,
nor upon a qualified exercise of an ISO. If a participant does not dispose of
the shares acquired by exercise of an ISO within two years after the grant of
the ISO and one year after the exercise of the ISO, the exercise is qualified
and the gain or loss (if any) on a subsequent sale will be a long-term capital
gain or loss. Such gain or loss is the sum of the sales proceeds less the
exercise price for the stock sold. The Company is not entitled to a tax
deduction as the result of the grant or qualified exercise of an ISO.
Restricted Stock. A grant of shares of restricted stock represents the
promise of the Company to issue shares of Common Stock of the Company on a
predetermined date (the "Issue Date") to a participant, provided the participant
is continuously employed by the Company until the Issue Date. Vesting of the
shares occurs on a second predetermined date (the "Vesting Date") if the
participant has been continuously employed by the Company until that date. Prior
to the Vesting Date, the shares are not transferable by the participant and are
subject to a substantial risk of forfeiture. The Committee may, at the time
shares of restricted stock are granted, impose additional conditions to the
vesting of the shares, such as, for example, the achievement of specified
performance goals. Vesting of some portion, or all, of the shares of restricted
stock may occur upon the termination of the employment of a participant other
than for cause, prior to the Vesting Date. If vesting does not occur, shares of
restricted stock are forfeited. Upon the occurrence of a Change in Control, all
shares of restricted stock which have not vested or been forfeited will vest
automatically.
A participant will not recognize any income for federal tax purposes at
the time shares of restricted stock are granted or issued, nor will the Company
be entitled to a tax deduction at that time. However, when either the transfer
restriction or the forfeiture risk lapses, such as upon vesting, the participant
will recognize ordinary income in an amount equal to the fair market value of
the shares of restricted stock on the date on which they vest. If, however, a
participant files an appropriate election under Section 83 (b) of the Internal
Revenue Code of 1986 with the IRS within 30 days of the Issue Date of the
restricted stock, the participant will be deemed to have received ordinary
income in an amount equal to the fair market value of the shares of restricted
stock on the date on which they are issued (the `Election'). Gain or loss (if
any) from a disposition of restricted stock after the participant recognizes any
ordinary income (whether by vesting or an Election) will generally constitute
short- or long-term capital gain or loss. The Company will be entitled to a tax
deduction at the time the participant recognizes ordinary income on the
restricted stock, whether by vesting or an Election.
Phantom Stock. A share of phantom stock represents the right to receive
the economic equivalent of a grant of restricted stock. Shares of phantom stock
are subject to the same vesting requirements as are shares of restricted stock.
Upon vesting of a share of phantom stock, the holder is entitled to receive cash
in an amount equal to the sum of (i) the fair market value of a share of Common
Stock as determined on the vesting date and (ii) the aggregate amount of cash
dividends paid in respect of a share of Common Stock during the period
commencing on the date of grant, and ending on the vesting date. The cash
payment for phantom stock is treated the same as a cash bonus for federal income
tax purposes and creates a deduction to the Company when paid. In addition, the
value of a share of phantom stock (whether or not vested) is paid immediately
upon the occurrence of a Change in Control of the Company. The Committee may not
grant any cash bonus in connection with the grant of shares of phantom stock.
Stock and Cash Bonuses. Bonuses payable in stock may be granted by the
Committee and may be payable at such times and subject to such conditions as the
Committee determines. Upon the receipt of a stock bonus, a participant will
recognize ordinary income for federal tax purposes in an amount equal to the
fair market value of the stock at the time it is received. The Committee may
grant, in connection with a grant of shares of restricted stock, a cash "tax'
bonus, payable when an employee is required to recognize income for federal
income tax purposes with respect to such shares. The tax bonus may not be
greater than the value of the shares of restricted stock at the time the income
is required to be recognized. Any such bonus will result in ordinary income to
the employee and a deduction to the Company. The grant of a cash bonus shall not
reduce the number of shares of Common Stock with respect to which Options,
shares of restricted stock, shares of phantom stock or stock bonuses may be
granted pursuant to the Incentive Stock Plan.
In General. If any outstanding Option expires, terminates or is canceled
for any reason, the shares of Common Stock subject to the unexercised portion of
such Option shall again be available for grants under the Incentive Stock Plan.
If any shares of restricted stock or phantom stock, or any shares of Common
Stock granted as a stock bonus are forfeited or canceled for any reason, such
shares shall again be available for grants under the Incentive Stock Plan.
Shares of Common Stock issued as a stock bonus or on the exercise of options or
on the vesting of a grant of restricted stock are not available for future
issuance under the Incentive Stock Plan.
The Incentive Stock Plan provides for an adjustment in the number of
shares of Common Stock available to be issued under the Incentive Stock Plan,
the number of shares subject to Incentive Awards, and the exercise prices of
Options upon a change in the capitalization of the Company, a stock dividend or
spat, a merger or combination of shares and certain other similar events. The
Incentive Stock Plan also provides for the termination of Incentive Awards upon
the occurrence of certain corporate events.
The Incentive Stock Plan provides that participants may elect to satisfy
certain federal income tax withholding requirements by remitting cash to the
Company. In addition, the Incentive Stock Plan provides that, at the election of
a participant, an unrelated broker-dealer acting on behalf of the participant
may exercise Options granted to the participant and immediately sell the shares
acquired on account of the exercise to raise funds to pay the exercise price of
the Option and the amount of any withholding tax which may be due on account of
the exercise.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Company has duly caused this statement to be signed on its behalf by the
undersigned, thereunto duly authorized this 2nd day of August, 2000.
Yifan Communications, Inc.
By: /s/ Sally Fonner
-------------------------------
Sally A. Fonner, Sole Director
